2011 KPIA Response – 7.0 Appendix A: Analysis and assessment of individual measures

Comment on estimate reliability:
Changes from 2010 Plan result from the fact that regulatory amendments, including a proposed ban on incandescent light bulbs, were delayed. This change in timing altered emissions reductions estimates for 2012. As detailed in previous NRTEE responses, not accounting for the rebound effect likely leads to a small (<10%) over-estimate, although emissions reductions are likely to lie within the specified range.

Comment on estimate reliability:
The 5% renewable fuel in gasoline requirement was delayed 3.5 months —from September 2010 to December 15, 2010 — resulting in a decrease in expected emissions reductions for 2010. The NRTEE notes that expected emissions reductions for 2011 and 2012 are lower than those for the same programs in the February 26, 2010, RIAS from Environment Canada. Some uncertainty remains in the reliability of the estimate as a result of uncertainty in trade in renewable fuels. As emphasized in the NRTEE 2010 Response, emissions reductions will depend on the proportion of the requirement met through imports and the degree to which increased renewable fuel production displaces existing and forecast conventional fuel production. Finally, in June 2011, Environment Canada announced that Quebec and the Atlantic provinces would be exempt from the biodiesel requirement until December 31, 2012.
[xi]   This change occurred after the KPIA Plan was released and is therefore not captured in the KPIA estimate. While this change will likely affect the emissions reductions expected from this policy in the future, it does not change the reliability of the 2011 estimate.

Comment on estimate reliability:
Since the release of the 2010 Plan, some projects that had been included in emissions reduction estimates were delayed or cancelled, which led to an update of the emissions reductions. Estimates for 2012 are unchanged as projects were funded in lieu of those that had been cancelled. As in previous years, the methodology, “considers that all projects funded are incremental and would not have been done without program support,”[xii] and so does not adjust for projects that may have been built in the absence of funding or for the role of provincial policies that provide significant support to some projects. As noted in the 2010 NRTEE Response, some funded projects were built and commissioned before the program was announced in January 2007, which directly contradicts this assumption. Further, the estimate of emissions reductions assumes that all funded generation displaces electricity from other sources, and does not allow for the potential for increased generation to increase electricity exports. These concerns with regard to the additionality of estimated emissions reductions and the emissions reduction factors used lead to a conclusion of a likely overestimate as in previous NRTEE responses.

Comment on estimate reliability:
The updated estimates in the 2011 Plan reflect conclusions from NRCan’s audit report,[xiii] which concluded that in the ecoEnergy Retrofit for House program, approximately 25% of the funded renovations would have been undertaken without the grant, that only 63% of the retrofits recommended by auditors were undertaken, and that 27–29% of households did not realize estimated changes in energy use. The NRCan audit also found that ecoENERGY Retrofit for Industry (Small- and Medium-sized businesses) program did not meet its GHG objectives. The audit report states that, “26% of the energy savings achieved are directly attributable to the ecoENERGY Retrofit for Small and Medium Organizations (Industry) Program,”
[xiv] while the other 74% of emissions reductions would have occurred anyway. The estimates in the Plan were adjusted by a net-to-gross factor of 74% to reflect these findings. This adjustment is consistent with previous recommendations by the NRTEE to assess the degree to which emissions reductions are incremental to outcomes which would have prevailed in the absence of the program. As a result, the NRTEE sees the amended estimates as likely reliable. 

While the estimated reductions for this program in the 2011 Plan do appear to acknowledge the additionality issue, the language in the methodology section could be made more transparent in order to make this change clear. Regarding the methodology used for the ecoENERGY Retrofit Initiative, the Plan states, “the baseline assumption is that grant applicants would not have made investments to realize expected incremental energy savings without encouragement from the program. However, a range is provided considering the uncertainty of this assumption.” Since the core estimates in the Plan, not just the high and low estimates, seem to have been adjusted based on the evaluation report, this language is not entirely clear.

