Federal government proposes Clean Electricity Regulations

On August 10, 2023, the federal government released a draft of its much-anticipated Clean Electricity Regulations (CER) under the Canadian Environmental Protection Act, 1999. The release follows a lengthy and highly publicized consultation on the development of a national clean electricity standard, as described in our March 2022 Bulletin.

What you need to know

• Who the rules cover. The CER would cover all generating units that generate electricity using fossil fuels, have a capacity of 25 megawatts (MW) or greater, and are connected to an electricity system that is subject to North American Electric Reliability Corporation standards.
• Emissions intensity limit.The CER would impose a performance standard—essentially, an emissions intensity limit—of 30 tonnes of CO₂ per gigawatt hour (tCO₂/GWh) of electricity generated by covered units, measured on an annual average basis, provided the unit is a net exporter of electricity to the grid in the applicable year.
• Timing. Operators of covered units would need to comply with the performance standard as of January 1, 2035, with some exceptions, including for certain units that employ carbon capture and sequestration (CCS) systems.
• Consultation. The federal government is seeking feedback on the proposed CER until November 2, 2023, and the final regulations are expected to be published in 2024.

The new Clean Energy Regulations

The CER were developed around three core principles: (1) to achieve net-zero emissions from the electricity grid by 2035; (2) to maintain electricity affordability for Canadians and businesses; and (3) to maintain grid reliability to support a strong economy and meet Canada’s growing energy needs.

By 2035, the CER would impose an emissions performance standard of 30 tCO₂/GWh, measured on an annual average basis, on units that: (1) generate electricity using fossil fuels; (2) have a capacity of 25 MW or greater; (3) are connected to an electricity system that is subject to North American Electric Reliability Corporation (NERC) standards; and (4) are net exporters of electricity to the grid in the applicable year. The CER would exempt most Indigenous communities and northern, rural and remote communities not connected to a NERC-regulated electricity system.

Covered units would need to register with the Minister of the Environment by the end of 2025 or, for units commissioned after January 1, 2025, within 60 days of commissioning. At the time of registration, operators would also be required to submit a registration report with certain prescribed information, such as the location and name of the unit, the commissioning date and the unit’s electricity generating capacity. Operators would also have to submit an annual report setting out information, such as the number of hours during which the unit produced electricity and the unit’s emission intensity during the reporting year.

The CER’s emissions performance standard

The 30 tCO₂/GWh annual average performance standard would apply starting on:

• January 1, 2035 for (i) covered units that combust coal or petroleum coke; (ii) covered units commissioned on or after January 1, 2025; and (iii) covered units that increase their electricity generation capacity by 10% or more since registration of the unit;
• the latter of January 1, 2035 or January 1 of the calendar year in which the prohibition set out in subsection 4(2) of the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-fired Generation of Electricity begins to apply a “significantly modified” unit, which is one that has ceased burning coal; or
• for any other covered unit, the latter of January 1, 2035, or 20 years after its commissioning date.

The CER would exempt units from the applicable performance standard if either of the following conditions are met:

• a unit, other than one combusting coal, operates no more than 450 hours per year (hr/yr) and emits no more than 150 kilotonnes of CO₂ per year. This exception would provide limited flexibility for the operation of generating units that are needed to provide back-up or peaking capacity; or
• a unit using CCS system could emit no more than an annual average of 40 tCO₂/GWh, provided that the unit could demonstrate capability of operating at 30 tCO₂/GWh. This exception would only apply until the earlier of (i) the date seven years after commissioning of the CCS system or (ii) December 31, 2039.

If either of these conditions are not met in a given calendar year, then the 30 tCO₂/GWh annual average performance standard would apply in respect of that year. The CER would also except units from complying with the performance standard in emergency circumstances, where the unit is required to produce electricity to avoid a threat to electricity supply or to restore electricity supply within an electricity system.

Quantifying emissions for performance standards

The CER also propose certain methodologies for operators to follow in determining the emissions and emission intensity of their units:

• In general, to determine compliance with the performance standard in a calendar year, an operator would need to determine a unit’s emissions intensity, which is the unit’s total emissions divided by its total generation. The unit’s total generation is the quantity of electricity it generated during the year measured on a gross basis. The unit’s total emissions could be calculated based on its fuel consumption or determined using a continuous emissions monitoring system.
• If hydrogen is used as a fuel at a covered unit, any CO₂ emissions associated with the hydrogen’s production off-site must also be quantified and included in the unit’s total emissions, even though the hydrogen combustion at the covered unit does not directly produce any CO₂ emissions.
• The unit’s total emissions can exclude the quantity of emissions captured by its CCS system only if these emissions are permanently stored in a sequestration project that meets the prescribed criteria.

Expected impact of the CER

Based on the government’s regulatory impact assessment statement, the CER is expected to result in:

• a net reduction of 342 million metric tons of CO₂e (carbon dioxide equivalent) between 2024 and 2050;
• an increase in the national average residential electricity rates relative to the baseline (i.e., no CER) scenario of 0.08 cents per kwh in 2035 (0.35% increase), 0.49 cents per kwh in 2040 (1.9% increase), and 0.26 cents per kwh in 2050 (0.89% increase); and
• an increase, relative to the baseline, national annual average electricity payments, of $19 to $33 per household in 2050.

The federal government is accepting comments on the CER until November 2, 2023.