Vancouver City Council |
ADMINISTRATIVE REPORT
Date: March 25, 2003
Author/Local: L. Belanger/604.940.3204
RTS NO. 03153
CC File No. 3757
Council: April 8, 2003
TO:
Vancouver City Council
FROM:
General Manager of Engineering Services
SUBJECT:
Vancouver Landfill: Sale of Emission Reductions to the Government of Canada
RECOMMENDATIONS
A. THAT the General Manager of Engineering Services be directed to proceed with the offer for sale to the Federal Government of emission reductions from the current expansion of the Landfill Gas Control System for the period of 2003-2007 at an estimated value of $340,000.
B. THAT the revenues, estimated at a total of $340,000 over the period of 2003-2007, be placed in a Sustainability Fund with the intent of financing one-time expenditures which support the City's Sustainability Principles and related programs. Staff will report back at the end of 2003 on the principles and criteria for this fund.
COUNCIL POLICY
On October 16, 1990, Council approved in principle the Clouds of Change Recommendation #1 to reduce carbon dioxide emissions by 20% as part of the actions to address global climate change issues, subject to future reports on costs and trade-offs involved in achieving the objectives and targets.
On April 23, 2002, Council adopted a Definition and Principles of Sustainability to guide, prioritize and improve the sustainability of City actions and operations.
On May 2, 2002, Council unanimously carried the motion, proposed by the Federation of Canadian Municipalities, to support the Canadian Government's ratification of the Kyoto Protocol.
PURPOSE
The purpose of this report is to seek Council authority to participate in the Pilot Emission Removals, Reductions and Learnings initiative (PERRL), an initiative that is part of the federal government's action plan to combat climate change. The purpose of the initiative is to provide participants with an economic incentive to take immediate action to reduce greenhouse gas emissions. In addition, participants will gain a better understanding of emissions trading, which is key for Canada to meet its climate change objectives.
BACKGROUND
As part of the City of Vancouver's solid waste management system, the Vancouver Landfill receives approximately 400,000 tonnes of municipal solid waste each year. Under Vancouver's agreements with the Corporation of Delta and Greater Vancouver Regional District, the Landfill is expected to operate for an additional 40 years.
Landfill gas (LFG), consisting primarily of methane and carbon dioxide, is generated from the biological decomposition of organic wastes, commencing a few months after deposition of the waste and continuing for several decades following landfill closure. The City of Vancouver has operated a LFG collection and combustion system at the Landfill since 1990. LFG is collected to prevent odours, reduce greenhouse gas emissions and recover energy.
In July 1999, Council approved a recommendation from the General Manager of Engineering Services to upgrade and expand the LFG control system originally built in 1990 and seek proposals for beneficial use of the LFG. This expansion was completed in February 2001. In May 2001, Council approved the next phase of the LFG system expansion, which is the subject of this report. The detailed design of the system is complete, and the expansion is expected to be completed by fall 2003.
In January 2003, Vancouver signed an agreement with Maxim Power Corporation to pipe landfill gas from the Landfill to CanAgro Produce's greenhouses to generate electricity and heat for the greenhouses. Beneficially using landfill gas reduces greenhouse gas emissions through the destruction of methane and by offsetting non-renewable fuel sources. Burning converts methane to carbon dioxide which reduces greenhouse gas emissions because methane has 21 times the global warming potential of carbon dioxide. Beneficially using the LFG has the added benefit of replacing a fossil fuel, reducing net carbon dioxide emissions. This report describes the sale of a portion of the greenhouse gas emission reductions associated with the combustion of landfill gas.
On October 17, 2002, the federal government announced the Pilot Emission Removals, Reductions and Learnings initiative (PERRL) which is part of federal government's action plan to combat climate change. The objectives of the PERRL initiative are to:
· assist in the analysis and development of future policies from lessons learned through this initiative
· develop Canadian capacity and expertise in conceiving, planning, implementing and administering greenhouse gas emission reductions and
· provide a financial incentive to encourage action to achieve greenhouse gas emission reductions in key strategic areas.Approximately $2.5 million has been allocated to purchase qualified emission reductions for landfill gas capture and combustion projects through a reverse auction process where the government calls for and reviews bids, and then purchases qualified reductions beginning with the lowest bid price. Emission reductions are calculated based on the difference between the level of greenhouse gas emissions with the project in place compared to the reference or baseline case. Through PERRL, the federal government will buy the rights to verified greenhouse gas emission reductions from eligible projects on a fixed price per tonne basis over the five-year period from 2003 to 2007.
PERRL accepted first round submissions for two sectors, including landfill gas capture and combustion, through the MERX electronic tendering process up to December 12, 2002. Since the submission requirements were quite detailed and lengthy, there was insufficient time to seek Council approval on this matter prior to the deadline. However, the final submission was made subject to Vancouver City Council approval, of which proof is required prior to any award. Reviews of the bids are anticipated to take 3 to 4 months.
The PERRL Scoping document outlines that no carbon credits or any other tradable commodity will be created through PERRL, and PERRL will not affect Canada's commitments under the Kyoto Protocol. Therefore, these emission reductions cannot be acquired by another entity to enable them to have higher greenhouse gas emissions. The emission reductions in PERRL are proposed to be sold until 2007. At this time, Vancouver can decide whether or not to participate in carbon credit trading during the Kyoto commitment period.
