Proposed Frame for the Clean Electricity Regulations
Canada is committed to achieving a net-zero electricity system as a key part of its plan to achieve net zero emissions by 2050 to help combat climate change. The plan also includes facilitating coordination between key parties through the Pan-Canadian Grid Council and Regional Energy Tables, and incentives for investments in clean technologies by utilities, businesses and households.
The Clean Electricity Regulations (CER) would be part of a suite of federal measures to move Canada’s electricity sector to net zero as an enabler for broader decarbonization of the economy. Electricity systems in many parts of Canada rely on natural gas for electricity generation. The adoption of abatement technologies and non-emitting fuels can allow utilities and others to make significant progress towards net zero emissions. However, with the current suite of technologies, continued use of natural gas may be required especially for emergencies and in some circumstances to complement variable wind and solar, but this use should decline over time as technologies evolve. Requiring financial compliance that could take the form of offsets or payments corresponding to the federal carbon priceFootnote i will help ensure that this is the case.
The CER and complementary measures would encourage energy efficiency; demand side management, dynamic pricing; and a range of efficiency, abatement and non-emitting generating technologies such as carbon capture and storage (CCS), solar, wind, geothermal, small modular nuclear reactors (SMRs), hydro, distributed energy systems, interties and energy storage. It could also support bringing more clean power from Indigenous power producers to Canada’s electricity systems.
Achieving a net-zero electricity supply is key to reaching Canada’s climate targets in two ways. First, it will reduce GHG emissions from production of electricity. Second, using clean electricity instead of fossil fuels in vehicles, heating and industry will reduce emissions from those sectors too.
For consumers, costs can be reduced by improving energy efficiency and techniques such as demand management as well as the adoption of low-cost wind and solar. In addition, shifting from higher-cost fossil fuels to electricity can reduce total household energy budgets, for example by charging an EV with electricity that costs the equivalent of less than 40 cents per litre for gasoline - or less.
Provinces, territories, Indigenous peoples and industry all have a critical role to play in the transition to a net-zero electricity grid. Cooperation and regulatory cohesiveness is critical to achieving Canada’s targets.
The diagram below shows Canada’s vision of cleaner electricity and a cleaner future, with an ample supply of clean electricity, upgraded transmission and storage, and electrification and energy efficiency in all sectors. Many new clean technologies are available and can help Canada get there.
Long desription for Diagram 1
There is a title that reads: “1 Clean Electricity Supply and Generation” above a box on the left hand side of the image. In the box at the top is the text: “Transform the electricity sector so that all electricity generation is non-emitting”. Underneath there is an upward arrow next to a picture of wind turbines and the words “Non-emitting electricity” with two bullets underneath that read “Hydro, wind, solar, emerging renewables”, and “nuclear, hydro”. Beside this image, still in the same box, is a downward arrow next to a picture of an industrial facility with the words “Emitting Electricity” with two bullets underneath that read “Phase-out coal-fired plants” and “phase-down natural gas and diesel electricity”. This concludes the first box.
Below this box there is an arrow pointing downward towards another box, beside the arrow text reads “Increased clean electricity supply for the grid”.
There is a second title that reads: “2 Clean Electricity Transmission and Storage” above this second box. There are two columns side by side in this box. The title of the first one reads “Interties”. Below it, there is one bullet that says “interties to supply clean electricity to all regions” with an image of electricity distribution power lines. The title of the second column reads “Grid Modernization”. Below it there are three bullets that say “Distribution Energy Resources”, “Smart Grids”, and “Grid Storage” next to a picture of a battery with eight nodes coming out of it.
At the right hand side of the image, there is a third box with a title above it that reads: “3 Electrification and Energy Efficiency for Energy and End-Use Sectors”. There is an arrow pointing from this box towards the first box that reads “Increased demand for electricity moderated by improvements in end-user energy efficiency”. There is an arrow pointing towards this box from the second box that reads “Increased access to clean electricity”. Within this box, there are four sub-headers, each with a small icon and a few bullets. The first one is titled “Transportation”, has an icon of a bus and a car, and it has three bullets that read “Electric cars and trucks”, “Electric Rail, Marine, and Off-Road”, and finally “Vehicle Charging Infrastructure”. The second sub-header reads Buildings, the icon is of multiple tall buildings, and two bullets read “Heat pumps for space and water heating”, and “Energy efficient lighting, windows, HVAC and Building Envelopes”. The third sub-header reads “Industry”, the icon is of a factory, and two bullets read “Electrothermal Technologies” and “Electric Processes, Equipment and Machines”. The fourth sub-header reads “Oil and Gas”, with an icon of a barrel, and two bullets read “Electrification of Natural Gas / liquid natural gas (LNG)”, and “Electric Equipment and Machines (Turbines, Pumps, and Compressors)”.
