1 Carbon Pricing Policies: Benefits & Challenges for the Transit SectorDr. Anahita Jami Dr. Josipa Petrunic April 12, 2017

2 Why Carbon Pricing? Creating incentives to avoid polluting the atmosphere. Encouraging innovation with cleaner technologies. Financing “green” or “low carbon” mobility innovations. Positioning Canada at the forefront of the clean energy and clean technology economic boom. 1 of 18

3 Carbon Pricing Policies: Carbon TaxA “carbon tax” is a direct fee placed on greenhouse gas (GHG) pollution produced mainly from the burning of fossil fuels, industrial processes and manufacturing activities. 2 of 18

4 Carbon Pricing Policies: Cap & TradeIn a cap & trade system, government puts a firm limit (cap) on the overall level of carbon pollution from industry. That cap is reduced annually to reach a set pollution target which results in cutting industry's total greenhouse gas emissions to the limit set by regulation. Polluters that exceed their emissions allowance are able to buy unused quota from other companies. The government creates and distributes pollution quotas through an auction.

5 Carbon Pricing in PracticeGreen: ETS implemented or scheduled for implementation Yellow: ETS or carbon tax under consideration Blue: Carbon tax implemented or scheduled for implementation Blue/Green: ETS and carbon tax implemented or scheduled Blue/Yellow: Carbon tax implemented or scheduled, ETS under consideration Yellow/Green: ETS implemented or scheduled, tax under consideration 4 of 18

6 Quebec Carbon Pricing 0.8¢/L for gasoline ($3.50/metric tonne of CO2) and 0.9¢/L for diesel fuel $200 million annual revenue Started in 2007 In 2012, Quebec achieved its goal to reduce GHG emissions to 6% below 1990 levels Carbon Tax Floor price of $10.75/tonne in 2013 5% annual price increase plus inflation (≈$17.30/tonne in 2020) $2.8 billion revenue by 2020 Cap & Trade Revenues of both systems go into the Quebec Green Fund: GHG emissions reduction projects and improvements to public transportation (i.e. $8.6 million investment in the development of electric buses and trucks in 2016) The government of Quebec intends to invest $156 million by 2020 to expand the availability of electric public transportation in Quebec through various initiatives outlined in the Transportation Electrification Action Plan Benefits for the Transit Sector Some examples of these initiatives are: programs to support public transportation showcase project with the allocated budget of $24.5 million; programs to support the acquisition of electric school buses ($30 million); support to carry out pilot projects for the electrification of taxi fleet ($6.6 million); Montreal city mobility initiative ($11.9 million); major public transportation projects ($83 million) including the public transportation system on the new pont Champlain; expansion of the Montreal’s metro network; and electric public transit system to Montreal’s West Island. For more information regarding the initiatives please refer to the Quebec’s Transportation Electrification Action Plan. The purpose of the Transportation Electrification Action Plan is to promote electric transportation, to economically develop the associated industries (e.g. electric bus manufacturers), and to create an environment conducive to the transition from fossil fuel-powered vehicles towards electric vehicles. With the availability of the renewable nature of the electricity (hydroelectric power) produced in Quebec, as well as a strong industrial foundation in land transportation (i.e. Bombardier Transport, Nova Bus, and Prévost Car) reaching objectives of the Quebec Climate Change Action Plan – a 20% emission reduction below the 1990 level by 2020 – does not seem far from reach which will make Quebec a leader in the use of electric-powered means of transportation and a forerunner in the realm of sustainable mobility.

7 British Columbia Carbon Pricing$30 per metric tonne of CO2e Revenue-neutral 5-15% GHG Reduction ( ) Unlike gas taxes can’t be used for transit projects Carbon Tax Higher demand for public transit services Higher operating costs for transit operations Lower tax revenues to fund the operating deficit for public transit Subsequent fare increase Challenges for the transit sector The Greenhouse Gas Industrial Reporting and Control Act established pollution limits for any new liquefied natural gas facilities Repeal the Cap and Trade Act Offsets can be purchased to satisfy legislative requirements of this Act Transit agencies could become offset providers Carbon Trading System Revenue-neutral: the policy requires equivalent reductions in other taxes levied in the province (e.g. personal and/or corporate income tax cuts). To protect low-income individuals and families from the added living costs associated with the carbon pricing system, B.C. created a refundable Low Income Climate Action Tax Credit designed to help offset the carbon taxes paid by low-income individuals and families. Criticism: Other variables – in addition to or in lieu of the carbon tax – may be the cause of fuel consumption declines. Those variables include (1) the fossil fuel consumption that initially dropped due to the recession in 2008, and (2) the reduction of fuel use due to cross-border purchases of vehicle fuel. Additionally, gasoline consumption in B.C soared by 6 per cent after 2012 in the post-recession recovery period, which overwhelmed the 4.8 per cent drop in consumption demonstrated between 2008 and According to the researchers, this bump in consumption during positive economic growth periods shows the carbon tax effect in British Columbia may have been transitory with less long-lasting impact on carbon emissions than originally hoped for. An offset represents a reduction in greenhouse gas emissions that can be used to compensate for, or offset, emissions from other sources, which is measured in tonnes of carbon dioxide equivalent (CO2e).

