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January 2011 - Cogeneration and Emissions Trading


January, 2011 - Cogeneration and Emissions Trading  

Tom Markowitz - Friday, January 07, 2011

Welcome to Enerhope

Welcome to the January, 2011 blog of www.Enerhope.com  ,  a website providing education, information and professional services in Emissions Trading.

This blog entry includes a summary of major December, 2010 cap-and-trade news items, and a special feature article, "Cogeneration and Emissions Trading."

If you wish to comment on the article or the news items, please join the blog at the bottom of the page.

Emissions Trading: Major News Headlines of December, 2010


UN Carbon Regulator Sees Fast Pace of Credit Supply

The increased pace of carbon credits flowing from a United Nations-overseen market will be maintained as European Union officials seek improvements to the biggest program for emission offset credits, a senior UN regulator said.
December 22, 2010


The Lucrative Business of Polluting

Will Trading System Encourage Emissions?
Der Spiegel
December 30, 2010


California adopts its cap-and-trade program for greenhouse gas emissions

Stoel Rives LLP Lee Smith and Allison Smith USA
December 20, 2010


Cap-and-trade scheme dropped

The basic policy on global warming adopted by the government Tuesday does not include any specific measures toward introducing a cap-and-trade scheme for greenhouse gas emissions, suggesting the idea has been abandoned for the time being.
Yomiuri Shimbun (JAPAN)
December 28, 2010


Huckabee says no he didn’t, but yes indeedy he did

According to Mike Huckabee, he has never supported a cap-and-trade approach to limiting carbon emissions. As he puts it point-blank on his website:
“In a recent internet post, a contributor makes the claim that I supported cap-and-trade in late 2007 while running for President.”
To put it simply, that’s just not true.
Atlanta Journal-Constitution (USA)
December 16, 2010


Clunkers costs put ETS in shade

Julia Gillard's cash-for-clunkers proposal would cost 15 times more than an emissions trading scheme to reduce carbon pollution.
The Australian
December 14, 2010


World Bank sets up fund to support carbon trading

The World Bank yesterday announced at the United Nations climate change talks Cancún in a new $100 million fund to support carbon trading initiatives in the developing world.
Energy Efficiency News
December 9, 2010


China refutes proposal on carbon credits

The European Union's proposal to ban industrial carbon credits from 2013 will hurt the interests of developing and developed countries if it comes into effect, said a Chinese official.
December 9, 2010


Oil patch pricing carbon tariffs into new projects

Canada’s oil companies are bracing for sharply higher costs for carbon dioxide output, despite stumbling progress in the U.S. and Canada to impose regulations on large emitters.
Globe and Mail (CANADA)
December 8, 2010


The lessons of Europe’s carbon trade

By Denny Ellerman
The Gulf Times (DOHA)
December 6, 2010


Carbon trading market in Russia finally takes off

Telegraph (UK)
December 3, 2010


January Feature Article:


Cogeneration and Emissions Trading

© Enerhope.com 2011

This article will be published on the web sites www.Enerhope.com and www.cogencanada.org in January, 2011.

What is Cogeneration?

  • Cogeneration is the sequential production of useful mechanical power and useful heat in the same engine.
  • Often stated as, “electricity and steam from the same engine” 
  • Sometimes identified as, “Combined Heat and Power”

What a confusing definition!
Show me an example of cogeneration that I can understand!


Here’s an Example of A Cogeneration Project.

An old steam power plant will be turned into a cogeneration system.

This natural gas-fired generating station is located on the waterfront of a city. The plant  operates continuously for 3,000 hours, every winter.


The high-pressure steam from the power boiler drives a steam turbine, which drives a 20 megawatt electricity generator. The low-pressure steam leaving the turbine is condensed to liquid water by cold lake water in a condenser, and then pumped back into the boiler.


