Cap-and-trade program Regulatory Framework Overview OCTOBER 23 2018 - PowerPoint PPT Presentation

Cap-and-trade program Regulatory Framework Overview OCTOBER 23 2018

2 Nova Scotia cap-and-trade program Designed to meet federal requirement for carbon pricing • Recognizes our prior policy action and investments to • reduce greenhouse gas emissions Continues our leadership in greenhouse gas reduction • Keeps costs low for Nova Scotians •

3 Nova Scotia GHG emissions by sector (2016) Transportation 31% Electricity 44% Agriculture & waste 5% Other industry Oil & gas 3% 6% Residential Commercial Source: National Inventory Report 2018: heat 8% heat 3% Greenhouse Gas Sources and Sinks in Canada and NSPI GHG Report 2017

4 2030 Target: 45-50% below 2005 levels

5 Caps will reduce GHG emissions in NS • At least 650,000 tonnes of additional GHG reductions • There will be a four year compliance period 2019-2022 • 3% of cap will be set aside in government held reserve

6 Program scope: ~80% of NS GHGs Mandatory Participants • Facilities generating 50,000 tonnes of CO 2 e emissions or more from certain • sources per year (includes electricity) Petroleum product suppliers that first place 200 L of fuel or more per year for • consumption in the Nova Scotia market Natural gas distributors that deliver natural gas for consumption in Nova • Scotia that, when combusted, produces 10,000 tonnes of CO 2 e emissions or more per year Electricity importers that import electricity into Nova Scotia for consumption • in Nova Scotia and whose GHG emissions from the generation of the electricity imported is greater than 10,000 tonnes of CO 2 e per year

7 Distribution of allowances: free of charge Industry (Northern Pulp, Lafarge, Goldboro) NSE will set an intensity-based benchmark from previous years for each • facility Receive 75% of eligible free allowances at the start of the year • Remaining eligible allowances will be distributed following verification • and production adjustment Designed to incent emission reductions but also avoid carbon leakage • Used for industries that are emissions intense and trade exposed (risk of • closure if a carbon price were applied to all emissions) EMBARGOED COPY

8 Distribution of allowances: free of charge Electricity (NSPI) • Direct allocation based on an incremental reduction from projected emissions • Receive approximately 90% free allowances (on average over four years) based on business as usual projection • Must make incremental reductions over four years • Free allowances distributed at the beginning of each year

9 Distribution of allowances: free of charge Fuel suppliers • Receive 80% of allowances for free distributed annually based on verified GHG reports • Starting in 2020, free allowances will be distributed after verified greenhouse gas emission reports are submitted

10 Distribution of allowances: Auction • Allowances available at auction Auction details are based on WCI system and administered using CITSS • Auction would be held 2 to 4 times per year, starting in 2020 • Initial floor price of $20/tonne that increases each year at 5% plus inflation • Participants would be subject to holding limits and purchasing limits • • Purchasing limits: Fuel suppliers : No more than 15% of their prior year’s GHG report per auction • and no more than 25% of their prior year’s verification amount per calendar year Industry : No more than 3% of their prior year’s GHG report per auction and no • more than 5% of their prior year’s verification amount per calendar year Nova Scotia Power: No more than 5% of the allowances available for sale at • each auction

11 Consignment by Auction • Purpose: Minimize transaction costs and provide fair market value for participants • Participants can sell allowances at the government held auction • Consigned allowances will be sold first at auction at the closing price • If not sold, they will be held in the auction account and offered for sale at next auction • Consignment seller will receive summary of auction results and monetary amount associated with the sale

12 Trading between participants All trading of allowances will occur within CITSS • Trading can only occur from participants’ general accounts • A participant wishing to trade away allowances must submit a request through • CITSS, which a second account agent must approve This request must outline: account numbers of the parties involved, how many • allowances are being traded, the price per allowance and how the price was derived, and any details of the agreement which the trade is a part of Once approved, the request is sent to the intended recipient who must have • two account agents approve the trade

13 Trading system rules Holding limits: 500,000 maximum for accounts. Limited exemption in compliance • account Banking and borrowing: Not permitted • Non-emitter participants: No non-emitter participants; no voluntary participants • Disclosure: Copies of contracts for private trades must be provided to NSE • Offsets: Offsets enabled in legislation, offset framework to be developed in 2019 • WCI CITSS system used to: • Register mandatory participants • Distribute and track allowances • Trade and remit emission allowances •

14 Distribution of allowances: Reserve Allowance reserve: An account that has a specified number of allowances removed from the • overall cap. 3% of the annual cap for the compliance period • Three purposes: • 1. Allowances for sale (Soft price ceiling) : Participants can purchase from the reserve at set prices (e.g., $50/tonne). Number available for each sale is posted in advance 2. Allowances for new entrants : If a new cap-and-trade participant joins the system, NSE can access allowances from the reserve to provide free allowances according to allocation rules 3. Buffer for allocation-amount uncertainty : If projections are not accurate, NSE can access allowances from the reserve to fulfill commitments for free allowances according to allocation rules Sale of the allowances in reserve are based on WCI system and administered using the CITSS • Sale would be held up to 4 times per year, starting in 2020 • Participants can bid if there are no allowances in a participant’s general account • Sale price will start at $50/tonne in 2020 and increase annually by 5% plus inflation •

15 Cost pass-through for fuel suppliers Regulated Fuels (gasoline and diesel) Worked with SNS and UARB to update Petroleum Product Pricing Regulations to allow • carbon price to be added onto the price of fuel A new price adder will be included in the calculations for the wholesale selling price, • taking into account that fuel suppliers will need to acquire 20% of their allowances Between January 1, 2019 and January 1,2020, the cost adder will be based on the first • auction’s floor price of $20/tonne Every subsequent January, the cost adder will be updated with the projected floor price • in the following calendar year An adjustment will be added to the formula to account for an event where the auction • closes above the floor price Non-Regulated Fuels (e.g. propane, natural gas, heating oil) Participant decides how to pass on cost •

16 All revenue in Green Fund Estimate $25-30 million to the fund each year, starting in 2020 • May be used for: • • Programs that further reduce GHG emissions • R&D, innovation or cleantech investments • Programs to help mitigate higher costs of energy • Public awareness and education on climate change • Adapting to the impacts of climate change • Enabling framework to be established in 2019

17 Enforcement and administrative penalties Administrative penalties are imposed by NSE • The regulation will outline how administrative penalties will be determined. The minimum • and maximum amounts for each penalty will be included in the regulation In addition to the administrative penalty, if emitters do not remit enough allowances at • the end of the compliance period to cover their obligation: The amount to be paid: A = 3 x B x C • Where: • A = the amount required to be paid, • B = the lowest bid price accepted for emission allowances at the most recent auction, and • C = the amount of outstanding obligations at the time of the determination. •

18 Estimated average cost increases for households over four years Nova Scotia households will pay about $50 to $70 • more per year under cap and trade Electricity increase on average by 0.15¢ per kWh, or 1%, over the first • four years of the cap-and-trade program Gasoline to go up by an average of 1¢ per litre over the first four • years of the cap-and-trade program Natural gas to go up an average of 0.9¢ per cubic metre over the • first four years of the cap-and-trade program Heating oil to go up an average of 1.3¢ per litre over the first four • years of the cap-and-trade program

19 Estimated average price increase for fuel and electricity over four years All price impacts are estimates based on modeling results from the gTech Computable General Equilibrium Model. Actual price effects will be a consequence of real market behavior, including the closing price at allowances auctions and trading allowances between participants.