Green Energy and Green Economy Act, 2009: a "fit"-ing policy for North America?

• Author: Streich, Michael E.

1. INTRODUCTION II. ONTARIO'S PLAN FOR CESSATION OF COAL-FIRED GENERATION A. Ontario Regulation 496/07. B. Implications of Ontario's Coal Phase-Out III. FEED-IN TARIFFS A. Feed-In Tariff Definition B. Feed-in Tariff Policy C. Feed-in Tariff History D. Success In Germany IV. GREEN ENERGY AND GREEN ECONOMY ACT A. European-Style Feed-In Tariff. B. Other Highlights of the Green Energy and Green Economy Act C. Impact on Ontario V. ONTARIO'S IMPACT ON THE UNITED STATES A. Current U.S. Policies and Reluctance B. A Possible Emergence of Change I. INTRODUCTION

   On April 29, 1998, Canada became one of the first countries in the world to ratify the Kyoto Protocol, (1) an international agreement aimed at curbing the effects of climate change and global warming. (2) In adopting the Kyoto Protocol, Canada pledged to reduce its greenhouse gas emissions by 6% (3) within the five-year period spanning from 2008 to 2012. (4) Following Canada's national commitment to preserving the environment, individual provinces began setting long-term goals aimed at reducing individual emissions and helping Canada to meet the Kyoto obligations. (5)

   For example, Ontario Premier Dalton McGuinty has made global climate change and the reduction of greenhouse gas emissions in Ontario a primary focus of many of his initiatives. (6) This Comment will discuss the major changes and policy implementations made in Ontario, which have put the province "on the edge of creating one of the greenest and cleanest electricity profiles anywhere in the world." (7) Beginning with the commitment to cease coal-fired power production by 2014--embodied in Ontario Regulation 496/07 (8) and the Green Energy and Green Economy Act (9)--Ontario has taken numerous policy and legislative steps to reduce greenhouse gas emissions. The "most ambitious and far[-]reaching" step in this process has been the passage of the Green Energy and Green Economy Act of 2009. (10) This Act breaks new ground in North America by establishing a European-style feed-in tariff program and making a commitment to advance renewable energy generation and climate control efforts. (11) This Comment will break down the various provisions of the Green Energy and Green Economy Act of 2009 and address the impact these provisions will make on renewable energy generation in Ontario. Additionally, this Comment will briefly discuss U.S. reluctance to implement feed-in tariff legislation and how policy implementations like Ontario's may affect the U.S. energy market.

2. ONTARIO'S PLAN FOR CESSATION OF COAL-FIRED GENERATION

   Ontario's efforts to become a leader in the fight against global climate change and greenhouse gas production began in 2003, when newly elected Ontario Premier Dalton McGuinty pledged to phase out coal-fired power generation by 2007. (12) At the time, Ontario's five coal-fired power plants produced as much air pollution as 6.2 million cars and were major contributors to Ontario's $10 billion annual air-pollution-related expenses. (13) In the following years, plans were implemented to replace coal-fired generation facilities with cleaner sources within the earliest practical timeframe. (14) Despite numerous delays, (15) Ontario took a promising step toward eliminating coal-fired electricity generation in July 2007.

   1. Ontario Regulation 496/07

      On July 12, 2007, Ontario's Ministry of the Environment (the "Ontario MOE" or the "MOE") proposed a regulation developed to reduce green house gas emissions. (16) The regulation officially called for the cessation of the use of coal for power generation at certain power stations throughout Ontario, with all coal use to be phased out by December 31, 2014. (17) Specifically, the regulation affected the four remaining coal-generating plants in Ontario: the Atikokan, Lambton,

      Nanticoke (Canada's No. 1 air polluter), (18) and Thunder Bay stations. (19) These four plants produced 6434 megawatts of electricity and accounted for approximately one-fifth of the province's total supply of power. (20) This massive amount of coal-fired power generation brings with it an equally impressive level of pollution (21) and has prompted Ontario's push to "seize any opportunity for major progress on reducing emissions." (22)

      Despite criticism that Ontario is bowing as Canada feels pressure to meet Kyoto Protocol commitments and speculation that cessation of coal-fired generation will result in only trivial emission reductions, (23) the Ontario MOE received an overall positive review of proposed Regulation 467/07. (24) The initiative was supported by 74% of those who commented on the proposal notice as well as the Environmental Commission of Ontario. (25) With this positive reaction and the goal of ending coal-fired generation squarely in sight, Ontario Regulation 496/07 came into force on August 24, 2007. (26)

