Ontario Power Generation’s (OPG) latest sale of clean energy credits to Microsoft Corporation raises questions about whether the credits meet the basic criteria for genuine carbon offsets—especially given Ontario’s plan to increase gas plant use and resulting emissions.

On September 26, OPG announced a deal with Microsoft to “advance its sustainability goals and power its Ontario data centres with carbon free energy 24/7—a first for Microsoft globally.” No details of the 10-year agreement were disclosed, including the price and quantity of credits.

The credits are for existing Ontario generation. Thus the deal sidesteps the first principle of clean energy credits done right: additionality, the requirement to demonstrate incremental GHG reductions that “would not have occurred” in the absence of the credits. Since Ontario’s clean generation is already in place—much of it for many decades—it does not meet that test. OPG is just cashing in on its pre-existing assets, while doing nothing to justify the sale of clean energy credits.

A release from OPG and Microsoft cites the potential use of revenues to reduce ratepayer costs, which would do nothing to advance the cause of clean energy—on the contrary, it would promote higher electricity consumption by subsidizing rates. In the absence of an abrupt about-face in the Ford government’s “glossy brochure” climate policy, that increase in demand consumption will be supplied from the province’s emissions-intensive fossil gas plants.

The release also suggests revenues “can be used… to support investment in new clean generation in the province.” But OPG makes no commitment to use the funds for that purpose. And to meet the crucial test of additionality, the increased share of generation must already be committed and shown to be contingent on credits. A vague promise of future clean energy investment doesn’t meet the standard.

Microsoft and OPG say they will also cooperate to “evaluate procurement” of credits from the new small modular nuclear (SMR) planned for the Darlington nuclear plant site. The SMR is cited as clean. But credits have nothing to do with making this project happen. And the partners make no mention of cleaner energy options that are faster to deploy and sidestep the controversial features of nuclear generation.

Selling Credits Makes the Grid More Carbon-Intensive

In the absence of additionality, selling clean energy credits for Ontario’s zero-carbon generation assets will have the perverse effect of making the power sold to the rest of the province’s power users more carbon-intensive.

If Ontario Power Generation sells off credits for, say, half of the clean energy on the provincial grid, those credits are no longer available to the remaining capacity and have to be removed from calculations of the average carbon content of what’s left.

Otherwise, OPG and the government are double-counting. If the credit buyer reduces its carbon footprint, the remaining customers must increase theirs. It is a case of robbing Peter to pay Paul, a zero-sum game.

In a letter to the Ontario Energy Board last June, City of Ottawa environment manager Mike Fletcher said selling clean energy credits is “removing the environmental attributes from the electricity our community consumes, thereby increasing its Scope 2 emissions.”

The increase in carbon footprint for non-credit customers is a particular problem for the Ontario government’s industrial strategy, which leans heavily on claims of clean electricity as a selling point to attract business to the province. It could affect reporting of carbon intensity for businesses.

Fossil Generation Rising

Enthusiasm for the sale of clean energy credits in Ontario is at least partly rooted in the myth of abundance: for example, the claim that Ontario’s electricity system is 94% clean. The previous provincial government shut down coal-fired electricity generation and largely limited fossil generation to gas plants operating during peak periods when power demand is highest. But fossil generation has already increased from 4% of the provincial total in the last year of former premier Kathleen Wynne’s Liberal government to 8% last year, reports Ontario Clean Air Alliance Chair Jack Gibbons. Gas generation could grow to 25% of the total by 2040, just by using existing gas generating capacity to supply day-to-day baseload rather than occasional peak requirements.

In June, Energy Minister Todd Smith asked the province’s Independent Electricity System Operator to develop a plan for the sale of clean energy credits. The consultation deadline passed in mid-September, with the report still pending. OPG-Microsoft announced their agreement without a credit system in place, raising the question of whether they moved swiftly to get ahead of the new rules—or whether they received assurances their deal would be compliant. 

Like OPG, Smith has pointed to the possibility of using credit revenues to reduce power rates or “support future clean energy generation,” without firm commitments in any direction.

Smith has called for a moratorium on new gas power plants and a plan for a zero-emissions grid. But a massive increase in fossil gas emissions could still occur over the next two decades, just with greater use of the province’s existing gas plants. Biased planning assumptions [pdf] continue to create barriers to non-gas alternatives.

Ontario Power Generation says it is committed to “net zero” operations by 2040, but has not shared a detailed plan for achieving this goal.

The Microsoft credit deal is not the first for OPG. A May, 2022, letter from Environmental Defence Canada to the Ontario Energy Board (OEB) said OPG appears to have “been selling clean energy credits to buyers outside Ontario for some time now,” with revenues totalling $5.5 million. Intervenors led by Environmental Defence asked the OEB to review the credit sales, but the OEB rejected the request. The board said the total amount was less than OPA’s threshold of “materiality”, adding that an assessment would be premature while the IESO was working on a system of credits.