Federal government suggests major revision to draft Clean Electricity Regulations

On February 16, Environment and Climate Change Canada (ECCC) released its “What We Heard” Report¹ summarizing public comment on the Clean Electricity Regulations (CER)² and seeking additional feedback on possible amendments. The report suggests that some of the most controversial and difficult aspects of the CER will be walked back, but details will only appear in the final regulation. 

August 2023 draft regulations

As described in our previous update,³ last summer’s draft CER proposed prohibiting fossil fuel generating units (including natural gas-fired units) 25MW or greater from emitting carbon dioxide in excess of 30 tonnes CO₂/GWh if connected and exporting to the (NERC) grid. In most cases, the emissions intensity cap would apply to the later of January 1, 2035, or January 1 of the calendar year following the unit’s “end of prescribed life” (EOPL, defined as 20 years after the commissioning date). 

A wide range of parties criticized the CER. Notably, each of Alberta and Saskatchewan invoked its new autonomy legislation for the first time in response.⁴

The report and potential changes to the CER

The report notes meetings in each of Alberta, Saskatchewan, Ontario, Nova Scotia, and New Brunswick with government and impacted entities (generators, utilities, NGOs, Indigenous organizations, etc. – the electricity grids in these provinces depend in material part on hydrocarbon-based generation). The report also cites bilateral meetings with more than 75 other organizations, public webinars, approximately 600 unique written submissions, and several stock letter-writing campaigns. 

At a high level, the changes ECCC is considering include: 

• Unit-specific annual emissions limits: the 30 tonne CO2/GWh emissions intensity cap would essentially require natural gas generation post-2035 to rely on successful carbon capture and storage (CCS) operations. The report instead suggests the material change of limiting post-2035 natural gas generation emissions intensity to a best available technology standard. The details of this shift are critical, but still to be determined by government. 
• Pooling: allowing entities that own multiple units to combine limits to create a single pooled limit – to allow for more efficient units to compensate for less efficient units – and possibly even enabling individual units to pool with units owned by different entities in the same jurisdiction. How this would work is still to be determined, which will be critical in a market environment like Alberta. 
• Offsets: while the original draft CER refused to recognize offsets, the report floats allowing a limited extent of offset-based compliance. This scope, as well as eligible offset parameters, remains to be seen.
• End of prescribed life: “slightly” extending the EOPL provisions for natural gas-fired units.
• New units under development: extending the EOPL provisions to units where substantial work has been completed but the unit is not commissioned by January 1, 2025 (the cut-off in the current draft CER).
• Cogeneration treatment: providing (time-limited) differential treatment to emissions from existing cogeneration so that the Alberta and Saskatchewan grids do not lose the material proportion of electricity that is cogeneration-based.
• Minimum size threshold: calculating the 25MW threshold based on all new units at the same facility, rather than applying only to single units exceeding 25MW (to avoid the unintended incentive to aggregate smaller units). 
• Emergencies: allowing a provincial system operator, rather than just the federal minister, to declare an emergency and suspend the emissions limits for a “reasonable period of time,” provided the federal minister is notified.⁵  

ECCC is accepting feedback on these changes until March 15, 2024, with the final version of the CER expected to follow later this year. 

On their face, these changes respond to the most serious operational challenges identified with the CER, but move away from a general emissions prohibition and towards a more nuanced regulatory regime, akin to frameworks that some provinces have already put in place. It remains to be seen if this effort will forestall or exacerbate the threatened constitutional challenges.