Canadian Gas Association

Canadian Gas Association 2005 Greenhouse Gas Emissions Management Report for Canada s Natural Gas Distribution Companies Submitted to: The CSA Climate Change, GHG Registries Canadian GHG Challenge Registry

Canadian Gas Association Profile Founded in 1907, the Canadian Gas Association (CGA) is the voice of Canada s natural gas delivery industry.the Association is made up of over 200 companies, organizations and individuals who are involved in the delivery of natural gas in Canada and the United States. CGA members are typically local gas distribution companies from coast to coast, transmission companies, related equipment manufacturers, and other service providers. Together, CGA members combine to deliver safe, reliable and environmentally preferred natural gas to more than 5 million customers in Canada and to major markets in the United States. CGA members employ approximately 15,000 people in Canada and supply the energy needs to 39% of the commercial sector, 48% of the residential sector and 51% of the manufacturing sector. CGA acts on behalf of its members to advance policy positions on national issues of relevance to natural gas. CGA is actively working to help shape the future of the North American energy industry by providing support and services that assist its members in achieving: efficient energy markets; competitive fiscal and regulatory conditions that encourage competitive returns for investment in energy delivery systems; a continuous focus on innovation; continuous improvement in stewardship and corporate responsibility; and excellence in safe and reliable operations. 1 1 From the CGA web site, http://www.cga.ca/about/whois.htm 2

Table of Contents Canadian Gas Association Profile 2 Senior Management Support A Letter from the President of the Canadian Gas Association 4 Introduction 6 GHG Emissions Management 7 GHG Emissions Inventory & Quantification 11 GHG Inventory Methodology 16 Business-as-Usual Projection 18 Setting a Target 19 Past Actions 19 Potential Future Actions to Achieve Targets 21 Education,Training and Awareness 22 References 27 Contact Information Paula Dunlop Director Communications and Environment Canadian Gas Association (613) 748-0057 ext. 341 pdunlop@cga.ca 3

Senior Management Support A Letter from the President of the Canadian Gas Association On behalf of the Canadian Gas Association (CGA) and its member distribution companies, it is my pleasure to submit our 2005 Greenhouse Gas Emissions Management Report for Canada s Natural Gas Distribution Companies to the CSA Climate Change, GHG Registries Canadian GHG Challenge Registry. CGA supported the Climate Change Voluntary Challenge and Registry (VCR) program and is pleased that the Canadian Standards Association s new GHG Registries provides a facility that will allow organizations and companies to continue voluntary reporting of their efforts to reduce greenhouse gas (GHG) emissions. Natural gas meets 26% of Canada s end use energy demand and our member natural gas distribution companies deliver natural gas to over five million Canadian homes, businesses, institutions and industries. Natural gas is clean-burning and has a lower carbon intensity than other fossil fuels, characteristics that have also contributed to its growing use for electric power production. Canada s natural gas distribution companies represent a vital segment of the natural gas industry, delivering a safe, reliable and essential energy supply to Canadian energy consumers.while some member companies may now report under federal and provincial GHG reporting regulations, or submit individual company reports to the Canadian GHG Challenge Registry (the Registry), this Association submission to the Registry is an opportunity to provide a comprehensive overview of the natural gas distribution sector s GHG emissions profile and the GHG emissions management efforts underway at both the association and member company levels. For this submission we have revised our baseline year from 1990 to 2000, to allow for better comparability of multi-year data, since earlier year inventory data may not completely reflect updated inventory methods or data. Since 2000, GHG emissions from distribution operations in Canada have declined, with 2004 level emissions dropping to 5.7% below 2000 levels.this reduction of over 65,000 tonnes of carbon dioxide equivalent (t CO 2 e) is due in to the continuing efforts of our industry to reduce GHG emissions from operations. 4

This year s report to the Registry highlights several broad themes that exemplify the extent of our industry s substantial engagement in the climate change issue.they include: GHG policy and regulation working with government and other stakeholders to develop effective environmental rules that are also economically efficient. GHG inventory continuous improvement to develop more accurate measurement and reporting. GHG emissions management continuing action to make our operations more GHG efficient. Innovation in operations developing better technologies for our operations. Demand Side Management (DSM) tapping the resource of customer energy savings. Making the transition to new end use technologies and energy sources. While climate change represents an issue of business risk for our members, as an industry we are also confident that within a sound economic and environmental policy framework, the issue also offers substantial business opportunities. As the discussion in this report indicates, the climate change issue has been one of the drivers that have led to improved efficiency in operations, customer DSM programs that help maintain energy competitiveness and investment in new energy technologies. In our view it is important to continue to provide governments, stakeholders and the public with information on our industry s GHG emissions and management efforts. Sincerely, Mike Cleland President, CGA 5

