Economic Benefits and Policy Integration of Emission Reductions for Ontario

Reducing the Cost of Emission Reductions for Ontario

Phase 1 of this study developed a model of the total cost of emission reductions as a function of electricity costs. Based on the incremental costs of Option D1, the total cost of emission reductions is estimated to be as high as $27B/year by 2030. Phase 1 determined a low-cost electricity solution could materially reduce this cost. The model has been updated for Scenario “S” with the results provided. These illustrations show Scenario “S”, with an electricity cost of $89/MWh, could reduce the total cost of emissions by $9.1B/year as compared to the OPO Option D1 scenario with an electricity cost of $170/MWh.

Energy Trade Balance Benefits

Ontario’s energy trade balance will be impacted in at least two ways:

1) Reduced imports of fossil fuels

2) Increased purchase of emission allowances

Reducing the consumption of imported fossil fuels such as natural gas and crude oil for gasoline/diesel could significantly alter Ontario’s trade balance in a beneficial manner. Diverting these outbound expenditures to support domestically produced goods and services would provide economic capital to the province. This economic capital will be injected into Ontario’s economy by consumers as they pay for their alternative emission reduction choices. These costs are not covered by the C&T system or the user paid portions associated with the carbon prices discussed in Section 7.2 above

Electricity System Domestic Spend Benefits

Part of the cost of achieving emission reductions is the cost of producing the new electricity. Restructuring Ontario’s supply mix potentially impacts the provincial spend on domestic and foreign electricity system products and services. Improving the domestic content of Ontarians’ spend on energy could improve Ontario’s GDP and overall trade balance slot pulsa

Three implication observations are made: (1) Total Costs; (2) Domestic Spend; and (3) Foreign Spend.

Total Costs

The cost of the new supply mix components for Scenario “S” is $10.8B/year discussed in Section 5.0. The incremental cost of Scenario “S” is only $8.3B/year, which is calculated by removing the $2.5B/year in avoided costs from the Outlook B supply mix.

The total costs of the scaled-up Option D1 are shown as $18.6B/year, $7.8B/year more than Scenario “S”. This additional $7.8B is a drain on Ontario’s economy as it is extra cost that does not provide any supplementary value. It is unnecessary and avoidable. The savings are best left with consumers to drive other sectors of the economy.

Enabled Industrial Production Capabilities

The emission reduction initiatives described in Phase 1 identified many new business opportunities for Ontario. These include the commissioning and operation of renewable natural gas (RNG) facilities, the potential for domestic renewable diesel production to offset the expected reduction in refinery output, and the hybrid home heating and management systems that will become integral to the success of DER programs. These opportunities are deserving of further study. In particular, two hydrogen economy related opportunities could provide significant economic benefit to Ontario. High level estimates of the economic potential are:

  • The opportunity for global leadership in hydrogen production capabilities.
  • Ontario companies, such as Hydrogenics and NextHydrogen, are already succeeding in the global marketplace.
  • Hydrogen facilities in Ontario could be needed to produce over 550 million kg of hydrogen each year. The production facility costs, both capital and operating, were estimated in Phase 1 to be $0.75/kg by 2030. The hydrogen production contribution to GDP, excluding the cost of electricity, could be ~$400M/year.

Benefits of an Integrated Policy Framework

Ontario’s Climate Change Action Plan framework suggests that a discussion of industrial policy is relevant to Ontario’s long-term energy planning process. The World Economic Forum regularly assesses the competitiveness of nations. Their innovation index includes a measure of the effectiveness of government procurement. Canada has ranked 29th for the effectiveness of government procurement in stimulating innovation64. In the context of emission reduction objectives, the Ontario government is creating a $7B/year (2022) to $16B/year (2030) funding pool that should be deployed in accordance with a strategic industrial policy. This could be deployed to leverage Ontario’s resource and energy advantages. Particular attention should be given to developing high-value, technology exports with a focus on maximizing the economic benefits and improving Ontario’s competitive position in the global marketplace.

Summary

Integrating industrial, economic, environmental and energy policy to leverage Ontario’s unique resources and energy advantages could provide significant economic benefits and enhance Ontario’s competitive advantage regionally and globally. Scenario “S” could:

  • Lower the cost to Ontario of meeting 2030 emission target from the $27B/year (estimated in the Phase 1 report for Option D1) to $17.9B/year (~$18B), a savings of $9.1B/year (~$9B). The market carbon price to achieve the 2030 targets is estimated at $106/ton compared to the carbon price of $161/ton in OPO D1.
  • Reduce the emissions from the electricity sector by 2.6 Mt/year by eliminating the need for much of the gas-fired generation fleet.
  • Shift Ontario’s energy trade balance
  1. Reducing fossil fuel imports could generate $5.9B/year (~$6B) that could be injected into Ontario’s economy via consumers paying for their emission reduction choices.
  2. Increase domestic spend by $6.7B/year representing new industrial activity. Enables new industrial activity such as hydrogen production and domestic fuel-cell manufacturing with a potential benefit of another $1.9B/year. This new activity leads to total Industrial activity creation of $8.6B/year (~$8.5B) in Ontario’s nuclear and hydrogen economies
  3. Avoids $5.6B/year in OPO D1 spending outside the province on energy products and services.

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