This is not an efficient generator of electricity. Only 10% of the fuel energy of the natural gas is transformed into electrical energy. The other 90% of the fuel energy is wasted as heat in the exhaust and in the condenser.


How unfair!   Only 10% of the fuel energy is transformed into useful electrical energy. The other 90% of the fuel energy is wasted heat.

Why the wasted heat? Why the low efficiency?

Cogeneration: Whence Cometh the Heat?

In plain language, the 2nd Law of Thermodynamics says that an engine cannot transform heat energy into mechanical energy without releasing heat to its surroundings.

Not everyone understands the 2nd Law of Thermodynamics.
In the 1970’s, US Senator John McClellan threatened to repeal the 2nd Law.

What a shame! We labour under the cruelty and unfairness of the 2nd Law of Thermodynamics! In our lakeside power plant, 90% of the fuel energy is wasted as heat. Can we find some practical use for the heat?

Scarcely two blocks away from the power plant is the central boiler for a District Heating System, providing steam to heat dozens of downtown buildings, during the same 3,000 hours, every winter. 



The steam delivered by the district heating system is at the same pressure and flow rate as the steam wasted by the turbine into the condenser, during the same hours. What an amazing coincidence!

Here are the annual energy totals for the power plant and the district heating plant.

The total natural gas consumption for the two systems during the 3000 hour operation is 56.7 + 45.3 = 102.0 million scm.

Here are the annual total greenhouse gas emissions for the two systems.


and now.... The Cogeneration Project!


  • Remove the District Heating Boiler.
  • Remove the Condenser.
  • Connect the Turbine Outlet to the low-pressure steam District Heating System.
  • Connect the Condensate Return from the District Heating System to the Power Station Condensate Return. 
  • ….et voilà, Cogeneration!

Cogeneration: Whither goest the heat?

The cogeneration system is now providing all of the heat that the old heating boiler provided to the district heating system.

The new Cogeneration System has a 70% overall efficiency.
70% of the fuel energy is put to good use.

Here are the Energy Totals for the new Cogeneration System, during the 3,000-hour annual operation.

The Cogeneration Project generates 20 MW of electric power and all the steam needed to heat the buildings during the 3,000-hour annual operation, while consuming only 56.7 million scm of natural gas.

Before the Cogeneration Project, the two separate systems consumed a total of 102.0 million scm of natural gas during the same 3000-hour annual operation.

Net Energy Savings from cogeneration are 102.0 – 56.7 = 45.3 million scm of natural gas per year.

Switching to cogeneration has also caused some important reductions in greenhouse gas emissions.

In this case, switching to cogeneration has caused an annual greenhouse gas emission reduction of  193,000 - 107,000 = 86,000 tonnes CO2 .

Cogeneration is very common in industrial plants that require both heat and power, e.g. petroleum refineries, pulp and paper mills. These large facilities have many boilers, many uses for the heat, and many power machines and electricity generators.

Emissions Trading (“Cap-and-Trade”)

Because cogeneration reduces air emissions, greenhouse gas emissions trading systems are highly interested in cogeneration.

What is emissions trading (or, if you prefer, “cap-and-trade”)?

What is Cap-and-Trade?


"A market-based policy tool that establishes an aggregate emission cap on total emissions from a group of sources and creates a financial incentive to reduce emissions. The emission cap is expressed as allowances distributed to individual emission sources that must surrender allowances to cover their emissions. The program provides flexibility for sources with low-cost reductions to reduce even further and sell allowances to others with higher costs of control, resulting in achievement of the environmental goal at lowest cost."

(Source: Tools of the Trade: a Guide to Designing and Operating a Cap and Trade Program for Pollution Control, USEPA, June 2003)


Here’s another description of an emissions trading system. This description appears in the web site  www.Enerhope.com      , which includes a short YouTube video course:

The Government passes a Regulation.

Specified Capped Facilities – major direct GHG emitters, e.g. fossil fuel electricity generators - will be “under the Cap” - must participate in emissions trading.