Introduction This year s report has been prepared in accordance with the Canadian GHG Challenge Registry s guidelines. 2 In addition to providing updated information on the GHG emissions profile of Canada s natural gas distribution sector, our submission is intended to update readers on the broad range of climate change initiatives underway throughout our industry. As noted in the CGA President s letter, CGA and its member companies are fully engaged in addressing the climate change issue. In particular, our report focuses on several key areas of industry efforts, as follows: GHG emissions management this section of the report briefly describes how CGA and its member companies are engaged in the regulatory and policy development process. GHG emissions quantification the report provides updated GHG emissions inventory information from a new baseline year, 2000, through 2004 for Canada s natural gas distribution sector. GHG emissions research and measurement the report highlights the industry s efforts to continuously improve the overall quality of its GHG emissions estimates. Industry actions to reduce GHG emissions within operations we describe and quantify some of the past actions that have contributed to GHG reductions from company operations. Innovations in operations the report highlights a new technology that could lead to further GHG reductions from operations. Demand side management (DSM) this section looks at how CGA and member companies are contributing to GHG reductions through customer-based energy efficiency programs. Looking at new energy sources the report provides some examples of industry investment in new energy supply alternatives and the role that natural gas can play in the transformation to a more diverse, less GHG intensive energy infrastructure. 2 Canadian GHG Challenge Registry Guide to Entity & Facility-Based Reporting,Version 4.3, August 2005 http://www.ghgregistries.ca/ 6

GHG Emissions Management Several CGA committees are engaged in some facet of the climate change issue. For example, CGA s Standing Committee on Sustainable Growth supported by the Air Management Sub-Committee (AMSC), represents the natural gas distribution sector in consultation with government on the development of the Large Final Emitter (LFE) system regulations. CGA s Standing Committee on Operations assists member companies with identifying best operating practices that enhance safety, efficiency and environmental performance. CGA s Demand Side Management (DSM) Task Force brings together personnel from member companies for collaborative studies to improve DSM program delivery and customer energy efficiency benefits. At the company level, CGA and its members have been long term and active participants in the VCR program and through this voluntary initiative have evolved comprehensive GHG emissions management and reporting programs for their operations. Now, companies with GHG emissions from operations that meet reporting thresholds have begun reporting GHG emissions under federal, and in some cases, provincial regulations. Additionally, several companies and CGA are continuing their voluntary reporting under this new Canadian GHG Challenge Registry. Going forward, the natural gas distribution sector will be regulated under the proposed Large Final Emitter (LFE) system which is a key element of Canada s climate change plan. (See insert on next page). 7

Developments in Climate Change Policy and Regulation In April, 2005 the federal government released Project Green Moving Forward on Climate Change A Plan for Honouring our Kyoto Commitment (the Plan). 3 The Plan is the first installment of the Government of Canada s set of policies and programs aimed at supporting a sustainable environment and a more competitive economy and it outlines the government s renewed approach to climate change. CGA member companies expect to be involved in several aspects of the Plan including the Large Final Emitters (LFE) system, the Offset System and communications and incentive programs aimed at individual Canadians. A: The Large Final Emitters System The LFE system is one of the key elements of the federal Plan. Under the LFE system, companies in Canada s oil and gas, mining and manufacturing, and thermal electricity sectors will be required to meet regulated GHG emissions reduction targets that are based on GHG emissions per unit of output. Each industry sector or sub-sector is currently consulting with government to establish the emissions sources that will be covered or regulated under the LFE system and the appropriate emissions intensity factor(s) (EIF) that will apply to the output from their operations. Business As Usual benchmark EIFs will then be established and an EIF target representing a 12 to 15% reduction below the BAU EIF value will be set for each covered activity and/or facility for the 2008 through 2012 first commitment period of the Kyoto Protocol. Companies will have a number of options to comply with their reduction targets, including: implementing internal GHG measures that reduce the GHG intensity of operations below the target EIF level purchasing emission reduction permits from other LFE companies that have reduced emissions below their target EIF level investing in domestic offset projects, and purchasing greened international credits. The distribution sector of the natural gas industry will be regulated under the LFE system. As part of this effort, CGA s AMSC examined possible emission intensity factors and developed a practical and simple approach to LFE system implementation that achieves the 3 www.climatechange.gc.ca 8

