Amendments to support transition and implementation of Ontario’s Emissions Performance Standards program

We are proposing changes to the Emissions Performance Standards program and greenhouse gas reporting requirements by amending the following regulations and incorporated documents:

• Greenhouse Gas Emissions Performance Standards regulation (O. Reg. 241/19 or the EPS regulation) and the incorporated GHG Emissions Performance Standards and Methodology for the Determination of the Total Annual Emissions Limit (the Methodology)
• Greenhouse Gas Emissions: Quantification, Reporting and Verification regulation (O. Reg. 390/18 or the Reporting Regulation) and the incorporated Guideline for Quantification, Reporting and Verification of Greenhouse Gas Emissions (the Guideline)

These changes are in addition to proposed changes that are under consideration and consulted on through Environmental Registry notice 019-2813 Amendments to transition Ontario industrial facilities from the federal Output-Based Pricing System to Ontario’s Emissions Performance Standards program). This consultation took place in December 2020 and we indicated we might also propose additional amendments to support compliance, enforcement and administration of the program.

The new amendments we are proposing will:

• further support industry’s transition from the federal OBPS to Ontario’s EPS program by clarifying certain compliance and reporting requirements
• support the administration and enforcement of the program

Several of these proposed changes will also reduce unnecessary regulatory burden on industry while creating further alignment with the federal OBPS.

Ontario’s Emissions Performance Standards program

Ontario’s emissions performance standards (EPS) is one of the key actions our government is taking to hold polluters accountable for their greenhouse gas (GHG) emissions, with a program that is tough but fair, cost-effective and flexible to the needs and circumstances of our province.

Our EPS program will regulate GHG emissions from large industrial facilities by setting the standards for lowering emissions (emissions limits) that those facilities are required to meet. The EPS considers specific industry and facility conditions while allowing for economic growth.

The federal government has accepted Ontario’s EPS program as an alternative to the federal output-based pricing system (OBPS) and intends to remove the application of the OBPS from Ontario facilities effective January 1, 2022. The federal government agrees that Ontario’s EPS program meets the federal benchmark stringency requirements for the sources of GHG emissions that it covers.

Proposed amendments

The proposed amendments to the Emissions Performance Standards program and greenhouse gas reporting requirements include:

1. Supporting a partial year coverage of emissions

On December 16, 2020, we proposed to allow mandatory facilities and facilities opting into the EPS program (voluntary facilities) to have emissions covered under the EPS program beginning on the effective date of the Canada Revenue Agency (CRA) notice of registration, necessary to be exempt from the federal fuel charge, if the facilities meet both of the following criteria:

• registered in the EPS program partway through a year
• received a notice of registration as an emitter from the CRA with an effective date after January 1

This means that these facilities would have a partial year of emissions subject to a compliance obligation (coverage) under the EPS program. It also ensures they are not charged twice for the same emissions and that there is no gap in pricing for emissions thereby supporting industry’s transition from the federal OBPS to Ontario’s EPS.

We are now proposing additional amendments to support the partial year coverage of emissions under the EPS program, such as adding calculations that facilities will have to use to determine the following prorated amounts:

• verification amount (emissions)
• production parameters
• emissions limits

These amounts, as set out in the verification statement, will be used to determine the:

• facility’s compliance obligation (equal to the amount that emissions are higher than the facility’s emissions limit), or
• number of emissions performance units (EPUs) to be distributed into the facility’s account (equal to the amount that emissions are lower than the facility’s emissions limit)

Additional amendments are required to allow for prorating of replacement values of verification amounts and production parameters in the event of an adverse or missing verification conclusion. In these circumstances, the prorated replacement values will be calculated by prorating the full year replacement values as set out in subsection 14 (2) and subsection 15 (2) of the EPS regulation.

2. Treatment of new facilities

We propose to align our EPS program with the federal policy by allowing new eligible facilities to register during the first year the facility starts producing a product. New facilities (excluding those where primary industrial activity is generating electricity using fossil fuel) would begin to have a compliance obligation under the EPS program once the facility has completed three years of production.

To be eligible for registration, new facilities must:

• be engaged in an industrial activity identified in Schedule 2 of the EPS regulation (which sets out various activities that are covered by the regulation) and
• provide estimates that demonstrate the facility is projected to emit at least 10,000 tonnes of carbon dioxide equivalent (CO₂e) or more per year in any of the three calendar years from the date of first production

The estimates are required to be prepared by a third-party engineer in a manner consistent with the quantification methods set out in the reporting regulation or recognized industry practices for the quantification of GHG emissions.The report detailing the engineer’s estimates will also need to be accompanied by a statement signed by a chief officer or a resolution of the board of directors of the owner or operator of the facility.

Where a sector performance standard does not exist for the facility’s product(s), we will work with the facility to establish performance standards based on appropriate production metrics and data from the two most recent full calendar years of production. Until such performance standards have been developed, emissions limits may be determined using the energy use method from the Methodology.