The Cap – a specific, regulated maximum tonnes of GHG emissions from the total of the Capped Facilities in each specified year, e.g. 300 million tonnes in 2015, 290 million tonnes in 2016, 280 million tonnes in 2017…..The Cap should be smaller than last year’s total emissions by the Capped Facilities, and smaller than the “Business as Usual Forecast” for these facilities. The Cap should become smaller and smaller, from year-to-year.

Registry – like a bank ledger, visible to the public. Each Capped Facility will have an Account on the Registry. The Government will have its own Account on the Registry. Brokers are allowed to open Accounts on the Registry. The Retirement Account on the Registry will be the “graveyard” for Allowances which have been used up.

Allowances – An Allowance is a permit to emit something into the environment. Each year, in January, the Government will create Allowances for GHGs, one Allowance for each kilotonne of GHG in the Cap.  Each Allowance will have a certificate with a unique serial number. At the beginning of the year, (starting in e.g. 2015) the Government will deposit the new Allowances in its own Account.

Allocation – At the beginning of each year, beginning in e.g. 2015, the Government will distribute the new Allowances to the Capped Facilities, according to a fair scheme.  The government will transfer the allocated Allowances from its own Account to the Accounts of the Capped Facilities. (“Free Allocation to Capped Facilities”)

Monitoring and Reporting – Each Capped Facility must monitor its direct GHG emissions during the year, completely, accurately and honestly. At the end of the year, each Capped Facility must report to the government its total direct GHG emissions for the year.

Offsets – An Offset is a reward for emission reductions outside the Capped Sector. An organization which is not a Capped Facility can complete an emission reduction project and apply to the Government for creation of Offsets, to reward the emission reductions. If the Government agrees that the emission reductions were real and satisfy program requirements, the Government will create a specific number of kilotonnes of Offsets and transfer these new Offsets to the applicant’s Account in the Registy.

Offsets and Allowances are both Tradeable Units in the Registry.

Trading – At any time, any Account holder can buy Tradeable Units from, or sell Tradeable Units to, any other Account holder. (Exception – The Tradeable Units in the Retirement Account never leave the Retirement Account.) The transfer of Tradeable Units from one Account to another must be recorded in the Registry, with the serial numbers.

Retirement – At the end of each year, each Capped Facility must Retire (transfer to the Retirement Account) enough Tradeable Units to equal its reported annual direct GHG emissions.

If you are interested in a short, basic course in the mechanics of emissions trading, in print or by a YouTube video, go to  www.enerhope.com

Emissions Trading: Why?

  • Reduces direct emissions by Large Direct Emitters: At the end of each year, each Capped Facility must retire (scarce) Allowances plus Offsets equal to its annual emissions.
  • Minimum cost to the economy: The market for Allowances and Offsets quickly finds the lowest-cost emission reduction activities and technologies.
  • Easier to enforce than “Command and Control”
  • Gives options to large emitters: Reduce emissions, or buy more Allowances and Offsets; Reduce emissions, or pay someone else to reduce emissions.

USA Success with Emissions Trading

The USA is the home of three of the most successful emissions trading systems to date. The Ozone Transport Commission NOx Budget Program (1990-2001) and the NOx State Implementation Plan (2002-present) reduced emissions of oxides of nitrogen from fossil-fuel generation of electricity in the northeastern states by 70% by 2009. The Acid Rain Program reduced sulfur dioxide emissions from fossil fuel generating stations by 5.5 million tonnes per year between 1990 and 2005, a 35% reduction.


Greenhouse Gas ET Schemes

Current, operating greenhouse emissions trading (“ET”) systems include the European Union (“EU”) system, the UNFCCC system (largely for developing nations), the RGGI system in the northeastern US states, and the New Zealand ET system. Plans for ET systems have been stopped in the USA, Japan, Canada and Australia. The Canadian province of Alberta is operating a “Baseline and Credit” system for large emitters. California and British Columbia have definite plans to implement ET systems. China, India, Taiwan and Korea are planning ET systems. The Western Climate Initiative is planning an ET system for 7 US states and 4 Canadian provinces.

