Technical backgrounder: Federal regulations for electricity sector

Backgrounder

Electricity sector overview

As of 2015, about 80% of the electricity in Canada generated by electric utilities comes from non-greenhouse gas (GHG) emitting sources. However, the supply mix varies considerably by province and territory depending on the availability of natural resources, transmission infrastructure and market structure. Jurisdictions where more fossil fuel-sourced electricity is generated have higher GHG emissions profiles. The graph here identifies the types of electricity generation by province and the total GHG emissions for the sector.

Canada’s electricity sector GHG emissions have decreased from 118 million tonnes (Mt) in 2005 to 78 Mt in 2015. A key action underlying this progress was Ontario’s coal phase-out. However, electricity is still the fourth highest GHG emitting sector in Canada, accounting for 9% of total Canadian GHG emissions in 2015.

Coal-fired power plants are among the largest stationary sources of air pollution in Canada. Despite improvements in air quality over the past two decades, the burden of air pollution on the health of Canadians continues to be significant; many Canadians live in communities where outdoor levels of ground-level ozone exceed current air quality standards. Air pollutants such as fine particulate matter and ground-level ozone, the major components of smog, can adversely affect the health of Canadians, especially small children, the elderly, and those with heart and lung conditions, even at low concentrations. Air pollution also has significant effects on the environment including impacts to vegetation and crops, ecosystems and biodiversity, and visibility.

Today’s regulatory approach to the electricity sector builds on significant provincial action. All four provinces currently generating power from coal also have clean energy policies in place:

• Alberta’s climate leadership plan includes a December 31, 2030, coal phase-out, a price on carbon and a requirement for 30% of electricity generation to come from renewables by 2030.
• One coal plant in Saskatchewan has a carbon capture and storage (CCS) project in place– technology that captures carbon emissions and stores them underground – and Saskatchewan has committed that up to 50% of its electricity generating capacity will come from renewable sources by 2030.
• New Brunswick has committed that 40% of in-province electricity sales will come from renewable sources by 2020.
• Nova Scotia has set emission caps for its electricity sector, and has also committed up to 50% of electricity will come from renewable sources by 2020.

Canada is supporting the transition to clean electricity by investing in strategic infrastructure and renewables, including support for electricity transmission interties, emerging renewable technologies, smart grids, and reducing reliance on diesel in northern, remote, and Indigenous communities. $21.9 billion over 11 years has been allocated to support green infrastructure under Canada’s clean growth and climate action plan, the Pan-Canadian Framework on Clean Growth and Climate Change.

Regulatory approach

As part of Canada’s climate plan, federal, provincial and territorial governments agreed to work together to increase the amount of electricity generated from renewable and low-emitting sources.

To support this goal, the Government of Canada published two final regulations in the Canada Gazette, Part II, on December 12, 2018. They are:

1. Amendments to the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations (2012) that will accelerate the phase-out of conventional coal-fired electricity units to December 31, 2029.
2. To complement the accelerated phase-out of coal-fired electricity, GHG regulations for natural gas-fired electricity will cover new natural gas-fired electricity units and coal-fired units that are converted to run on natural gas.

Environment and Climate Change Canada (ECCC) has developed the amendments and regulations in collaboration with provinces and territories, businesses, public utilities, industry associations, Independent System Operators, and environmental non-government organizations. National Indigenous Organizations have also been consulted.

Anticipated benefits and costs

The amendments to the coal regulations are expected to result in cumulative GHG reductions of 94 million tonnes (Mt) over the 2019 to 2055 period, including 12.8 Mt in 2030. These amendments will also reduce air pollutants emissions, including 555 kilotonnes (kt) of sulphur oxides (SO_x) and 206 kt of nitrous oxides (NO_x) between 2019 and 2055. These air pollutants have been shown to adversely affect the health of Canadians through direct exposure and also by contributing to the formation of smog, which contains particulate matter and ground-level ozone.

The expected benefits from the amendments over 2019-2055 will be $4.7 billion. That includes $3.4 billion in avoided climate change damage and $1.3 billion in health and environmental benefits from reduced air pollutant emissions. The total cost for complying with the amendments is estimated to be $2 billion over 2019-2055, resulting in a net benefit of $2.7 billion.

1. Requirements for coal-fired units

Canada first introduced federal coal-fired electricity GHG regulations in 2012. Those regulations required coal-fired electricity units to meet a stringent performance standard of 420 tonnes of carbon dioxide emissions per Gigawatt hour (t/GWh). The regulations applied to new units built after July 1, 2015, and to existing units that have reached the end of their useful life (defined as between 45 and 50 years after commissioning date).

Today’s amendments build on those 2012 regulations to accelerate the phase-out of conventional coal-fired electricity across Canada from 2050 to 2030. They do this by requiring all units to meet the performance standard of 420 t/GWh at the end of their useful life or by December 31, 2029, whichever is sooner.

The fifteen units expected to be impacted are located in Alberta (6), Saskatchewan (1), New Brunswick (1), and Nova Scotia (7).

Owners and operators of units can meet the performance standard by installing CCS. However, most coal units are expected to shut down or convert to run on natural gas in response to the regulations.

2. Requirements for natural gas-fired electricity

The regulations for natural gas-fired electricity ensure that new natural gas-fired electricity generation uses efficient technology. The regulations will encourage companies to convert their coal units to natural gas ahead of their end-of-life under the amended coal regulations, while also providing assurance that higher emitting coal-to-gas converted units will be phased out more rapidly than better performers.

New natural gas-fired engines

The natural gas-fired electricity regulations cover new natural gas-fired electricity generation engine units that sell or distribute more than 33% of their average annual potential electricity output to the electricity grid, have a minimum installed capacity of 25 megawatts (MW), and receive more than 30% of their heat input from natural gas. New units are defined as having been built two years or more after the publication of the final regulations in the Canada Gazette, Part II.

All new units with an installed capacity of more than 150 MW will have to meet a performance standard of 420 tonnes per gigawatt-hour (t/GWh), based on an annual average. Smaller units that are 150 MW or less will have to meet 550 t/GWh, reflecting the more frequent need for these units to ramp-up quickly to integrate variable renewables like wind and solar.

New natural gas-fired boilers

The natural gas-fired electricity regulations cover new natural gas-fired electricity generation boiler units that have a minimum installed capacity of 25 megawatts (MW), receive more than 30% of their heat input from natural gas, have a heat-to-electricity ratio of no more than 0.9, and sell a quantity of the electricity that they generate to the grid. New boiler units are defined as having started generating electricity on or after January 1, 2019.

All new boiler units that meet the applicability criteria will have to meet 420 tonnes per gigawatt-hour (t/GWh), based on an annual average.

Coal-to-gas conversions

The natural gas-fired electricity regulations establish conditions for the operation of coal units converted to run on natural gas. While these units will have lower emissions than coal-fired generation, their emissions will be higher than some types of new gas-fired generation.

Units converted from coal to gas will be allowed to operate without meeting a performance standard for a fixed period of time after their end-of-life, after which they will have to meet the same performance standard of 420 t/GWh as new units. The timing for the application of the performance standard will be based on the result of a performance test conducted in the first year of operation. More efficient units will be able to run for longer periods than less efficient units, as described in Table 1.

Annual tests will be required to ensure that the emissions intensity does not degrade by more than 2% from the previous year.

Equivalency Agreements

Under the Canadian Environmental Protection Act, 1999, the federal government may negotiate equivalency agreements with provinces that have regulations capable of achieving equal or better emission-reduction outcomes compared to the federal regulations. These agreements would establish conditions under which the federal regulations would not apply in a given province, and provincial regulations would apply instead.