3. Other administrative, technical and clarifying amendments

We are proposing additional amendments to support compliance, enforcement and administration of the program and supporting industry’s transition from the federal OBPS to Ontario’s EPS program. These include:

• clarifying rules for transferring compliance instruments such as:
  • adding a deadline of December 1 for requesting a transfer between two facilities that have the same owner - this is the same deadline that applies to requests for transfers between two facilities that have different owners
  • clarifying that if eligible transfer requests are received by the deadline, the compliance instruments will be transferred by December 15 in that year and that transfers requested after the deadline will not be transferred into accounts until the following year and therefore could not be used to meet a compliance obligation for the year of the request.
• aligning the performance standard for electricity generation with the Federal OBPS standard to provide greater stability and reduce administrative complexity in the electricity market by:
  • adjusting the Ontario performance standard for all fossil fuel fired electricity generation from 420 to 370 CO₂e/GWh;
  • aligning the Ontario performance standard for compliance year 2022 with what is in effect for 2019 to 2021 under the federal OBPS.
• clarifying how the Methodology is applied to cogeneration systems, to ensure cogeneration limits are determined using total energy output and a standard based on an 80 percent efficient cogeneration system
• adjusting the specific intensity method for certain facilities to clarify requirements, address technical errors, and reflect significant changes in operations or ownership
• clarifying reporting requirements for multi-site facilities to maintain alignment with reporting under the federal greenhouse gas reporting program (GHGRP) and to support the implementation of the EPS program (e.g. specifying the site-level reporting requirements for these facilities in addition to the facility totals that are already required to be reported under the Reporting Regulation)
• adding definition for EPS facility in the EPS Regulation to align with the OBPS definition, where the facility is operated in an integrated way to carry out an industrial activity
• fine tuning material discrepancy assessments under the Reporting Regulation to align with federal requirements by:
  • assessing the impact of each individual error, omission and misstatement (EOM) on the total emissions and maintaining the current requirement to assess the impact of the aggregate of all EOMs on the total emissions (i.e. these rules work together to ensure that a significant overstatement would not cancel out a significant understatement and that when multiple minor EOMs are added together, they do not have a significant effect on the total emissions amount)
  • setting the thresholds for material discrepancy based on facility emissions (e.g., applying 8 percent discrepancy when emissions are less than 50,000 tonnes CO₂e, continue using 5 per cent discrepancy when emissions are between 50,000 and under 500,000 tonnes CO₂e and applying 2 per cent discrepancy when emissions are 500,000 tonnes CO₂e or more)
  • changing the material discrepancy thresholds for production parameters and the total annual emissions limit from 0.1 percent to 5 per cent
• applying the above thresholds for material discrepancies as the basis for determining when a revised GHG emissions report is required to be submitted
• clarifying verification rules by:
  • refining when revised GHG emissions reports need to be verified (i.e. verification is only needed when the revised GHG emissions report is required to be submitted under the Reporting Regulation as a result of a percent discrepancy that meets or exceeds the stated thresholds)
  • adjusting and clarifying frequency of verifications and site visits (e.g. the number of consecutive years of verification does not include verifications of revised GHG emissions reports, not counting years where facilities are not required to verify the GHG emissions report, consistently using consecutive years instead of consecutive reports)
  • allowing accredited verification bodies (AVBs) to comply with the ISO 14065:2013 standard until November 30, 2023, the date established by the International Accreditation Forum, to provide AVBs time to comply with the recently published ISO 14065:2020 standard
  • clarifying that the verification report should contain information about the facility, the versions of the ISO standards that applied, details of site visits and findings
• any additional administrative amendments that may be needed to transition from the federal OBPS to Ontario’s EPS program based on ongoing discussions with the federal government

Regulatory impact statement

Several of these proposed changes would reduce unnecessary regulatory burden on industry while creating further alignment with the federal OBPS. No additional administrative costs for facilities are expected as a result of these proposed amendments.

Background

The EPS program is one of our Made-in-Ontario Environment Plan commitments and is a key action in making polluters accountable for their GHG emissions with a system that is tough but fair, cost-effective and flexible to the needs and circumstances of our province.

The program takes into consideration specific industry and facility conditions while allowing for economic growth. It is a more tailored approach for Ontario’s environment and economy because it will help us achieve emission reductions from big polluters and work towards achieving our 2030 emissions reduction target without driving away business and job creators.

Ontario has taken a number of actions to build a clear understanding of compliance requirements, create alignment with federal requirements and support a smooth transition for industry.

On July 4, 2019, Ontario filed the EPS regulation and made amendments to the Reporting Regulation to support the EPS program. The incorporated Methodology sets out the methods for determining emissions limits for facilities. The incorporated Guideline sets out the methods for quantifying and reporting GHG emissions from various activities as well as the supporting monitoring and measurement requirements.

On February 11, 2020, we made changes to the Reporting Regulation and Guideline to harmonize with certain federal requirements and reduce unnecessary costs and regulatory burden for emitters required to report GHG emissions (reporters). This included updating the web-based reporting module through which reporters submit reports (i.e. Single Window) to ensure that one submission from reporters meets the reporting requirements of both Ontario and the federal GHGRP.

Only the registration and record keeping related provisions of the EPS regulation currently apply. The proposal is that the remaining compliance provisions of the EPS program, along with the proposed amendments, will apply starting in January 2022, based on the federal commitment to remove Ontario from the federal OBPS effective January 2022.