On January 26, 2022, the Ontario government announced its intention to develop a voluntary Clean Energy Credit ("CEC") registry and directed the Independent Electricity System Operator ("IESO") to draft a report on the registry's proposed design. Since then, the IESO has conducted engagement activities with various stakeholders. On August 2, 2022, the Ministry of Energy released its proposal regarding the development of a clean energy credit registry, with public consultation slated to close on September 16, 2022 and the target launch for the registry scheduled for January 2023.
Below is a summary of the following:
- Ontario government's objectives behind the creation of a CEC registry;
- Proposed design of the CEC registry;
- Anticipated legal developments surrounding the CEC registry;
- Other development considerations taken by the IESO; and
- Final thoughts.
I. Government objectives
According to the Hon. Todd Smith, Minister of Energy, the establishment of a CEC registry will support businesses by providing them with an additional mechanism in meeting their environmental, social and governance ("ESG") goals while generating revenue that could help offset the price of electricity for Ontario citizens. Moreover, in a stakeholder engagement webinar held on February 24, 2022, the IESO stated that (against the backdrop of Ontario's electricity grids, which is among the cleanest in the world (94% emissions-free in 2020)) creating a CEC registry will generate investment opportunities, boost Ontario's international competitiveness, create jobs and further ongoing decarbonisation efforts in Ontario. Lastly, the creation of CEC registry will also provide an official, centralized registry that tracks and enables the trading of CECs generated and consumed in Ontario for business and individuals who are already purchasing CECs to meet voluntary sustainability ambitions.
II. Proposed design of the Ontario CEC Registry
Under the Ministry of Energy's proposal summary, a CEC is a certificate representing 1 megawatt-hour ("MWh") of clean electricity generated from a non-emitting source, including, as an example, solar power or nuclear power. As for the proposed voluntary CEC registry, corporations can voluntarily purchase CECs generated by another emitter and retire the CECs to benefit from them. In effect, CECs demonstrate that clean energy has been generated, acquired and retired to meet the purchaser's voluntary clean energy targets.
As proposed, Ontario's CEC registry will help facilitate the recognition, display of certification and tracking of CECs. Notably, the tracking of CECs will cover both the ownership of CECs (and corresponding transfers in ownership, if applicable) as well as the retirement of CECs, ensuring that the benefit of the credits are not double counted. Accordingly, all Ontario-based generators of non-fossil fuels should have the ability to enroll and certify the non-fossil fuels they've generated. The registry could also require additional information, such as mandating a unique tag for each CEC, outlining information such as the generator name, location of generation, date of generation and fuel source. The Ministry of Energy's proposal also highlights the need to establish methods for tracking and verifying a CEC's status (ownership, retired, active, or expired) and standard operating procedures for the registry's operation, including, as an example, user registration, account structure, data security and dispute resolution.
III. Anticipated legal developments
To effectively maintain and operate the proposed CEC registry, the Ministry of Energy has highlighted a number of anticipated changes to the current legislative and regulatory landscape, subject to any changes deemed necessary by the government.
First, the IESO may require additional authority to establish or designate a CEC registry, as well as to specify the administrative requirements governing the operation of the registry.
Second, the IESO may require authorization to become a market participant in relation to the CEC registry. This will ensure that the IESO has the ability to release into the market the CECs in its possession.
Third, the Minister of Energy may require the authority to establish the rules and requirements governing the CEC registry.
Fourth, the Minister of Energy may also require authority to allocate revenues flowing from CECs generated in relation to Ontario Power Generation Inc. ("OPG") and the IESO. Specifically, this authority may be required for any CECs created via regulated assets owned by OPG and through the IESO's procurement contracts.
Fifth, amendments to legislation and regulations may be required to certify that any CEC generated in Ontario and subsequently retired is allocated only to electricity consumed by business and individuals located inside Ontario.
Lastly, laws mandating the reporting of the sale and retirement of CECs may be introduced.
IV. Other development considerations
Throughout the IESO's engagement process with stakeholders regarding the potential design of Ontario's CEC registry, the Ontario government has requested that the design process be guided by the following considerations as outlined in the IESO's CEC Engagement Plan. We highlight these considerations below while noting that they will be important in the ongoing proposal development and program design processes.
First, the CEC registry's scope is to be domestic. Any generation and trading of CECs is to be geographically limited to within Ontario.
Second, the CEC registry is to facilitate the trading and retirement of voluntary CECs. In other words, the procurement and trading of CECs will be for the purposes of meeting voluntary objectives established by the consumers themselves, rather than targets established and mandated by law.
Third, consumer preferences and market demands should be considered when determining the types of purchase options available on the CEC registry through stakeholder engagement and market research. Moreover, all CECs from all non-emitting fuel sources across the province should be included in the offerings for the registry.
Fourth, the investments made in the registry should be monetized. To ensure this, the CECs made available for trade should include existing non-emitting generation, while also ensuring that the proceeds flow back to the ratepayers.
Fifth, the design of the CEC registry should be flexible. Together, this flexibility will help support any future potential product or market expansion. Moreover, this flexibility should also help empower cooperation between existing electricity generators and brokers so that any market opportunity can be maximized. Doing so would, for example, allow for greater information flow on price ranges.
Lastly, the CEC registry should ensure that any potential of double counting is avoided. Double counting refers to the benefits of CEC generation and retirement being counted twice.
V. Final thoughts
In the design of carbon systems, registries and markets, the devil is always in the detail. We will continue to study the development of the CEC registry and explore for our clients and contacts the intended and unintended consequences. The IESO's CEC Engagement Plan identifies six (6) key considerations which present unique challenges and opportunities as the CEC registry is rolled out.
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