*Please note that the…

*Please note that the Industrial Gas Users Association has several supporting documents for this submission that could not be uploaded to this comment box due to formatting issues. We spoke with someone inside Mr. Pastori's office and were told to send an email with all of our documentation to the LTEP Team at ltep@ontario.ca and that it would be cross-referenced with the submission in this comment box.

 

December 16, 2016

 

Andrea Pastori

 

Cabinet Liaison and Strategic Policy Coordinator

 

Ministry of Energy

 

Strategic, Network and Agency Policy Division

 

Strategic Policy and Analytics Branch

 

77 Grenville Street

 

Floor 6th

 

Toronto Ontario

 

M7A 2C1

 

Re: Comments on 2017 Long-Term Energy Plan

 

Dear Mr. Pastori:

 

The Industrial Gas Users Association represents many of the largest industrial firms in Ontario. Our association is focused on ensuring our members have access to stable and predictable sources of natural gas for their operations.

 

Attached please find a copy of IGUA’s submission on the 2017 Long-Term Energy Plan for your consideration.  As a voice for large industrial gas users our comments are primarily directed towards the natural gas sector and the efficient use of natural gas infrastructure as the Government begins to decarbonize Ontario’s energy system. IGUA appreciates the opportunity to comment on the 2017 Long-Term Energy Plan and would be pleased to discuss any of the issues raised in our submission further with the Ministry of Energy

 

Sincerely,

 

Shahrzad Rahbar, PhD, ICD.D

 

President

 

Submission on the 2017 Long-Term Energy Plan

 

Introduction

 

The 2017 version of Ontario’s long-term energy plan (LTEP) comes at a crucial time. Over the last 18 months we have seen the emergence of a coordinated international effort to curb global temperature rise, the Paris Accord, which engages both the developed and developing nations in fighting climate change.  We have also seen a new federal government committed to reducing carbon emissions, ready to engage with the international community and willing to introduce a flexible framework domestically that respects provincial leadership on climate change in the past decade and accommodates the different paths and carbon reduction instruments adopted by the provinces.

 

Wrapped within these quickly moving currents has been Ontario’s Climate Change Action Plan that has set the carbon reduction targets for the province and the legislation of a cap and trade regime to provide greenhouse gas emitters with the tools to reduce emissions efficiently. LTEP 2017 must now lay the foundation for transforming Ontario’s energy system for a low carbon future while meeting Ontario’s social and economic development goals.

 

LTEP 2017 should provide a roadmap for reducing the carbon content of the Ontario economy in line with the government’s vision, while keeping Ontario competitive and vibrant so it can continue to nurture, retain and attract talent and grow the economy.

 

Previous provincial energy plans were primarily focused on electricity generation, transmission and distribution, and concentrated on transforming power markets.  Ensuring reliable power supply to Ontario homes and businesses called for sufficient generation capacity and a robust grid to meet peak demand.  Reducing green house gas emissions meant changing the primary energy supply mix of power generation and peak shaving was the key driver for energy efficiency measures.

 

Electricity, however accounts for only one fifth of the energy used in Ontario.  According to the Ontario gas distribution companies, replacing Ontario’s natural gas infrastructure with electricity infrastructure would require adding a stunning 80,000 megawatts of generation capacity, not to mention associated electrical transmission and distribution infrastructure.

 

Decoupling economic growth from carbon emissions in the future mandates that LTEP 2017 examine all energy consumed in the province and offer a road map that enables Ontario to meet its energy demand with the least carbon emissions while maintaining energy affordability and competitiveness.  This adds substantial additional complexity to LTEP 2017. First, because Ontario has no sizeable domestic production of the fuels used in transportation nor of natural gas that provides basic heat to so many of our homes and businesses in addition to fuelling industrial processes essential to our province’s continued prosperity.

 

Fossil fuels, unlike electricity, are imported into the province and Ontario has considerably less control over the supply and price. Second, because most of the greenhouse gas emissions from fossil fuel occurs at the point of use, not production. In the case of natural gas three quarters of the green house gas emissions occur at the point of use while exploration, production, transmission and distribution combined account for only a quarter of the emissions. Third, because the nature of the demand for fossil fuel and the use to which it is put is highly varied; while transportation and space and water heating account for most of the residential and commercial fuel demand, industry uses a range of input fuels for a variety of applications from feedstock, to process fuel, to heat, to back-up fuel.  Finally, because LTEP 2017 needs to overcome the arbitrary silos for “electricity” and “fuels” to find a framework that combines the supply side perspective of electricity with the demand side perspective of fuels into a single energy roadmap for Ontario that decouples economic growth from carbon emissions effectively and efficiently.

