Capital Power supports the trading of verified emission offsets because markets efficiently allocate capital to the best reduction opportunities.
Trading offsets is essential for the efficient allocation of capital to emission reduction opportunities. In order to create and trade offsets, market participants require certainty about market trading regulations.
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A greenhouse gas (GHG) offset is generated by the reduction, avoidance, or sequestration of GHG emissions from a specific project. Offsets are so named because they counteract or offset greenhouse gases that would have been emitted into the atmosphere; they are a compensating equivalent for reductions made at a specific source of emissions. |
The creation of offsets through greenhouse gas reductions, and their trading, is essential if the industry and the national government are to achieve GHG reductions. Few in the power industry have access to sufficient internal investment opportunities to create GHG reductions economically on the scale required.
All market participants and governments have an interest in offsets that are real and verifiable: certification is essential to ensure the reductions have been made and for risk-management.
Canada’s market trading scheme is at initial stages of development and has yet to launch. The lack of market regulations impedes the creation and management of offsets.
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To provide certainty for industry and government, Capital Power advocates:
- Include in a clear rules for offset eligibility and verification.
- Providing access to verifiable credits from international markets. Canadian markets will have insufficient supply to meet domestic needs, and access to additional markets will reduce the cost to Canadians.
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Capital Power’s offset agreement with the Green Municipal Corp
In July 2006, Capital Power entered into an agreement with the Federation of Canadian Municipalities' Green Municipal Corporation to purchase greenhouse gas emission reductions resulting from the Cedar Road Landfill in the Regional District of Nanaimo. Capital Power's investment will see the delivery of over 280,000 tonnes of greenhouse gas emission reductions until 2012.
The Cedar Road landfill is located in the Regional District of Nanaimo. The landfill opened in 1946 but established a collection and combustion system in 2003. It is estimated to close in 2008 but will still produce landfill gas for many years to come as the waste decomposes. This landfill gas system collects the landfill gas produced and flares it. The project is independently verified annually for Capital Power against Alberta Environment standards.
Landfill gas is produced by the decomposition of organic wastes in the absence of oxygen. Landfill gas is composed primarily of methane, which is a greenhouse gas that is 21 times more powerful than carbon dioxide. Landfill gas accounts for approximately 25% of methane emissions produced by human activity.
Capital Power's offset agreement with Taylor NGL
In July 2005, Capital Power acquired 60,000 tonnes of emission offsets created at Taylor NGL Limited Partnership's Turin sour gas processing plant in southern Alberta.
Capital Power has also announced an open call for proposals for further greenhouse gas offsets.
Taylor's Turin sour gas processing plant receives wellhead natural gas from an extensive gathering system that connects approximately 600 wells to the plant. The raw natural gas is processed to remove CO2 and H2S (acid gas) and other components. The recovered acid gas, which contains in excess of 95% CO2, is compressed and transported by pipeline to an injection well for disposal in a depleted natural gas reservoir.
Approximately 40,000 metric tonnes of CO2 will be stored this way on an annual basis. Another 30,000 tonnes of CO2 per year in emission reductions is created through reduced natural gas flaring.
Under the agreement Capital Power:
- Acquired 60,000 tonnes of CO2 offsets in 2005.
- Acquired the option to acquire 70,000 tonnes of CO2 offsets annually through 2012.
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Removing 60,000 tonnes of CO2 from the atmosphere is equivalent to taking nearly 14,000 vehicles off the road for a year.
The emissions offsets are being quantified consistent with Environment Canada's CO2 Capture and Geological Storage Quantification Protocol and will undergo a third party independent audit later this year. Emissions trading is promoted under the Kyoto Protocol as an environmentally sound means for countries to cost effectively meet their emissions reduction target.
Taylor NGL Limited Partnership
Taylor NGL Limited Partnership owns and operates the RET Complex that includes the Retlaw, Enchant and Turin gas processing plants, the Harmattan Complex and the Joffre Extraction Plant, all in Alberta, and the Younger Extraction Plant in British Columbia.
