Monday, July 15, 2024
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Canada Seeks Input on Draft Clean Electricity Regulations

by Dufferin Harper

Blake, Cassels & Graydon LLP

Dufferin Harper

On August 10, 2023, Canada released draft Clean Electricity Regulations (Regulations), which are intended to form an essential part of Canada’s approach to achieving economy-wide net-zero greenhouse gas (GHG) emissions by 2050. The Regulations establish strict GHG emissions intensity performance standards that will apply to electricity generated from fossil fuel within Canada. As noted in the Regulatory Impact Analysis Statement that accompanied the Regulations, the Regulations were chosen as the most effective and appropriate instrument to address the issue. More specifically, the Regulatory Impact Analysis Statement stated:

Considering the urgency to address climate change and Canada’s climate change goals towards becoming a net-zero GHG emissions economy by 2050, a transformational change will be required in every sector of the Canadian economy including the electricity-generating sector.

In the government notice advising of the Regulations, it was noted that the Regulations were developed around three core principles:

  • Maximizing GHG reductions to achieve net-zero emissions from the electricity grid by 2035
  • Maintaining electricity affordability for Canadians and Canadian businesses
  • Maintaining grid reliability to support a strong economy and meet Canada’s growing energy needs.

Timing and Application of Regulations

As of January 1, 2025, the Regulations will apply to any electrical generation unit (EGU) that:

  • has an electricity generation capacity of 25 megawatts (MW) or greater;
  • generates electricity using fossil fuel (which is defined to include hydrogen gas); and
  • is connected to an electricity system that is subject to North American Electric Reliability Corporation (NERC) standards.

An EGU that meets the applicability criteria as of January 1, 2025, must be registered with the federal Minister of Environment by the end of 2025. Any EGU commissioned after January 1, 2025 must be registered within 60 days of being commissioned.

By requiring an EGU to be connected to an electricity system subject to NERC standards before the Regulations apply, stand-alone and isolated EGUs will be exempt. This effectively means the Regulations and the imposition of the Performance Standard as discussed below will not apply to many northern Canadian communities currently relying on diesel generators and localized electricity transmission systems for their electricity.

Emissions Intensity Performance Standard

An EGU that exports more electricity onto an electricity system subject to NERC than it imports from an electricity system subject to NERC (i.e. its net exports are greater than 0 gigawatt hours (GWh)) during a calendar year is subject to an average annual emissions intensity performance standard of 30 tonnes of CO2e per GWh of electricity production (Performance Standard).

The Performance Standard applies to various EGUs based on a phased approach. As of January 1, 2035, the Performance Standard will apply to:

  • an EGU that burns coal or petroleum coke;
  • an EGU commissioned on or after January 1, 2025; and
  • an EGU that has increased its electricity generation capacity by 10% or more since the registration of the EGU.

Because a pre-existing EGU may have to undergo extensive modifications to comply with the Performance Standard, the Regulations provide additional time for the imposition of the Performance Standard on EGUs commissioned prior to January 1, 2025. For any such EGU that was previously a coal burning unit and was converted to a natural gas burning unit, the application of the Performance Standard is delayed until the latter of January 1, 2035 or January 1 of the calendar year in which subsection 4(2) of the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-Fired Generation of Electricity begin to apply to it. For all other EGUs, the Performance Standard is not imposed until the latter of January 1, 2035 or 20 years after the commissioning date of the EGU.

Exceptions to the Performance Standard

The Regulations include three exceptions to the Performance Standard:

  1. An EGU that uses carbon capture and storage (CCS). The Performance Standard is calculated based upon the quantity of overall CO2e emissions during the calendar year from the combustion of fossil fuel in an EGU. However, the quantity of CO2e emissions that are permanently captured and stored in a carbon capture and storage project (CCS Project) can be subtracted from the overall CO2e emissions. Approved CCS Projects include: (i) injection into a deep saline aquifer for the sole purpose of CO2 storage; and (ii) injection into a depleted oil reservoir for the purpose of enhanced oil recovery. Eligible CCS Projects can be situated in either Canada or the United States. An EGU that uses CCS as part of its compliance strategy is allowed to have an average emissions intensity of up to 40 tonnes of CO2e per GWh, provided it can demonstrate it is capable of operating at 30 tonnes of CO2e per GWh based on actual emissions data. The CCS exception is only available until the earlier of seven years following the commissioning of the CCS system or December 31, 2039.
  2. Operation of an EGU during peak periods of energy demand. An EGU that does not combust coal can emit up to 150 kilotonnes of CO2e in a calendar year provided it operates for no more than 450 hours per calendar year.
  3. Operation during emergency circumstances. An EGU can apply for an exemption from the Performance Standard from the Minister of Environment during two types of emergency circumstances. The first circumstance includes an emergency that arises due to “an extraordinary, unforeseen and irresistible event.” It is unclear what constitutes an “irresistible event” or what is meant by that term. The second circumstance includes scenarios where the government issues an emergency proclamation or order or declares an emergency based on the anticipated shortage of fuel, or in situations where there is an actual or anticipated shortage of fuel, but fuel is required to protect Canada’s national security, participate in military activities or support humanitarian relief efforts.

Additional Sections

The Regulations also contain additional sections pertaining to emissions intensity calculations, sampling frequency, record retention and the submission of annual reports.

Comment Period

The Regulations are open for comments until November 2, 2023. Final Regulations are anticipated to be published in 2024.

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