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Federal Government Proposes Revised Approach to the Draft Clean Electricity Regulations

On February 16, 2024, the federal government released an update to proposed Clean Electricity Regulations (Updated CER). This update follows significant feedback gathered through stakeholder engagement. For a detailed discussion of the original draft Clean Electricity Regulations (CER), please refer to our previous blog post, "Canada Releases Vision for Transforming Electricity Sector and Clean Energy Regulations”.

When first released in August 2023, the CER introduced, among other things, 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.

In light of major concerns with the strictness of certain aspects of the Updated CER and the call for increased flexibility by both provincial governments, utilities and industry, the federal government is seeking feedback on a proposed set of amendments to the proposed CER that was released last summer. This alternative approach consists of four main components (discussed below). Feedback on these changes can be submitted to the federal government until March 15, 2024 by email at: [email protected].

The Key Changes

1) Unit-specific annual emissions limit

Instead of implementing a uniform fixed emissions intensity standard to all units as proposed in the CER, the notable adjustment in this system is the transformation of the regulated performance standard into an annual emission limit. The emission limit for each unit would be set based on the annual emissions of a natural gas unit of similar size operating full time, and the emissions intensity would be determined using the following equation:

View Unit specific%20annual%20emissions%20limit

In practical terms, a unit with an emissions intensity exceeding the established performance standard will need to operate less than full capacity to comply with its limit. The goal of this approach is to motivate efficiency enhancements in all units while offering flexibility through the introduction of pooling and offsets detailed below. This strategy also aims to create leeway to enable operators to consider the installation of Carbon Capture Sequestration (CCS) technology and attempts to address concerns that CCS technology may not meet the performance standard.

2) Adjusted underlying performance standard

There were significant concerns under the original CER about the feasibility of a 30t/GWh performance standard. This concern is particularly relevant for units operating on a load-following basis to balance periods of low renewable power generation or accommodate periods of high demand. Additionally, many stakeholders argued a 450-hour operating limit for peaker plants would undermine reliability and require operation of less efficient facilities once more efficient units met the limit. Accordingly, a revised performance standard is being considered by the federal government.

3) Pooling

Pooling would permit responsible entities, like utilities or Crown corporations, owning several existing units within the same jurisdiction, to consolidate their individual emission limits into a common limit. This approach would allow more efficient units to operate beyond their personal limits, counterbalanced by the scaled-down operation of less efficient units. This approach not only increases flexibility but could potentially eliminate the need for a time restriction on peaker units, as suggested in the Updated CER, considering all units would be subject to an emissions cap. Additionally, the possibility of enabling individual units to combine their emissions with units owned or managed by different entities within the same jurisdiction is being explored.

4) Offsets

The alternative approach would also allow a unit to exceed its annual emissions limit by a restricted amount, as long as it compensates for the excess emissions with eligible offsets.

Additional Changes

In addition to the changes under consideration for the emissions performance standard, there are a handful of other considerations brought forward to the Updated CER:

  • Extending the End of Prescribed Life (EoPL): This proposed change impacts new units currently under development and unable to start operations by January 1, 2025. The proposal would allow these units to apply the EoPL provisions, provided they initiate supplying electricity to the grid by a specified future date. The delay in their commissioning post-2025 would result in a corresponding reduction in their predetermined operational lifespans.
  • Captured Facilities: The proposal would result in the CER applying to all new units within a facility that collectively have a capacity of 25 MW or more, and to individual units with a capacity of 25 MW or more. The stated aim of this measure is to prevent facilities from circumventing emission limits by grouping several smaller units together. Concurrently, measures are being implemented to maintain exceptions for remote communities within the boundaries of these proposed regulations.
  • Cogeneration: The proposal stipulates that all cogeneration units would only be subject to emissions requirements during the years when they export more electricity to the grid than they consume. Notably, the proposed emissions limit approach distinguishes between the emissions from electricity used within the facility, known as "behind the fence," and the emissions from electricity supplied to the grid. For existing units, the federal government is considering whether to treat these two types of emissions differently for a limited period.
  • Emergency Exemption: The proposal suggests that generating units could receive a temporary exemption from the emissions performance standard upon the system operator's declaration of a power grid emergency. During this exemption period, emissions from the units would not contribute to their annual limits. However, in all instances, the Minister would need to be informed, and consideration is being given to requiring the Minister’s approval to continue operating under emergency circumstances beyond the exemption period.

Next Steps

As noted above, the federal government is seeking feedback on this proposed alternative system as compared to modifying certain key parameters in the Updated CER until March 15, 2024. The Updated CER are anticipated to be enacted later this year.

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. To discuss any questions about the Updated CER, please contact your trusted McCarthy Tétrault advisor or one of the authors.



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