Power Perspectives 2022 - Environmental Law
Key Developments in 2021
In 2021, there were a number of key environmental law developments across Canada with potential impacts on the power sector. Highlights include the following:
BC Releases CleanBC Roadmap to 2030: The BC government released its updated climate change plan in October 2021. The CleanBC Roadmap to 2030 builds on the CleanBC plan released in 2018, and sets out policy plans to help BC achieve the province’s emission reduction target for 2030 and to reach net-zero by 2050. The CleanBC Roadmap to 2030 includes a series of actions across a number of pathways, including increases to carbon pricing, requirements for new industry projects to have plans to achieve BC’s sectoral targets and net zero by 2050, measures to reduce industrial methane emissions, a review of the oil and gas royalty system to ensure it aligns with BC’s climate goals, requirements to make all new buildings zero-carbon by 2030, targets for adopting zero-emission vehicles (ZEVs), increased clean fuel and energy efficiency requirements; and support for innovation in areas like clean hydrogen, the forest-based bio-economy and negative emissions technology.
BC Releases Hydrogen Strategy: In July 2021, BC became the first province in Canada to release a comprehensive hydrogen strategy. Part of the CleanBC plan, the BC Hydrogen Strategy includes 63 actions for government, industry and innovators to undertake during the short term (2020-25), medium term (2025-30) and long term (2030 and beyond). Under the BC Hydrogen Strategy, immediate priorities include scaling up production of renewable hydrogen, establishing regional hydrogen hubs, and deploying medium- and heavy-duty fuel-cell vehicles. The Province is supporting the BC Hydrogen Strategy with further investments announced as part of Budget 2021, including C$10 million over three years to develop policy on reducing the carbon intensity of fuel and advancing the hydrogen economy. In addition, BC Hydro recently introduced a discounted electricity rate for renewable hydrogen production to attract new investment in clean industry.
BC Sets Sectoral Greenhouse Gas Emission Reduction Targets for Industry: In March 2021, BC set sectoral GHG targets as part of its CleanBC plan. Sectoral targets for 2030 have been established for the following sectors (expressed as a percentage reduction from 2007 sector emissions): (i) transportation – 27 to 32%; (ii) industry – 38 to 43%; (iii) oil and gas – 33 to 38%; and (iv) buildings and communities – 59 to 64%.
As part of legislated requirements, government will review the targets by 2025, with options to expand the number of sectors included and narrow the percentage ranges. To support emission reductions, the Province launched a new round of applications for emission reduction projects for 2021 through the CleanBC Industry Fund, with temporary changes to increase the provincial share of funding up to 90% of project costs with a cap of C$25 million per project to encourage a greater number of proposals. In addition, a new stream of the CleanBC Industry Fund known as the Innovation Accelerator was announced to support industry projects that use advanced clean tech solutions for tough-to-solve emission problems.
Amendments to AUC Rule 007: The Alberta Utilities Commission (AUC) amended AUC Rule 007: Applications for Power Plants, Substations, Transmission Lines, Industrial System Designations and Hydro Developments (AUC Rule 007). AUC approval is required under s. 11 of the Hydro and Electric Energy Act to construct or operate a “power plant”, which includes facilities for the generation and gathering of electric energy from any source. AUC Rule 007 provides the specific application requirements for a range of facilities including thermal, wind, solar, hydro electric, hydroelectric and geothermal power plants, transmission lines, substations battery storage facilities, grid interconnections, industrial system designations and gas utility pipelines.
Following extensive consultation, including a separate process for the development of Indigenous consultation processes, the revised AUC Rule 007 now includes new or revised requirements addressing: (i) end-of-life management for power plants; (ii) emergency response planning; (iii) time extension applications for power plants; (iv) notification and participant involvement program; (v) solar glint and glare assessment; (vi) shadow flicker; (vii) review of buildable area concept for wind development; (viii) battery storage; and (iv) checklist application for pilot projects.
