The Canadian Steel Producers…

The Canadian Steel Producers Association (CSPA) is the national voice of Canada’s $15 billion steel industry. Our members annually produce approximately 13 million tonnes of crude steel as well as over one million tonnes of steel pipe and tube products in facilities located across Canada. Domestic steel operations directly employ some 23,000 Canadians while supporting an additional 100,000 indirect jobs.

Canada’s steel industry is a global leader in producing steel products with the lowest carbon emissions intensity for both the integrated and electric arc furnace (EAF) steelmaking processes. With the publicly announced decarbonization investments underway, Ontario’s steel industry will be providing approximately 50% of Ontario’s commitment of 12,000,000 tonnes of carbon dioxide emissions reductions by 2030.

The CSPA and our members value the ongoing support and collaboration from the Government of Ontario, which has been instrumental in safeguarding the economic competitiveness of our sector and advancing our collective decarbonization initiatives. We hope to continue to work together to optimize the Emissions Performance Standards (EPS) program, secure continued investments in the province, and provide value for all Ontarians.

We have reviewed the ERO Posting 019-7649 and appreciate the opportunity to provide the following principles to guide regulatory amendments to the EPS program.

First, it is crucial for Ontario’s EPS to align with the latest carbon leakage risk assessment conducted by Environment and Climate Change Canada (ECCC). In November 2023, ECCC implemented significant amendments to the Output-Based Pricing System (OBPS) Regulations and the Environmental Violations Administrative Monetary Penalties Regulations. These amendments have reclassified the iron and steel sector in Canada as having a "very high" risk in terms of emissions intensity and trade exposure. This reclassification acknowledges the sector's increased vulnerability to carbon leakage.

Under the OBPS, sectors identified as "very high" risk experience a more moderate annual tightening rate of 1% from 2023 onwards. Before this reassessment, the steel sector was subject to a potential tightening rate of 2% under the OBPS. This adjustment is a response to the substantial competitiveness and carbon leakage challenges that carbon pricing presents to our industry. While the proposed amendments to the EPS recognize the significant transformation in Ontario's steel sector, the program must be further refined to effectively support steel facilities province-wide in mitigating carbon leakage risks.

Second, it is essential that the standards and requirements set by the MECP do not surpass associated federal carbon compliance costs. The EPS currently implements a retroactive increase in stringency for non-fixed process emissions, rising by 2% annually from 2019 to 2023, and then intensifying to 2.4% for all emissions in 2024, followed by a steady 1.5% increase from 2025 to 2030.

While the proposed EPS amendments offer a reduced stringency factor for "clean steel production" facilities in Ontario, the CSPA emphasizes that all Canadian steel producers are actively engaged in clean production practices. In light of this, we advocate for a freeze on stringency levels to support the continued investments our sector is making in clean technology. Our recommendation is for a reduced and fixed stringency rate for the steel sector until 2040

Third, the EPS should incorporate a relief mechanism for exceptional circumstances such as force majeure or labour disruptions. Such events can cause significant operational impacts that lead to a decrease in overall carbon emissions but cause a temporary spike in emissions intensity, resulting in higher carbon compliance costs.

We suggest that a definition for 'significant operational impact' be established, applicable across all steelmaking processes, with corresponding adjustment factors. The industry could substantiate the occurrence of these impacts by presenting evidence like discrepancies between actual and historical production levels or records of investments and maintenance activities. However, it is important to clarify that these adjustment factors should not be applicable for routine or short-term maintenance, nor should they be used to offset normal economic fluctuations.

In reference to the questions posed in ERO Posting 019-7649, we offer the following guidance:

1. How should compliance obligations be adjusted in the transition period for facilities that are retooling (e.g., moving from manufacturing internal combustion engines to electric vehicles)?

To effectively manage transition periods, it is crucial to establish a flexible and supportive compliance framework that recognizes the unique challenges and operational disruptions associated with retooling. The CSPA offers the following recommendations.

First, facilities undergoing significant retooling should be eligible for temporary adjustments in their EPS compliance targets. This would account for the transitional period where operational efficiencies and emission levels might not be representative of the facility's medium- and long-term performance.

Second, as facilities transition to more efficient technologies, there should be a phase-in period for the new EPS standards. This allows facilities to ramp up to full operational efficiency, achieve steady state operations, adapt to the new technology without facing immediate, stringent compliance pressures.

Third, there should be ongoing collaboration with regulatory bodies during transition periods. This ensures that compliance obligations are aligned with realistic timelines and the operational realities of retooling.

By adopting these measures, the EPS framework can support the steel industry's decarbonization pathway. This approach fosters an environment where compliance is facilitated and the industry’s shift towards lower carbon emissions is accelerated, thus contributing significantly to broader economic and climate objectives.

2. How much lead time is appropriate for the transition to sector-based standards where there are several facilities that produce the same product? Are there any sectors that should be prioritized?

Some of the CSPA’s members are already subject to sector-based standards. In these cases, the compliance approach should be maintained.

In cases where sector-based standards do not yet exist, the CSPA requires more information on potential compliance requirements to determine appropriate transition timelines. Consequently, we are eager to engage directly with MECP to discuss these matters prior to finalization of the proposed EPS amendments.

It is critical that these standards are developed through early and active consultation with the industry to mitigate carbon leakage risks and to secure continued investments in Ontario. Prioritizing the advancement of a sector-based standard for steel, a key sector in both Ontario’s economy and emissions profile, is essential. The CSPA emphasizes the need for an expeditated transition to sector-based standards that ensures effective emission reduction measures and sustainable economic growth. To that end, we encourage MECP to reaffirm or establish steel sector standards by early 2025.

3. Should renewable natural gas (RNG) procured by an EPS facility and injected into the Ontario natural gas system be eligible to be considered as if it is being used directly at an EPS facility? Are there any circumstances where this approach would affect the integrity of the EPS program?

The CSPA believes that RNG purchased by an EPS facility, which is then injected into the Ontario grid or any other North American grid, should be recognized as if it were directly used at the EPS facility itself. This approach is contingent on maintaining strict integrity in the certification, transparency, and accounting processes of the RNG. Provided these conditions are met, the integrity of the EPS program will remain intact.

Furthermore, the CSPA would support MECP extending eligibility for the return of EPS proceeds to facilities for the procurement of RNG as well. This resource is an important tool for facilities to evaluate a variety of decarbonization options.

It is important to recognize that achieving large-scale decarbonization requires leveraging economies of scale. By utilizing the extensive North American natural gas infrastructure, beyond just Ontario, we can incentivize and attain such scales. Without this broader approach, large decarbonization projects may face challenges in finding sufficient customers for justification. Similarly, customers with ambitious decarbonization targets might struggle to find local suppliers capable of meeting their needs.

This strategy aligns with the principles of Virtual Power Purchase Agreements (VPPAs) in the power sector, which have gained wide-scale acceptance and implementation. By adopting a similar approach for RNG, we can facilitate a more efficient, widespread, and realistic path towards decarbonization goals across various sectors, including steel production.

In closing, we would like to express our appreciation to the Government of Ontario and MECP for considering our perspectives in this consultation. We remain open and eager to engage further on the content presented in this submission and to assist in any way that can facilitate the development of effective and balanced policies. The CSPA looks forward to a continued constructive dialogue and partnership in our shared pursuit of sustainable and economically viable solutions for the steel industry.