Comment on estimate reliability:
As was the case in the 2010 Plan, the estimated emissions reductions are generated using an integrated model that accounts for broad economic trends and commodity prices that each affect vehicle sales, and thus the rate at which regulations reduce fuel consumption and emissions. The estimates compare a policy with a baseline simulation under the same economic assumptions. Most importantly, consistent with recommendations made by the NRTEE in 2010, the baseline, “assumes a continuous improvement in new vehicle fuel efficiency driven by policy in the U.S.”[xv] While the NRTEE finds this estimate to be reliable, we note that early action and compliance payments are not included in the modelling. These measures could result in fewer actual emissions reductions resulting from the policy than estimated in the Plan.  However, follow-up correspondence with Environment Canada officials suggests that the Plan’s assumption that the effect of these flexibility mechanisms will be minimal is justified. Given the revealed consumer preferences in the last 18 months (e.g., the preference for more fuel efficient vehicles in a time of high gasoline prices) and Environment Canada’s assumption that gasoline prices will continue to increase, it believes that the need for manufacturers/retailers to rely on the credit for early action and payment compliance option to meet the regulations will be minimal.  The NRTEE suggests that including rationales such as this for key assumptions in the Plan itself would further improve transparency.

Comment on estimate reliability:
As in previous Plans, the emissions reductions attributed to the ecoENERGY for Buildings and Houses program attaches significant leverage to energy rating systems. In particular, the analysis in the Plan assumes that, “houses rated under best-in-class energy efficiency initiatives such as the R-2000 Standard and ENERGY STAR for New Homes,” [xvi] would otherwise exhibit the average (baseline) energy consumption of typical new homes.” Similarly, for programs on existing homes, the program attributes all energy savings associated with renovations performed after having an energy audit to the program, assuming that none of the renovations would have occurred absent the program. As in previous NRTEE Responses, we find that these assumptions are likely to significantly over-estimate program impacts.

Comment on estimate reliability:
As in previous Plans, the estimates provided in the 2011 Plan assume that significant energy savings can be achieved through the provision of information. As the NRTEE has stipulated previously, it is difficult to assess the impact of information; however, it seems implausible that a facility receiving a newsletter would have the same induced emissions reductions as a facility sending representatives to attend seminars on energy conservation. This assumption has not changed from previous years, and we continue to believe that it likely leads to an overestimate of the program’s impact on emissions.

Comment on estimate reliability:
The Pulp and Paper Green Transformation program (PPGTP) is listed for the first time in the 2011 Plan, despite being first announced by the Government in 2009.[xvii] The PPGTP allocates $1 billion of funding for projects that “will improve… environmental performance in areas such as enhanced energy efficiency and increased production of renewable energy from forest biomass.”[xviii] The program provides credits for the production of black liquor at $0.16c/l for production during calendar year 2009, and these credits may be used to provide capital for environmental projects.  Thirty-eight mills across Canada received credits for black liquor production, while contribution agreements have been signed for 51 capital projects. The estimated emissions reductions are calculated based on direct reduction in facility emissions, and indirect reductions due to reduced electricity consumption.

The methodology explains that “extreme capital constraints (worsened by the economic downturn) forced mills to devote their limited resources to emergency maintenance, rather than the type of system-level improvements funded by this program.”[xix] As a result, the estimate assumes that none of the projects would have gone ahead without the PPGTP and that, “all of the projected emissions reductions associated with PPGTP projects are considered directly attributable to this program.”[xx] Regardless of economic conditions, this assumption represents a best-case scenario. Further, since the improved energy efficiency results in decreased operating costs, we should expect increased production at the affected mills relative to what would be the case in the absence of the program. Finance Canada states that the PPGTP “is enabling pulp and paper mills in all regions to reduce greenhouse gas emissions while helping them become leaders in the production of renewable energy from biomass, improve their competitiveness and create and sustain jobs.”[xxi] This suggests that the program was designed to drive an increase in activity in the sector relative to that which would have been the case otherwise. The Plan omits any increases in activity, relative to what would have otherwise occurred, from the discussion of the impacts of this program, leading to concerns about additionality. As a result of these concerns with respect to additionality, the NRTEE expects that the methodology employed will likely overestimate the emissions reductions attributable to this program.