The Ontario government today introduced a new regulation to limit carbon dioxide emissions from Ontario Power Generation‘s coal plants to 11.5 megatonnes in 2011, down from 34.5 megatonnes in 2003. The government has also directed OPG to limit carbon dioxide emissions on a forecast basis at its coal-fired generating stations to 19.6 and 15.6 megatonnes in 2009 and 2010, respectively, under a new shareholder directive.

The shareholder directive includes a clause to the effect that “the shareholder will ensure that an appropriate cost recovery mechanism is established to enable the corporation to recover the costs of its coal-fired generating stations following the implementation of the strategy”. Details about this mechanism have not been provided.

Although the government has provided no analysis of the impact of these new rules on electricity prices or total costs to consumers, Alan Findlay, spokesperson for Minister Gerry Phillips, suggests that “the impact on electricity prices as a result of interim emissions reductions will be minimal since the restrictions will only affect a fraction of Ontario’s electricity generation (less than a fifth of Ontario’s energy supply). The reduction in coal production will be replaced with a combination of existing and new generation sources. Compared to the baseline assumptions in the OPA’s power system plan, a typical residential bill is expected to be 1-2 percent higher over the 2009-2011 period than it would have been without the interim emissions reduction cap.  Bills could be lower if consumers implement conservation measures.”

AMPCO’s preliminary analysis suggests that by 2011 the regulation will cause Ontario wholesale electricity prices to increase by $10-12/MWh on average, increasing the commodity cost between $1.6 and $2.2 billion per year. This translates to between $400 and $500 million/year for AMPCO members alone. Some individual companies could see cost increases of up to $50 million per year.

According to Mr. Findlay, “Major power users are obviously an important consideration not just for energy but the government as a whole. The government has made great strides on the reliability and affordability initiatives by bringing on significant new supply and introducing a number of conservation and demand management programs aimed at enabling major consumers to better manage costs. Wholesale prices remain near their lowest levels since the market opened. Beyond electricity, the government included $25 million in the 2008 Budget to assist the manufacturing sector. As jurisdictions around the world factor the cost of carbon into their electricity prices, those that are heavily reliant on coal-fired generation will face rising electricity costs. Acting early and replacing coal-fired generation with cleaner resources will help to ensure that Ontario is not faced with such costs in the future.”