Recent Developments Regarding Ontario’s Proposed Clean Energy Credits (CEC) Registry

On January 26, 2022, the Ontario government announced its intention to develop a voluntary clean energy credit (“CEC”) and ordered the independent electricity network operator (“IESO”) to write a report on the proposed registry design. Since then, the IESO has conducted engagement activities with various stakeholders. On August 2, 2022, the Department of Energy released its proposal for the development of a clean energy credit registry, with public comment expected to close on September 16, 2022, and the registry’s target launch scheduled for January 2023.

Below is a summary of the following:

  1. the Ontario government’s objectives behind the creation of a CEC registry;
  2. Proposed CEC registry design;
  3. Anticipated legal developments surrounding the CEC register;
  4. Other development considerations taken by the IESO; and
  5. Final thoughts.

I. Government objectives

According to the Hon. Todd Smith, Minister of Energy, the establishment of a CEC Registry will support companies by providing them with an additional mechanism to meet their environmental, social and governance obligations.”ESG”) while generating revenue that could help offset the price of electricity for Ontarians. Additionally, during a stakeholder engagement webinar held on February 24, 2022, the IESO stated that (in the context of Ontario’s electricity grids, which are among the cleanest in the world (94% zero emissions in 2020)) the creation of a CEC registry will help generate investment opportunities, boost Ontario’s international competitiveness, create jobs and continue Ontario’s ongoing decarbonization efforts. Finally, the creation of the CEC Registry will also provide a centralized official registry that tracks and enables the exchange of CECs generated and consumed in Ontario for businesses and individuals who already purchase CECs to meet voluntary sustainability ambitions.

II. Offers Ontario CEC Registry Design

According to the summary of the Department of Energy’s proposal, a CEC is a certificate representing 1 megawatt-hour (“MWh”) of clean electricity produced from a non-emitting source, including, for example, solar energy or nuclear energy. With respect to the proposed voluntary CEC registry, companies can voluntarily purchase CECs generated by another issuer and withdraw the CECs to benefit. In effect, CECs demonstrate that clean energy has been generated, acquired, and retired to meet the buyer’s voluntary clean energy goals.

As proposed, Ontario’s CEC Registry will facilitate the recognition, display of certification and tracking of CECs. Notably, CEC tracking will cover both CEC ownership (and corresponding transfers of ownership, if applicable) as well as CEC retirement, ensuring that credit benefits are not double counted. Therefore, all Ontario-based non-fossil fuel producers should have the ability to register and certify the non-fossil fuels they have produced. The registry could also require additional information, such as requiring a unique label for each CEC, describing information such as generator name, production location, production date, and fuel source. The Department of Energy’s proposal also highlights the need to establish methods for tracking and verifying a CEC’s status (owner, retired, active, or expired) and standard operating procedures for operating the registry, including , by way of example, user registration, account structure, data security and dispute resolution.

III. Anticipated legal developments

To effectively maintain and operate the proposed CEC Registry, the Department of Energy has highlighted a number of planned changes to the current legislative and regulatory landscape, subject to any changes deemed necessary by the government.

First, the IESO may require additional powers 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 market CECs in its possession.

Third, the Minister of Energy may require authority to establish the rules and requirements governing the CEC registry.

Fourth, the Minister of Energy may also require authority to attribute revenues from CECs generated in connection with Ontario Power Generation Inc. (“OPG”) and the IESO. Specifically, this authorization may be required for any CECs created through regulated assets owned by OPG and under IESO supply contracts.

Fifth, changes to laws and regulations may be required to certify that any CEC generated in Ontario and subsequently withdrawn is attributed only to electricity consumed by businesses and individuals located in Ontario.

Finally, laws making it mandatory to report the sale and withdrawal of CECs could be introduced.

IV. Other Development Considerations

Throughout the process of the IESO’s engagement with stakeholders regarding the potential design of Ontario’s CEC Registry, the Government of Ontario 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 scope of the CEC register must be national. Any generation and exchange of CECs must be geographically limited to within Ontario.

Second, the CEC registry should facilitate the exchange and withdrawal of voluntary CECs. In other words, the purchase and redemption of CECs will be aimed at achieving voluntary goals established by consumers themselves, rather than goals 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. In addition, all CECs from all non-emitting fuel sources in the province should be included in registry offerings.

Fourth, investments made in the registry must be monetized. To ensure this, CECs made commercially available should include existing non-emitting generation, while ensuring that revenues accrue to taxpayers.

Fifth, the design of the CEC registry should be flexible. Together, this flexibility will help support any potential future product or market expansion. Moreover, this flexibility should also help strengthen cooperation between existing power producers and brokers so that any market opportunity can be maximized. This would allow, for example, a greater flow of information on price ranges.

Finally, the CEC registry must ensure that any risk of double counting is avoided. Double counting refers to the CEF generation and retirement benefits being counted twice.

V. Final Thoughts

In the design of carbon systems, registries and markets, the devil is always in the details. We will continue to study the development of the CEC Registry and explore intended and unintended consequences for our customers and contacts. The IESO CEC Engagement Plan identifies six (6) key considerations that present unique challenges and opportunities as the CEC Registry is implemented.

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