Highlights of the new and noteworthy environmental requirements include:
- For projects wholly or partially located on federal lands, an environmental impact analysis and annual submission of a post-construction monitoring survey report to Alberta Environment and Parks and the AUC pursuant to AUC Rule 033: Post approval Monitoring Requirements for Wind and Solar Power Plants;
- Submission to the AUC of a copy of the initial renewable energy operations conservation and reclamation plan in accordance with the Conservation and Reclamation Directive for Renewable Energy Operations; and
- Providing an overview of how project proponents will ensure sufficient funds are available at the project end of life to cover the cost of decommissioning and reclamation.
Extension of Alberta’s Emission Trading Regulation to November 30, 2030: Alberta has a sulphur dioxide and nitrogen oxides emissions trading program for the electricity sector. It is one part of an overall plan for the electricity sector in Alberta and was established under the Environmental Protection and Enhancement Act (EPEA) to adopt the recommendations of An Emissions Management Framework for the Alberta Electricity Sector Report to Stakeholders from the Clean Air Strategic Alliance. The Emission Trading Regulation encourages power stations to reduce their nitrogen oxide and sulphur dioxide emissions prior to mandatory improvements required in their EPEA industrial approvals. Alberta extended expiry of this regulation from November 30, 2021 to November 30, 2030.
Alberta establishes Coal Policy Committee: In May 2020, Alberta rescinded the Coal Development Policy for Alberta (1976 Coal Policy). The intention of the 1976 Coal Policy was to ensure that appropriate regulatory and environmental protection measures would be conducted before new coal projects could be formally approved. The 1976 Coal Policy divides land in Alberta into four categories and establishes a framework for where coal leasing, exploration and development can occur and the requirements for those activities within the province.
The revocation of the 1976 Coal Policy was faced with opposition from several interest groups and stakeholders, including an application for judicial review filed with the Alberta Court of Queen’s Bench (Blades, et al v. Her Majesty the Queen in Right of Alberta and the Minister of Energy for the Province of Alberta, ABQB Action No. 2001- 08938). Municipal councils, environmental organizations and Indigenous groups also objected to the revocation of the policy and petitioned for its reinstatement.
In February 2021, Alberta announced that the 1976 Coal Policy would be reinstated, effective February 8, 2021. In addition, Alberta strengthened the reinstated policy by providing the following direction to the Alberta Energy Regulator:
- No mountain-top removal will be permitted and all of the restrictions from the 1976 Coal Policy categories will apply, including the restrictions on surface mining in Category 2 lands; and
- New approvals for coal exploration on Category 2 lands are prohibited until widespread consultation on a new policy is conducted.
In order to continue with their goal of developing a modern coal policy, Alberta also launched a Coal Policy Committee to run a comprehensive engagement with Albertans. The Coal Policy Committee completed its engagement and final reports with recommendations were submitted to the Minister of Energy in December 2021.
New Alberta Energy Regulator (AER) Liability Management Framework: In recent years, liability management for the oil and gas industry has been a growing concern for industry, regulators and landowners. Through ongoing consultation with industry and stakeholders, the Government of Alberta and the AER identified gaps in how ongoing and end of life liability is managed.
On December 1, 2021, Alberta introduced its latest set of amendments to existing AER directives and new directives to implement a new liability management framework (LMF). Specifically, the AER introduced amendments to Directive 006: Licensee Liability Rating (LLR) Program and a new Directive 088: Licensee Life-Cycle Management.
The LMF replaces the current liability licensee rating (LLR) system and is intended to improve and expedite reclamation efforts, enable industry to better manage the clean-up of oil and gas wells, pipelines and facilities at every stage of development, and provide a holistic and full lifecycle approach to reclamation and remediation obligations.
The announcement of the amendments to Directive 006 and new Directive 088 build-on a number of regulatory changes including: (i) the new Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals; (ii) the Site Rehabilitation Program announced in March of 2020; and (iii) the enactment of the Liabilities Management Statutes Amendment Act, which received Royal Assent on April 2, 2020.
The requirements within the oil and gas industry regarding end of life obligations and orphan wells influence landowner negotiations for all industries in Alberta including power related projects. As a result, this trend of increased life cycle requirements and monitoring for accountability, impacts stakeholder engagement for other industries including for thermal and renewable electricity generation projects.
