January 15, 2021 TransAlta…

January 15, 2021

TransAlta Comments on the Ontario transition from the federal Output Based Pricing Standard (“OBPS”) to Ontario’s Emission Performance Standard (“EPS”)

TransAlta Corporation (“TransAlta”) appreciates the opportunity to participate in the consultation process. We provide the following submission for consideration by Ministry of the Environment, Conservation and Parks on the proposed amendments (“Amendments”) to the EPS published on December 16, 2020 and on the EPS system more generally.

TransAlta operates over 640 MW of thermal cogeneration units and over 430 MW of renewable electricity generation assets (hydro and wind) in Ontario. TransAlta has also been involved with carbon markets since their inception in North America. Based on our exposure in Ontario and experience, we recognize a large emitters regulation must balance principles of achieving emission reductions while maintaining economic competitiveness and ensuring just application of regulatory obligations. We offer the following suggestions to highlight opportunities for the EPS to effectively achieve the above noted principles while meeting emission goals at a lower cost to Ontarians and economic competitiveness.

Amendments

TransAlta is supportive of the amendments to transition from the OPBS to the EPS. Based on our review, the amendments do not change the EPS in a way that would alter how the current EPS would already impact the electricity sector. These amendments align the EPS with the requirements of the Greenhouse Gas Pollution Pricing Act and are required for the EPS to replace the OBPS.

Electricity Benchmark

TransAlta supports the existing electricity benchmark under the EPS. This benchmark strikes balance between placing a cost on inefficient gas generation while not adding costs on relatively efficient gas units that cannot physically comply with a tighter emission standard. This will avoid additional costs being flowed downstream to electricity consumers.

Revenue Neutrality of EPS
To avoid creating a new tax and inter-sectoral distortionary impacts, the EPS should be revenue neutral with collected revenues recycled to each sector proportionate to the funds collected from each sector. Returning funds to each sector reduces distortionary impact by avoiding sectoral cross-subsidization where carbon costs could be transferred to another sector through funding opportunities. Similarly, as carbon policy is based on principal of creating a price signal, the funds need to be returned to avoid creating new costs/taxes. Overall, returning funds to achieve additional reduction opportunities ensures faster achievement of emission reductions in the economy while lessen competitiveness impacts.

Suggested Approach:
- Return funds collected in each sector to the sector by providing funding opportunities for sectoral entities to pursue carbon reduction projects

Offset Credit Projects & Trading
Offsets are a well-established part of most large emitter programs and serve to increase innovation and carbon reduction projects. Offset credit generation ensures reductions are achieved that could not be economically achieved at a covered facility. The ability to fund and source credits from lower cost offset projects that achieve real carbon reductions minimizes carbon compliance costs and thus competitiveness impacts.

Marketer participation creates greater market liquidity. Marketers reduce transactional friction by enabling more rapid and efficient identification, funding and implementation of emission reductions projects.

Overall, allowing additional, credible compliance options through offsets and creating a well functioning market credit by widening participation increases the pace at which emission reductions targets can be achieved while also reducing costs.

Suggested Approach:
- Allow offset to be used as a credible compliance mechanism
- Increase participation to by allowing marketers to have compliance credit holding accounts

No Leakage between interconnected jurisdictions

An importer of electricity that does not have a carbon cost in their domestic market will have a competitive cost advantage relative to facilities in Ontario that are subject to the EPS. This could allow higher emitting imported electricity to displace Ontario based generation leading to carbon leakage and harm to the Ontario generator. A carbon obligation needs to be attributed to each importing jurisdiction or each facility based on their emission factor to avoid carbon leakage and ensure a level playing field for domestic electricity generators.

Suggested Approach:
- Place a carbon emission factor on importer based on the emission intensity of their generation

Cogeneration Methodology

Under the EPS, the cogeneration quantification methodology results in electricity generation being provided an allocation based on the heat benchmark. This results in a lower emission allowance for electricity generation from a cogeneration facility relative to other electricity generators.

This approach does not align with the regulatory principle of an equal intensity allocation based on the product produced. Further, cogeneration is a more efficient form of electricity generation with a lower emission intensity. The allocation for cogeneration electricity generation should be based on electricity benchmark of to align with regulatory principles and to ensure a lower intensity carbon products are incented and not put at a competitive disadvantage.

Suggested Approach:
- Apply the heat benchmark to cogeneration heat/steam generated and the electricity benchmark to electricity generated at the facility

OPBS Performance Credit Fungibility under the EPS

Performance units generated under the OBPS that have not been used should transfer to the EPS and be fungible on a one-to-one basis. This will reduce the transition friction between the two programs, provide compliance options so covered entities can reduce compliance costs and ensure entities that have invested resources to achieve a lower carbon intensity can fully realize the value of those investments. This should be feasible under the current EPS regulatory structure as the Director under the EPS can award “emission performance units” (“EPUs”).

Suggested Approach:
- Allow entities with remaining performance units under the OBPS to apply to the Director under the EPS to have these units credited into their EPS compliance account as EPUs

TransAlta again thanks the Ministry of the Environment, Conservation and Parks for this opportunity comment on the EPS amendments and the regulation generally. We would welcome an opportunity to discuss our suggestions and perspectives in more detail. Please contact me directly using my below noted details.

Yours truly,

Cameron Stonestreet
Senior Advisor, Policy and Sustainability
TRANSALTA CORPORATION

Email: Cameron_stonestreet@transalta.com
Phone: (403)-700-7160