A 75-day consultation period, ending Nov. 2, will help inform the final drafting of the regulations, which are expected to be released in 2024

The Canadian government has unveiled a proposed draft for the Clean Energy Regulations, designed to assist the country in achieving a net-zero emissions electricity grid by 2035.

Canada is already a global leader in clean energy, with 84 per cent of its electricity sourced from zero-emission options such as hydro, solar, wind, and nuclear power. The draft regulation would work to decarbonize the remaining part of the electricity grid by introducing an emissions performance standard. This standard would establish an annual cap of 30 tonnes of carbon dioxide per gigawatt hour of electricity generated.

“If we are serious about tackling the climate crisis, and we want to take full advantage of the opportunities in a clean economy, then it’s time we roll up our sleeves together and build the clean electricity grid of the 21st century,” said Steven Guilbeault, Minister of Environment and Climate Change, in a press statement.

“A net-zero grid will serve as the basis for climate actions across the economy, like helping Canadians switch to electric transportation and heating, or the development of new and cleaner industries.”

The draft regulations were released last week by Environment and Climate Change Canada, following months of consultation with provinces and territories, Indigenous peoples and other stakeholders, including utilities, electricity experts and environmental organizations. The government initiated this process last year by publishing a Discussion Paper in March 2022 and the Proposed Regulatory Frame in July 2022.

The release of the draft clean energy regulations closely followed the publication of a companion paper by Natural Resources Canada earlier this month, entitled Powering Canada Forward. It lays out the government’s strategic vision for transforming Canada’s electricity sector and achieving the decarbonization of the grid with the Clean Energy Regulations.

Flexibility in the rules

During a press conference in Toronto announcing the draft regulations, Guilbeault said the federal government recognizes that there are varying energy requirements and opportunities across Canada’s provinces and territories. This is why there is a degree of flexibility in the regulations.

“What we’re talking about is not a fossil fuel-free grid by 2035, it’s a net-zero grid by 2035,” said Guilbeault.

“The goal of the regulation is really to send a signal now to investors, to utilities, provinces, territories that come 2035, these will be the rules for electricity generation. If you’re still using fossil fuels [to generate electricity], those fossil fuels units will have to comply with environmental and climate change standards.”

The draft document delves into strategies to reduce the environmental impact of certain power generation methods that produce emissions. It suggests transitioning to cleaner fuels like renewable natural gas or hydrogen. Alternatively, power generators that emit emissions could adopt carbon capture and storage (CCS) technology, either through purpose-built systems or by retrofitting existing facilities.

Under these regulations, power generators using CCS technology are allowed to emit up to 40 tonnes of emissions per gigawatt-hour (t/GWh) on average each year. But only if they can also demonstrate the capability to meet the more stringent 30 t/GWh performance standard.

This rule is applicable until either the first seven years after the CCS system is installed or until December 31, 2039, whichever comes earlier.

Possible exemptions

The government is allowing other exceptions to following the performance standard depending on specific circumstances.

For example, electricity generators that run for 450 hours or less each year, or emit no more than 150 kilotonnes of CO2 annually can be exempt from complying with the regulations.

In cases of emergencies or high-demand periods, there’s a provision allowing the use of electricity that produces emissions if necessary to avoid power disruptions. Additionally, communities located in remote or northern regions, which lack connection to the main power grid and often rely on diesel power, will also be exempted from these regulations.

According to Environment Canada, the performance standards set out in the clean energy regulations are expected to cut over 340 megatonnes of greenhouse gas pollution between 2024 and 2050.

To achieve Canada’s net-zero goals, an investment of an estimated $400 billion through 2050 will be needed nationally to undertake routine replacements of aging facilities and to expand electricity capacity to meet the expected increase in demand. 

To support provinces and territories, the federal government introduced a number of investment tax credits in Budget 2023 aimed at accelerating the build-out of clean electricity generation and infrastructure. These investments include funding for carbon capture storage and utilization, clean technology and clean hydrogen.

By leveraging this $40 billion in federal funding initiatives, provinces and territories could have up to half of their costs covered during this transition, said Guilbeault. This would mean even less cost is passed onto consumers.

Members of the public will have a 75-day period, starting from August 19, 2023, until November 2, 2023, to provide feedback on the draft regulations. The final version of the regulations is anticipated to be released in 2024, says the government, and enforced in January 2035.

Industry reaction and support

The release of the Clean Energy Regulations draft was met with support from industry and climate stakeholders, although it encountered some opposition in a couple of provinces.

Clean Energy Canada (CEC), an energy think tank at Simon Fraser University in Vancouver, underscored the pivotal role of clean energy in the country, stating, “Clean electricity is the foundation upon which the entire energy transition is built. No government can credibly say it’s working toward a net-zero economy by 2050 while blindly opposing a 2035 target for a clean grid. Put simply, one foot needs to go before the other.”

CEC also highlighted that the draft aligns with proposals put forth by other G7 countries and major OEMs. “Canada isn’t acting alone. Our friends in the U.S. are investing hundreds of billions to see it happen, while big companies like Volkswagen are citing clean electricity as a key reason they’re investing in Canada and creating local jobs.”

The Pembina Institute also added its support for the government’s aspiration of achieving a net-zero grid by 2035, calling it “necessary, affordable and achievable.”

“It will not be easy. But the Canadian provinces have a lot of progress to build off. We have a clean energy advantage with abundant hydro, wind, and solar resources. We are years ahead of schedule with our 2030 coal phase-out. And several provinces are deploying innovative demand-side measures.”

Concerns from Alberta, Saskatchewan

While regions like Quebec, British Columbia, and the Maritimes may be better suited for clean energy production, Alberta and Saskatchewan raised concerns.

This reaction wasn’t unexpected, according to Resilient LLP, a law firm focused on climate and clean energy transition. It pointed out in a statement that ‘in their current form, the Proposed Regulations are expected to attract opposition from some provincial governments, and potential constitutional legal challenges.”

Such potential disputes won’t just be about philosophical differences. Constitutionally, the responsibility for electricity generation and infrastructure primarily rests with provinces and territories. The federal government can play a significant role in establishing environmental standards, overseeing interprovincial power lines, regulating nuclear power, strategically investing in desired outcomes, and fostering collaboration, but opponents could argue these regulations exceed its authority.

Alberta’s Premier Danielle Smith labelled the draft regulations as “unconstitutional and irresponsible” in a press statement, adding that they clash with Alberta’s plan to achieve a carbon-neutral power grid by 2050.

“These regulations make desperately needed investments in new natural gas generation almost impossible. If implemented in Alberta, these regulations would endanger the reliability of Alberta’s power grid and cause massive increases in Albertans’ power bills,” she said.

Alberta is set to form a working group with the federal government to discuss how to bring Ottawa’s efforts to decarbonize the economy in line with Alberta’s Emissions Reduction and Energy Development Plan.

“If this alignment is not achieved, Alberta will chart its own path to ensuring we have additional reliable and affordable electricity brought onto our power grid that is available 24 hours a day, 365 days a year,” said Smith.

Meanwhile, in Saskatchewan, Premier Scott Moe had previously criticized the federal government’s goal of achieving net-zero electrical grids by 2035, deeming it “unrealistic and unaffordable.

In May, the Saskatchewan government, instead, pledged to achieve a net-zero power generation objective by 2050, a timeline that lags 15 years behind the federal target.