Monday, January 28, 2008

Ontario’s climate change breakthrough: major bragging opportunity for Dalton McGuinty at Vancouver premier-fest
Ontario premier Dalton McGuinty must be frustrated. He’s at the current Council of the Federation meeting in Vancouver, the focus of which is climate change, and he feels he can’t boast about Ontario’s remarkable progress in reducing greenhouse gas (GHG) emissions. McGuinty could legitimately claim that Ontario is the North American leader in power sector emission reductions.

As I have mentioned, GHGs in Ontario’s power sector were 15 million tonnes less in 2006 than in 2003. That’s the biggest emissions reduction in any sector anywhere in North America since the Kyoto Protocol was signed in 1997.

Ontario’s massive GHG reduction was achieved in part because a of decision that McGuinty took in 2004, to return a previously laid-up nuclear power reactor to service. This, along with McGuinty’s support also for the return of other laid-up units, at the Bruce nuclear station, displaced equivalent amounts of coal generation. Ontario’s power-sector emissions plummeted.

So why isn’t the Ontario premier talking this up? Perhaps because the day-to-day performance of Ontario’s nuclear generators seems so up and down. Usually the province’s reactors crank out over 11,000 megawatts of power, which sometimes meets up to 60 percent of Ontario’s demand.

But sometimes, such as today, reactors come off-line for maintenance. (As I write this, in the early morning of January 28, Ontario’s nukes are providing 9,600 MW, only 44 percent.) When that happens, the coal plants—the other non-hydro workhorses in the provincial generator fleet—leap into service. Right now, coal is providing a fifth of the province’s power. And emissions are going up.

McGuinty should quit worrying about this. Day-to-day only seems up and down. Nuclear is still Ontario’s main workhorse, and will remain so for the foreseeable future. The premier should focus instead on the strong likelihood that, by the end of 2009, the Bruce 1 unit will have re-entered service and Ontario’s operating nuclear capacity will be close to 12,000 MW. By the end of 2010, this will have brought the province’s electricity sector to below the original Kyoto target of 25 million tonnes.

This will be a nice achievement to brag about as the Ontario Liberals gear up for the 2011 provincial election. But McGuinty should start bragging now. The example of Ontario’s 15 million tonne achievement might inspire Alberta, whose power sector is almost all coal-fired.

Wednesday, January 23, 2008

The price of carbon in Europe: more lip service, or a real tax?
In just a few hours the European Union will release its draft rules for Phase 3 of the Emission Trading Scheme. Everyone is waiting on word of whether the EU will force emitting companies to purchase all emission credits at auction. If this happens, then the ETS’s teeth will have grown longer and sharper.

The question is, will those teeth rip and slash carbon emissions, or will they maul the European Union economy? Certain heavy industries have been on a media blitz lately, warning of job losses in the tens of thousands if the ETS foists costs on European companies that their competitors don’t have to bear. The head of the German steel industry association told Agence France Presse that “if the law on certificate trading for carbon dioxide emissions is introduced as planned … no steel manufacturer will invest in Europe.”

All those who have been advocating carbon trading, or carbon taxation, will be watching the European Commission’s next move like a Leaf’s fan watches Cliff Fletcher. The ETS has up to now been a giant expectation-management exercise. The price a company pays for permission to emit each extra tonne of carbon depends on everybody’s definition of “extra.” “Extra” minus one tonne is that company’s emissions cap, which is established through an exercise that is part estimate, and part negotiation. The negotiation part is what has so far kept the market price of permits low: companies have tended to highball their estimates of emissions for an upcoming period, and their national governments have tended to support those estimates in dealing with the European Commission (which administers the scheme). And the EC has generally accepted them. So far.

This systemic leniency has led to permit proliferation, which has driven down the market price. Emitters therefore have had little incentive to reduce emissions.

But the EC has become stricter in approving member countries’ emissions estimates (see article). And now with today’s impending announcement on full auctioning of permits, the rubber is about to hit the road. Angela Merkel and Nicolas Sarkozy have both said they will protect their home industries from costs that render them uncompetitive.

So it’s down to a choice: fight climate change or defend jobs. My prediction is we’ll see more of the lip service that has served the EU so well in its self-congratulatory condemnation of the arch-fiend George Bush. The ETS’s teeth will stay short and dull.

Sunday, January 13, 2008

Ontario’s Debt Retirement Charge: voila! It’s a carbon tax
Back in November, I suggested renaming the Debt Retirement Charge portion of every Ontarian’s electricity bill to Climate Change Contribution (see article).

This is just one way of acknowledging that the Darlington nuclear generating plant—which the debt retirement charge pays for—offsets around 27 million tonnes of greenhouse gases (GHGs) every year. History proves that if Darlington weren’t there, we’d be getting its annual 27 billion kWh from coal—and according to Environment Canada coal produces about a kilogram of GHGs for every kWh.

As an electricity consumer, I pay less than $4 a month for Darlington. That’s a small price to pay for the plant’s high quality, zero-emission power.

Last week a federal organization caused a stir by saying that Canadians have to start paying for their carbon. It was suggested that this could result in electricity rate hikes of 50 percent. (Of course it was never mentioned that it is Albertans who would suffer this pain; after all, Alberta’s electricity system is primarily coal-fired. Quebeckers, who already have the cleanest power in the industrialized world, would see no change in power rates. But it is unwise in Canada to point this out.)

