Ontario Consultation:…

Ontario Consultation: Industrial Emission Performance Standards (“EPS”)

Enbridge Inc. (“Enbridge” or the “Company”) is North America's premier energy infrastructure company with strategic business platforms that include an extensive network of crude oil, liquids and natural gas pipelines, regulated natural gas distribution utilities and renewable power generation. The Company safely delivers an average of 2.9 million barrels of crude oil each day through its Mainline and Express Pipeline; accounts for approximately 62% of U.S.-bound Canadian crude oil exports; and moves approximately 18% of all natural gas consumed in the U.S., serving key supply basins and demand markets. The Company's regulated utility, Enbridge Gas serves approximately 3.7 million retail customers in Ontario, Quebec, and New Brunswick. Enbridge also has interests in more than 1,700 MW of net renewable generating capacity in North America and Europe.

We are pleased to provide our initial comments on the proposed Industrial Emission Performance Standards (“EPS”). Enbridge supports the government’s intent to implement the EPS as an alternative to the federal Output-Based Pricing System (“OBPS”). As a large natural gas distributor in Ontario, we would like to be involved in further discussions on the interplay between the federal fuel charge and the EPS. It is important to Enbridge as well as the 200-plus EPS participants that are our customers that the transition from the federal OBPS to the Ontario EPS goes smoothly. We would also caution of the need to allow sufficient time for substantive stakeholder consultation given the scope and complexity of this transition.

Q1. How can the EPS be designed to optimize GHG emission reductions while minimizing carbon leakage?

Enbridge believes the EPS can achieve greenhouse gas (GHG) emission reductions while minimizing carbon leakage and addressing competitiveness concerns of Ontario industries. This can be done by developing fair emission performance standards that are based on metrics that make sense to Ontario industries, and through ensuring flexible methods of complying with obligations under the EPS.

Q2. What compliance options should industrial facilities have under the program (e.g. use of compliance units for payments for excess emissions that go into a fund that could be used to support greenhouse gas emissions projects in industry, voluntary emission reductions or removals or overachieving the EPS, other)?

Enbridge is supportive of the compliance options that have been included in the OBPS, namely:
• Remittance of surplus emission credits (banked from previous years or purchased from other participants)
• Remittance of offset credits
• Payment of excess emissions charge

This suite of options provides flexibility to industrial facilities to meet their compliance obligation through market or non-market solutions, and encourages reductions outside of the EPS. However, in order to mitigate complexity, we encourage the provincial government to work with federal counterparts to develop consistent and non-duplicative mechanisms for compliance with consideration for interplay with incremental requirements such as the proposed Clean Fuel Standard (CFS). Enbridge notes that under the OBPS a limit of 75% on the use of compliance units has been proposed starting in 2021. Enbridge recommends removing such a limit as it restricts the compliance flexibility provided to industrial participants.

Enbridge suggests the work done by the Ontario Ministry of Environment, Conservation and Parks (MECP) to develop offset protocols under previous programs should be revisited and included under the compliance options for EPS. Offsets should be expected to trade at a value less than the excess emissions charge, leading to lower compliance costs for industrial facilities. Offsets also produce real GHG emission reductions in sectors outside of the EPS, and may stimulate those sectors to produce GHG emission reductions that would not otherwise have occurred without the inflow of revenue from the sale of offsets. This in turn will provide a meaningful contribution to the province meeting its GHG emission reduction objectives as well as spur local innovation and job creation. Again, we encourage the Ontario government to work with federal counterparts to develop potential for interprovincial offset generation and trading.

Providing the option for industrial facilities to pay an excess emissions charge is important to ensure participants have flexibility in compliance, particularly if there are any shortages in credit availability. Enbridge suggests that a majority if not all revenue collected through these payments should be recycled into GHG emission reduction projects that benefit the industrial sector. This could include demand side management (DSM) programs to reduce industrial energy use, and investment to support technology such as combined heat and power (CHP) and power to gas.

Q3. If facilities receive compliance units for GHG emission reductions beyond the standard for the facility, should they be eligible to trade or bank them indefinitely?

Under the federal OBPS, facilities receiving compliance units by performing beyond the standard for the facility are able to either trade or bank these units. However, units not remitted to the government within five years expire. While Enbridge supports the banking and trading of compliance units – credits should not expire. This adds unnecessary burden to covered facilities to track the expiration dates of credits. Additionally, without ample experience of an extended program in the province, this may create unintended market consequences.

Finally, provisions for credits issued in error should be considered and similar criteria should be laid out in writing as to the process for correcting for errors including minimum threshold and timeline requirement for reporting errors found as well as reverification requirements.

Q4. Which industrial facilities should be covered by the program (e.g. industrial facilities with GHG emissions greater than 10,000 or 25,000 or 50,000 tonnes CO2e per year)?

Enbridge believes the threshold for coverage in the EPS should be 25,000 tonnes of carbon dioxide equivalent (tCO2e) per year, with the ability for facilities with annual emissions between 10,000 to 25,000 tCO2e to voluntarily opt-in to the program. Using a threshold of 25,000 tCO2e instead of the 50,000 tCO2e used in the federal OBPS will capture a larger group of industrial facilities, providing them with relief from the federal carbon charge on fuel purchases. Allowing opt-in at the 10,000 tCO2e per year level also provides the ability for facilities to perform their own analysis of the potential costs (such as costs to quantify and verify emissions) versus the potential benefits to determine if inclusion in the program is beneficial.

It should also be noted that the federal OBPS’s definition of facility includes a contiguous provision which is not consistent with how natural gas transmission pipeline companies have reported GHG emissions in the past. This adds administrative burden since some sites that are above the GHG emissions threshold but not contiguous must be reported separately even if owned by the same company. We recommend that the definition of facility include all transmission sites located in the province owned by a single company.

