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What is the cost of Cap & Trade on the Greenhouse Industry in Ontario?

March 16, 2017 | Whitepaper

Download a .pdf version of this white paper here.

A significant cost portion for operating a greenhouse in Ontario is heating. With the
new Cap & Trade program implemented on January 2017, the cost of heating with
fossil fuel will rise. This white paper will help explain the cost of this Cap & Trade
program and how this cost can be mitigated.

Ontario Cap and Trade Program

Ontario’s cap and trade program is designed to help fight climate change and reward
businesses that reduce their greenhouse gas (GHG) emissions. The objective of the
program is to gradually lower GHG emissions by 15%, 37%, and 89% below 1990 levels
by end of 2020, 2030, and 2050 respectively.

By law, every dollar the government collects through cap and trade must be invested
back into projects that further reduce GHG emissions. In addition, Ontario has
committed $325 million to a green investment fund for projects that will fight climate
change, grow the economy, and create jobs. As per this legislation businesses that
operate a facility generating GHG’s are capped (without additional cost) at 25,000
tonnes of emissions per year. This cap further drops every year and companies must
have enough allowances (permits or credits) to cover their emissions if they exceed
the cap by trading in the carbon market. To comply, it is expected that companies
will gradually invest in clean technologies or switch to lower carbon fuels or purchase
additional credits.

Under the new legislation, which began Jan 1, 2017, natural gas providers are required
to buy greenhouse gas (GHG) emission allowances on behalf of businesses that
consume natural gas above the capped limit and the costs will be included as part
of the natural gas bills. The cap-and-trade cost is determined by the market and is
expected to be about 3.3 cents per cubic meter of natural gas used in 2017.

While higher-volume consumer facilities who generate more than 10,000 tonnes of
greenhouse gas emissions annually are eligible to receive allowances that largely
offset the carbon costs associated with natural gas combustion for 2017, growers
who fail to meet the 10,000-tonne threshold are forced to bear the full increased cost
immediately without any government assistance.

The Canadian government has also approved a Pan-Canadian pricing on carbon
pollution starting January 2018. Provinces and territories will have the flexibility to
decide how they implement carbon pricing (either direct price or cap-and-trade). The
legislation mandates that the price on carbon pollution should start at a minimum of
$10 per tonne in 2018 and rise by $10 each year to reach $50 per tonne by 20226. The
marginal carbon price is the price payable for emitting an incremental tonne of carbon
and is expected to be $19.40 for Ontario6 under existing and proposed carbon pricing
policies.

 

GHG emissions from greenhouse operations

Greenhouse growers consume natural gas for heating at the rate of 250,000 m3/acre

GHG Emission factor for natural gas is 1.93 kg CO2/m3

GHG emissions from greenhouse operations = 250,000 m3/acre * 1.93 kg CO2/m3
= 482,500 kg CO2/acre

The average greenhouse size is 13 acres and GHF emissions will equate to:
(482,500 kg CO2/acre) x (13) = 6, 272, 500 kg CO2

 

Implications for Greenhouse Vegetable and Flower Growers

In 2015, there were more than 223 vegetable and 400 flower greenhouse operations
making Ontario the largest greenhouse producer in Canada. Area wise, Ontario
constitutes about 61% of the entire Canadian greenhouse industry (total area = 21,379
m2) with a total area of 12,989 m2 (3210 acres)1. Most of the greenhouses located
in southwestern Ontario use natural gas for heating. It is widely believed that the
cap-and-trade program will significantly increase the natural gas bills for greenhouse
businesses starting 2017.

The Ontario Greenhouse Vegetable Growers (OGVG) estimate that due to cap and
trade it will cost greenhouse growers, on an average, an additional $6,200/acre to
heat their greenhouses which equates to an additional $80,000 for the average farm
of 13 acres. Our calculation (below) shows that this could be as high as $8,684/ha. In
2017, the annual additional expenditure for the Ontario greenhouse industry due to
cap and trade could be approximately 26.5 million dollars. Going forward this cost can
be expected to increase significantly to meet the Pan Canadian mandate of achieving
an annual increase of $10 per tonne carbon emissions with a goal to reach $50 per
tonne by 2022.