Ontario’s experience with the debt retirement charge suggests that the cost of bringing zero-emission power into a system will not result in rate hikes anywhere near 50 percent.

Ontario’s experience also suggests that subsequent incremental rate hikes won’t result in a political apocalypse for the government that brings them in. Other than the usual tax haters and anti-nuclear greens, nobody has raised a fuss over the debt retirement charge.

And if the Debt Retirement Charge were re-framed as the Climate Change Contribution, it would become positively risky to attack it.

Monday, January 07, 2008

North Korea’s nuclear “disablement”: déjà vu all over again?
One week ago, North Korea missed a critical deadline in its bid to re-enter the international community. According to the six-nation process for the north’s nuclear disarmament (referred to as “disablement” for the sake of politeness), the north was supposed to submit detailed reports on its nuclear materials, equipment, facilities, and programmes. It didn’t, at least not to the satisfaction of the United States.

China appears to agree. There is now another media negotiation in progress, this time through China’s Xinhua news agency (see article). The Xinhua article is polite and even-handed, and points out the north’s desire to be removed from the U.S.’s list of rogue nations. But when you read between the lines you get the impression China is telling North Korea to just cough up the information.

Back in October, North and South Korea reached a separate agreement on getting nuclear weapons out of the Korean Peninsula. I speculated at the time that this could spell opportunities for Atomic Energy Canada Limited, the maker of the famous CANDU reactor. South Korea is a major driving force behind developing DUPIC, a process for burning spent fuel directly in CANDUs. If the deal with the north holds, South Korea can get the green light from the U.S. to commercialize DUPIC on the Korean Peninsula.

History has shown that all nuclear deals with North Korea are subject to change without notice, and last week’s missed deadline underlines this. The new South Korean president, Lee Myung-bak, apparently blames the north’s unreliability in part on the lenient and open-ended policies of his predecessors. He has therefore indicated he will make South Korean financial aid to the north contingent on actual nuclear cooperation.

Go Lee, go. The sooner the nuclear situation in Korea stabilizes, the sooner the south can work out the grid-readiness of DUPIC. DUPIC is the most proliferation-resistant way for the U.S. to reprocess its gigantic stockpile of spent fuel.

Friday, January 04, 2008

The European emission trading scheme: lessons for Ontario
The EU emission trading scheme (ETS) offers valuable lessons for other jurisdictions looking to get into carbon cap-and-trade. Phase 2 of the ETS became effective three days ago. Will it correct the central deficiency of Phase 1, which was over-allocation of carbon permits?

You will recall that in Phase 1, certain EU national governments were over generous—some would argue deliberately over generous—with carbon permit allocations (see article). The more allocations granted, the cheaper carbon permits became, and the less incentive coal-fired power companies had to deviate from business-as-usual and actually reduce emissions.

Early indications are that the ETS is at least moving in a direction that could bring about significant carbon prices. The European Commission (EC), which administers the scheme, chopped Germany’s proposed quota of 482 million tonnes by six percent, down to 453 million tonnes. In combination with a Phase 2 policy that allows each member country to auction up to 10 percent of its carbon permits, this new administrative toughness might keep permits in the system to a minimum and drive up their market price, which is the whole idea.

Phase 3 draft rules are coming on January 23, and there are rumours that power companies and some governments are lobbying for full auctioning of permits. This would make permits truly expensive.

It will also force EU governments to recognize that nuclear power is the best way to provide cheap non-emitting power on a large scale. The ETS’s main limitation is that Germany, the EU’s biggest greenhouse gas (GHG) emitter, is phasing out nuclear generation. Keeping Germany’s anti-nuclear policy in mind, the ETS’s designers hoped that putting a cost on carbon emissions would spur a sort of anti–Manhattan Project—a giant collective effort to find a non-emitting, non-nuclear way to generate massive amounts of power. It has been obvious all along that this won’t happen, no matter how big or how hard they dream. The only ways to reduce Germany’s power-sector GHGs without adding new nuclear plants are to shift from coal to expensive Russian natural gas or to force coal generators to capture and sequester carbon. Either option would jack the price of power up into the stratosphere.

Few politicians are willing to publicly author a policy that results in massive electricity price hikes. So, presented with choice between a rock and a hard place, EU governments, including Germany, chose to go easy on their domestic power generating companies. Hence their generosity with carbon permits in Phase 1 of the ETS. And hence Germany’s attempt to over-allocate in Phase 2.

But with the EC’s semi-clampdown in Phase 2, the rubber is now about to hit the road. Will Germany choose to force its power generators to buy 10 percent of its permits at auction? If so, power consumers in that country will start feeling the sting of high prices. Will they stay anti-nuclear?

In my previous post, I pointed out that the atom is the most likely way the Ontario power sector will meet Canada’s new 18 percent emission reduction targets by 2010. A reduction this size would bring power generation emissions to below the original Kyoto target for that sector in that province. (The Kyoto target for Ontario’s power sector is 24.8 million tonnes; see Environment Canada’s website.)

Luckily, the Ontario and federal governments aren’t hamstrung by anti-nuclear theology. In light of this high likelihood of success, should the federal government bet on the winning pony and help Ontario meet the 18 percent target? If it did, within two years Canada would have a success story, and a best practice, to show off to the world.