On the right-hand side, next to this third box, there is a smaller box titled “Energy Efficiency” with the text “Energy Efficiency to Manage Demand” contained within, and there are arrows pointing from this smaller box to the larger third box.
Below the first three boxes, there are three arrows pointing upwards from a fourth large box, and one arrow pointing downward from the third box. Next to the arrow pointing downwards is some text and a smaller box in red perforated lines. The text beside the arrow reads “Low-carbon fuels and other decarbonisation pathways”. The text in the smaller box in red perforated lines has two bullets that read “Fuel switching for end-users with limited potential to electrify”, and “Support for Clean Process Technologies”.
The fourth box has a title above it that reads: “4 Innovative, Clean and Enabling Technologies to Advance Electrification”. Beside the box is text that reads “cross-cutting opportunity for research, development and demonstration (RD&D) to drive innovation in clean technologies”. In the box, there are three icons, each beside a single bullet. From left to right, there is first an icon of a lighting bullet with two arrows indicating a cycle, the text reads “Emerging Renewables, small modular reactors (SMRs), carbon capture and storage (CCS), Hydrogen”. The second icon is of power distribution lines and the bullet reads “Smart Grids, Batteries, Distributed Energy”. The third icon is of a wall power plug and the bullet reads “Clean electric and energy efficient technologies for end-use sectors”.
Diagram 1 - Canada’s Vision for a Cleaner Electricity System
This document outlines the proposed key components of the CER that is flexible enough to support affordability and reliability while achieving clean electricity.
Environment and Climate Change Canada (ECCC) is publishing this Proposed Frame for the Clean Electricity Regulations, seeking comments until August 17, 2022. Responses should be submitted to ECD-DEC@ec.gc.ca. The development of the CER will continue beyond the comment period and will be informed by other federal consultations.
PROPOSED KEY COMPONENTS OF THE CER
Scope of application
The CER would regulate emissions of carbon dioxide (CO2) from electricity generating units that meet all of the following criteria:
- Combust any amount of fossil fuel for the purpose of generating electricity;
- Have a capacity above a small megawatt (MW) threshold (value to be determined); and
- Offer electricity for sale onto a regulated electricity system.
Proposed emissions standard
- The CER would establish an emissions performance standard having an intensity form (i.e., t/GWh). It would be set at a stringent, near-zero value in line with direct emissions from well-performing, low-emitting generation such as, geothermal or combined cycle natural gas with CCS.
- A regulated unit would be prohibited from operating when its quantified emissions performance exceeds the applicable standard over a period of time.
- Any residual emissions below the standard would be subject to financial compliance requirements, such as offset purchases. (See Figure 1 below.)
- Some exemptions are proposed, as discussed below.
Long description for Figure 1
The graphic provides information on the emission intensity of a hypothetical electricity generating unit for the period before the CER comes into force and the period after the CER comes into force. The graphic is an illustrative bar chart consisting of two grey bars and a y-axis without units. The grey bar on the left is for the period before the CER comes into force and represents the annual emission intensity of a unit during the period of 2025-2035. The left hand sided bar is roughly eight times higher than the grey bar on the right, which is for the period starting in 2035 and running to the end of a hypothetical unit's prescribed life. This shows that the CER will for the hypothetical unit to significantly reduce its emissions. Above the right-hand side grey bar is a blue callout box, titled "Performance Standard", and that says that the CER performance standard will cause the reduction as the hypothetical unit's emissions cannot surpass this emission intensity performance standard of the CER. To the right of the right-hand side grey bar is an orange callout box, titled "Financial Compliance Requirements". The orange callout box says that regulatees must compensate for any residual emissions up to the performance standard, either through purchasing offsets or pay an amount that corresponds to the federal carbon price applicable in that year. Above both of the callout boxes is a comment bubble that reaffirms the message of the graphic, that is, that regulatees must comply with both the performance standard and the financial compliance requirements.