 

The IESO’s report Ontario Planning Outlook, released on September 1, 2016 and the Fuels Sector Working Group report the Fuels Technical Report, released on September 30, 2016, provide useful information and valuable building blocks for the long-term plan. LTEP 2017 must combine the two silo reports into a comprehensive analysis of current energy flows in the province, identifying for all stages of the energy supply and utilization path how Ontario’s mix of primary fuels are converted, and how much energy is lost in conversion, in order to meet the provinces final energy demand.

 

LTEP needs to offer a road map for transforming the way energy is produced and used to reduce carbon emissions. For example, maximizing the conversion efficiency of primary fuels by supporting technologies that convert fuel to energy closer to demand. The energy roadmap should also reflect the full life cycle carbon impact of energy options (electricity and fuels) while seeking to avoid the stranding of assets already in place. LTEP 2017 should facilitate an economically efficient transition to a lower carbon future and avoid options that require unnecessary massive new infrastructure builds or equally massive stranding of existing assets.

 

Finally, since the transformation of the energy system will impact all Ontarians and Ontario businesses, public trust in the agencies tasked with overseeing the transformation will be key to the successful implementation of the long-term energy plan.  LTEP 2017 should acknowledge and safeguard the independence of the IESO and Ontario Energy Board, to ensure that Ontarians continue to have faith in the regulatory governance and efficient operation of the energy systems.

 

About IGUA

 

Founded in 1973 the Industrial Gas Users Association (IGUA) represents the interests of large industrial gas users in Ontario and Quebec on natural gas and energy issues. Our membership spans key sectors of Ontario’s economy including mining, steel, pulp and paper, chemicals, refineries and manufacturing. IGUA members operate some of the most energy intensive industrial facilities in Ontario, producing commodities that compete with international suppliers leaving them trade‐exposed.

 

Industry accounts for a third of all energy used in Ontario and for about a third of the natural gas use. Energy intensive heavy industries, like IGUA members, use energy to produce bulk materials and products needed to support the life-style choices of the public.

 

Energy use by heavy industry is directly tied to output production. The energy objective for this sector of the economy should be to reduce the carbon and energy intensity of output product, not to reduce total energy consumption if it means reducing plant output.

 

Recommendations

 

•Differentiate between Decarbonization and De-Industrialization; and Commit to Becoming a World Leader in Low Carbon Heavy Industry

 

Climate change economists agree that even in a low carbon world where temperature rise has been moderated to below 1.5 degrees and where material intensity has been reduced by half, the world will need more conventional commodities (iron, steel, cement, glass, metals, chemicals and forest products) as well as new low carbon bulk commodities (hydrogen, bio fuels, poly-generation of electricity and chemicals and synthetic hydrocarbon gases and liquids). Therefore the world will have a growing need for decarbonized heavy industry.  A copy of the report commissioned by IGUA and authored by Dr. Christopher Bataille titled: The potential to decarbonize Canadian heavy industry: Technological and policy pathways for Canadian energy intense industry to thrive in a low carbon world, and a draft copy of the IGUA summary of Dr. Bataille’s work are attached for reference.

 

Ontario has committed to carbon reduction and set a trajectory for eventual decarbonisation of its economy, but unlike Québec, it has not made it clear that decarbonisation does not also mean de-industrialization.

 

In the absence of a clear signal from the government of Ontario, voices inside and outside of government who equate de-carbonization with de-industrialization dominate the policy discourse and promote a post industrial vision for Ontario that relies solely on service industries for economic prosperity. Existing companies will be hesitant to reinvest in the province and this could lead to a hollowing-out of existing investments.

 

Similarly, new companies pondering investment may not see Ontario as a place to invest. Over time Ontario could lose its industrial base to competing jurisdictions, exporting (not reducing) carbon emissions and foregoing the tax revenue and jobs. Ontario also stands to lose vibrancy in the many communities who rely on heavy industry for employment.

 

LTEP 2017 should build on Ontario’s advantage: a wealth of natural resources, its skilled workforce, its strong education system and competitive corporate tax regime to attract investment from heavy industry to meet its development and economic objectives, including development in the north.

 

LTEP 2017 needs to state that Ontario’s path to carbon reduction is not de-industrialization, recognize Ontario’s key industry sectors and make development of decarbonized heavy industry a provincial priority.

 

•Highlight the Need for a Transition Phase for Energy Intensive Trade Exposed Industry to Decarbonize Operations

 

A key issue for heavy industry is the need for a transition period to decarbonize. The Bataille study identifies that energy efficiency and electrification are necessary but not sufficient for reducing the carbon emissions from heavy industry. This is because many energy-intensive production processes are already near (Best Available Technology) BAT for competitive reasons. For instance, Ontario’s forestry and pulp and paper sectors have reduced reliance on fossil fuel by 75%, using biomass from their own processes instead, in order to reduce operating cost. Similarly, Canada’s petrochemical industry and refineries use natural gas as feedstock when most of the rest of the world uses oil. Ontario’s deep mines have implemented innovations and now extract material at a lower energy and emissions intensity, which has helped them compete with producers in jurisdictions with much lower labour costs.