   2. Implications of Ontario's Coal Phase-Out

      Successful elimination of coal-fired power generation in Ontario will impact more than the environment; it will also be a substantial improvement on Ontarians' health and quality of life. (27) The possibility of a coal phase-out has been called "the single largest climate initiative being undertaken anywhere in North America." (28) If successful, Ontario would be one of the first regions in the world to completely phase out coal-fired electricity generation. (29) Although a complete coal phase-out looked unlikely six years ago, a new report by the Ontario Clean Air Alliance projects that such a phase-out could be complete by the year 2010--five years ahead of schedule. (30) The environmental impacts of such a quick coal phase-out are staggering:

      * Greenhouse emissions will be reduced at a rate equivalent to taking 2.3 million cars off the road each year 2010-2014. (31)

      * Fewer lives will be lost; 668 lives will be saved each year in Ontario alone. (32)

      * Up to 333,660 asthma attacks will be prevented each year. (33)

      * The phase-out alone could account for 50-80% of Ontario's 2010 target emission reductions under the Kyoto Protocol. (34)

      Ontarians will enjoy significant public health and environmental benefits from the coal phase-out, but the economic effects of the phase-out won't stop at the Ontario border. (35) For example, as of 2008, almost one-half of Ontario's coal-produced electricity was exported to the United States, where it was often consumed instead of electricity produced through more expensive methods. (36) Despite the lower costs enjoyed by U.S. consumers, recent Ontarian proposals have focused on cutting production in the name of environmentalism. (37) This should leave no doubt that U.S. utility companies and their consumers will be affected by Ontario's coal phase-out and eventual shift toward renewable development and the era of the feed-in tariff. (38)

3. FEED-IN TARIFFS

   1. Feed-In Tariff Definition

      Feed-in tariffs are one of many forms of government regulation used to subsidize the production of renewable energy. (39) Key to their success is the effective reduction of investment risks for renewable energy generators. (40) The concept is simple: Utility companies must purchase electricity from renewable sources at a government-fixed "premium" rate for a guaranteed number of years. (41) The purchase must encompass the total output of the producer and guarantee full access to the electricity grid. (42)

      The rate to be paid by utility companies is set above the wholesale price of non-renewable energy to "reflect[] the value of the social and environmental benefits of the renewable energy" (43) and to defray the initial investment costs of developing renewable energy projects--even to the point of guaranteeing "that project investors obtain a reasonable rate of return" on their investment. (44) To encourage diversity in renewable energy generation, several project-specific factors--including the type of technology used, and the size of the project--can affect the difference between the government-fixed rate and the wholesale price of non-renewable energy. (45) After a price is set, the financial cost of implementation is divided up and passed on to energy consumers; individually, each consumer faces only negligible rate hikes. (46)

   2. Feed-in Tariff Policy

      Feed-in tariffs are based on the theory that the initial capital costs of developing renewable energy deter investors because they are prohibitively high, but investors will not be deterred by those initial costs if they are guaranteed a certain level of return over time. (47) Accurate calculation of the tariff to be applied is vital. (48) "If the feed-in tariff is set too low, it will not provide sufficient incentives to the investors, thereby defeating the purpose. If the feed-in tariff is too high, it will create high rent and not be cost-effective." (49) Governments have developed two main methods for calculating the ideal tariff. (50) One approach bases the tariff amount on "the value of [renewable energy] generation to the utility and/or society," and the other focuses on "the levelized cost of [renewable energy] generation." (51)

      The first approach determines the level of payment based on the value of the renewable energy, either to the utility or to society. (52) This value can be determined by assessing the utility's avoided costs (53) or by internalizing the external costs (54) of other sources of electricity generation. (55) By definition, external costs are not borne by the energy producer; instead "society bears these unaccounted-for costs in the form of increased health care expenses, depleted agricultural resources, and a reduced quality of life." (56) These factors can be difficult to quantify, and this "value-based" approach is potentially complex as a result. (57)

      In contrast, several European feed-in tariff policies take the "cost-based" approach. (58) Under this method, a project's reasonable costs are administratively determined in advance, and a stipulated return on investment is paid on top of the recovery of those costs. (59)...