How can industries and building owners benefit from cogeneration in an emissions trading scheme?

(These examples are real cogeneration systems which could benefit if emissions trading were implemented in their locations.)

“Capped” Facility – “Inside the Fence”

A capped facility which generates its own power and steam can reduce its annual emissions significantly by switching to cogeneration. After implementing cogeneration, the facility will not need to retire as many Allowances at the end of the year. The emissions trading system may feature a “cogeneration credit” scheme, to reward cogeneration by capped facilities.
Capped Facility Selling Energy to Another Capped Facility 

A capped facility which sells power or steam to another capped facility is helping that customer to reduce its annual emissions. During retirement at the end of the year, the customer will not require as many Allowances as if it had operated its own boiler plant. The contract between the seller and buyer of energy should recognize the value of emission reductions in the emissions trading system.

“Uncapped Facilities”

An “uncapped” facility is not required by regulation to participate in emissions trading. However, an uncapped facility may choose to implement cogeneration, and then apply for Offsets to reward the emission reductions. If a successful recipient of Offsets, the uncapped facility can then sell them to a capped facility.

A Capped Facility Sells Energy to an Uncapped Facility
This cogeneration plant sells electrical energy to the Ontario electrical grid, and sells steam and chilled water to local hospitals.



In buying steam from the cogeneration plant, the customer has reduced its emissions, and could apply for Offsets to reward the reduction. The energy contract between the cogeneration owner and the customer should consider the Offsets value of these reductions.  



Cogeneration and Emissions Trading: How to Divide the Emissions between Produced Electricity and Produced Steam 



From the cogeneration system, how many tonnes of CO2 were emitted to generate electricity? How many tonnes were emitted to generate steam? How many tonnes for other forms of energy? Try answering these questions for a petroleum refinery, with 20 different boilers, and 20 different steam-driven machines and electricity generators.


The owner of the cogeneration system must answer these questions, because mechanical energy and thermal energy are treated differently by the emissions trading system, especially where one form of energy is used by the owner, and the other is sold to a customer.

Here is a possible method for dividing the emissions between electricity and steam for the cogeneration project described at the beginning of this article.

Report annual totals for all energy quantities, and greenhouse gas emissions.

Express each annual energy quantity in universal metric units.




Calculate how many % of total useful energy are thermal, how many % are mechanical or electrical.

% Useful Thermal  = 100 x  (1260/(1260+216))  = 85.4%

% Useful Electrical = 100 x  (216/(1260+216))    =  14.6%


Apply these percentages to total greenhouse gas emissions, to calculate how many tonnes of emissions are attributable to useful thermal energy, and how many tonnes attributable to useful electrical energy.


Annual Thermal Energy Emissions     = 85.4 % of 107,000 tonnes
                                                              = 91,300 tonnes CO

Annual Electrical Energy Emissions   = 14.6% of 107,000 tonnes
                                                              = 15,700 tonnes CO




Cogeneration and Emissions Trading: The Need for Monitoring

Together, cogeneration and emissions trading require accurate, complete monitoring and reporting of energy and emission quantities.
Here are the monitoring instruments required by the cogeneration project described above:




The monitoring instruments provide information to a computerized, continuous energy and emissions monitoring system. At the end of the year, the monitoring system shows the totals for all significant energy quantities and air emissions during the year.

In this example, where’s the CO2 meter? How do we know how many tonnes of CO2 were emitted by the gas-fired cogeneration system during the year? The highly accurate gas meter transmits the exact number of standard cubic meters of natural gas which were burned during the year. The computer can convert this total consumption of natural gas, a fuel of standard chemical composition, to total CO2 emissions, by calculating a “mass balance.” Combustion of each standard cubic meter of natural gas emits 1.89 kg of CO2.