LFE system s objectives while meeting member expectations that the system be implemented equitably and cost efficiently. CGA companies have determined that tonnes of CO 2 e per kilometre of distribution main is a reasonable basis for determining the GHG intensity of distribution operations. An important conclusion of this EIF analysis work was that for the LFE s proposed outputbased allocation of permits to be representative of each member company s specific operating profile, and for the system to be implemented equitably across the sector, it will be necessary to establish the benchmark EIF target of t CO 2 e per km of main on a facility-specific basis.this approach will achieve the same GHG reduction goals as if the EIF were calculated on an sector-wide basis, yet it recognizes that there is a wide spread in the EIF values calculated for each distribution facility due to differences in service territory (for example, urban versus rural distribution network, system delivery pressure drop, and age of the distribution system, etc.). B: The Offset System The Plan also proposes the implementation of a domestic Offset System designed to encourage domestic GHG emission reductions (or removals through carbon storage) in activities that will not be covered by federal GHG regulations such as the LFE system. As outlined in its recently released consultation paper 4, through the proposed Offset System individuals, businesses and organizations will be able to earn offset credits when they implement projects that result in incremental emission reductions or removals beyond what they would have done under normal business activities (i.e., business as usual ). Once these offsets are created and verified and the offset credits issued, they can be sold to the Climate Fund 5 or other domestic buyers, including other LFE companies, who can use these offset credits to help meet their GHG reduction requirements under the LFE system. CGA is pleased to see that natural gas utility demand side management (DSM) programs that reduce customer energy consumption have been recognized as potential offset projects 6 in the government s Offset System consultation paper. Over the years, CGA and member companies have participated in earlier GHG offset program pilots and contributed to the learning and expertise that these earlier programs have provided to the design of the current Offset System. 4 Offset System for Greenhouse Gases For Consultation Overview Paper, Government of Canada, (2005) (posted at www.climatechange.gc.ca on August 11, 2005). 5 The purpose of the Climate Fund is to create a permanent institution for the purchase of emissions reduction and removal credits on behalf of the Government of Canada..., Project Green Moving Forward on Climate A Plan for Honouring our Kyoto Commitment, p. 20, (2005), Government of Canada 6 Offset System for Greenhouse Gases For Consultation Overview Paper, Government of Canada, (2005), page 1, (posted at www.climatechange.gc.ca on August 11, 2005). 9

As CGA companies look to integrate new policy and regulations into their operations, there will be some changes in how GHG emissions from operations are managed from a financial perspective. Gaz Métro is one of the companies that have already incorporated GHG emissions targets into performance based regulations set by the utility energy regulatory bodies. 7 Under performance based regulation, companies can earn a higher rate of return if performance targets are exceeded but earn lower rates of return when performance targets are not met. In 2004 Gaz Métro was slightly short of meeting its GHG reduction target; however, in a parallel with future compliance options under the LFE system, the company plans to meet its target by purchasing GHG credits from projects that have been discussed with its environmental partners, and preferably ones that have been approved by the federal government's PERRL 8 initiative. An Enbridge Gas crew prepares to "pig"a section of piping. A pipeline pig is a device that is propelled through the interior of a pipe to remove obstructions to flow. Specialized pipeline pigs also allow operators to inspect the interior of the pipe to ensure that pipeline integrity is being maintained. 7 Terasen Gas has also had GHG emission reduction targets under performance based regulation. 8 PERRL stands for Pilot Emission Removals, Reductions and Learnings. 10

GHG Emissions Inventory & Quantification Scope of the Inventory and Sources of Emissions Figure 1 provides a simplified sketch of the natural gas industry. From the upstream exploration and production, midstream processing and downstream transmission and distribution sectors through to end use by Canadian residential, commercial and industrial customers and export markets. CGA member companies are primarily local gas distribution companies from the downstream sector, although our membership also includes some transmission company operations as well as related equipment manufacturers and other service providers. The GHG emissions being reported in this submission represent the direct GHG emissions from the operations of Canada s major natural gas distribution companies. 9 The emissions are reported in tonnes of carbon dioxide equivalent (t CO 2 e) with greenhouse gases methane (CH 4 ) and nitrous oxide (N 2 O) being converted to equivalent tonnes of CO 2 using global warming potentials (GWPs) of 21 and 310 respectively. 10 The natural gas distribution sector is made up of the local distribution company (LDC) operations that provide natural gas delivery to residential, commercial, institutional and industrial customers across Canada. Distribution facilities include the gate and metering stations where the natural gas is received from the transmission system, gas pressures are reduced and odourant is added to the gas for safety reasons.the distribution sector also includes the network of distribution mains and service lines to customer premises and the associated meters, regulating stations and valves that comprise the distribution grid. 9 Included in this inventory are GazMétro, Enbridge Gas Distribution, Union Gas, Manitoba Hydro, SaskEnergy, Alta Gas, ATCO Gas,Terasen Gas,Terasen Gas (Vancouver Island) and Terasen Gas (Squamish). 10 Some greenhouse gases are more effective than others at trapping heat in the atmosphere. For inventory purposes, specific GHGs are usually converted, on a mass basis, to tonnes of CO2 equivalent.the GWPs used here represent the 100 year GWP factors that were published in the Intergovernmental Panel on Climate Change s (IPCC) Second Assessment Report (1996). Although more recent GWPs have been published (IPCC s Third Assessment Report (2001)), the use of the Second Assessment Report GWPs is consistent with the factors currently used by Environment Canada for the national inventory. 11

