COMMENT: Funding for CO2 reductions – Insights from recent projects by Ontario cap-and-trade participants

Published 11:00 on March 23, 2018  /  Last updated at 23:44 on March 22, 2018  /  Americas, Canada, Contributed Content, Other Content, US

In the run-up to the 2nd Annual Ontario Cap and Trade Forum on April 18-19 at the Beanfield Centre in Toronto, Canadian Clean Energy Conferences is producing a series of articles featuring the key topics concerning regulated entities under Ontario’s program.

By John McCloy, Canadian Clean Energy Conferences

In the run-up to the 2nd Annual Ontario Cap and Trade Forum on April 18-19 at the Beanfield Centre in Toronto, Canadian Clean Energy Conferences is producing a series of articles featuring the key topics concerning regulated entities under Ontario’s program.

Funding from the Ontario Centers of Excellence (OCE) is helping to both reduce greenhouse gas (GHG) emissions and keep Ontario cap and trade market participants competitive by promoting projects that turn waste CO2 into marketable products, notes Martin Vroegh, Senior Director of GHG Reduction Technologies at the Ontario Centres of Excellence.

Recent projects funded by OCE, in partnership with GreenOn Industries, are moving away from reducing GHG emissions through efficiencies and focusing instead on technologies that turn industrial waste into commodities, ranging from nutraceuticals through to concrete. Taking advantage of the funding available to advance these projects, comments Vroegh, allows entities to both reduce their carbon footprint and generate profit through the sale of recovered materials.

In this Q&A interview, Vroegh expands on the types of funding available to cap and trade compliance entities in Ontario and the success of recent projects brought through this funding. He will also be presenting at the upcoming Ontario Cap and Trade Forum, taking place on April 18-19 at the Beanfield Centre, Toronto.

Canadian Clean Energy Conferences: What would you say is the core focus of market participants in Ontario’s cap and trade market today? What are their main concerns and what opportunities have evolved under the program?

Martin Vroegh: The best answer to that question is compliance. When you consider that most cap and trade programs are legislated and they dictate exactly who is going to be in the market and what thresholds are going to exist, then it becomes obvious that compliance is going to be a primary concern for all market participants.

When you look at the list of market participants in the “25,000 tonne and up club” there are varying levels of experience and expertise on cap and trade. This is based on whether or not these companies are participating in other jurisdictions that have a price on carbon, whether it be a cap and trade or a carbon tax, or if they’re new to the structures of compliance. Another factor to consider is whether or not a company is emissions intensive and trade exposed.

All these types of participants are going to have different concerns. You’re going to have participants that will try to focus on minimising costs and exposure but maximising the benefits which the program can provide.

If a company has an opportunity to take advantage of offset markets to lower the cost of compliance and allowances, they will try to do that as they start learning the system. If a company is looking to implement a project that will reduce their future need for allowances, then they might look to sell those futures now, to create the capital required to finance that project.

Going into year two of the program, I think we’ll see more compliant entities leveraging the experience gained during the first year and we’re going to see a lot more interest in the trade aspect of the market.

CCEC: How are companies further developing their carbon reduction and compliance strategies and what changes have taken place over the last few months?

MV: Here at Ontario Centers of Excellence, we’ve seeing the growth of strategies where, quite rightly, companies are applying for funding through the GreenON Industries program.

By taking advantage of this program, compliance entities can reduce their emissions, utilise capital reinvested from the cap and trade program and still maintain their competitiveness while reducing their costs and emissions.

We’re starting to see companies do more and more to reduce their carbon footprint as they start to realise that significant funding options are available.

CCEC: What would assist market participants to identify further opportunities to reduce their carbon exposure?

MV: One of the unique benefits of the Ontario Centres of Excellence is we get to see the types of ecosystems that are evolving, whether they’re small start-up companies with an idea or a small-to-medium enterprise (SME) company that is trying to expand its market share with a product that helps either improve efficiency or reduce emissions.

