August 30, 2001

John Hutchison, Senior Policy Analyst
Air Policy and Climate Change
Ontario Ministry of the Environment
4^th Floor, 135 St. Clair Ave. West
Toronto, Ontario  M4V 1P5

Re:  EBR Registry Number RA01E0020

Comments on Emissions Trading And NO_x And SO₂ Emission Limits For The Electricity Sector

Pollution Probe is concerned about significant flaws in both the content of Ontario’s proposal for an emissions trading system and the Ministry of the Environment’s (MOE) process for consulting the public and interested stakeholders about this proposal.

The MOE’s lack of willingness to consult.

First, on the process of public consultation. The MOE received 61 comments on its “Reduced Emission Limits for the Electricity Sector and an Emissions Reduction Trading System for Ontario” posting (EBR # RA01E0009), but failed to further consult with or adequately respond to the concerns of a number of experts in the field. The MOE’s decision was posted within 36 days of receiving more than 500 pages of detailed technical comments, many of which clearly outline how this proposal can be bad for both business and the environment. It is Pollution Probe’s conclusion, having reviewed the comments and the MOE’s three page response to these concerns, that the comments were summarily ignored.

On August 7, 2001, soon after the posting of the current proposal, Pollution Probe wrote to the Honourable Elizabeth Witmer (letter attached), asking for further public consultation on this important piece of environmental legislation and an extension to the comment period to “provide the government with an opportunity to ensure that the initial stakeholder comments are properly understood and responded to and that both the business and environmental implications of the proposed emissions trading system have been properly evaluated.”

In our request Pollution Probe referred to the Environmental Commissioner of Ontario’s Guidance Document, entitled  Implementing the Environmental Bill of Rights: Environmental Registry Notice and Comment Procedures, which supports our contention that a 30-day comment period for such an important piece of environmental legislation, when many Ontarians are on holiday and cannot respond, is unacceptable and inadequate.

The Ministry’s lack of willingness to engage the public and other important stakeholders on this issue is of significant ongoing concern to Pollution Probe. It is completely inconsistent with the report, “Managing the Environment: A Review of Best Practices (January 2001)” which was endorsed by the Government of Ontario as a new manifesto for doing business.

Key problems with the MOE’s proposal

As none of Pollution Probe’s concerns were addressed in the current MOE proposal, we are forced to reiterate our key concerns here (our previous submission is attached).

The current emissions trading proposal will permit the electricity sector to  exceed the Canada-U.S. Ozone Annex commitment for NO_x emissions by up to 33%. Therefore we cannot accept the trading system as proposed.

If other NO_x emission reductions are guaranteed and there is assurance that Ontario’s Anti-Smog Action Plan (ASAP) will meet the provincial NO_x target (45% reduction from 1990 emission levels by 2010), and only capped sectors are permitted to trade allowances with the electricity sector, environmental benefit from such a programme would be highly likely. The potential for emissions “leakage” would be significantly less because of a more limited scope for emission reduction credit (ERC) creation and trading. There may also be benefits in terms of cleaning up emissions from small to medium-sized industry and other NO_x emitters.

Unfortunately, there is no legal or firmly binding guarantee that ASAP will meet its target, no clear budgeting of emission reductions among ASAP partners, and confusion as to whether the target date for the attainment of the 363 kilotonne provincial NO_x emission cap is actually 2010 (as required by the Canada-Wide Standard for ozone) or 2015 (as required by the original ASAP agreement).

Until other sector caps and allowances are in place, the electricity sector should be required to meet the targets that have been set for NO_x emission reductions, without emissions trading with these sectors.  This should remain the case until such time as the ASAP is benchmarked in law or in acceptable sector and/or company-specific NO_x reduction agreements. The ultimate goal remains to bring all significant industrial emitters under the same emission allowance system. This will lessen the confusion inherent in the current proposal between different types of allowances and credits.

On the suggested emission caps for SO₂, Pollution Probe’s position has not changed. We do not believe that what is proposed is good enough to result in adequate improvement in SO₂ emission levels.  We do not believe it is appropriate to support an emissions trading programme for SO₂ until such time as the caps can be demonstrated to be significantly below current emission levels for this pollutant.

Shared concerns of diverse stakeholders

Since the posting of the current proposal, Pollution Probe has analyzed concerns of some of the key stakeholders that responded to the preceding posting of the proposed emissions trading system (EBR # RA01E0009). The following are some shared concerns of key stakeholders.

Emissions Trading - The Concept

The principle of emissions trading is that, as long as there is a decrease in the total emissions of a pollutant, reductions by individual pollution sources can be averaged out to balance costs. Those that can clean up more quickly and cheaply will go further than required by law, in order to generate emission reduction “credits”. Slower, costlier facilities will pay for their delays by buying credits.

Emissions trading is only a tool that, when properly designed, can help industry achieve an environmental goal at a lower overall cost. But it only works effectively when there is an overall emissions reduction target for all parties involved and specific allocations of targets for major sectors or companies. In the case of Ontario’s current proposal, there is no such reduction target for all parties.

Trading will not deliver emission reductions on its own. The MOE made it clear in the Notice of Decision for Regulation of July 31, 2001.

The Ministry recognizes that emissions credit trading, by itself, does not lead to reductions in total emissions. The Ministry has initiated discussions with other sectors about emissions caps for the sectors, and will continue to develop programmes and regulations to reduce pollution.

Unfortunately, there are no overall emission reduction targets in Ontario’s plan and no binding emission reduction commitments beyond those proposed for the electricity sector. Provincial commitments to future discussions about the possibility of binding emission caps are vague and do not change the fact that this programme will not reduce the pollutants in our air. Pollution Probe believes that, at a minimum, the current proposal for a trading system should not proceed unless the government clearly outlines a process and timetable for bringing other major NO_x emitting sectors and companies under the cap and allowance system.

Please review Pollution Probe’s earlier responses (February 2000 & June 2001) to EBR postings of provincial Electricity Sector Caps and Emissions Trading plans.

Should you have any questions, please contact John Wellner at Pollution Probe, 416-926-1907 ext. 236.