Figure 1: Schematic of Natural Gas Industry Sectors Residential Exploration & Production Distribution Small Business Commercial Gas Transmission Industrial & Institutional Export Markets Midstream Processing Industrial Consumers Power Generation Contract Gas Marketers Contract The two main sources of direct GHG emissions from distribution operations are combustion and fugitive emissions. Combustion emissions occur when natural gas and other fuels are burned as an energy source. Line heaters are the primary source of combustion emissions within the distribution sector. Combustion emissions are predominantly carbon dioxide (CO 2 ) with much smaller amounts of methane (CH 4 ) and nitrous oxide (N 2 O). The Intergovernmental Panel on Climate Change (IPCC) defines fugitive emissions as the intentional or unintentional releases of gases, including flaring, where, unlike energy use, the combustion does not support a productive activity. Intentional fugitive emissions occur when natural gas is vented or flared for operational or construction purposes, including pipeline blowdowns, releases from control equipment where natural gas is the power gas medium and releases from relief valves as an over-pressure protection mechanism. Unintentional releases occur when natural gas escapes through above- and below-ground leaks from piping, fittings and seals or when the pipeline system is damaged (usually called third party damage). Because the main component of natural gas is methane, fugitive emissions are predominantly CH 4 with much smaller amounts of CO 2. As a note of explanation, the natural gas industry has historically used a narrower definition of fugitives to refer only to unintentional fugitive emissions such as leaks and evaporative losses. In this report we are using the broader IPCC definition of fugitives, but have broken out fugitive emissions into 12

intentional and unintentional source categories. Based on consultations with government, the LFE system proposes to regulate or cover intentional fugitive and combustion emissions. Unintentional fugitives will not be covered under LFE regulations in recognition of the measurement challenges and much higher uncertainties associated with the quantification of these emissions. Although natural gas companies typically track other direct emissions from fuel used in vehicles, buildings and other miscellaneous sources not directly involved in operations as well as indirect emissions associated with purchased electricity, these emissions categories are typically aggregated across distribution, transmission and storage sector operations and a specific breakdown for the distribution sector is not readily available.the scope of the inventory information in this report is therefore limited to direct GHG emissions from operations. This natural gas distribution sector GHG inventory is based on data from collaborative and voluntary industry efforts to compile a national-level emissions inventory for the entire downstream sector which were first undertaken in the mid-90 s. Since then, several annual industry-wide inventories have been compiled, the most recent being the 2004 inventory rollup. Earlier year (pre-2000) inventory results for the industry are not included here as inventory methods and emission factors have changed over time and a re-statement of earlier year emissions based on these changes has not been undertaken at the industry-level.the LFE system proposes to use 2000 as the baseline year for benchmarking emission intensity factors. In addition, the 2000 year inventories of Canadian natural gas transmission and distribution companies have undergone an independent review and audit process 11. For these reasons, we have chosen 2000 as our base year for GHG reporting purposes under the Registry s guide. 11 Canadian Natural Gas Companies 2000 Greenhouse Inventory Report and Validation by Audit, prepared by ICF Consulting Canada Inc. for GRI Canada (now CEPEI), February 2003. 13

GHG Inventory Results Achieved Table 1 summarizes the distribution sector s GHG inventory for years 2004, 2002 and 2000 (base year). 12 As Table 1 shows, in 2004, the distribution sector successfully managed to reduce direct GHG emissions from operations by 5.7% over 2000 levels.this positive result was achieved while at the same time the industry increased customer numbers and maintained comparable volumes of natural gas deliveries to Canadian consumers. As discussed further under Past Actions, ongoing industry efforts to manage GHG emissions from operations have helped distribution companies serve a growing domestic market yet continue reducing GHG emissions. Table 1: Direct GHG Emissions from the Canada s Natural Gas Distribution Sector Operations (t CO 2 e) 2000 Baseline (t CO 2 e) 1,147,000 2002 (t CO 2 e) 1,108,600 2004 (t CO 2 e) 1,081,900 2004 reduction over 2000 (t CO 2 e) 65,000 2004 reduction over 2000 (%) 5.7% Numbers may not add due to rounding. Figure 2: GHG Emissions by Category Combustion 6% Fugitive Unintentional 86% Fugitive Intentional 8% Figure 2 provides further details on 2004 emissions, showing the percentage breakdown by categories: Combustion, Fugitive-Intentional, and Fugitive-Unintentional. As this information indicates, the majority (86%) of emissions from the distribution sector are attributable to unintentional fugitive emissions. This result is to be expected since the distribution grid is made up of large numbers of discrete components that are potential sources of small leaks, for example, threaded fittings on customer meter sets or corrosion leaks on underground piping. 12 These data are taken from the reports prepared by ICF Consulting for the 2000 and 2002 national inventories (see Reference section) and the ICF Consulting study currently in progress (for 2004). It should be noted that the 2000 and 2002 year data as reported in these studies do not reflect any subsequent changes to 2000 and 2002 inventories that may have arisen from changes in emission factors or inventory methodology applied at the company level or the inclusion of one additional reporting distribution company since 2000. 14

An ATCO Gas employee conducts an energy audit at a natural gas customer's home. ATCO Gas is one of many CGA member companies offering a range of energy efficiency programs to its customers. Table 2 provides a further break-out of the emissions inventory by component greenhouse gases, CO 2,CH 4 and N 2 O. Table 2: GHG Inventory by Component Gas (tonnes) 2004 reduction 2004 reduction over 2000 over 2000 2000 2002 2004 (tonnes) (%) CO 2 75,247 69,221 62,938 12,310 16.4% CH 2 51,009 49,479 48,513 2,497 4.9% N 2 O 1.74 1.1 0.6 1.1 65.5% Excludes indirect and other direct GHG emissions. The 65.5% reduction in N 2 O emissions appears to reflect changes in emission factor assumptions in addition to actual reductions. 15