 

Heat value of Natural gas = 0.038 GJ/m3

Annual Average Heat requirement for greenhouses4 = 10,000 GJ/ha

Annual Average Natural gas consumption by greenhouses=263,158 m3/ha

Annual estimated cap-and-trade charges=$8684/ha

 

Biomass as Alternative Fuel for Greenhouse Growers

Rising fuel costs due to cap and trade program may make burning alternate fuels an
attractive option for greenhouse growers. Biomass heat and power is an increasingly
attractive option for them as increasing oil prices, carbon taxes, and emissions targets
are becoming more prominent. In 2014, across Canada, there were 52 operating
greenhouses with biomass energy systems, 37 of which were using biomass for energy
and six in planning stages. In Ontario, 19 growers are known to be using biomass.
It has been estimated that, even without considering the implications of cap-andtrade,
Ontario producers could reduce annual fuel costs by 41-64% if they switched to
biomass heating.

This study states that, across Canada, around 2545 greenhouses (in the year 2006)
could reduce annual fuel costs between 33%-60% by switching to agricultural and
woody biomass fuels saving greenhouse producers up to $200 million annually.
When biomass is used instead of fossil fuel (e.g. natural gas) we avoid the increases
in atmospheric CO2 as bio resource is part of nature’s cycle and growing trees store
carbon or remove it from the atmosphere, offsetting the release of carbon from the
use of the wood resource.

Recycled Wood

In Ontario, the greatest biomass resource opportunity exists in the use of recycled woodwaste as a resource. Many greenhouse from Leamington to Niagara is currently using Recycled Wood as a source of Fuel. As for supply, it far outstrips the demand, making Recycled Wood Fuel abundant. There are many waste recycling transfer stations in Ontario that do not have a home for their wood waste and currently majority of it is being landfilled. The price of recycled wood in Ontario is between $45-$55 per ton making it affordable and is also delivered directly to the customer.

 

Natural Gas = $61,315.60/ha Vs Recycled Wood =$36,500/ha

If we assume the average price of Recycled Wood as $50/tonne, greenhouse
operators using biomass as heating fuel can expect to pay $36,500/ha.

If we assume the current natural gas (NG) price remains the same over the next few
years at 20 cents/m3, greenhouse operators using NG as heating fuel can expect to
pay $52,631.60/ha (without carbon tax).

In 2017, with the cap-and-trade program costing an additional 3.3 cents/ m3 this cost will raise by $8,684 to a total cost of 61,315.60/ha.

In 2022, assuming carbon cost of $50/ton CO2 (i.e. 9.7 cents/ m3 NG), this cost will
rise by $25,526 to a total cost of $78,157.93/ha.

 

Alternate Feedstocks

Other types of Biomass Fuels that can be used for heating greenhouses include: virgin
wood chips, pelletized agricultural and/or wood- products, sawdust, energy crops, farm waste, biofuel and biogas. However, for the case of Ontario, most of these feedstocks either have supply constraints or higher processing and transportation costs.

Possible Technologies

 

Combined Heat and Power (CHP)

The most promising technology for Ontario is combined heat and power (CHP)
installations for large greenhouses using wood waste as feedstock. Cogeneration
is achieved using CHP engines and simultaneously produce thermal and electric
energy from a single fuel source. Cogeneration is considered to provide substantial
gains in energy efficiency versus producing heat and energy separately. Combustion
of biomass may yield only 20-30% of inherent energy in the biomass into electricity
and the remaining energy is mostly heat which is especially suited for greenhouses
(which require lot more heat the electricity). When biomass is used as a feedstock
for CHP there are other environmental benefits such as mitigation of GHG emissions,
reduction of acid rain, and soil improvement.

Gasification

Biomass gasification is a process of converting solid biomass fuel into a gaseous
combustible gas (called Syngas) through a sequence of thermo-chemical reactions.
Alternatively, if the syngas is clean enough, it may be used for power production in
gas engines, gas turbines or even fuel cells. A major Canadian player in the production
of gasification system is Nexterra. Nexterra claims that its gasification technology
is has an easier path to environmental permits as well as better public acceptance.
Gasification system according to Nexterra can allow the user to reduce their cost by
using lower quality feedstock.

Traditional Biomass Boilers

Biomass boiler has been around for decades as a source of heat and steam generation.
Traditionally used by the forestry for firing up kilns for sawmills and generating steam for the paper industry, biomass boilers are becoming a very popular for heat generation in the greenhouse industry. Majority of greenhouses that uses biomass in Ontario, uses a traditional biomass boiler to heat their facility. This technology is very well proven and is considered an industry standard for greenhouses. Traditional biomass boilers can use recycled wood, wood pellets, sawdust, bark and/or woodchips.

 

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