This notice was updated on December 27, 2023 to extend the comment period to January 15, 2024.
This consultation was open from:
November 22, 2023
to January 15, 2024
MECP is proposing changes to the Emissions Performance Standards (EPS) and greenhouse gas (GHG) reporting programs to clarify requirements, improve efficiency, address fundamental changes in some Ontario industries, and gradually move some industries from facility-specific standards to sector-based standards.
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Ontario’s Emissions Performance Standards (EPS) program is an alternative to the federal Output-Based Pricing System on industrial emissions. On January 1, 2022, the Ontario EPS program took effect to regulate greenhouse gas emissions from large facilities.
It is a more tailored program for Ontario's environment and economy that will help us achieve emission reductions from big polluters and achieve our share of Canada's 2030 emissions reduction target without driving away business and job creators. Between now and 2030, our EPS program is forecast to save industry over $1 billion compared to the federal policy.
The Ministry of the Environment, Conservation and Parks (MECP) is proposing changes to the EPS and GHG reporting programs to:
- clarify program requirements
- improve program implementation and administration
- address fundamental changes in some Ontario industries
- gradually move some industries from facility-specific standards to sector-based standards
The amendments would apply to 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 EPS Methodology).
- Greenhouse Gas Emissions: Quantification, Reporting and Verification regulation (O. Reg. 390/18 or the GHG Reporting Regulation) and the incorporated Guideline for Quantification, Reporting and Verification of Greenhouse Gas Emissions (the Guideline).
Proposed amendments to the EPS regulation and the EPS Methodology
Recognizing significant transformation in the steel sector
Some large steel producers are expected to make the transition to clean steel production in the coming years. In consideration of the dramatic changes at these facilities, MECP is proposing that the stringency factors (i.e., factors applied to reduce the annual emissions limits of a facility) be set equal to one for the transition period up to 2030. Transitional baseline emissions intensities (BEIs), criteria for implementation and curtailment, and production parameters are also being proposed for the period in which these changes are expected. The amendments would recognize the significant investments being made and emissions reductions expected to be achieved by the move to clean steelmaking. Amendments may also be made to the Guideline to implement this change.
Adjustments to facility compliance obligations
When undertaking a major modification (e.g., re-tooling to make a new product), some facilities may continue to emit GHGs while producing few, if any, products. Since annual emissions limits are tied to facility output, these situations could lead to a large discrepancy between emissions and emissions limits in the EPS program. MECP is proposing an adjustment in the determination of compliance obligations to account for extended periods (e.g., one year or longer) of downtime for re-tooling. Amendments may also be made to the GHG Reporting Regulation and Guideline to implement this change.
Assigning BEIs and production parameters
MECP is proposing to assign or adjust BEIs and production parameters to certain facilities and sectors. These BEIs and production parameters are not currently included under any method of calculating an annual emissions limit that applies to the affected facilities. The proposed change would provide the facilities the means to calculate appropriate emissions limits based on their current operations. Amendments may also be made to the Guideline to implement this change. This could include changes to Method E (Facility Specific Performance Standards).
Transitioning to sector-based standards
MECP is considering a wider application of sector-based standards in the EPS methodology, which may lead to significant effects for some facilities (refer to the background section for more context). Therefore, MECP is proposing to phase in sector-based standards over a number of years (e.g., 2025-2027), which would provide facilities time to transition to cleaner operations.
Expanding program scope
Under the federal benchmark, the EPS program must only apply to industries that are assessed by the jurisdiction as being at either high or medium risk of carbon leakage and competitiveness impacts from carbon pollution pricing. The ministry has received requests to add the following industrial activities to the list of covered industrial activities:
- NAICS code 33591 (Battery manufacturing)
- NAICS Code 3328 (Coating, engraving, cold and heat treating and allied activities)
Based on completed applications the ministry receives, MECP will assess the carbon leakage risk of these activities. Those that are found to be at either a high or medium risk would be added to Schedule 2 upon government approval. Industries assessed as being at low risk, or for which there are insufficient data, will not be added to the list of industrial activities in the program.
Clarifying applicability rules under certain methods of calculating an annual emissions limit in the EPS methodology
MECP is proposing to adjust electricity and cogeneration thermal energy methods for calculating an annual emissions limit so that additional facilities with a cogeneration system can use these methods. This will ensure methods for cogeneration systems across all industries (e.g., petroleum facilities), or facilities with a recently implemented cogeneration system, are applied consistently.
Clarifying emissions and products
MECP is proposing to clarify the requirements that apply to emissions and production data that facilities need to use in their application for a baseline emissions intensity (BEI) for a product.