 

The Bataille study also shows that it is theoretically possible to decarbonize Ontario’s heavy industry through a mix of electrification (carbon-free power), substitution of fossil fuel with bio-mass, synthetic hydrocarbons, or hydrogen, wholly new industrial processes and carbon capture, use and storage.  However, it also highlights that technological solutions are at various stages of development and not commercially available today.

 

Dr. Bataille also highlights the long-lived and uneven nature of investments in heavy industry and observes that the fundamental transformation needed to decarbonize existing industrial facilities in Ontario may require one to two investment cycles. Industry understands the imperative to, and is prepared to, dedicate resources towards carbon reduction and transition to a decarbonized future.

 

LTEP should, as a minimum highlight the need for a transition phase for heavy industry to decarbonize beyond 2020 given its lumpy and long investment cycles.  LTEP 2017 should include measures that keep energy costs competitive for energy intensive and trade exposed industries during a transition period post 2020.

 

LTEP 2017 should incorporate a transition phase for heavy industry to decarbonize; and include measures to keep industry competitive during the transition phase.

 

•Provide an Energy Roadmap that Reflects Energy Infrastructure Investment Efficiency

 

Action to address climate change and efficient use of installed energy infrastructure assets is not a zero sum game. Today’s natural gas infrastructure can still be useful in a low carbon world, for instance for delivering synthetic or renewable natural gas or in support of distributed generation of electricity closer to demand which would avoid the need for more large central power generation, high spinning reserve requirements and new expensive and difficult to site transmission facilities.

 

The report recently released by the Environmental Commissioner of Ontario on December 6, 2016 recognizes that pairings of natural gas and electricity related applications can support and complement each other. The Commissioner notes that natural gas can help balance and complement electricity demand in at least three ways:

 

•By meeting peak critical electricity demand

 

•By powering end use applications with gas instead of electricity (and vice versa) during periods of peak demand

 

•By using excess electricity to produce low carbon synthetics (hydrogen and renewable methane) that can be injected back into the gas grid for end use applications.

 

Inefficient use of expensive energy infrastructure drives the cost of delivered energy higher unnecessarily and is detrimental to industrial competitiveness.

 

LTEP should consider the intersection of gas and electricity markets and adopt a road map that makes the most efficient use of the existing pipes and wires, so we don’t strand assets or trigger new build unnecessarily.

 

•Differentiate Between Rate Payer and Tax Payer Obligations; Respect the Independence of the Energy Regulator

 

Reducing carbon emissions to meet Ontario’s climate objectives will require the transformation of Ontario’s energy system and internalizing the cost of carbon emission in the price of all fuels including natural gas and electricity for homes, businesses and institutions.

 

If LTEP 2017 is to succeed in paving the way for decarbonizing Ontario’s economy with smart energy choices, it needs to be mindful of the impacts of internalizing carbon costs on particularly cost sensitive customers like energy intensive trade exposed industries and low income Canadians.

 

We urge the MOE to carefully differentiate between ratepayer obligations to cover the costs of carbon emissions resulting from their energy choices on the one hand, and taxpayer obligations to support initiatives to address social and economic impacts of carbon pricing on the other hand.

 

Approving energy rates, which efficiently incorporate the cost of carbon, is the responsibility of the Ontario Energy Board. That rate setting responsibility should remain independent of other aspects of government initiatives to address the impacts of carbon pricing.

 

Over the last several years Canadians have seen first hand what happens when faith in a regulatory body is eroded. The ability of the National Energy Board to fulfill its mandate to review and recommend the approval of large natural gas and oil pipelines has all but frozen as Canadians have questioned the independence of the regulatory body, and its exposure to “special interest capture” by any side of the debate. Faith in the regulatory system and a belief that all voices are being heard and considered, with decisions based on facts and sound reasoning rather than perceived political imperatives, are bedrocks of public confidence, and the public acceptability of the ultimate regulatory decisions.

 

In particular, the role of the OEB as an “economic regulator”, making decisions to address market failures rather than to craft social policy should be acknowledged and protected through the LTEP process. Broader economic and social policy objectives should be managed through the political process and taxpayer funding, rather than through energy rates.

 

LTEP 2017 should protect the independence of the Ontario Energy Board and safeguard against interference that could undermine the independence, credibility and value of the expert energy regulator, and carefully differentiate between ratepayer and tax payer obligations.

 

[Original Comment ID: 207121]