GHG Inventory Methodology Most industrial facilities are considered point sources of emissions where the facility is located at one physical location and emissions arise from a small number of combustion or process sources at the facility. Natural gas distribution networks, on the other hand, extend over large areas and emissions arise from dispersed sources located throughout the system; the magnitude of emissions at each source is typically very small relative to the total inventory for the entire system. Additionally, since it is not practical to measure each fugitive emission source, the industry has developed specific guidance on how to estimate fugitive emissions. Combustion Emissions The fuel used in distribution operations is predominantly natural gas and the natural gas consumed by stationary combustion equipment is typically metered, providing the quantities of fuel consumed.the GHG emissions associated with this fuel consumption are then calculated by multiplying fuel consumption by the appropriate GHG emission factors for the fuel type and equipment being used to burn it. Fugitive Emissions Intentional Releases While it is not usually practical to measure intentional releases of natural gas, it is possible to quantify releases using engineering estimates; this method is employed where collection of field data is feasible. For example, the quantity of gas released when a pipeline is blown down (vented) for maintenance can be estimated based on pipe pressures and the volume of pipe blown down. For distribution operations, the small volumes of gas released each time a venting occurrence takes place and the number of procedures that occur, makes it impractical to collect data for each event. Distribution companies typically estimate these emissions using an industry- or company-specific emission factor times the kilometres of main in service. Fugitive Emissions Unintentional Releases The two main sources of unintentional releases are: leaks (from above- and below-ground piping and associated valves, fittings, regulators, seals and other equipment), and system damages, typically by a third party. Given the costs and challenges involved in detecting, measuring and tracking leaks throughout a dispersed pipeline network, estimates of emissions from these sources have typically relied on industry-average emission factors for each specific component or station type.these emission factors have been developed based on field measurements of a statistical sampling of sites. Releases from system damages can be estimated based on event- or company-specific data and assumptions, if such data are available. Alternately, these estimates may be based on an industry-average emission factor times the kilometres of main in service. More technical information on the GHG inventory methods employed by the natural gas industry is contained in the reports cited in the Reference section of this report. 16

GHG Inventory Methods A Record of Continuous Improvement Early on, the natural gas industry recognized that its initial national and company inventory efforts were fairly high level and based on emission factors that might not fully represent Canadian operations. 13 Since the early 90 s, the Canadian natural gas industry has funded research and worked collaboratively to improve the quality of emission factors and their applicability to Canadian operations. At the same time, individual companies have also improved the tracking, quantification and use of data from their own operations.there has been an ongoing effort to improve inventory estimates in a focused way that targets the largest sources with the highest uncertainty in the accuracy of the emission factors used. The national level inventory roll-ups conducted in 2000 and 2002 (and currently underway for 2004) have provided government with improved estimates for inclusion in Canada s national inventory. The latest industry research, currently underway through the direction of the Canadian Environmental Partnership for Environmental Innovation, 14 is a fugitive emissions measurement pilot study (See photo below). The objectives of this current project are to collect additional field survey data to improve the accuracy of emission factors for component leaks, establish an industry protocol for field measurement of leaks, and recalculate estimate uncertainty bounds based on this expanded base of field data. CGA member distribution companies have supported numerous studies, field surveys and manuals that the industry uses in the preparation of company GHG inventories as well as national-level inventories. (Refer to studies cited in the Reference section). This industry effort to improve inventory data and methods has yielded positive results, for example: Member companies now have better, more accurate inventory estimates for their operations. Regulator station equipment being surveyed for leaks at a Manitoba Hydro facility. Manitoba Hydro is one of several CGA companies currently participating in research to improve the accuracy of component emission factors and standardize measurement protocols. 13 The very first industry inventories of fugitive emissions were based on research and emission factors conducted in the US for the Environmental Protection Association and Gas Research Institute; however, Canadian natural gas facilities tend to be newer than US facilities. 14 The Canadian Environmental Partnership for Environmental Innovation (CEPEI) is the environmental technology research arm of the downstream natural gas industry. Originally started as Gas Technology Canada in the early 1990 s, CEPEI coordinates collaborative research on behalf of participating CGA member companies and other industry representatives. Since the early 1990 s a major focus of CEPEI s research has been related to improved GHG emissions inventory quantification for the industry. 17