Revoking selected facility BEIs
MECP is proposing amendments to add circumstances under which the director may revoke a notice that sets out the facility's BEI for a product. A new notice may or may not be issued. These circumstances could include:
- the BEI was calculated using data that contained significant errors
- the ministry intends to re-issue a notice for use under another method
Amendments may also be made to the GHG Reporting Regulation and Guideline to implement this change.
Changing the 'Cumulative Outstanding Amount’ calculation
This calculation determines the amount that a facility is required to deduct from its Total Annual Emissions Limit when it is out of compliance with the December 15 and February 15 deadlines. MECP is clarifying how the calculation applies to facilities that are out of compliance for two or more consecutive years so that each year is considered independently.
Proposed amendments to the GHG Reporting Regulation and the Guideline
Expanding eligibility for Renewable Natural Gas (RNG)
MECP is proposing that GHG emissions from the combustion of RNG purchased by an EPS facility through a contract, and not used directly at the facility, may be deducted from the EPS facility’s verified emissions if all of the following criteria are met:
- the RNG was injected into the Ontario natural gas distribution system
- the RNG was purchased under contract(s) between the supplier and the EPS facility
- the EPS facility can demonstrate a clear record of the RNG deliveries (e.g., nominations in Enbridge’s RNG declaration form and Enerline system) from the supplier to the EPS facility
- the GHG emissions from the RNG are quantified in accordance with the method(s) in the Guideline
The proposed amendment would remove a barrier to the use of RNG in the EPS program.
Clarifying GHG emissions to be reported
MECP is proposing to clarify how other emissions, as defined in section 12 of the Reporting Regulation, are to be included in reports to improve consistency in reporting.
Other clarifying, technical and administrative amendments
MECP may make additional amendments. These could include clarifying definitions and terms, addressing technical errors and other administrative changes to support program implementation and compliance. These may be made in one or more of the regulations and incorporated documents.
Regulatory impact statement
MECP expects that the aggregate compliance cost across all facilities will not change as a result of the proposed amendments.
As sector-based standards are phased in, there will be a change in how compliance costs are distributed within the sectors. There may be additional compliance costs for facilities that have an emissions intensity higher than the sector average.
Conversely, facilities whose emissions intensities are below the sector average may then be able to generate surplus credits. As the standards are phased in over time, the ministry will acquire data regarding the distribution impact of sector-based standards.
Questions for discussion
- 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)?
- 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?
- Should 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?
Ontario’s Emissions Performance Standards program
The EPS program is a key government action making large polluters in manufacturing, resource and electricity generation industries accountable for their GHG emissions. The program is intended to:
- encourage the facilities to reduce GHG emissions
- minimize competitiveness impacts and carbon leakage (the risk of production leaving the province for other jurisdictions with less stringent climate policies)
In December 2022, Ontario amended the EPS and GHG Reporting programs to meet the benchmark set by the federal government and extend the program to 2030. It continues to be fair, cost-effective and flexible to meet the needs and circumstances of our province.
Ontario’s GHG Reporting program
The GHG reporting program is an integral part of the EPS program as it provides verified emissions, production and emissions limit data for all registrants in the EPS program. These are used to determine either a facility’s compliance obligation or the number of emissions performance units (EPUs) it is eligible to receive when emissions are lower than its emissions limit.
The federal program
The federal carbon pricing system has two parts:
- An Output Based Pricing System (OBPS) that regulates GHG emissions from large emitters in manufacturing, resource and electricity generation industries by imposing a charge for emissions exceeding a facility limit.
- A fuel charge on transportation and heating fuels used by households and enterprises not covered by the OBPS.
Provinces and territories can create their own pricing programs for fuels and/or emissions from industry, but they must meet a benchmark (i.e., minimum criteria) the federal government established. This benchmark is the basis for the federal government’s decision on whether to either impose, or continue to impose, the federal OBPS and the federal fuel charge.
Sector (industry)-based standards are generally considered to be a more equitable approach for a program like the EPS. These types of standards can be developed where there are several facilities that produce the same product (e.g., gold, steel produced in an electric arc furnace, hot rolled steel). They are more complicated and take more time to develop than facility-specific standards.
Renewable natural gas (RNG)
In the GHG reporting regulation, carbon dioxide from the combustion of biomass is deducted from the facility’s total reported and verified emissions. Currently only RNG that is confirmed to be derived from biomass and is delivered directly to the facility is treated as biomass.
MECP has reviewed Enbridge’s process for RNG tracking and determined there is a potential to use it to support the policy on “Expanding eligibility for Renewable Natural Gas (RNG)"
MECP considers the Enbridge records to be adequate to show ownership, custody transfers from supplier to user, volumes of RNG transfers, delivery to EPS facility. These records would also help to support verification of RNG.
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