We’re starting to see companies take advantage of solutions that they wouldn’t have even known existed had the cap and trade program, and the need to comply with it, not been in effect.

CCEC: Can you tell us about the role OCE is playing in providing funding for carbon reduction projects for emitters?

MV: The OCE has a few programs in this space, but the main ones that are affecting the cap and trade participants here are the GreenON Industries program. This particular program provides up to 50% reimbursement-based funding for emitters, to a maximum of 5 million dollars, on carbon abatement projects.

This funding is for projects designed to achieve measurable reductions in greenhouse gas pollution at industrial facilities in Ontario. There is also has a second stream for the largest emitters, that is to say emitters that produce over 400,000 tonnes of emissions or for brand new facilities like new near zero or net zero manufacturing processes or Carbon Capture and Utilization projects. This secondary stream would fund projects up to 50%, to a maximum of 20 million dollars, of matched funding on a reimbursement basis.

CCEC: What role is funding playing in de-risking these projects today?

MV: Risk is a very relative term to different companies. Certainly, companies see risk as the success of the program or of the technology that they’re launching, they also see risk as capital being invested in carbon abatement projects that is being taken away from another central part of the organisation. If you take 10 million dollars and put it towards a carbon abatement project, that’s 10 million dollars that may not be going towards anything from shipping to marketing.

When you inject capital from a program like the GreenON Industries program, it allows companies to achieve the emission reduction targets stipulated by the legislative requirements as well as allowing them to invest their capital into a project that might not otherwise have a reasonable return on investment (ROI).

The funding allows an ROI to take place that is appealing to stakeholders and shareholders of the company. It allows companies to maintain competitiveness whilst trying to compete with jurisdictions that may not have a price on carbon, which is very critical in Ontario.

It also helps de-risk things like ensuring that the companies can maintain a level of competitiveness which is required for next-generation operations of some of the largest facilities in Ontario and often encourages multinational industries to invest in Ontario as a preferred jurisdiction.

CCEC: How do you see that changing and what other types of financing and partnerships will play key roles in the success of these projects?

MW: Absolutely, one of the great things about Canada is the scale of investment that’s going into the cleantech sector. When you look at the federal government programs that are also available, those programs can be stacked against OCE funding from GreenON Industries up to a maximum of 75% of a project’s capital.

That really provides additional opportunity for de-risking a project and making projects, which would otherwise never be looked at, come to fruition.

CCEC: What types of projects is cap and trade funding expected to play a role in going forward?

MW: I think any project that can take CO2 and turn it into a product of value should be of great interest. If you can make a value out of a product that is a waste, then it is, by definition, no longer a waste. That waste CO2 becomes a viable product and companies are then economically driven towards manufacturing goods out of it.

As a sideline to this process, one of the main things that we’re seeing from an innovation perspective, is the utilisation of hydrogen in this type of economy. Hydrogen is primarily thought of as light gas that you can combust as a fuel substitute, but when you combine carbon dioxide gas from an industrial emission source with hydrogen gas, using one of the off-the-shelf type processes or newer innovative ones that are being optimised right now, it can be converted into a myriad of chemicals.

These chemicals, such as methanol and formic acid have wide ranging industrial uses. Methanol, and other chemicals that are liquids at room temperature, are a precursor to over 30%  of all the chemicals manufactured worldwide. You can literally turn CO2, in the presence of hydrogen, into a marketable commodity.

The Ontario Cap and Trade Forum takes place at Toronto’s Beanfield Centre on April 18-19.

Take advantage of this high-calibre networking opportunity with mandatory participants in Ontario’s cap and trade and key government decision-makers, and gain useful updates on compliance and trading strategies from international carbon market experts.

Visit the event website for more details on the Ontario Cap and Trade Forum, which will bring together regulated entities from Ontario, Quebec and California with key government decision-makers and carbon market experts.