Ontario’s Transition to Emissions Performance Standards: The Ontario government created the Ontario Emission Performance Standards (EPS) in 2019 as an alternative to the federal government’s output based pricing system (OBPS) for industrial emitters. Both the EPS and OBPS programs regulate emissions from industrial facilities by setting industry-specific emission standards for regulated facilities. Although the administrative requirements of the Ontario EPS program came into effect in 2019, the substantive requirements were dormant as the federal government’s OBPS was in force in Ontario. In September 2021, the federal and Ontario governments finalized their agreement to have the EPS apply in Ontario effective January 1, 2022 and to remove the application of the federal OBPS on the same date. The EPS program requires regulated facilities to meet an annual baseline amount of greenhouse gas emissions that is calculated using an industry-specific performance standard. If a regulated facility exceeds this baseline emissions limit, it will have to pay a carbon price for the portion of the emissions output that is in excess. The emissions performance standards, and thus the emissions limits for regulated facilities, are expected to become mores stringent over time, and the price on carbon is expected to rise annually. Most industrial emitters in Ontario will have strong economic incentive to develop strategies and technologies to reduce their greenhouse gas emissions. The generation of electricity using fossil fuels is an industrial activity that was regulated under the OBPS and will continue to be regulated under the EPS program.
Fossil Fuel Charge in Ontario: As noted below, in May 2021, the Supreme Court of Canada upheld the constitutionality of the federal government’s Greenhouse Gas Pollution Pricing Act. Although the federal and Ontario governments have agreed that the Ontario EPS program can regulate industrial emitters in Ontario in lieu of the federal OBPS program, the levy on fossil fuel distribution in Ontario—commonly known at the “fossil fuel charge”— that is imposed by the Greenhouse Gas Pollution Pricing Act, will, now that the act has been determined to be constitutional, continue to apply in Ontario.
Amendments to Ontario’s Environmental Assessment Act: Changes made to Ontario’s Environmental Assessment Act (EAA) in 2020 are starting to come into force in phases. The EAA currently applies to all public sector undertakings (unless exempted) and only to some private sector undertakings that are designed by regulations or by order, such as electricity undertakings and waste management projects. However, the provincial government is transitioning the EAA to a “project list” framework and released draft regulations in November, 2021 that set out: a proposed “projects list” for projects requiring a comprehensive environmental assessment and ultimate cabinet approval, the types of transit projects that will be exempt from the requirement to undergo a comprehensive environmental assessment if they follow a streamlined process, the types of projects that will be exempt from the EAA, and a transitional process for projects currently under assessment. Companies planning new, large-scale projects in Ontario will want to review the draft comprehensive projects list to determine their potential obligations.
Announced Ban on Oil and Gas Upstream Activities: In October 2021, the Government of Québec announced that it intends to ban all oil and gas exploration and production activities in the province, a decision further confirmed by the province joining the Beyond Oil and Gas Alliance in November 2021 at the Glasgow Climate Change Conference (COP 26). A Bill is expected to be tabled by the Government in early January to confirm the ban and related indemnification mechanism in favour of the current holders of exploration and production licences.
Oil and Gas and Surface Water Protection: On November 12, 2021, the Québec Court rendered a long-awaited decision in Gaspé Énergies inc. v. Ministre de l’Énergie et des Ressources naturelles, 2021 QCCQ 11747, declaring illegal the decision of the Québec Minister of Energy and Natural Resources to refuse to issue an oil exploration permit to Gaspé Énergie pursuant to the Québec Petroleum Resources Act. We refer you to the Energy Litigation article of this publication for an analysis of this decision. While the Court returned the file to the Ministry for a new decision to be made by the Minister, this project is now expected to be captured by the announced ban on oil and gas exploration activities described above.
Bill 102 amending the Environment Quality Act: In October 2021, the Government of Québec tabled an Act mainly to reinforce the enforcement of environmental and dam safety legislation, to ensure the responsible management of pesticides and to implement certain measures of the 2030 Plan for a Green Economy concerning zero emission vehicles (Bill 102). Bill 102’s main purpose is to improve and standardize the measures enabling the enforcement of the various statutes under the responsibility of the Québec Minister of the Environment, including the Environment Quality Act and the Dam Safety Act. Among other things, Bill 102 proposes to introduce monetary administrative penalties, increase the amounts of environmental fines and modify the authorization and approval regime under the Dam Safety Act.
