Ontario Launches Work to Create a Voluntary Clean Energy Credit Market

On January 26th, Ontario’s Minister of Energy, the Hon. Todd Smith, issued a letter to Lesley Gallinger, President and CEO of the Independent Electricity System Operator (IESO), asking for a Report to consider the creation of a provincial Clean Energy Credit (CEC) Market and Registry. The IESO will provide the Report back to the Minister for consideration by July 4th, 2022, with detailed design options and recommendations.

The Minister’s letter notes the growing demand from corporations seeking a clean power supply that satisfies their environmental and sustainability goals, and expounds upon the strength of Ontario’s 94% emissions-free electricity system. Establishing a CEC market will realize additional value for ratepayers from existing investments in the decarbonizing of our generation assets and help support future efforts to continue reducing Ontario’s GHG emissions.

In tasking the IESO to assess potential benefits, projected costs, and the operational architecture of the registry, several key principles are outlined:

• Scoped to Ontario: the initial design of the registry is to address electricity generated and consumed within the province, with consideration for the potential to expand into cross-province and cross-border trading of credits in the future.
• Voluntary: the purchase of credits is to be entirely voluntary.
• Monetization of existing investments: credits should include existing clean/non-emitting generation, including nuclear, waterpower, wind, solar, and bio-energy assets. Proceeds from the sale of credits from existing generation should flow to ratepayers, in recognition of the historic costs incurred for these investments (through the Global Adjustment Charge, etc.).
• Avoiding double counting: consideration of other environmental goals and programs, such as Ontario’s Emissions Performance Standards, to avoid double counting of investments/benefits.
• Timing: leveraging theavailability of CECs from existing contracted and regulated resources, the IESO should enable the launch of the registry in January 2023.

For next steps the IESO is expected to develop a stakeholder engagement and consultation plan that would solicit feedback on design options, price ranges, and other key recommendations. Early objectives would include evaluating potential supply and demand for CECs, and consideration for how the registry can incentivize future investments in clean energy generation.

To note, under the terms of the Feed-in-Tariff (FIT), microFIT, and other procurements, the IESO attained ownership over the Environmental Attributes created by contracted non-emitting resources. Consideration will be given as to the relative demand for these attributes, as well as the appropriate entity to monetize those attributes on behalf of ratepayers. Further work will also be required on determining the valuation and compensation mechanisms for other non-emitting resources that have maintained the rights to their Environmental Attributes, for those coming off contract, or for new resources.

This announcement is a strong signal that Ontario is leveraging its clean electricity system to position the province as a strategic and competitive place to do business. If successfully designed and implemented, the CEC registry would deliver a combination of savings to ratepayers, enhanced market signals to inform investment decisions, and an additional funding mechanism for further emission reduction investment.