Canada Releases Vision for Transforming Electricity Sector and Clean Energy Regulations
On August 10, the federal government issued its proposed Clean Energy Regulations Clean Electricity Regulations (CERs). The CERs introduce a prohibition against electricity generation units emitting more than an annual average of 30 tonnes of carbon emissions per GWh of electricity generated over a calendar year.
The proposed CERs would apply to all units with a capacity of 25 MW or greater that generate electricity using fossil fuels, and that are connected to an electricity system that is subject to NERC reliability standards. This applicability criteria indicates that the government is focusing on what it views as major sources of GHG emissions that are typically deployable for baseload generation, rather than smaller units used mainly behind-the-meter for self-consumption and/or used in remote or Northern locations.
The CERs also introduce registration, reporting and record-keeping requirements. All qualifying units must register with the federal Ministry of Environment and Natural Resources in 2025 to demonstrate awareness of the applicable performance standard, and report on certain prescribed information to facilitate monitoring, compliance and enforcement activities going forward. Annual reports including the number of hours the unit produced electricity and the quantity of emissions must thereafter be submitted by the following June 30 for the previous calendar year.
The 30 t/GWh annual average performance standard would be effective:
- January 1, 2035 for all units that are commissioned on or after January 1, 2025;
- January 1, 2035 for all coal-combusting units;
- January 1, 2035 for units that increase electricity generation by at least 10% since submitting a registration report;
- for gas-fired generation units, the later of January 1, 2035 or January 1 of the year following the applicable calendar year under subsection 4(2) of the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-fired Generation of Electricity Regulations, if the unit is registered thereunder (with the latest year under this alternative being 2039); and
- for all other units, January 1, 2035 or January 1 of the calendar year that is 20 years after commissioning.
Emissions during “Emergency Circumstances” – periods during which a unit is ordered to produce electricity by a provincial electricity system operator or similar authority – are deducted from the calculation of annual emissions so long as the appropriate exemption is applied for within 15 days from the date the emergency circumstances arose and the exemption is granted by the federal Minister. Other emissions deductions may also be made including emissions in connection with the production of useful thermal energy and hydrogen, as well as certain prescribed stored emissions.
Additional exemptions are proposed for carbon capture and storage (CCS) systems that have been operating since January 1, 2018 which would be permitted up to 40 t/GWh until the earlier of seven years following commissioning of the CCS system or December 31, 2039, and for non-coal combusting units that operate for no more than 450 hours and emit no more than 150 kilotonnes during the calendar year. The latter effectively allows gas-fired generation units to remain on the system to serve peak demand periods post-2035.
Stakeholders have until November 2 to provide written feedback on the proposed CERs.
The proposed CERs come on the heels of the “Powering Canada Forward” plan (the “Plan”) issued by the federal government on August 8, which outlines the federal government’s vision, and call to action, for clean, affordable, and reliable electricity systems for every region of Canada in its pursuit to building a net-zero economy and reaching its emission reduction targets under the Paris Agreement.
The Plan emphasizes the federal government’s view of why the expansion of a clean electricity system is important and necessary, highlights the work already done, and outlines how the federal government will support, incentivize and accelerate its target of clean and non-emitting electricity. While the Plan recognizes the important role the federal government will play in achieving its targets, it also emphasizes the important roles provinces and territories, municipalities and regional governments, indigenous peoples and other partners will have to play in the future.
The Plan notes that decisions about intra-provincial and territorial generation, transmission and distribution of electricity are a matter for provinces and territories, and that the provinces and territories are ultimately responsible for electricity policy, market and regulatory structures as well as electricity systems and management and implementation of these matters. But also underlines that the federal government has regulatory powers over matters of interprovincial power lines, nuclear power, and electricity exports.
Next steps in the Plan include the federal government having ongoing dialogues with local, regional, provincial and territorial governments as well as with other electricity system participants and experts, in order to determine the way forward. The Plan also details certain federal programs to facilitate engagement and consultation. It is interesting to see that the federal government plans to use its interprovincial regulatory powers to pursue a net-zero economy in this way.
The Plan also recognizes that certain provinces and territories, such as Alberta, New Brunswick, Nova Scotia and Saskatchewan are more reliant on fossil fuels for their electricity generation and that grid decarbonization for these jurisdictions will be “particularly challenging”. It does not discuss in detail the costs those jurisdictions will have to undertake to achieve the federal government’s target and the extent of the role the federal government will play in specifically assisting these provinces in overcoming the challenges they face as a result of being in different starting points to other provinces in the pursuit of grid decarbonization or how exactly the costs of these particularly impacted jurisdictions may be shared or eased.
For instance, the Plan does not address the Alberta government’s recently announced moratorium on new renewable projects greater than 1 MW that is to remain in place until February 29, 2024 or the stated concerns of the Alberta government on the effect that significant intermittent renewable generation has on grid stability and how this may affect the Plan or thinking behind Canada’s Clean Energy Electricity Strategy set for release in 2024.
In our opinion Alberta’s moratorium, in combination with the proposed CERs, could give rise to an opportunity for project developers to bring forward gas fired baseload generation plants that have CCS as an integral feature.
The federal government has made clear that financial support for decarbonization for each province and territory will be contingent upon their respective buy-in to federal government net-zero targets and policies. The Plan also emphasizes the economic opportunities that will result from pursuing and achieving a net-zero economy, including tax incentives, targeted clean electricity programs that will see the federal government commit over $5 billion in grants and contributions, the Strategic Innovation Fund’s Net-Zero Accelerators investment of up to $8 billion in various projects, the federal government’s role in supporting clean electricity projects, and the Canada Infrastructure Bank’s role in investing and attracting private and institutional investment in infrastructure projects that are in the public interest.
Our team at McCarthy Tétrault is closely observing the implementation of Canada’s Climate Plan, and we remain committed to helping our clients navigate the changing regulatory landscape of decarbonization and net-zero policies. Please contact Reena Goyal, Stephen Furlan, or any other member of the Power Group at McCarthy Tétrault, with any questions or for assistance.
 North American Electric Reliability Corporation.
 Only net exporters, i.e. units that generate and supply more power to a NERC-regulated electricity system than it withdraws from the system in a given calendar year, are subject to the 30 t/GWh annual average performance standard.