Quantitative analysis of equivalency determination: coal-fired generation of electricity

Official title: Quantitative analysis of equivalency determination of the renewed equivalency agreement for the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations

1. Issue

The Canada-Nova Scotia equivalency agreement for the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations (“federal regulations”) expires on December 31, 2019. Canada and Nova Scotia (NS) have reached a renewed agreement for January 1, 2020 to December 31, 2024. The following analysis presents the results of an updated quantitative analysis of greenhouse gas (GHG) reductions and provides the basis for determining equivalency and renewing the agreement.

2. Background

The federal coal-fired electricity regulations

In September 2012, the federal regulations were published in the Canada Gazette, Part II. These regulations limit GHG emissions to 420 tonnes of carbon dioxide per gigawatt hour of electricity produced (t CO₂/GWh) from electricity generating units fueled by coal, coal derivatives or petroleum coke. New units coming online after July 1, 2015 immediately become subject to the emissions standard. Under the original 2012 regulations, existing units commissioned prior to July 1, 2015 had to comply with the performance standard after a period that ranges from 45 to 50 years of operation, depending on the unit’s commissioning date. On December 12, 2018, Regulations Amending the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations (the amendments) were published in Canada Gazette, Part II to accelerate the phase-out of coal-fired electricity generation to December 31, 2029.

Nova Scotia has a total of eight coal-fired units that are required to meet the standard by December 31, 2029. Prior to January 1, 2030, six of these units are not required to meet the performance standard of the federal amendments and maintaining its current coal generation represents the most cost-effective option for Nova Scotia to meet its electricity demand. In 2030 and beyond the most cost effective option will be to replace coal with natural gas-fired generating units. Despite this, Nova Scotia has committed to replacing these units using hydroelectricity imported from Muskrat Falls via the Maritime Link as part of the province’s commitment to transition from coal to non-emitting energy. This analysis recognizes this early action taken to decarbonize the electricity system in the pre-2030 period.

Existing equivalency agreement with Nova Scotia

On May 26, 2014, Canada and Nova Scotia signed the Canada-Nova Scotia equivalency agreement for the period 2015‑2019 as provided for under Canadian Environmental Protection Act, 1999 (CEPA). The agreement declared that provisions under Nova Scotia’s Environment Act and Greenhouse Gas Emissions Regulations (“NS GHG regulations”) are equivalent in effect to the provisions of CEPA and the federal regulations. As part of the agreement, Nova Scotia established regulated GHG emissions caps for its electricity sector until 2030.

In 2016, Canada and Nova Scotia developed an agreement-in-principle to negotiate a renewed equivalency agreement under Section 10 of CEPA, as formal agreements expire five years after coming into force. The renewed equivalency agreement will account for the 2015-2029 period modelled taking into consideration the amendments to the federal regulations that accelerate the phase-out of coal-fired electricity regulations.

Assessing equivalency for a renewed agreement

To establish equivalency over the assessment period of 2015‑2029, Environment and Climate Change Canada (ECCC) must be satisfied that GHG emission levels from Nova Scotia’s electricity utility sector required under the federal regulations will not be exceeded under the NS GHG Regulations. In assessing equivalency, ECCC’s most current reference case projections are used to establish the baseline GHG emission levels of the federal regulations. These projections are updated yearly based upon an open consultation process. Historical emissions are aligned with Canada’s National Inventory Report and may be adjusted to reflect actual emissions reported by Nova Scotia and verified by a third party. The adjustment is agreed to by ECCC and Statistics Canada, and reflected in the published National Inventory Report.

The GHG emissions projections have been adjusted from those that formed the basis of the original equivalency agreement (2014). The adjustments reflect updated assumptions including population and gross domestic product (GDP) growth forecasts, energy demand, and historical emissions. They also reflect inclusion of regulations and policies in the oil and gas, transportation, and building sectors. In addition, adjustments were made to the federal regulatory scenario that was modelled in 2014 in order to recognize early action on the part of Nova Scotia. This change in approach reflects the fact Nova Scotia has taken steps under its own policy to reduce emissions beyond what would be required by the federal regulations. Future equivalency agreements are expected to be developed following this general approach.

3. Objectives and description for the renewal of the agreement

Objectives

The objectives for the renewal of the agreement are to provide Nova Scotia the flexibility to design their system in a way that works best for the province, while avoiding duplication of efforts in controlling GHG emissions, and ensuring that industry does not face two sets of regulations in achieving equal or better GHG reduction outcomes compared to the federal regulations.

Description

The renewed equivalency agreement published along with this analysis recognizes Nova Scotia’s actions to reduce emissions from the electricity sector, as well their plans to move directly from coal-fired electricity to non-emitting in the longer term without building new natural gas capacity. The renewed agreement will set conditions to enable the federal regulations to continue to stand down in Nova Scotia from January 1, 2020 to December 31, 2024.