Business-as-Usual Projection The Registry guide describes a business-asusual (BAU) projection as an estimate of GHG emissions performance as if no emission reduction activities had taken place. 15 Table 3 provides a preliminary BAU projection of GHG emissions for the distribution sector through 2007, and for comparison, shows the actual emissions for 2000, 2002 and 2004.This BAU projection is based on two simplifying, very conservative assumptions, namely: Future domestic natural gas consumption remains constant at 2004 levels through 2007. Under the BAU projection, GHG emissions are estimated to occur at the year 2000 GHG emissions rate per unit of natural gas delivered. Table 3: Business as Usual Projection (t CO 2 e) 2000 2002 2004 2005 2006 2007 Business As Usual 1,147,000 1,131,800 1,138,000 1,138,000 1,138,000 1,138,000 Projection (t CO 2 e) Actual GHG Emissions 1,147,000 1,108,600 1,081,900 (t CO 2 e) 15 Registry Guide, p. 17 18

Setting a Target Past Actions Several CGA member companies have established voluntary GHG reduction targets for their operations under the Canadian GHG Challenge Registry or predecessor VCR program. Beginning in 2008 under the LFE system, CGA companies will also have regulated reduction targets (on an emissions intensity basis) of between 12 and 15% of covered emissions.these regulated targets will be subject to annual reporting, review and true-up requirements. 16 Many CGA member companies were long term participants in Canada s VCR program and over the course of its ten year operation, company submissions to the VCR have documented the GHG reduction measures taken at the company level which have helped contribute to the aggregate reduction in GHG emissions reported in the Results Achieved section. This section of the report highlights and quantifies two of the key GHG reduction measures undertaken by distribution companies to reduce or avoid GHG emissions.the emission reduction amounts shown are the totals that have been reported in previous company GHG reports; as such, they are probably conservative (that is, low).while operating practices are fairly standardized across the industry, not all companies may have reported their reductions from these measures. It should also be noted that these are only two of the GHG reduction measures that distribution companies have reported implementing within their operations. 16 The Notice of intent to regulate greenhouse gas emissions by Large Final Emitters was issued in the Canada Gazette on July 16, 2005 and discusses how the proposed legislation will be administered. 19

Replacing Leak Prone Underground Pipe and Fittings Reported annual reduction: 110,000 t CO 2 e The industry now installs polyethylene or coated steel pipe, which is also cathodically protected.when properly installed, these pipe materials are not prone to leakage; however, older piping systems such as cast iron or bare steel pipe are more prone to corrosion and coupling leaks. Enbridge, Gaz Métro, ATCO Gas and Terasen Gas have all reported older pipe replacement efforts. Upgrade to low or no-bleed pneumatic control equipment Reported annual reduction: 18,500 t CO 2 e Compressed natural gas can be used as the power gas supply in pneumatically operated equipment such as controllers, positioners, samplers and other equipment. Companies have reduced the vented emissions from this source by replacing high bleed rate equipment with low or no-bleed equipment, replacing natural gas with compressed air supply, and other strategies. A crew prepares to cut pavement in a Vancouver neighbourhood prior to replacing older distribution pipe.terasen Gas, as well as Enbridge, ATCO Gas and Gaz Métro are replacing older, leak prone, underground pipe in their service territories. 20

Potential Future Actions to Achieve Targets In future, companies can be expected to continue implementing the same measures that have been taken in the past, although as systems get upgraded and the higher priority reduction measures are implemented, there will likely be fewer opportunities to reduce emissions; however, the industry continues to look for new, cost-effective ways to continue reducing operating emissions. One such effort is highlighted below. Line Heater Energy Efficiency Dry Line Heaters When natural gas pressures are reduced the gas temperature drops and this cooling effect can cause freeze-up problems. Line heaters, which heat the gas to prevent such problems, are the largest source of energy consumption in distribution operations. Since 2002, SaskEnergy has been working with an equipment manufacturer to field test and improve a dry line heater technology for distribution system application. (See photo). This technology offers efficiency gains over the firetube line heater design that has been traditionally used by the industry. Several other Canadian utilities have now installed these heaters and US companies are also showing interest in the technology. Pictured is an installation of the new dry line heaters, two of several that have now been installed in SaskEnergy's system. 21

Education, Training and Awareness Demand Side Activities A Commitment to Conservation and Demand Side Management It is clear that today the call for development of enhanced conservation and demand management initiatives is stronger than it has ever been thanks to the confluence of economic drivers, environmental concerns and climate change objectives. Gerry Rose Vice President Customer Service & Marketing, Manitoba Hydro 17 CGA and its member companies recognize that efficient use of energy is critical for a sustainable future and are playing a key role in making efficiency a part of Canadian life through utility demand side management (DSM) programs. DSM programs and related utility services offer several benefits.these include: providing energy management services and programs that deliver cost savings for customers educating customers regarding the environmental impact of energy use maintaining the competitive position of natural gas relative to other, more GHG intensive energy sources A recent study of DSM program best practices funded by CGA member companies and CGA under a Letter of Cooperation with Natural Resources Canada found that that in 2004, DSM programs were offered to over 5,400,000 natural gas customers by seven of Canada s largest gas utilities, reaching just under 5 million households in the process. 18 This same study 19 found that from 2000 through 2004, natural gas utilities invested a total of $119 million, with annual expenditures increasing steadily over this period. Figure 3 charts the growth in cumulative annual GHG emission reductions estimated from customer participation in these DSM programs, which by 2004 delivered reductions of 1.3 Mt CO 2 e. facilitating the transformation of markets to more efficient equipment and technologies, and supporting climate change initiatives. 17 Quoted from the article A Commitment to Conservation and Demand Management, in the Canadian Natural Gas, The Magazine of the Canadian Gas Association, CGA, Spring/Summer 2005 issue. 18 Canadian Natural Gas Distribution Utilities Best Practices in Demand Side Management, (DSM Best Practices) Table 1, p. 7, prepared for CGA by IndEco in association with B.Vernon & Associates, 21 July 2005.The 5.4 million customers includes residential, commercial, institutional and industrial accounts. 19 DSM Best Practices, p. 12 22