Figure 1: Elements of the CER—Regulatees must comply with both the performance standard and the financial requirements. The Y-axis bars are for illustrative purposes and not necessarily to scale.
To support affordability and reliability while achieving net zero, the following approaches are proposed:
- Compliance can be achieved through a variety of technologies, and the regulations will be technology-neutral, e.g., co-firing fossil fuels with non-emitting fuels, completely switching to these non-emitting fuels, such as hydrogen, ceasing operations, and/or installing abatement technologies. The regulations will not be prescriptive on which approach should be taken.
- A phase-in of the CER requirements would allow newer natural gas units built prior to the CER publication date to operate past 2035 for a short prescribed period.
- Unabated natural gas would be allowed during emergency circumstances.
- Existing units that have reached their end of prescribed life could continue to generate electricity to provide backup to variable renewable electricity if they meet the following conditions:
- They emit less than [TBD] kilotonnes per year; and
- They operate less than [TBD] number of hours per year.Footnote ii
Proposed implementation approach and associated dates
Treatment of all units firing gaseous, liquid, or solid fossil fuels
- A unit commissioned in 2025 or after would be subject to current electricity sector policies (the federal phase-out regulations for unabated coal, the federal performance standards for new natural gas, and carbon pricing) until January 1, 2035. Starting on January 1, 2035, the CER and its performance standards and the associated financial compliance component would replace current electricity sector policies.
- While the CER limits would only become binding in 2035, it is expected that they will deter any unabated new fossil fuel-fired generation in Canada. The decision to commission a new unit after 2025 will need to take into consideration the CER obligations. As continued operation after 2035 will require the installation of abatement technology, these units will need to resolve the financial implications of having to comply with the CER obligations even in their initial project development.
Treatment of all units firing gaseous, liquid, or solid fossil fuels
- A unit commissioned before 2025 would become subject to the CER’s emission intensity performance standard at the end of its prescribed life, or, on January 1, 2035.
- The definition of prescribed life is a topic that requires further consideration. It could be defined as a period of fixed years starting with its commissioning date, i.e., the date of its first sale of electricity to the electricity system.
- An existing unit would be subject to current electricity sector policies until it becomes subject to the CER and its performance standard.
Proposed requirements for financial compliance for all emissions below the regulatory limit
- In addition to ensuring that all regulated units operate within the stipulated limits, regulated units would be required to compensate for any emissions released to the environment.
- This requirement would begin in 2035 for both new units and existing units, as defined above.
- The eligible forms of financial compliance are to be determined, but could include the production or purchase of prescribed high quality offsets, including verified negative emissions, or paying an amount that corresponds to the federal carbon price for the relevant compliance period.
- Emissions for units operated in emergency situations would be exempt from financial compliance requirements.
Potential compliance flexibility
- The use of fleet averaging approaches could ease compliance burdens and incentivize the build out of renewables.
Proposed treatment of industrial units
- The CER would only regulate industrial units (including cogeneration) that offer electricity for sale to the electricity system.
- The CER would not generally regulate a cogeneration unit that generates electricity for its own needs, i.e., “self-consumption” of electricity generated and consumed behind the industrial fence line. Other regulatory and pricing measures would continue to apply to those emissions.
- This treatment of cogeneration units could be revisited later. The CER could then potentially require all cogeneration units to meet the same standards as those units offering electricity for sale to the electricity system.
Proposed exemptions from the CER performance standards for regulated units
The CER would allow for two categories of exemptions:
- Units would be allowed to supply electricity to the electricity system without having to meet either a performance standard or the requirement for financial compensation for emissions during emergency circumstances, which are defined as “extraordinary, unforeseen and irresistible.”
- Units operating in areas not connected to an electricity system regulated by the North American Electric Reliability Corporation (“NERC”) would be exempted. These areas are predominately remote, Northern or on federal lands.
The performance standard of the CER would be implemented under the Canadian Environmental Protection Act, 1999 (“CEPA”).
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