Amendments to Transition…

Amendments to Transition Ontario Industrial Facilities from the federal Output-Based Pricing System to Ontario’s Emissions Performance Standards Program
ERO 019-2813 Comments

Maple Leaf Foods Inc. (‘Maple Leaf’) is a leading consumer packaged food company and the first major food company in the world to be carbon neutral. As a leading North American producer of meat and plant proteins, Maple Leaf's path to carbon neutrality is predicated on aggressively reducing emissions by meeting the gold standard of widely respected Science Based Targets, which align global greenhouse gas emission reductions with the goals of the Paris Agreement on Climate Change. In doing so, Maple Leaf is one of just three animal protein companies in the world to set Science Based Targets, approved by the international Science Based Target Initiative. By committing to setting Science Based Targets, Maple Leaf will work even more aggressively to reduce greenhouse gas emissions across its operations and more broadly within its supply chain.

Maple Leaf’s Heritage facility, located in Hannon Ontario, is currently exposed to the federal fuel charge, and is facing significant competitiveness and carbon leakage risk as it is currently not able to participate in the OBPS and EPS programs. Maple Leaf is providing the following comments on the proposed EPS regulatory amendments and to bring the Heritage facility and it sector classified by NAICS code 311614- Rendering and Meat Processing from Carcasses to the attention of the MECP for approval into the EPS program.

Proposal: Amending provisions related to the start date of compliance obligations (for facilities that register in 2021 or later)

The MECP is proposing for a compliance start date of January 1, 2021 for the facilities that are covered in the OBPS and registered in the EPS. For the facilities that register in both the OBPS and EPS after December 31, 2020, the MECP is proposing to align the EPS compliance start date with the exemption from the federal fuel charge to avoid double charging. The MECP is proposing to require registration in only the EPS program starting in 2022.

Comment: Consideration for special transitional provisions for 2021 to allow for a January 1 start date for a facilities

The MECP should remove the requirement to register in the OBPS for participation in the EPS starting in 2021. The requirement to be registered in the federal OBPS in order to be eligible in the EPS in 2021, prevents facilities who are not able to participate in the federal OBPS from being covered under the EPS program for the first compliance period (2021).

Additionally, for the 2021 compliance period, the MECP should allow a retroactive start date of January 1, 2021 for all facilities, not just those currently registered. This type of retroactive provision would acknowledge the transitional year between the programs. The MECP should consider this type of special transitional provision to provide relief and fair treatment to facilities not registered in the OBPS but are seeking to be covered under the EPS.

Given the late notice of the approval of the EPS by the federal government and the continued uncertainty of the start date of the program, it would be important to allow facilities to register in 2021 and be covered from the beginning of the compliance period. To address any potential double charging for this approach, the fuel charge exemption could align with the EPS start date for 2021 and facilities would be eligible for a rebate on the fuel charge paid to date.

This is an approach taken in the Alberta Technology Innovation and Emissions Reduction (TIER) program, which allows voluntary participants to register until September of the same compliance period, with a retroactive start date of January 1. This type of approach and transitional provision provides fair treatment and opportunities for facilities that are not able to register in the OBPS and EPS at this time.

Additionally, this approach would give facilities time to work with the MECP to provide data demonstrating their competitiveness and carbon leakage risk, while still having the opportunity to participate from the start date of the EPS.

Proposed Amendment: Aligning scope of the EPS to match the federal OBPS

The MECP is proposing to amend Item 39 of Schedule 2 of the EPS Regulation to align with the sectors covered under the federal OBPS.

Comment: Including additional sectors beyond the scope of the OBPS

Maple Leaf requests the MECP to assess additional sectors beyond the scope of the OBPS for voluntary participation in the EPS. Specifically, Maple Leaf requests for the MECP to consider its sector 311614 – Rendering and Meat Processing from Carcasses for participation in the EPS, which faces competitiveness and carbon leakage risk as a result of the fuel charge. Maple Leaf requests the MECP to allow for facilities that face competitiveness and carbon leakage risk to provide credible data demonstrating these risks and allow for this data to be considered sufficient for acceptance into the EPS.