(t co 2 e) Figure 3: Annual GHG Emission Reductions from Natural Gas Utility DSM Programs (t CO 2 e) 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2000 2001 2002 2003 2004 Source: DSM Best Practices report, Table 3, p. 12; based on first year annual energy savings using a GHG emission factor of 50 t CO 2 e per TJ natural gas. Depending on the DSM measure and measure life, there may be some decrease in first year annual energy savings over time. 2004 2003 2002 2001 2000 Over time, natural gas distribution companies have become experienced deliverers of DSM programs, making use of market research, engineering analysis and statistical analysis. Customers also view natural gas utilities as a credible source of information on energy efficiency recommendations. 20 Some examples: Enbridge Gas Distribution offers Canada s largest slate of natural gas DSM programs with more than 30 residential, commercial and industrial programs in place. In the process the company has developed leadingedge approaches for the efficient use of energy resources. As the company s past DSM programs have captured the more obvious and accessible conservation opportunities, Enbridge is now focusing on market transformation, lost opportunities 21 and furthering strategic partnerships with other stakeholders, for example, equipment manufacturers. In addition to its slate of 20 DSM programs, Gaz Métro also operates the Energy Efficiency Fund, which is funded out of a portion of the customers share of the utility s productivity savings. Priority areas of funding include low income programs and innovative technology programs. 22 Union Gas has offered DSM programs since 1997, investing more than $33 million and achieving first year annual reductions totaling 607,000 t CO 2 e as of 2004.The company s programs cover a wide range of program types including equipment replacement, building retrofit, new construction and energy audits. 23 20 DSM Best Practices, Executive Summary 21 Lost opportunities represent situations where there may be a missed opportunity to put in place a more efficient technology. For example, residential construction built and equipped to minimum energy efficiency standards ( Business as Usual ) represents a lost opportunity to have the home built and equipped to better than minimum energy efficiency levels. 22 DSM Best Practices p. 10 23 DSM Best Practices,p.11 23

Canada s natural gas distribution companies are currently working with governments, other utilities, equipment suppliers and NGOs to maximize utility investment in DSM and enhance program benefits for their customers. In particular, CGA member gas utilities have worked with NRCan and other government departments to help deliver several federal climate change initiatives, and are ideally situated to facilitate the delivery of climate change program incentives and information to Canadian consumers. For example, ATCO Gas EnergySense offers NRCan s EnerGuide for Houses energy audit program, providing unbiased energy information and recommendations on how Albertan homeowners can improve the energy efficiency of their homes. In 2004 ATCO EnergySense led the Energuide for Houses program, conducting more than 15,000 residential energy evaluations. 24 Several CGA member companies have incorporated NRCan funding into their utility programs designed to encourage consumers and building contractors to choose EnergyStar rated natural gas furnaces and boilers. 25 Terasen Gas and Sask Energy currently offer incentives for customers to choose EnergyStar heating equipment. On the east coast, where natural gas is a relatively recent addition that is giving new and existing homeowners a less GHG intensive choice for space heating, Heritage Gas in Nova Scotia and Enbridge New Brunswick offer programs in cooperation with NRCan that promote EnergyStar natural gas equipment. At the Association level, CGA is playing a coordinating role in supporting DSM innovation across Canada. In 2004, CGA and NRCan signed a Letter of Cooperation on Energy Efficiency, establishing a framework for further cooperation on energy efficiency and renewable energy in Canada. As part of this undertaking, the following DSM information is being collected under the direction of CGA s DSM Task Force as input to the broader governmentindustry initiative on energy efficiency: DSM best practices this recently completed study documents current industry DSMrelated practices, identifying best practices that have been widely adopted and leading edge practices. DSM conservation potential this study which is currently underway will provide a comprehensive look at the energy efficiency and GHG reduction potential that can be achieved through DSM programs. DSM regulatory frameworks Under the traditional utility regulatory model where companies earn revenue by delivering energy and expanding system capacity, there is often a financial disincentive to offer DSM programs. Companies must be able to make a business case for DSM programs. Information 24 Canadian Utilities Limited 2004 Annual Report, p. 33 25 To qualify for the EneryStar rating, furnaces must have an annual fuel use efficiency of 90% or more and boilers, of 85% or more. 24