Supreme Court of Canada Upholds Constitutionality of Federal Carbon Pricing Backstop: On March 25, 2021, the Supreme Court of Canada (SCC) upheld the constitutionality of the federal Greenhouse Gas Pollution Pricing Act (GGPPA). The SCC’s review arose from the appeals of three provincial court decisions (Saskatchewan, Ontario and Alberta). The main legal issue in all three cases was whether the federal government has the authority to impose the regime established under the GGPPA. In May 2019, a 3-2 majority at the Saskatchewan Court of Appeal said the Act was a valid use of federal legislative jurisdiction. A 4-1 majority at the Ontario Court of Appeal reached the same conclusion in June 2019. However, in February 2020, four of five Alberta Court of Appeal judges found the Act to be unconstitutional on the grounds that it exceeded federal jurisdiction. A 6-3 majority of the SCC held that the GGPPA is constitutional and that Parliament has jurisdiction to enact it as a matter of national concern under its constitutional Peace, Order and Good Government power. The SCC decision brings certainty to the carbon pricing regime in Canada, and allows the federal government to continue implementing its climate change strategy.
Continuing Increase to Carbon Price from 2023 to 2030: The federal government has reviewed its approach to carbon pricing and announced in December 2020 that the carbon price will be increased annually at a rate of C$15 per tonne starting in 2023 until it reaches C$170 per tonne of CO₂e in 2030.
Federal Government Releases Updated Climate Plan – A Healthy Environment and a Health Economy: On December 11, 2020, the federal government released its Healthy Environment and a Healthy Economy Plan (the Federal Climate Plan), which builds on the Pan-Canadian Framework on Clean Growth and Climate Change and provides a road map forward to meet the country’s 2030 emissions reduction target under the Paris Agreement of 40–45% below 2005 levels by 2030. The Federal Climate Plan is also intended to establish initiatives to support efforts to achieve Canada’s goal of net-zero emissions by 2050, which has been formalized in the Canadian Net-Zero Emissions Accountability Act (passed in June 2021). The Federal Climate Plan outlines actions in five main areas, including: (i) energy efficiency in homes and buildings; (ii) lower emission transportation options; (iii) increasing the price on carbon pollution; (iv) supporting the decarbonization of Canadian industry; and (v) building more resilient communities. As part of Canada’s climate change plan, the federal government has committed C$3 billion to establish a Net-Zero Accelerator Fund to help large emitter reduce their emissions.
Federal Government Introduces Draft Regulations for Clean Fuel Standard: On December 18, 2020, Environment and Climate Change Canada published the proposed Clean Fuel Regulations (CFR), which seek to achieve 30 million tonnes of annual reductions in GHG emissions by 2030. The proposed CFR will require liquid fossil fuel primary suppliers (i.e. producers and importers) to reduce the carbon intensity (CI) of the liquid fossil fuels they produce in, and import into, Canada from 2016 CI levels by 2.4 gCO2e/MJ in 2022, increasing to 12 gCO2e/MJ in 2030 at a rate of 1.2 gCO2e/MJ per year. Reduction requirements for the years after 2030 would be held constant at 12 gCO2e/MJ, subject to a review of the regulations and future amendments. The proposed CFR would also establish a credit market whereby the annual CI reduction requirement could be met via three main categories of credit-creating actions: (i) actions that reduce the CI of the fossil fuel throughout its lifecycle, (ii) supplying low-carbon fuels, and (iii) specified end-use fuel switching in transportation. Parties that are not fossil fuel primary suppliers (e.g. low-carbon fuel producers and importers) will be able to participate in the credit market as voluntary credit creators by completing certain actions. In addition, the proposed CFR would retain the minimum volumetric requirements (at least 5% low CI fuel content in gasoline and 2% low CI fuel content in diesel fuel and light fuel oil) currently set out in the federal Renewable Fuels Regulations (RFR) and the RFR would be repealed. Final regulations are expected to be released in 2022, with the coming into force of regulatory requirements in early 2023.