Although the MECP is not in the position to consider additional sectors at this time, it is important for the MECP to be aware of the Ontario facilities with annual emissions above 10,000 tCO2e that are fully exposed to the federal fuel charge, face significant risk competitiveness and carbon leakage, and are not able to register in the OBPS. This is due to the EITE assessments for OBPS participation solely relying on incomplete public data and therefore grossly misrepresenting the risks that facilities like Heritage and its sector 311614 face. Another challenge for demonstrating competitiveness and carbon leakage risk in the OBPS is the reliance on public sector data and the NAICS code approach to determine participation eligibility.

For the future consideration of adding new sectors under the EPS, facility level data should be accepted to supplement any public data gaps as it best represents the facilities and their risk of competitiveness and carbon leakage. Additionally, it is often not feasible for a facility to provide data for its entire sector. The second challenge with the sector approach to categorize additional industrial activities is the use of NAICS codes. The NAICS codes are broad and self-prescribed and facilities within the same NAICS codes carry out different activities and can have significant differences between emissions and trade data. Therefore, if a sector has at least one facility that meets competitiveness or carbon leakage risks, the entire sector should be approved under the EPS.

Therefore, Maple Leaf strongly urges the MECP to begin considering a route for including additional sectors in the program for when it receives approval from the federal government. As this transition is occurring, Ontario facilities like Heritage are continuing to incur significant carbon costs with continued uncertainty for potential future EPS voluntary participation options.

Maple Leaf is requesting an opportunity to work with the MECP to demonstrate the eligibility of its Heritage facility and sector to participate in the program to provide relief from the fuel charge and be covered under the EPS. The continued exposure the to the carbon price considering the recent federal government proposal to reach a carbon price of $170/tCO2e in 2030 will lead to significant operating costs for the facility.

Additional Comments

Consideration for the inclusion of offset credits as an eligible compliance instrument

Maple Leaf urges the MECP to consider the inclusion of offset credits as an eligible compliance instrument under the EPS. Compliance flexibility and the ability to access lower cost compliance units is crucial for supporting entities in meeting their compliance obligations in a cost-effective manner. Additionally, in consideration of the federal government’s proposal to increase the annual carbon price by $15/tCO2e post 2022, it will be increasingly important for entities to have compliance flexibility and access to affordable compliance options including a 100% compliance unit (Emission Performance Units and Offset Credits) usage limit.

Maple Leaf is supportive of the development of an offset system to encourage GHG emission reduction from voluntary activities that are covered by the EPS, such as its farming activities. The development of an offset system can provide further incentive and opportunities for activities such as biogas, manure management, regenerative agriculture, and soil sequestration.

For the development of an offset system, Maple Leaf encourages the MECP to streamline and accelerate the creation of eligible offsets for the EPS by adapting existing programs and protocols from existing voluntary and compliance markets There are several offset systems across Canada that the MECP can adapt for the Ontario context. using these as guides will increase efficiency for offset program development. This approach would therefore support a timelier development of offset credits which will allow for the generation of credits to supply the EPS market. Additionally, the MECP should work with the federal government and other provincial systems to encourage the fungibility of credits across different systems.

EPS revenue allocation

Access to funding is crucial to support facilities in making clean technology investments. Maple Leaf encourages the MECP to collect compliance payments under the EPS into an emission reduction fund that industry can access to invest in new reduction technologies.

Some considerations for funding allocation include providing funding on a competitive basis based on quality of projects, not based on total facility emissions size. Due to the range of facilities covered under the EPS, the MECP should consider separate funding streams to ensure that 1-2 larger projects do not receive the majority of funding available (i.e. providing a maximum contribution for projects). Funding should be as least restrictive as possible to allow for facilities to implement awarded projects in a reasonable timeline. Additionally, stacked funding should be allowed and therefore funding for other sources should not determine project eligibility. Access to funding would incentivise emission reduction and energy efficiency projects at the facility level. It will be important for the MECP to provide clarity on funding distribution, eligible projects to help facilitate budgeting and investment decisions.