Thank you for this…

Thank you for this opportunity to comment on the Proposed Regulatory Amendments for Emissions Performance Standards (EPS) Program 2023-2030 (ERO 019-5769). Ontario Power Generation (OPG) has closely followed the development of Canada’s and Ontario’s climate commitments and policies, and has been assessing potential impacts on the electricity sector, and the role of electricity generators in helping achieve Canada’s and Ontario’s climate goals.

OPG is a climate change leader with one of the most diverse generating portfolios in North America. We invest millions of dollars in local economies and employ thousands of people to maintain a modern, sophisticated energy fleet. And we partner with local, environmental and Indigenous groups to improve the well-being of our many site communities.

Having delivered one of the world’s single largest climate change actions by closing our coal stations, OPG is now focused on becoming a net zero company by 2040, and enabling a net zero economy by 2050. We’re investing in new technologies to drive this clean economy -- from transportation electrification, to Small Modular Reactors (SMRs), to energy storage, micro grids, and hydro development and refurbishment.

As outlined in the Federal Government’s recent 2030 Emissions Reduction Plan, Canada will need to significantly increase its supply of clean electricity to power decarbonization efforts. The plan acknowledges that while Canada already has one of the cleanest electricity grids in the world, with over 80 percent produced by non-emitting sources, a further ~35 percent reduction in greenhouse gas (GHG) emissions would be required through fuel switching, primarily by the electricity sector.
With this in mind, given OPG’s role in largely decarbonizing Ontario’s electricity grid, and our drive to electrifying life in one generation, we respectfully submit the following recommendations and detailed responses to the Proposal, particularly as it relates to Question 4 from the consultation document regarding the electricity performance standard. We believe the most effective path to net zero is one that is affordable, leverages each jurisdiction’s unique circumstances, and ensures a reliable, resilient electricity grid.

Question: Should the EPS program consider a more stringent performance standard for the electricity sector for the 2023-2030 period?

No, the EPS program should NOT consider a more stringent performance standard for the electricity sector for the 2023-2030 period, particularly in absence of considerations for electricity imports.

Implementing an EPS more stringent than 370 t/GWh that decreases to zero by 2030 in conjunction with a carbon price that increases to $170 by 2030 would raise electricity prices. This would result in some of Ontario’s natural gas resources being dispatched less, due to real time imports being more competitive, assuming there is no mechanism for carbon border adjustment (CBA). This could result in increased imports of cheaper but dirtier electricity from the US, may lead to an increase in overall regional GHG emissions, and possibility of higher electricity prices, driving businesses out of Ontario to relocate elsewhere with cheaper prices (carbon leakage).

Modelling indicates that at $170/t carbon, if natural gas generation is subject to a progressively lower performance standard, transitioning to 0 T/GWh:
• With no CBA - US thermal generation would be more economic, and imports of U.S. thermal generation would increase dramatically. This would result in increased regional total carbon emissions, and Ontario’s electricity price may increase in the hours where imports are not sufficient.
• With a CBA – the CBA would prevent US thermal generation from displacing Ontario gas generation (decreased imports). However, it will push electricity prices even higher, and would not save a significant amount of regional total CO2 emissions until new clean energy sources are brought online.

OPG recommends that the MECP should make efforts to level the playing field between Canadian and US electricity generators, either through a CBA, or another similar mechanism, acknowledging the net impact would be to limit more carbon intensive, cheaper energy imports, and preventing carbon leakage.

Leverage Ontario IESO’s Feasible Pathways to Decarbonization Study:
In October 2021, the IESO produced a report assessing the impacts to power system cost, reliability, timing and operability that would arise from phasing out natural gas from the electricity system by 2030. The report concluded that the phase out of natural gas by 2030 is not feasible, would lead to blackouts and would come at a significant cost to the system. The Ontario Ministry of energy asked the IESO to both evaluate a moratorium on the procurement of new natural gas generating stations and develop an achievable Pathways to Decarbonization that is now underway, exploring the potential pathways for reaching a reliable, affordable, decarbonized electricity system in Ontario. A report is expected back from the IESO in November 2022.
OPG has been actively engaged in this process, and recommends that MECP leverage the IESO’s work, in consultation with OPG as a part of its process to develop a long-term EPS.

Offsets can provide lower cost compliance options:
It is problematic that Ontario’s current EPS regulation, as well as the current proposed amendments, exclude the use of offsets for compliance by Ontario facilities. High-integrity offsets provide a much-needed lower-cost compliance option that can minimize competitiveness and leakage risks for emitters. Excluding offsets from the final EPS will continue to place Ontario businesses at a disadvantage compared to other Canadian competitors who are operating and complying in other Canadian jurisdictions (including federal backstop jurisdictions) that have access to lower-cost compliance mechanisms. Additionally, insufficient offset infrastructure will inhibit the province’s ability to participate in and benefit from rapidly growing international carbon market opportunities and developments.

OPG recommends that the Government of Ontario amend the existing EPS framework to allow compliance offsets, leverage the Federal Offset System and future project protocols, explore inter-provincial credit trading opportunities for compliance, and enable cross-sector reductions. i.e. GHG reductions achieved in other sectors through electrification initiatives.

Regulatory Certainty post-2030:
The Government of Canada is consulting on a Clean Electricity Regulation (CER) to support a net-zero electricity grid by 2035. Its draft frame states:

"A phase-in of the CER requirements would allow natural gas units built prior to the CER publication date [before 2025] to operate past 2035 for a short prescribed period... An existing unit would be subject to current electricity sector policies until it becomes subject to the CER and its performance standard."

The current federal standard and carbon pricing for existing fossil electricity generation are 370 t/GWh, and $170 at 2030, respectively. It is unclear what future “current electricity sector policies” would apply to “existing” stations under the CER post-2030. Also, the MECP’s current proposal for natural gas (310 t/GWh) is a departure from the federal standard, confirming uncertainty regarding Ontario’s treatment of natural gas post-2030. Electricity will be the backbone to the electrification and decarbonization of Ontario’s economy, and natural gas will be needed to provide system reliability to support electrification efforts. Regulatory certainty will make for better business decision-making.

OPG recommends that carbon policy should provide longer-term regulatory certainty (post-2030), be harmonized to reduce compliance and administrative burden and cost; incent long-term investments in energy projects to maintain system reliability; and support transition to a decarbonized economy.

Minimizing Administrative Burden:
OPG recommends that as the MECP develops its EPS program, it should leverage existing tools/platforms, and work with the federal government for harmonization and streamlining of their programs to the extent possible, with the goal of easing administrative burden. For example:
• The federal GHG reporting program (GHGRP) is proposing to use the Intergovernmental Panel on Climate Change’s 5th Assessment Report’s Global Warming Potentials (IPCC AR 5 GWP) beginning the 2022 reporting year. The AR 5 GWPs are different from the GWPs of the current O.Reg. 390/18: GREENHOUSE GAS EMISSIONS: QUANTIFICATION, REPORTING AND VERIFICATION. Timely update of the GWPs can streamline reporting.
• The EPS requires a notice of any change to the information set out in Schedule 1 (Registration Information) no later than 30 days following the change. Since Schedule 1 information is mostly administrative, internal communications of these changes may be delayed, time to prepare the notice could be protracted, and this reporting does not impact environmental performance, the requirement should be changed to 90 days.

Thank you again for the opportunity to provide comments. OPG looks forward to continued engagement in the development of EPS regulations for 2023-2030, and is excited to be a catalyst for economy-wide decarbonization.

We would be happy to meet in person to review our comments in more detail.