The Year Ahead
Further Actions to Implement CleanBC Roadmap to 2030: In 2022, it is expected that the BC Ministry of Environment will develop and introduce various initiatives to implement the CleanBC Roadmap to 2030. In particular, initiatives will support the actions set out in the CleanBC Roadmap to 2030, including: (i) a commitment to increase the price on carbon pollution to meet or exceed the federal benchmark; (ii) requirements for new industry projects to have enforceable plans to reach BC’s legislated and sectoral targets and net zero by 2050; (iii) stronger regulations that will nearly eliminate industrial methane emissions by 2035; (iv) a comprehensive review of the oil and gas royalty system to ensure it aligns with BC’s climate goals and provides a fair return for British Columbians, with outcomes released in February 2022; (v) new requirements to make all new buildings zero-carbon by 2030; (vi) adoption of zero-emission vehicles (ZEVs) by 2030 and 100% ZEVs by 2035; (vii) developing new ZEV targets for medium- and heavy-duty vehicles; (viii) an accelerated shift toward active transportation and public transit (30% by 2030; 40% by 2040; 50% by 2050); (ix) increased clean fuel and energy efficiency requirements; and (x) support for innovation in areas like clean hydrogen, the forest-based bioeconomy and negative emissions technology.
New Alberta Climate Strategy: Leading up to the 2021 United Nations Climate Change Conference, the Government of Alberta signalled its intention to release a new provincial climate strategy. We anticipate Alberta will create an updated provincial strategy to tackle its unique emission and industry profile. It will be important to monitor the development of a new climate strategy and the potential impacts to the power industry and participants in Alberta’s electricity market. Key to the power industry will be Alberta’s approach to the regulation of emissions and carbon pricing, including how it approaches its long-standing carbon market for large emitters under the Technology Innovation and Emission Reduction Regulation and whether it re-implements a province-wide carbon levy to replace the federal fuel charge currently applicable in Alberta pursuant to the federal GGPPA.
Amendments to Ontario’s Environmental Assessment Act: As noted above, significant changes to the Ontario Environmental Assessment Act are coming into force in phases and draft regulations have been released for comment. In 2021, regulations setting out the types of projects, public and private, that will be required to undergo comprehensive environmental assessments and to obtain cabinet approval, will likely be finalized. Further, more clarity will likely be provided for the types of projects that will be exempt from the comprehensive environmental assessment process and those which will be required to complete a streamlined, self-assessment process.
Developments to Watch: As Ontario heads into an election year, 2022 will likely see various announcements regarding initiatives with environmental implications, such as future carbon pricing, clean technology and carbon capture, and further developments towards the government’s announced low-carbon hydrogen strategy.
New Rules for the Cap-and-Trade System for 2024- 2030: In 2022, the Government of Québec is expected to publish its proposed rules for the allocation of carbon emission credits for the 2024-2030 period under the Province’s cap-and-trade system for GHG emissions. These new rules are highly anticipated by large industrial operators and are likely to include new measures aimed at encouraging further reductions in the carbon footprint of Québec’s main GHG emitters.
Adoption of Bill 102 and Omnibus Regulations: The Government of Québec is expected to adopt Bill 102 in 2022 and Québec Ministry of Environment will likely continue the ongoing modernization of the Environment Quality Act, including by tabling omnibus Regulations in spring 2022 to adapt the province’s permitting and administrative requirements based on the environmental risk associated with each project.
Ban on Oil and Gas Upstream Activities: A Bill is expected to be tabled by the Government of Québec in early January 2022 to confirm the ban on oil and gas exploration and production activities, and related indemnification mechanism in favour of the current licence holders.
Federal Government Expected to Launch Net-Zero Challenge for Industry: As part of efforts to achieve Canada’s goal of net-zero emissions by 2050, the federal government is expected to launch the Net-Zero Challenge in early 2022. The Net-Zero Challenge is a voluntary initiative to encourage Canadian companies, particularly large industrial emitters, to develop and implement plans to transition their operations to net-zero emissions by 2050.
Final Clean Fuel Standard Regulations to be Released in 2022: As discussed above, the federal government is expected to release the final regulations for its Clean Fuel Standard in 2022, with the coming into force of regulatory requirements in early 2023.