8 Will raise $5.4 billion over next 3 yearsAlberta Carbon Tax CO2 emissions from heating and transportation fossil fuels are taxed at a rate of $20/tonne in 2017, $30/ tonne in 2018, and $50/ tonne by 2022  Will raise $5.4 billion over next 3 years - Economic Growth - Carbon Pollution Reduction Projects ($1.3 billion for green infrastructure (e.g. public transit) - Rebates This means that in 2017, Albertans should pay extra 4.49¢ per litre carbon tax on gasoline, 5.35¢ on diesel, 3.08¢ for propane, and $1.011 per gigajoule on natural gas. The following is a list of planned investments or rebates: $1.5 billion for carbon rebates to help low- and middle-income families $1.3 billion for green infrastructure (e.g. public transit) $998 million for large scale renewable energy, bioenergy and technology, coal community transition and other Climate Leadership Plan implementation initiatives $566 million for energy efficiency, which includes Energy Efficiency Alberta, a new provincial agency that will support programs and services for homes and businesses $565 million to pay for a cut in the small business tax rate from 3% to 2% $291 million in transition payments as part of the coal phase out agreements $151 million to assist Indigenous communities transition to a cleaner economy

9 European Union Emission Trading SchemeStarted in 2005, EU Emissions Trading Scheme (EU- ETS) works based on the Cap & Trade principle. Participants: 30 countries (all 27 EU Member States along with Iceland, Norway, and Liechtenstein). Phase 1 ( ), phase 2 ( ) and phase 3 ( ). In 2014, GHG emissions decreased by 22.9% compared with 1990 levels. Introduction of the third phase with significant changes is an attempt to salvage EU’s climate policy flagship. The main challenge in the third trading period is the large surplus of EU emission allowances transferred from the second to the third trading period. The main changes in the third trading phase are (1) allowances will be allocated centrally by an EU authority (as opposed to national allocation plans); (2) a considerable larger share of allowances are auctioned (more than 60 per cent) rather than allocated freely; (3) other greenhouse gases, such as nitrous oxide and perfluorocarbons have been included; (4) airline emissions have been included in the beginning of 2012; and (5) €300 million allowances set aside in the New Entrants Reserve to fund the deployment of innovative renewable energy technologies and carbon capture and storage.

10 EU-ETS Price VolatilityOver-allocation of emission allowances Market participants became aware that actual EU emissions were well below the number of allowances issued EU Member States overestimated their emissions Prices fell from €30/metric tonne in April 2005 to €0.10 in September 2007 Phase 1 Economic recession Over-allocation Abundance of cheap international offsets After recovering to over €20 at the start of the second phase, prices again fell below €7 in 2012 Phase 2

11 EU-ETS Revenues Earmarking State BudgetMember States can decide whether they allocate the revenues from auctioning of allowances directly to a fund or support programme – a process known as earmarking – or count the auctioning revenues as an additional income stream to the state budget

12 EU-ETS Revenues Either way, at least 50% of auctioning revenues should be used for climate and energy related purposes: Reducing greenhouse gas emissions Developing renewable energies Investing in the environmentally safe capture and geological storage of CO2 Shifting to low-emission and public forms of transport (sustainable transport) Financing research and development in energy efficiency and clean technologies The auction revenues have been spent based on Member States’ priorities. Most countries have used these investments in energy efficiency, renewables or sustainable transport fields. For instance, Hungary recently invested part of these revenues in e-mobility. France, Lithuania, and the Czech Republic spend most of the revenues on energy efficiency projects. Bulgaria, Portugal and Spain’s priority is the development of renewable energy. The UK focuses in particular on energy efficiency, renewables, research and financial assistance to low- income households in relation to energy expenses. While several Member States including the UK, Denmark and the Netherlands direct their revenues into their national budgets, in Germany, most of the revenues are directed to a specific fund, which supports a wide range of projects including sustainable transport. 11 of 18

