Canada’s Minister of Environment and Climate Change (the “Minister”) yesterday announced the finalization and publication today of the Clean Electricity Regulations (“CER”) in the Canada Gazette, Part II (see our earlier bulletin on the draft CER here). CER establishes significant annual emission limits (“AEL”) to reduce greenhouse gas (“GHG”) emissions from fossil fuel-generated electricity generation facilities in all provinces and territories across Canada starting in 2035. Requirements to reduce emissions under CER start in 2035 with a pathway to reaching net-zero in 2050. Environment and Climate Change Canada (“ECCC”) estimates that the CER would reduce approximately 181 megatonnes of cumulative GHG emissions between 2024 and 2050. The CER imposes significant registration, record keeping, and reporting obligations on covered electricity generation facilities.
This bulletin briefly summarizes the key provisions of CER and federal financial support to help decarbonize and expand Canada’s electricity system.
Scope. A “unit” is regulated under the CER if it meets all of the following three criteria:
- It has an electricity generation capacity of 25 megawatts (“MW”) or greater (or is a new unit located at a facility where the sum of all new electricity generation unit capacity is 25 MW or greater);
- It generates electricity using fossil fuel; and
- It is connected, directly or indirectly, to an “electricity system” that is subject to North American Electric Reliability Corporation (“NERC”) standards.
A unit that has an electricity generation capacity of less than 25 MW is deemed to meet the first criteria if the unit’s commissioning date is on or after January 1, 2025 and the sum of the electricity generation capacity of all units, other than planned units, that are located at the facility where the unit is located and that also have commissioning dates on or after January 1, 2025 is at least 25 MW.
CER does 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.
Planned units. For any unit commissioned between January 1, 2025, and December 31, 2034, the AEL will start to apply on January 1, 2035, except for planned units that meet the following criteria:
- On or before December 31, 2025, with respect to the unit:
- all information required to initiate an impact assessment or environmental assessment has been submitted to the appropriate federal and/or provincial authority; and
- the proponent responsible for the development of the unit owns or has a lease for the land on which the unit is located; and all information required to initiate the process to obtain any permit required to begin construction at the site where the unit is located has been submitted to the relevant authority; and
- the project proponent has entered into contracts totaling a minimum of $10 million for major equipment pertaining to the unit; and
- On or before December 31, 2027, construction has begun at the site where the unit is located.
Registration. CER requires all units that meet the applicability criteria to register with the Minister by the latter of December 31, 2025, and the 60th day after the day on which the unit meets the applicability criteria.
Annual emission limit. CER establishes a technology-neutral AEL in tonnes of CO2 per year. The AEL only applies to a unit in years for which there is a net supply of electricity to the grid and is calculated using a unit’s electricity generation capacity with an applicable emissions intensity of 65 t/GWh during the period of 2035 to 2049 or 0 t/GWh in 2050 and onwards, as follows:
Timing. The AEL will apply on January 1, 2035, to all units that meet the three application criteria on or after that date, with exceptions of a later date for certain units with an end of prescribed life. The following table provides the timing of AEL application: 
Source: ECCC
Compliance credits. A unit is issued compliance credits if they emit less than the applicable AEL. Generally, units are allowed to carry forward unused compliance room to future years (i.e., bank compliance units). A unit may emit GHG emissions above its AEL by remitting eligible compliance credits equivalent to the amount of CO2 emissions above its AEL. The remittance of compliance credits is only available until December 31, 2049, and is in addition to the unit’s available allowance for applicable Canadian offset credits from 2035 to 2050, with Canadian offset credits still permissible in 2050 and afterwards – further discussed below.
Compliance credits may be transferable or non-transferable. Compliance credits are transferable if the unit does not combust coal during the calendar year and is: (a) a unit that has a commissioning date before January 1, 2025 and that does not produce useful thermal energy during the calendar year; (b) a unit, other than a planned unit, that has a commissioning date after December 31, 2024 but before January 1, 2030; or (c) a planned unit that does not produce useful thermal energy during the calendar year. Units that do not meet these criteria are issued non-transferable compliance credits.
Units can transfer transferable credits to any other unit subject to CER, but they can only be remitted for a compliance year by units that were eligible to be issued transferable credits for that same compliance year and only if the transferable credit was issued to a unit which reports to the same electricity system operator as the unit remitting the credit.
Canadian offset credits. Between 2035 and 2049, a unit may emit up to 35 t/GWh above the AEL’s applicable emission intensity by remitting an equivalent amount of eligible Canadian offset credits, including credits from recognized provincial systems (see our bulletin on the Canadian GHG Offset Credits system here). Beginning in 2050, a unit may emit up to 42 t/GWh above the applicable emission intensity, provided it remits an equivalent amount of Canadian offset credits. However, the GHG reductions or removals associated with the offset credit must have occurred no more than 8 calendar years before the calendar year for which the credit is remitted.
Carbon capture and storage. The unit’s total emissions can exclude the quantity of emissions captured by a CCS system only if these emissions are permanently stored in a storage project that meets criteria set out in CER.
Natural gas and renewable natural gas. Natural gas units that are commissioned before 2025 or planned before 2025 and commissioned before 2028 have a maximum of 25 years from their date of commissioning before they are subject to the prohibition. In addition. units may exclude emissions associated with the combustion of RNG, and other biomass, that occurred directly in the unit. In addition, a unit’s total emissions will exclude emissions from RNG that have been blended into a North American natural gas pipeline network that is physically connected to the unit using the fuel, if certain conditions are met.
Provincial equivalency agreements. ECCC notes that CER is designed to work across Canada and, as a regulation under the Canadian Environmental Protection Act, it provides an option of equivalency agreements whereby the federal CER would “stand down” in a given jurisdiction with a provincial or territorial scheme that achieves equivalent outcomes to CER.
Announced federal support. The federal government has committed $60B in financial support for the transition to a clean electricity system, including:
- $20B in low-cost financing from the Canada Infrastructure Bank for clean electricity projects;
- ~$4.5 billion from the Smart Renewables and Electrification Pathways Program;
- 15% refundable clean electricity investment tax credit (see our earlier bulletin here) for eligible investments in low-emitting electricity generation systems, electricity storage systems, and transmission of electricity between provinces and territories;
- 30% refundable clean technology investment tax credit (see our earlier bulletin here) for eligible investments by businesses in certain electricity generation and storage equipment, low-carbon heating, and non-road, zero-emission vehicles and related charging or refuelling infrastructure; and
- $453M for the Clean Energy for Indigenous, Rural and Remote Communities programs for renewable energy and capacity-building projects and related energy efficiency measures across Canada, including the Indigenous Off-Diesel Initiative.
For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.