on innovative regulatory frameworks that address this problem will contribute to the development of a more effective regulatory framework for DSM. For example, under a shared-savings mechanism the Ontario Energy Board provides an incentive if DSM program targets are exceeded. Under this shared-savings incentive, Enbridge received an award of $8 million for exceeding DSM program targets in 2000 and 2001. DSM measurement and reporting - Under the proposed Offset System, it will be important for projects to have credible quantification in order to be recognized as delivering offset credits. CGA and member companies will be working to ensure that the proper protocols are developed for natural gas DSM project offset credit creation and verification. Supply Side Activities Fostering the Development of Renewable and Alternative Energy Sources Natural gas has long been recognized as an energy source that can help society make the transition to a less carbon intensive energy infrastructure. Natural gas companies also recognize the potential market, system reliability and environmental benefits that a more diversified energy supply system offers.the following are some examples of natural gas industry supply side activities. ATCO Gas has committed $1.2 million to a hydrogen fuel cell project at the Northern Alberta Institute of Technology.This project, which is the first commercial high-voltage fuel cell in Canada, now supplies 10% of the school s electricity as well as heat for a swimming pool and showers at the campus. ATCO Gas is also participating in North America s first large-scale solar heating system.the system now being installed in a new subdivision in Okotoks, Alberta will collect thermal energy from 800 solar panels mounted on the garage roofs of residential homes and transfer it to underground storage for subsequent distribution through a district heating system in the winter season. (See image on next page). ATCO Gas will operate the district heating system which includes natural boilers that will supply supplementary heat when required. Terasen Gas helped initiate the district heating system now operating in the City of North Vancouver.Terasen Utility Services (TUS) operates the district energy system designed to serve new residential, retail and hotel developments in the City's Lower Lonsdale area.tus is installing high-efficiency gas-fired condensing boilers to provide space and hot water heating for these new developments.the first non-steam based district energy system in British Columbia, the project is also unique in its use of low temperature heated water, which has allowed for the incorporation of high efficiency condensing boilers.when fully built, the system will supply high efficiency hydronic energy service to over 30 buildings. 25

Enbridge s Victoria Park Vehicle Maintenance Garage was built with the Solar Wall, a technology that incorporates a thermal solar heating system into industrial building cladding systems. Enbridge Inc., parent company of Enbridge Gas Distribution, has invested in two wind power projects the 11 megawatt (MW) SunBridge project in Saskatchewan and a 20- turbine, 30 MW project in southern Alberta. The industry has been instrumental in introducing natural gas vehicles (NGVs) to the marketplace. Natural gas vehicles produce fewer GHG emissions than gasoline-powered vehicles, and the natural gas fuelling infrastructure could potentially help the future transition to fuel cells and hydrogen in the transportation sector. Employee & Public Education CGA and its member companies provide employees, customers and the general public with information on climate change issues. Employee training sessions are held that explain the issue and show how GHG emissions can be reduced within operations. Company internet sites typically feature information on the company s GHG management efforts and provide links to other climate change sites. Company internet sites, literature and brochures also feature energy efficiency information and show how saving energy reduces GHG emissions. Several company web sites also provide links to related government climate change and energy efficiency program sites, such as, The One Tonne Challenge. The computer generated image shows the planned placement of thermal solar panels in the Drake Landing Solar Community currently being built in Okotoks, Alberta. The district heating facility, which will be operated by ATCO Gas, is shown in the upper middle of the image. 26

References Canadian GHG Challenge Registry Guide to Entity & Facility-Based Reporting, Version 4.3, August 2005 http://www.ghgregistries.ca/ Canadian Natural Gas Companies 2002 Greenhouse Gas Inventory Report, prepared for CEPEI by ICF Consulting, 2004 Canadian Natural Gas Companies 2000 Greenhouse Gas Inventory Report and Validation by Audit, prepared for GRI Canada (now CEPEI) by ICF Consulting Canada Inc., February 2003 Canadian Natural Gas Distribution Utilities Best Practices in Demand Side Management, prepared for CGA by IndEco in association with B.Vernon & Associates, 21 July 2005. Handbook for Estimating Combustion Emissions from the Operation and Construction of Natural Gas Systems, Clearstone Engineering Ltd., Enerco Engineering Ltd. and Radian International, prepared for Gas Research Institute Canada, April 1999 Handbook for Estimating Methane Emissions from Canadian Natural Gas Systems, D.J. Picard, M. Stribrny and M.R. Harrison, Clearstone Engineering Ltd., Enerco Engineering Ltd. and Radian International, prepared for Gas Research Institute Canada, May 1998 Looking Ahead Natural Gas Markets in Transition, National Energy Board, August 2004 Offset System for Greenhouse Gases For Consultation Overview Paper, Government of Canada, (2005), (posted at www.climatechange.gc.ca on August 11, 2005). Updated Canadian National Greenhouse Gas Inventory for 1995: Emission Factor Documentation, Technical Memorandum, Aug. 23, 2001,T.M. Shires and C.J. Loughran, URS Corporation. www.cga.ca www.climatechange.gc.ca www.ipcc.ch 27

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