13 Trade: In March 2017, all current allowances sold out ≈ $472 millionOntario Cap & Trade Offset: to compensate for, or balance out, greenhouse gases produced by another source Trade: In March 2017, all current allowances sold out ≈ $472 million Cap: 142 mega-tonnes for 2017 Revenues go into Green Investment Fund for projects that will fight climate change Cap: Ontario set a greenhouse gas emissions cap of roughly 142 megatonnes for The emissions cap will be reduced each year, from 142 megatonnes in 2017, to 136 megatonnes in 2018, to 131 megatonnes in 2019, to 125 megatonnes in 2020, which is equal to the government's target of getting emissions 15 per cent below 1990 levels by 2020. Trade: If the entities exceed cap limits, they must buy an equal number of allowances at auction or from other companies that come in under their limits. Therefore, an emissions allowance acts as a permit to emit. One emissions allowance is equivalent to one metric tonne of CO2 equivalent (CO2e), meaning that an emitter in possession of one emissions allowance has permission to emit one tonne of CO2e into the atmosphere. Offset credits represent emissions reductions achieved through actions external to activities regulated under the Cap and Trade system. It is a way to compensate for, or balance out, greenhouse gases produced by another source. Offset credits will be created by projects that reduce or remove one tonne of greenhouse gas emissions, such as tree planting, capturing and destroying methane gas, and upgrading commercial/industrial cooling systems to use refrigerants that have little or no impact on global warming 12 of 18

14 GHG Emission Modeling IntroductionStationary Sources (non-transport fuel combustion) Direct: - Stationary Fuel Combustion - Stationary Air Conditioning and Refrigeration Indirect: - Purchased Electricity - District Energy Systems, Purchased Steam & Hot Water Mobile Sources (Fleet fuel combustion) Direct Emissions: Mobile Fuel Combustion Direct Fugitive Emissions: Mobile Air Conditioning Stationary Sources: GHG emissions are produced from activities associated with the lighting, heating and cooling of facilities, and the powering of machinery and equipment within those facilities. Indirect emission: Indirect emissions refer to all other company-related emissions, including employee commuting, short-term vehicle rentals, and upstream/downstream transportation emissions, such as those associated with material inputs or consumer use. Direct emission: Direct emissions refer to only those emissions that are associated with owned or controlled sources, such as company owned vehicle fleets and corporate aircraft.

15 GHG Emission Estimation Mobile SourcesFor all mobile sources, there two methods to calculate GHG emissions: Fuel-based Distance-based Uncertainties: Data accuracy (quantity of fuel) Use of transport fuel for non-road purposes. Emissions can be estimated from either the fuel consumed (represented by fuel sold) or the distance travelled by the vehicles. In general, the first approach (fuel sold) is appropriate for CO2 and the second (distance travelled by vehicle type and road type) is appropriate for CH4 and N2O. In order to reduce the uncertainties, efforts should concentrate on the carbon content and on improving the data on fuel sold. Another major uncertainty component is the use of transport fuel for non-road purposes.

16 GHG Emission Model InputsFuel Type Emission Factor (Kg/L) Global Warming Potential (GWP) Co2 CH4 N2o Diesel 2.582 1 25 298 Biodiesel - Where: Eij is “Emission” of gas type (j) from fuel type (i) in tonnes. Qi is the “Quantity” of fuel type (i) combusted for transport energy purposes in Litre. EFij is “Emission Factor” for each gas type (j) for fuel type (i) in Kilograms per Litre. Converting GHG emission to its equivalency: Eij-e = Eij x GWP The Global Warming Potential (GWP) is an index used to convert relevant non-carbon dioxide gases to a carbon dioxide equivalent (CO2-e). Inspired by 2016/17 B.C. BEST PRACTICES - METHODOLOGY FOR QUANTIFYING GREENHOUSE GAS EMISSIONS 15 of 18

17 GHG Footprint: Diesel Fuel ConsumptionTransit Agency Fuel Type Fuel Consumption (Litre) Estimated Emission (tonne) Estimated Emission Equivalency (tonne) Co2 CH4 N2o Total Co2-e CH4-e N2o-e Total-e Brampton Diesel 1,114,406 2,877.40 0.12 0.17 2,877.69 3.06 50.15 2,930.61 Biodiesel B5 6,608,460 - 0.73 1.00 1.72 18.17 297.37 315.54 Biodiesel B20 5,759,801 0.63 0.87 1.50 15.84 259.18 275.02 London 7,101,159 18,335.19 0.78 1.07 18,337.05 19.53 319.54 18,674.26 Toronto 85,200,951 219,988.86 9.37 12.87 220,011.09 234.30 3,833.87 224,057.03

18 Brampton: 3,521/year Toronto: 224,057 /year London: 18,674/yearWhat does the numbers of the previous table mean? Toronto: 224,057 /year 17 of 18

19 GHG Emission Estimation Stationary SourcesThe next step is to calculate direct stationary emissions. GHG emissions are produced from activities associated with the lighting, heating and cooling of facilities, and the powering of machinery and equipment within those facilities. 18 of 18

20 Thank you Questions?