Cogeneration and Emissions Trading in the UNFCCC’s Clean Development Mechanism

The Clean Development Mechanism (“CDM”)of the United Nations Framework Convention on Climate Change creates “CER” Offsets for emission reduction projects in developing countries. The Offset owners can then sell these Offsets to Capped Facilities in the EU emissions trading system. The Capped Facilities can retire these Offsets to supplement their retirement Allowances.


As of December 21st, 2010, the CDM projects list includes 90 approved cogeneration projects, credited with over 5.8 million tonnes per year of greenhouse gas emission reductions.


Here is the URL of a document which describes one of the cogeneration projects approved for CERs by the CDM.






Cogeneration in Alberta

The Canadian province of Alberta, with its growing oil sands industry, has become a world leader in natural gas cogeneration, and could minimize the greenhouse gas emissions from oil sands projects through effective use of cogeneration.

The oil sands process requires large amounts of steam to separate the bitumen from the sand, either in the ground, or after mining of the oil sands. This steam is provided by natural gas cogeneration plants, which also provide electric power to the refineries.

Currently, for the entire Province of Alberta, most of the electricity generating capacity is provided by coal-fired boilers, which are high emitters of greenhouse gases. An excellent 2007 article from Power Gen Worldwide outlines the role of cogeneration in the oil sands, and the opportunities for cogeneration to supplement Alberta’s existing electricity generation system.


In Alberta, 36 new natural gas cogeneration projects were built between 1998 and 2009, increasing the province’s generating capacity by 1869 megawatts, or 16%.


If high capacity electricity transmission lines were built from the oil sands area to the south, most of the coal-fired generation could be replaced by natural gas cogeneration, with massive reductions in overall greenhouse gas emissions.


A 2010 Report for the Alberta Energy Research Institute by Jacobs Consultancy and Life Cycle Associates states that cogeneration in the oil sands could bring the net greenhouse gas emissions per barrel of synthetic crude oil to within a few percent of emissions from typical conventional crude petroleum from Nigeria or the US Gulf Coast. However, the study did not examine the mechanism for transfer of the emission reductions to the provincial electricity system through emissions trading.



Cogeneration in Alberta’s “Baseline and Credit” System

The regulated baseline for greenhouse gas emissions from cogeneration in Alberta is described in the document, SPECIFIED GAS EMITTERS REGULATION : ADDITIONAL GUIDANCE ON COGENERATION FACILITIES, OCTOBER 1, 2007


In the Alberta baseline and credit system, in the first year, each megawatt-hour of generated electrical energy is allocated 0.418 tonnes of CO2 baseline. The allocation of baseline for cogenerated thermal energy is based on a boiler efficiency of 80%, although the boiler fuel is not specified. 


Applying these criteria to our above example, the Alberta baseline allocation would be:



For generated electrical energy:


0.418 x 60,000 = 25,080 tonnes CO2/year



For cogenerated thermal energy from natural gas fuel:


1,260 TJ x 50.8 tCO2/TJ x 100/80 = 80,010 tonnes CO2/year

(Natural gas combustion emits

50.8 tonnes of CO2 per terajoule of fuel energy.)



Total Alberta baseline in the first year:

25,080 + 80,010 = 105,090 tonnes CO2/y



This project, with its total emissions of 107,000 tonnes CO2/year, if located in Alberta, would exceed its baseline by 107,000 – 105,090 = 1,910 tonnes of Alberta emission performance credits, in the first year. The owner would need to improve the efficiency of the cogeneration system, or buy and retire 1,910 tonnes of emission performance credits in the first year. In subsequent years, with lower baseline allocation intensities, the project would probably emit even more than its baseline.



The Alberta regulation does not appear to offer any guidance to the operator of the district heating system, who might be eligible for Offsets, for replacing its boiler plant with purchased, cogenerated steam.


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