Energy Probe

(Sept. 1, 2010) The Ontario government’s plan to turn off coal and switch to biomass at the Atikokan Generation Station is a VERY expensive way to reduce Greenhouse Gas (GHG) emissions.

I am all for the generation of electricity from biomass/pellets. But EVERY European biomass-fired and co-fired electricity generation unit also produces a significant amount of heat (steam and/or hot water) that is supplied into a district heating system.

It is the co-generation of heat that makes the numbers work.

60% of Danish residential and commercial space and water heating is supplied through a hot water distribution system. 80% of the hot water in Denmark’s district heating system originates at old power plants that are co-fired with coal and wood pellets.

Atikokan is too far away from any sizable community to be a cost-effective district heat supplier. This is the wrong plant to convert to biomass. A major modification to accommodate biomass feedstocks at the Thunder Bay power station potentially makes MUCH more sense.

When you operate those boilers to generate electricity, they are working at a 30% to 40% (max) efficiency rate—lower if you’re burning biomass, nearer the high end if you are burning coal. When you co-generate useful heat at the same boilers, you are cranking up the efficiency rate (BTUs of energy in for BTUs of useful energy out) to 75% to 90% (depending on technology and fuel), even if the boilers are quite old.

It is only when you are switching to biomass AND cogenerating marketable heat—best bet in Ontario is hot water for district heat, as opposed to steam, which can be cost-effectively moved over distances up to 55 km. Building hot water transmission capacity is typically significantly less expensive than building incremental capacity to transmit electricity.

The role of district heat—and the role of old coal-fired power plants in the supply of hot water for district heating networks—in a national energy efficiency and GHG reduction strategy is well understood in both Europe and the US. In fact, every US climate change bill that has passed 2nd reading or better since 2006 (including the Waxman-Markey bill which passed 3rd reading in the House) includes the following provisions, which are expressly intended to dissuade utilities from de-commissioning old coal-fired boilers if/when they are positioned to supply district heat.

From the Waxman-Markey climate change bill, passed by the House in 2009 (identical language appears in two subsequent Senate draft bills):

In Section 102, “Definitions”, the bill defines “utility units” (page 282) as follows:

`(54) UTILITY UNIT- The term `utility unit’ means a combustion device that, on January 1, 2009, or any date thereafter, is fossil fuel-fired and serves a generator that produces electricity for sale, unless such combustion device, during the 12-month period starting the later of January 1, 2009, or the commencement of commercial operation and each calendar year starting after such later date—

`(A) is part of an integrated cycle system that cogenerates steam and electricity during normal operation and that supplies one-third or less of its potential electric output capacity and 25 MW or less of electrical output for sale; or

`(B) combusts materials of which more than 95 percent is municipal solid waste on a heat input basis.

This definition is repeated in the definitions for Section 111 (starting page 283), which definitions apply to the allocation of GHG allowances as well as the emission caps and obligations to surrender allowances that apply under the law.  The wording in these sections explicitly states that the new obligations to cap emissions and surrender allowances applies ONLY to “utility units” and not to electricity generating units that are deemed not to be utility units.

In other words, the above definition of “utility unit” affects an exemption from the new cap and trade obligations for combustion devices that meet the criteria outlined in (A) or (B) above. By definition, this is a very significant incentive for US owners of existing coal-fired power generation units to cogenerate steam (which they may or may not condense into hot water) and use the combustion units to supply heat into a District Heating system in lieu of using those units primarily to make electricity.

I am worried that Ontario’s early GHG reduction projects will be so expensive the net result will be a loss of public support for further measures to reduce GHGs in the province. Instead of the FIT—where government both sets prices and picks technologies, with all of the related complications and inefficiencies—Ontario should put a legally binding Renewable Energy Standard (“RPS” or “RES”) in place (with the broadest possible definition of “renewable” and including building efficiency upgrade projects as renewable energy credit-earning and where 277.778 Pjs of biofuel sales equates to 1 MWh of renewable power sales).

Instead of picking specific power generation units to fire or co-fire biomass, the Province should incorporate an exemption from the RES for existing coal-fired generation units that are converted to co-generate district heat, and issue RECs to those units, where 10,000 lbs of steam-equivalent hot water equates to 1 MWh of renewable power and earns a REC—whether that steam is 100% generated from biomass or 30% biomass/70% steam.

Aldyen Donnelly, September 1, 2010

(Aug. 31, 2010) Implementing tariffs to discriminate against environmentally subsidized imports is a horrible—and very 1950s—idea.