The cumulative actual and projected emissions allowed by Nova Scotia’s caps for the 2015‑2029 period were assessed against the cumulative emissions required by the federal regulations. Cumulatively, the actual emissions and forecasted emission caps for Nova Scotia from 2015 to 2029 have been estimated to provide measurable and incremental emissions reductions from Nova Scotia’s electricity sector that are 8.0 Mt better than those required under projected emissions from the federal regulations over the same period. ECCC is also satisfied that Nova Scotia’s Environment Act contains mechanisms that are similar to sections 17 and 20 of CEPA for the investigation of alleged offences, and therefore all CEPA requirements related to equivalency agreements have been met.

This assessment includes Nova Scotia’s actual emissions for 2015‑2017, and Nova Scotia’s emission caps for 2018‑2029 for the purposes of assessing against required emissions for 2015‑2029 under the federal regulations. It reflects the actions taken by Nova Scotia to support the transition to non-emitting electricity, and includes an estimate of the potential emissions outcomes from additional regulatory measures that the province is considering over the longer-term, that is, 2030‑2040. The estimate provides an indication for the post‑2030 period in order to allow for the design of long lead-time investment decisions in Nova Scotia’s electricity sector.

4. Equivalent environmental outcomes

Regulatory scenarios

Two regulatory scenarios are considered in this analysis: the federal regulatory scenario, which is considered as the baseline scenario; and the provincial regulatory scenario, which is considered as the policy scenario. The provincial regulatory scenario is comprised of Nova Scotia’s actual emissions from 2015‑2017 and emissions caps from the original agreement for the period of 2018‑2029. For the emissions under the federal regulatory scenario, the department is recognizing the actions taken by Nova Scotia prior to 2030 in order to reduce its emissions relative to the path the province was on prior to the federal regulations coming into force, as these actions did not need to be taken to achieve compliance. The department recognizes these actions, including Nova Scotia’s investment in the Maritime Link to import hydroelectricity from Muskrat Falls and increased wind generation capacity, by removing them from the federal regulatory scenario to measure the impact. Under the federal regulatory scenario, the province would have flexibility prior to 2030 to increase production from its remaining coal-fired electricity, which would represent the most cost-effective option to meet its electricity demand assuming that the Maritime Link and wind generation were never in place.

This flexibility will be eliminated under the amended federal regulations in 2030, when the deadline to phase-out all coal is reached. In keeping with this, the projected impact of these early actions will not be taken into account for the 2030‑2040 period since, by then, these actions will become compliance options under the federal regulations. The federal regulatory regime over the 2030‑2040 period includes the impact of the Maritime Link and increased wind generation capacity since, by then, these actions will become compliance options. The lowest cost option to replace the remaining capacity is natural gas-fired generating units.

Analytical period and determination of equivalent outcomes

The analytical period is 2015‑2040, with three distinct sub-periods (that is, 2015‑2017, 2018‑2029 and 2030‑2040). The 2015‑2017 period is the historic period for which actual emissions data is available. For this period, ECCC compares GHG emissions modelled under the federal regulations with Nova Scotia’s actual emissions. For the 2018‑2029 period, ECCC compares GHG emissions modelled under the federal regulatory scenario with Nova Scotia’s existing regulated GHG emission caps. Overall, the comparisons of the 2015‑2017 and 2018‑2029 periods are cumulatively assessed to determine if the Nova Scotia’s GHG outcomes are equivalent to those required under the federal regulatory scenario. The 2030‑2040 period provides a long-term picture of GHG emission outcomes under the two scenarios; for this period, ECCC compares the GHG emissions modelled under the federal regulatory scenario with Nova Scotia’s proposed emission caps.

Below is a more detailed description of the GHG emission outcomes under both scenarios. As well, a qualitative analysis of the net air pollutant emissions of the provincial regulatory scenario over the federal regulatory scenario is presented for information purposes.

GHG emissions

Table 1 presents the quantitative analysis of Nova Scotia’s GHG emissions under the federal and provincial regulatory scenarios over the 2015‑2029 period. The analysis shows that for the period 2015‑2017, the province had actual emissions of 20.9 Mt CO₂e (megatonnes of carbon dioxide equivalent) and the required emissions under the federal regulatory scenario are 21.1 Mt CO₂e. During the 2018‑2029 period, the province’s emissions are capped at 79.8 Mt CO₂e compared to 87.6 Mt CO₂e modelled under the federal regulatory scenario. Overall, the analysis shows that over the 2015‑2029 period, GHG emissions under the provincial scenario are 100.8 Mt CO₂e compared to 108.7 Mt CO₂e required under the federal regulatory scenario, resulting in equivalent GHG outcomes over this period.

Note: a positive difference represents an “over achievement”, while a negative sign represents an “emission deficit”. Any differences in the table above are due to rounding.