The Partnership also owns two natural gas liquids pipelines in Alberta, the Ethylene Delivery System and the Joffre Feedstock Pipeline, both of which move products between Joffre, Alberta and Fort Saskatchewan, Alberta.
The Joffre and Younger plants are natural gas liquids extraction facilities that produce ethane, propane, butane and condensate. The RET Complex and the Harmattan Complex are natural gas processing facilities that provide services to oil and gas producers.
Mandating cleaner power generation
The need for investment in clean power
Canada requires significant investment in new power generation and a policy that prompts investors to introduce technologies that improve air quality and reduce greenhouse gas emissions.
Canada’s population and economic growth, combined with replacement of aging infrastructure, require the development of significant additional electricity generation: an estimated 10,000 megawatts of new power generation capacity by 2020.
The power generation investment environment is characterized by three important characteristics:
- Over a long-term (40-year) investment horizon project returns are typically low for the first 10 to 15 years. Technology improvements occur over time through capital stock turnover, as new plants replace projects that have reached the end of their useful economic life.
- Significant capital is at risk. About $1.5 million is required to build 1 MW of baseload generation capacity, enough to supply about 900 homes.
- The regulatory environment is consistently changing. Over a project’s lifespan, the risk of regulation and policy change poses a significant uncertainty for investors.
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The policy challenge
How can policy incent improvements in power generation technology without creating market uncertainty or requiring public subsidies? As older power generation is replaced by new technologies, the opportunity arises to significantly improve the industry’s overall environmental performance.
A spectrum of policy approaches are available, but some have unintended consequences. Mandating the replacement or upgrade of existing plants before the end of their economic life is a waste of the earlier investment and a significant penalty to investors. This creates uncertainty, discouraging future investment in power generation.
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“A prudent regulatory signal can prompt investors to implement improved technologies...” |
New technologies range from marginally more costly to double or triple the cost of conventional generation. Absent a regulatory signal, conventional generation may be the default decision. A prudent regulatory signal can prompt investors to implement improved technologies, without the significant market-replacing subsidies needed to support “bleeding edge” technologies.
The policy solution: BATEA
Capital Power advocates the position that governments should mandate that new Canadian power generation come from the Best Available Technology Economically Achievable (BATEA), and that plants at the end of their design lives be forced to meet this standard.
A BATEA can be defined as a technology that can achieve superior emissions performance and that has been demonstrated to be economically feasible through successful commercial application across a range of regions and fuel types.
BATEA is used to establish emission control expectations or limits for each fuel type (such as natural gas; oil; coals: bituminous, sub-bituminous; lignite). Though emission limits are specified, the specific technologies through which they are achieved are not. Facilities can opt for other technologies or emission strategies as long as the emission limits are met.
“BATEA of the day” means the BATEA limits that are in force as regulatory standards at that time and that will apply to new units as well as to existing units that have reached the end of their design life. BATEA is a rational policy approach that delivers ever-improving environmental performance while also providing a reasonable level of certainty for investors.
An example: BATEA applied to coal-fired power generation
BATEA would lead to immediate improvement in emissions from new coal-fired generation and provide a pathway to gasification.
Vintage coal-fired generation relies on sub-critical technology. A BATEA definition based on state-of-the-art supercritical power generation would deliver significant improvement in all air emissions by forcing investors to build facilities that met the improved emission performance of a supercritical power plant.
Gasification-based power generation has not yet reached acceptable standards for reliability, cost maturity or operation, but likely represents an achievable BATEA for the period after 2012. |
Through supercritical technology and offsets, CO2 emissions from new coal have already been dramatically reduced. Supercritical technology such as that in use at Genesee 3 reduces CO2 emissions 18% compared to the average Alberta coal plant. Gasification presents the opportunity to capture and sequester CO2: its potential emissions profile is fundamentally different than even the best present-day technology.
Read more about the development of cleaner coal-based electricity generation.