DISCUSSION
Calculations arising from the PERRL application process estimate that the total anticipated emission reductions that are offered for sale are 340,400 tonnes of carbon dioxide equivalents (eCO2) over the period from 2003 to the end of 2007. The price offered is $1 per tonne eCO2 for a total of $340,000 plus GST. The World Bank has participated in a number of projects with emission reduction purchases averaging $3 to $4 per ton ($2.73 to $3.64 per tonne). However, this price per tonne includes the incentive to promote development in addition to the value of the emission reductions.
The true value of emission reduction credits is difficult to estimate for a number of reasons including:
· Many offers are only options to purchase where a company pays a small amount of money to have the option to purchase future emission reductions. These trades may be described as multi-million dollar when the actual amount of money changing hands at the time of the trade is minimal.
· Since the market is still in its infancy, limited trading data are available.
· There is no certainty whether entities will be allowed to use purchased emission reduction credits.
· The detailed federal implementation plan and federal government emissions reductions requirements remain unclear.In the case of the Vancouver Landfill, the City has not previously received offers to purchase emission reductions related to the combustion of landfill gas. Vancouver's offer of $1 per tonne of eCO2 is likely conservative, but the benefit of submitting a conservative offer is that Vancouver's project has a higher chance of being selected, increasing Vancouver's chances of participating in the project.
The emission reductions that are offered for sale to the Government of Canada range from 54,800 tonnes eCO2 in 2003 to 81,000 tonnes eCO2 in 2007, averaging approximately 68,000 tonnes eCO2 each year over the five year period. The emission reductions offered for sale are only approximately 5% of the emission reductions available from the Landfill for the period 2001 to 2012. In comparison, these emission reductions are approximately 200% of Vancouver's annual corporate emissions and an estimated 3% of annual community emissions. The Partners for Climate Protection protocol considers landfill gas emissions as community emissions and allocates those emissions to municipalities by waste contribution. This will be discussed in greater detail in a future report to Council on Community Greenhouse Gas Emissions.
There are a number of benefits to Vancouver with respect to participating in the PERRL initiative. The PERRL initiative is offering a one-time opportunity for Vancouver to participate because PERRL requires that projects be constructed and begin generating emission reductions between the time the federal government enters into an agreement to purchase emission reductions and December 31, 2003. This project was already approved by Council when the PERRL application process was announced and obtaining funding from the federal government is an unexpected benefit. Participating in the project will help Vancouver determine whether other Landfill emission reductions can be used to offset other corporate, community or regional emissions or potentially sold in the future.
Vancouver's participation in PERRL will assist the federal government in developing their emission reductions plan and keep City staff informed of the government's progress and direction in this regard during and beyond the period 2003 to 2007.
FINANCIAL IMPLICATIONS
The offered fixed price for these Landfill emission reductions is $1 per tonne CO2 equivalent to estimated revenues of $340,000 over five years.
In April 2002, Council approved the City's Sustainability Principles to guide, prioritize and improve the sustainability of City actions and operations. This also included support for initiatives which implement these principles. Given that revenues from the sale of emission reductions would be an unexpected windfall and that the goal of the federal government in purchasing emission reductions is to encourage climate change initiatives, it is proposed that these revenues be used to establish a Sustainability Fund to finance one-time expenditures which support the City's Sustainability Principles and related programs. A good use of PERRL revenues could be funding of projects relating to recycling, water conservation and greenhouse gas reduction measures. This Sustainability Fund would enable the pursuit of other programs which fulfill the City's Kyoto commitments. These funds could also act as seed money to attract additional funding from other sources. Expenditures for one-time projects or programs are recommended as there is no certainty of funding once the PERRL program is finished.
Other options for using revenues from the PERRL program include crediting the revenues to the Landfill Operating Budget thereby reducing costs for Landfill users including the Solid Waste Utility, Delta and the GVRD, or alternatively crediting the revenues directly to the City's Operating Budget. Given that one of the Federal Government's goals in establishing the PERRL program is to encourage action to achieve greenhouse gas emission reductions, using the funds to establish a Sustainability Fund is the recommended strategy. The General Manager of Engineering Services will report back to Council in late 2003 on the details of the fund. The report will provide recommendations on criteria for selecting projects for funding, eligibility requirements etc.
ENVIRONMENTAL IMPACT
Selling the emission reductions will not provide a direct environmental benefit; however, landfill gas control reduces greenhouse gas emissions from the Landfill by capturing and burning methane and by offsetting the need for fossil fuels at CanAgro's greenhouses.
Participation in the PERRL initiative builds capabilities to be realized in the future. Participation will enable the City to be aware of the development of future policies relating to emission reductions initiated by the federal government. Staff will also benefit from the increase in expertise in conceiving, planning, implementing and administering greenhouse gas emission reductions through this initiative. Through creation of a Sustainability Fund, monies made available from PERRL can be utilized to fund one-time projects and programs to help the City meet its Kyoto commitments.
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