Regarding the scope of the sectoral coverage in the program, Enbridge supports expanding the sectors covered to include institutions, greenhouse operators and thermal energy supply. Enbridge notes however that these sectors should be introduced starting in 2020 to ensure they do not face both the federal carbon charge on their fuel use starting April 1, 2019 and costs related to EPS compliance for 2019. Furthermore, it is suggested that there should be a clearly articulated deadline for companies who wish to opt-in to the EPS program. The inclusion of a deadline for those companies that wish to voluntarily participate reduces the administrative burden on fuel distributors.

Q5. Should Ontario harmonize with the federal reporting under the federal Production Order (which sets out reporting and verification requirements) and the federal OBPS (output based pricing system) (e.g., methods, threshold, and verification)?

Enbridge is generally supportive of the harmonization of quantification and verification requirements between the federal OBPS and Ontario EPS, as well as with reporting under Ontario Regulation 390/18 (O.Reg. 390/18) and the federal Greenhouse Gas Reporting Program (“GHGRP”). This reduces the reporting burden on facilities that currently may be required to calculate their GHG emissions following multiple different methodologies. As such, Enbridge supports the harmonization of the Ontario and federal general stationary combustion emissions calculation methodologies.

Enbridge also notes that the requirements for verification in O. Reg. 390/18 appears more robust than what has been put forward in the federal “Regulatory Proposal for the Output-Based Pricing System Regulations under the Greenhouse Gas Pollution Pricing Act”, and suggests that Ontario should closely compare verification requirements in both regulations. As an example, the requirements in Ontario include the ability for verifiers to provide a “qualified positive” verification statement, which is not included in the federal OBPS. Furthermore, Enbridge recommends that the current verification requirements of O. Reg. 390/18 support the EPS program, as opposed to regulatory duplication requiring separate verification under both the Ontario GHG reporting program and the Ontario EPS program.

Regarding timing of the annual submission of GHG reports and verification reports, Enbridge suggests that the dates listed in O. Reg. 390/18 should be maintained for the proposed EPS. The federal OBPS requires both reporting and verification to be completed by June 1 of each year, however this is burdensome due to the increasing volumes of environmental reports. Additionally, an earlier verification date could lead to resource issues with respect to availability of qualified verifiers.

Q6. Should different stringency factors apply to fixed process and non-fixed process emissions?

Enbridge supports different stringency factors for fixed process and non-fixed process emissions. We believe this consideration builds in flexibility for emissions intensive and trade exposed industries while allowing companies time to transition where possible.

Additional Comments
In addition to the above responses to the questions posed by MECP, Enbridge also offers the following comments that are specific to the inclusion of the natural gas transmission pipeline sector in the EPS. It is important that the natural gas transmission pipelines sector be included in consultations, to ensure that the applicable metrics and resulting information gathering and reporting is reasonable and does not add unnecessary regulatory burden.

Enbridge supports the alignment of the EPS and OBPS programs, however it should be noted that the facility definition for natural gas transmission pipeline system is currently being revisited by ECCC, in consultation with industry. The revised facility definition under OBPS will continue to exclude distribution operations.

As MECP plans to have the Ontario EPS apply retroactively to emissions as of January 1, 2019, it is recommended that the natural gas transmission pipeline system production metric developed for the federal OBPS by ECCC, in consultation with industry, be utilized for the Ontario EPS program. This will not only align the Ontario EPS with the federal OBPS, but more importantly, industry is already collecting the data necessary to calculate this production metric. Under the federal OBPS, the production metric for natural gas transmission pipeline systems is Megawatt Hour (MWh; based on compressor output, runtime hours and a capacity factor to account for variability in operations), resulting in an emissions intensity metric of GHG emissions (tCO2e) / Megawatt Hours (MWh). Enbridge recommends that for the natural gas transmission pipeline sector a facility specific emissions intensity approach be applied, as opposed to the national sector average emissions intensity approach that was applied under the federal OBPS. As Ontario has only two facilities within the natural gas transmission pipelines sector, this recommendation aligns with the MECP’s statement that, the facility specific emission intensity “will be the preferred approach where feasible, especially when a sector contains two or less facilities” (See footnote 1 below).

Furthermore, Enbridge recommends that for the natural gas transmission pipelines sector, the emissions intensity metric align with the federal OBPS metric and not include venting or fugitive emissions. The MECP’s “Making Polluters Accountable: Industrial Emissions Performance Standards,” (see footnote 2 below) indicates that the Ontario EPS will cover both fixed and non-fixed process emissions, including combustion, fugitive and on-site mobile sources of emissions. O. Reg. 390/18 does not require the natural gas transmission pipeline sector to verify fugitive emissions reported under ON.350: Operation of Equipment Related to Natural Gas – these emissions should continue to be reportable only. Additionally, under the Federal OBPS, fugitive methane emissions will not be included in the calculation of the emissions intensity for the natural gas transmission pipelines sector, as fugitive emissions are already being regulated via the Federal “Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector).” The inclusion of fugitive emissions within the emissions intensity metric would significantly increase the regulatory burden for the natural gas transmission pipelines sector.

With regards to the Electricity Generation EPS, further clarity is required as to whether this performance standard is specific to facilities that generate electricity as their primary activity or if it applies to any facility that generates electricity for on-site usage, in addition to their primary industrial activity.

If you have any questions or require additional information please do not hesitate to contact Brad Lattanzi, Government Affairs Strategist (brad.lattanzi@enbridge.com).

Footnotes
1. "Making Polluters Accountable: Industrial Emission Performance Standards." Environmental Registry of Ontario. Accessed February 2019. https://ero.ontario.ca/notice/013-4551.
2. Ibid.