Table 2 provides a long-term picture of GHG emission outcomes under the two scenarios. The table shows that Nova Scotia’s proposed caps for 2030‑2040 are not as stringent as the GHG emissions modelled under the federal regulatory scenario; however, this difference is still less than the 8.0 Mt of over achievement expected during the 2015‑2029 period. The results from 2030‑2040 are beyond the assessment period (2015‑2029) of this equivalency agreement, but are estimated to provide an indication for the post‑2030 period in order to allow for the design of long lead-time investment decisions in Nova Scotia’s electricity sector.

Note 1: a positive difference represents an “over achievement”, while a negative sign represents an “emission deficit”. Any differences in the table above are due to rounding.

Note 2: the 2030‑2040 analysis is beyond the term of both this equivalency agreement and the assessment period.

Figure 1 shows that the annual GHG emissions are generally declining over time under both scenarios. However, Nova Scotia’s regulatory scenario “over performs” before 2030 due to the construction of the Maritime Link combined with the addition of new wind capacity, which were not required in order to comply with the federal regulations in the pre‑2030 period. Conversely, the federal regulations are more stringent post‑2030 due to the amendments, which are expected to shut down all coal-fired plants by the end of 2029; as such the Maritime Link and new wind capacity will not be taken into account for the 2030‑2040 since by then, these actions will become compliance options under the federal regulatory scenario.

Figure 1: Graphical representation of GHG emission outcomes

Air pollutant emissions

A quantitative assessment of the net air pollutant emissions impacts of the provincial regulatory scenario over the federal regulatory scenario is provided in the three time periods below.

2015-2017: from 2015-2016, no significant difference in air pollution emissions is expected under both scenarios, as their regulatory measures are fairly similar. However, in 2017, Nova Scotia’s regulatory scenario reflects investment in new wind capacity, which will continue to result in reduction of air pollutant emissions compared to the outcomes under the federal regulatory scenario.

2018-2029: the wind capacity, which came online in 2017, is still generating electricity and the Maritime Link comes online in 2020. Altogether, the provincial regulatory scenario will result in lower air pollutant emissions as compared to the outcomes under the federal regulatory scenario.

2030-2040: the federal regulatory scenario includes both the wind capacity and the Maritime Link, and all coal generation will be closed. If Nova Scotia continues with some coal generation under its cap scenario post-2030, there would be higher air pollution emissions under the provincial regulatory scenario than would occur under the federal regulatory scenario.

5) Rationale for renewal of equivalency agreement

GHG emission levels from Nova Scotia’s electricity utility sector that would have occurred under the federal regulatory scenario, assuming lowest cost compliance options, were modelled by ECCC and compared to those expected to occur under the NS GHG Regulations over the period January 1, 2015, to December 31, 2029.

Cumulatively, the actual emissions and emission caps for Nova Scotia from 2015-2029 are lower than the projected emissions under the federal regulatory scenario over the same period, meaning that Nova Scotia’s GHG regulations are at least equivalent to the federal regulations. ECCC is also satisfied that Nova Scotia’s Environment Act contains mechanisms that are similar to sections 17 and 20 of CEPA for the investigation of alleged offences, and therefore all CEPA requirements related to equivalency agreements have been met.

Continuing to stand down the federal regulations in Nova Scotia for the next 5 years will minimize regulatory duplication in Nova Scotia, and allow the province to attain equivalent GHG outcomes in a way that best suits its particular circumstances. This is in-line with Government of Canada objectives regarding regulatory coordination and cooperation with relevant jurisdictions.

6) Consultation

To facilitate consultations with stakeholders, the department published a Notice of Availability of the draft equivalency agreement in the Canada Gazette, Part I on March 30, 2019. Likewise, the department published the draft equivalency agreement and quantitative analysis in the CEPA Registry on the same day. The 60-day public consultation period ended on May 29, 2019. During the consultation period, the department received comments from four stakeholders. Two stakeholders indicated that the Nova Scotia Equivalency Agreement is unnecessary and will lead to extended operation of coal-fired electricity plants. In response, the department clarified that the renewed Nova Scotia Equivalency Agreement will lead to equivalent outcomes of the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity over the equivalency assessment period. The other two stakeholders indicated that the Nova Scotia Equivalency Agreement is insufficiently stringent in the post-2030 period, and that it lacks a firm date to phase-out coal-fired electricity in the province. In response, the department noted that the renewed Nova Scotia Equivalency Agreement can only be renegotiated in its current form up to December 31, 2029, and that these comments would be taken into consideration in the event of future equivalency agreements.

7) Implementation, enforcement and service standards

The renewed equivalency agreement allows for the continued standing down of the federal regulations in Nova Scotia; therefore, only the provincial regulatory scenario will apply in Nova Scotia. No federal enforcement is therefore expected in Nova Scotia. Nova Scotia will provide ECCC with annual GHG emissions and electricity generation information, as well as other information such as statistics on its enforcement actions concerning the NS GHG Regulations.