When we decided that it was unhealthy to sell toys in Canada that were covered with leaded paint, did we: (1) prohibit the manufacture of leaded paint in Canada and (2) put a tariff on leaded paint and leaded painted toy imports? Certainly not. Everyone involved agreed that would have been a stupid idea. So why are we seriously contemplating such a stupid idea to address the damage of GHGs and other pollutants?

When we wanted to get the lead out of gasoline and paint, PCBs out of electricity components, DDT out of pesticides, sulphur levels down in diesel, or CFCs out of refrigerants, we did not regulate domestic manufacturers and put tariffs on imports, as proposed in Jeff Rubin’s article.

In EVERY case of successful environmental management outcomes we did the same thing.

We first regulated the pollution factor and/or content for pollution precursor products, at the point of sale—not the point of manufacture or import. To the extent that we prohibited the manufacture of polluting products or pollution precursors in Canada, we only did so after North American product standards created significant demand for more environmentally benign versions of those products.

Efficient and effective regulation will not involve any tariffs. Effective regulations will say that every distributor of petroleum products in Canada has to report global supply chain fossil carbon consumption and comply with fossil carbon content limits (on a Canadian sales portfolio basis) that decline over time.

We only have to put supply chain carbon/GHG reporting and content limits in place for nine basic commodities to cover 85% of North America’s global supply chain emissions. 80% of the least cost measures industry will apply to comply with the reduction obligation will also result in local air pollution reductions.

Why are we talking tariffs—which will be the start of trade wars—when we clearly know how to get this right and also know that tariffs are inefficient? Regulate products sold, and not manufacturing techniques. Leave it to the market to come up with the manufacturing techniques required to comply with the product standards.

Product standards treat all products sold equally, regardless where the products are manufactured.

Learning from past experience

I should note that every time we have regulated products to achieve environmental protection goals, (1) Canada has regulated domestic production as well, but (2) the US has exempted exports. Consistent with this history, the US Congress has even included an exemption from proposed US GHG caps for all GHG sources that are producing exported products in every climate change bill that has passed 2nd reading on the House or Senate since January 2006.

We can afford to regulate what is manufactured here only if/after our product standard regulations have created a large enough demand for environmentally superior products, and only if the US removes the export exemption from its existing and proposed regulations.

Every time Canada has regulated both sales and production, the US has subsidized US producers of the regulated products by allowing them to continue to produce and dump polluted/polluting products on developing world markets. A system of tariffs just makes the return on dumping worse.

The ultra low sulphur diesel case

For example, in 2006 it became illegal to sell diesel fuel that was greater than 15 parts per million (ppm) sulphur through the retail distribution networks in both Canada and the US. In Canada, it became illegal to manufacture high sulphur diesel in the same year. But the US did not completely prohibit the production of high sulphur diesel.

Up until 2006, the US was a net importer of diesel fuel. After 2006 the US became a net exporter of diesel fuel. 100% of the US’s incremental diesel exports are high sulphur diesel, and most of these exports are going to developing nations in South America or to developed nation refineries where the high sulphur diesel is blended with their low sulphur production before the finished blend is exported to developing nations.

The US refinery dumping of high sulphur diesel on the developing world market mirrors the US dumping of leaded gasoline starting in 1990, after the completion of the US domestic leaded gasoline phase out.

Most of the gasoline export increase you see pictured below was in the form of leaded fuel from 1980 through roughly 1995. Congress eventually approved regulations prohibiting the manufacture of leaded gasoline in the US in 1996. Having established new export market share with leaded fuel exports, the US refineries maintained and continued to grow those export market shares by substituting unleaded for leaded fuel.

Western Climate Initiative

Note, as well, that the California GHG standard for electricity and Low Carbon Fuel Standard—the critical measures the states/provinces participating in the Western Climate Initiative have agreed to—effectively exempt product that is manufactured in California/the WCI states/provinces, but is exported, from the GHG limits.

Canada unity at risk

Please also note that if/when Canada/the provinces agree to a domestic “cap and trade” set of rules (where “cap and trade” regulates GHGs at the point of production, not the point of sale) and levels the playing field with tariffs on imports, if Canada replicates the US historical and proposed GHG bill models, all Canadian production destined for export markets will be exempt from Canada’s GHG caps.

This has major implications, including but not restricted to:

• many of the larger GHG sources in western Canada will be exempt from the national GHG cap and trade regulations, but

• most of the cost of import tariffs will be paid by consumers living in Ontario and Quebec.

I do not believe that any such outcome will prove acceptable to the residents of Ontario and Quebec.

Aldyen Donnelly, August 31 2010