The Cost of Ontario’s Cap-and-Trade Program on Your Energy Bill

Posted: March 14, 2017
Tagged As: Cap and Trade, Climate Change, Electricity, Fossil Fuels, GHG Emissions, Legislation & Regulation, Natural Gas

Earlier this year LAS introduced you to Ontario’s new cap-and-trade program and the impact it will have on municipalities.  In this week’s In the Know we look at the dollar impact of cap-and-trade on your energy bills – specifically fossil fuels, natural gas, and electricity.  The cost of business went up for the energy sector on January 1, 2017, and consumers are going to pay for it.  But where will you see these increases, and how more should you expect to pay?
 
You may recall from the original post that the cap-and-trade program places individual cap levels on business and industry’s polluters.  Any business that exceeds their cap level will “have to pay” to acquire unused credits from businesses that emitted below their cap level.  The cost of that transaction is passed on to the consumer (of course!). 
 
This has a significant impact on the energy sector, and yes, you will see a bump in some of your energy bills.  The unfortunate part is that there probably won’t be a line item for cap-and-trade on any bill you receive.  Instead, the cost increases will likely get lumped together with other commodity or delivery costs appearing on the bill.  

Fossil Fuels

Estimated Increase Fuel Product
Diesel 5.42 ¢/L
Regular Gasoline 4.26 ¢/L
E10 Gasoline 3.83 ¢/L
Heating Oil 4.93 ¢/L
Heavy Fuel 5.67 ¢/L
Fossil fuels are large emitters of pollution, both in their refinement and during their consumption.  The transportation sector alone is responsible for more than ⅓ of Ontario’s GHG emissions, 70% of which comes from cars and trucks.  Therefore, it shouldn’t come as a big surprise that the introduction of cap-and-trade brings with it an increase in fuel costs. 
 
The figures above are ballpark price increases provided by a local distributor for the LAS Fuel ProgramNote that these are just estimates, as there is no sure fire way to accurately forecast the actual impact of cap-and-trade at this point.  Further, price increases may not be the same across the board for every distributor.  Having said that, these figures can still serve as good estimates for any municipality looking to put some numbers to cap-and-trade’s impact on fuel costs.

Natural Gas

Image depicting GHG emissions by sector in Ontario from 2013Much like transportation, buildings and homes are also big emitters of greenhouse gases in Ontario.  Natural gas combustion and carbon-based electricity emissions from buildings represent 24% of Ontario's climate change-causing air pollution.  With a growing population and economy, emissions from this sector continue to rise each year.  So just how much is it going to cost you to help address this issue? 

In November of 2016 the Ontario Energy Board (OEB) approved interim rate increases related to the cap-and-trade program for Union Gas, Enbridge and Natural Resource Gas Limited.  While the increases are estimates and vary across the different account types, all are generally within the range of 3.3 – 3.4 ¢/m³
 
Union Gas acknowledges the estimation of the cost on their website by stating, “cap-and-trade cost is expected to be about 3.3 cents per cubic metre (m³) of natural gas used in 2017,” while the Enbridge cap-and-trade cost estimator makes use of a more specific 3.3518 ¢/m³ cost increase.  NRG also references a specific number on their website – 3.3945 ¢/m³
 
If you’re looking for something a little more specific than the above rates, you can find expected cost increases for different account types under each of the three utilities in their joint application to the OEB.  You can also visit the OEB’s website to learn more about current rates and how different factors, including cap-and-trade, affect the costs appearing on your bill.

Electricity

Electricity prices in Ontario have been steadily on the rise for quite some time.  Much of that is attributable to capital investments and the decision to end all coal-fired power generation in favour of cleaner alternatives.  Unfortunately, cleaner electricity alternatives have come at an increased cost.  That’s the bad news. 

The good news is that since those coal-fired plants closed, 90% of the electricity produced in Ontario is carbon free.  So only the remaining 10% or so of all electricity produced in Ontario is exposed to cap- and- trade costs, meaning the impact of cap-and-trade is negligible on electricity costs. 

Electricity production in Ontario relies on several sources – nuclear, hydro electric, natural gas, wind, solar, and biofuel.  Production of electricity from nuclear plants is used as the baseline for power generation (~10,000 MW/hr) and is supplemented by other production types as needed, generally during peak demand hours.  Of the other forms of electricity production used, only natural gas is not a low carbon emitter.  As such, it is only when natural gas electricity generation comes online that consumers will be exposed to any additional costs incurred due to cap-and-trade. 

The trouble with that is the need for natural gas electricity generation will vary at different times of day and different times of the year (i.e. a heat wave), making it difficult to simplify the cost of cap-and-trade in a ¢/kWh charge to the consumer.  So, while the Ontario government says that cap-and-trade will not make your electricity more expensive, the likelihood is that there will be some negligible impact on electricity prices from cap-and-trade.

The Future Cost of Carbon

The overall goal of the above is, of course, to reduce greenhouse gas emissions over the longer term.  What impact that will have on future cap-and-trade costs unknown at this time.  However, given the figures for fuel, natural gas, and electricity are all interim figures, not to mention estimated interim figures, there is a real possibility that as emissions fall over the course of time, the cost of carbon will rise. 

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