Canada’s Minister of Environment and Climate Change (the “Minister”), in collaboration with the Minister of Energy and Natural Resources, has announced the release of proposed Clean Electricity Regulations (the “Proposed Regulations”) (see our earlier bulletin on prior consultations here). The Proposed Regulations would establish significant and ambitious emission performance standards (“EPS”) to reduce greenhouse gas (“GHG”) emissions from fossil fuel-generated electricity generation facilities in all provinces and territories across Canada starting in 2035. Environment and Climate Change Canada (“ECCC”) estimates that the Proposed Regulations would result in a net reduction of 342 million metric tonnes (Mt) of CO2e emissions between 2024 and 2050 and a net benefit to society of $28.9B. The Proposed Regulations also impose significant registration, record keeping, and reporting obligations on covered electricity generation facilities.
The Proposed Regulations represent a significant foray by the federal government into electricity policy, which has traditionally been an area of provincial jurisdiction. In their current form, the Proposed Regulations are expected to attract opposition from some provincial governments, and potential constitutional legal challenges.
ECCC is seeking feedback on the Proposed Regulations. Interested stakeholders are encouraged to review the Proposed Regulations and submit detailed comments by no later than November 2, 2023. We anticipate that policy developments are being targeted for announcement before or at the UNFCCC Conference of the Parties meetings (COP28 Paris Agreement negotiations) that start on November 30, 2023, in Dubai, UAE.
This bulletin briefly summarizes key details of the Proposed Regulation:
Application. The Proposed Regulations would apply to any “unit” (defined as an assembly comprised of any equipment that is physically connected and that operates together to generate electricity, and (a) must include at least a boiler or combustion engine and (b) may include duct burners and other combustion devices, heat recovery systems, steam turbines, generators, emission control devices and carbon capture and storage (“CCS”) systems) that meets the three following criteria:
- uses any amount of fossil fuels to generate electricity;
- has a capacity of 25 MW or greater; and
- is connected to an electricity system that is subject to North American Electric Reliability Corporation (NERC) standards (a “NERC-regulated electricity system”).
The Proposed Regulations would not apply to ‘behind-the-fence’ units that do not have net-exports to the NERC-regulated electricity system, but such units would still be covered under either the federal Output-Based Pricing System (OBPS) or an applicable provincial scheme.
Emission performance standards. The Proposed Regulations impose performance standards on certain electricity generation units, with limited exceptions. The Proposed Regulations stipulate that generation units with net exports greater than 0 GWh during a calendar year, are prohibited from emitting more than 30 tCO2e/GWh from the unit as a result of the combustion of fossil fuel.
The 30 tCO2e/GWh EPS would apply starting on:
- January 1, 2035, for units that combust coal or petroleum coke;
- January 1, 2035, for any unit commissioned on or after January 1, 2025;
- January 1, 2035, for a unit that has increased its electricity generation capacity by 10% or more since registration of the unit;
- on the latter of January 1, 2035 or January 1 of the calendar year in which the prohibition set out in subsection 4(2) of the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-fired Generation of Electricity begins to apply to a “significantly modified” unit (one that has ceased burning coal); or
- for any other unit, the latter of January 1, 2035 and 20 years after its commissioning date.
The applicable EPS is 40 tCO2e/GWh out to 2040 for generation units that are: (i) operating with a CCS system that started operating within the last 7 years and (ii) reported to have operated at or below 30 tCO2e/GWh for 2 periods of at least 12 continuous hours with at least 4 months between each period during the calendar year for which the report is submitted.
Further exceptions are provided for units that operate for less than 450 hours in a calendar year and emit less than a total of 150,000 tonnes of CO2 in that calendar year.
Emergency circumstances. The Proposed Regulations would enable unit operators to apply for an exemption to the emission performance requirements in certain emergency circumstances. Exemptions would be effective as of the day the emergency circumstance arises until the earliest of (a) 90 days after that date, (b) the day specified by the Minister, (c) the day the emergency ceases to cause a disruption or significant risk of disruption to the electricity supply, and (d) the day on which a measure, if any, pursuant to the Regulations Prescribing Circumstances for Granting Waivers Pursuant to Section 147 of the Act ceases to have effect.
Registration. The Proposed Regulations would require all units that meet the applicability criteria to register with the Minister by December 31, 2025 or, for units commissioned after January 1, 2025, within 60 days of commissioning.
Reporting. Beginning in the calendar year that the 30 tCO2e/GWh annual average performance standard would apply, the owner/operator for a unit must submit an annual report by the following June 1 and report prescribed information set out in the Proposed Regulation, including the unit’s electricity production, emission intensity, any applicable emergency exemptions, and information regarding CCS systems, as applicable.
Unabated fossil fuels. ECCC indicates that the Proposed Regulations allow the use of unabated fossil fuels, except for coal, for meeting additional generation requirements during periods of peak power demand. However, these ‘peaker provisions’ are limited to units that operate less than 450 hours per year, with a total of less than 150,000 tonnes of CO2e in such year.
Natural gas- and liquid fuel-fired generation. ECCC notes that the Proposed Regulations includes emissions-constrained flexibility mechanisms for natural gas and liquid fuel generation for operation post-2035, including mechanisms to:
- phase in the performance standard on existing units by applying the standard to any given unit 20 years following its commissioning date, known as a unit’s “End of Prescribed Life”;
- allow covered units to operate in the event of emergency situations without having to meet the performance standards;
- allow covered units to operate during peaking periods under a total emissions threshold and total time limit in a given year instead of an emissions intensity without having to meet the intensity-based performance standard; and
- set the performance standard at a level that could be met by natural gas units with CCS, allowing covered units that are using CCS as part of a compliance strategy to meet an annual average emission intensity of 40 t/GWh for the first 7 years following the capture system’s commissioning, or until December 31, 2039, whichever comes first.
Coming into force. The final regulations are expected to be published in the Canada Gazette, Part II, in 2024. The Proposed Regulations would come into force on January 1, 2025. In addition, the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations would be repealed on January 1, 2035 and the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-fired Generation of Electricity would be repealed on January 1, 2045.