January 5, 2022 | By: Avneet Nehel, Brady Chapman, Chad Eggerman

The Government of Canada is pursuing the target of overall net-zero emissions across Canada by 2050. The Federal government are pursuing the target of net-zero electricity production by 2035 across the country through the introduction of the Clean Electricity Regulations (“CER”). The first CER regulations for consultation are expected to be released in early 2023. Although the regulations themselves are not yet available for review and analysis, this article intends to summarize what the Government of Canada has been signaling will be addressed by the CER and what the broader aims of the CER will be.

The general aim of the CER is to achieve a net-zero electricity supply to combat climate change, in two ways. Firstly, by reducing the GHG emissions from electricity production and, secondly, by using clean electricity instead of fossil fuels in automobiles, heating and industrial processes. This will cumulatively help reduce emissions from these sectors.

In terms of consumers, the aim of the CER is to reduce cost of clean technology by improving energy efficiency and demand management along with adoption of low-cost wind and solar energy. Shifting from higher cost technology to lower cost technology will reduce the total household energy cost for the Canadian public. The focus of the proposed CER framework is to promote clean technology, as well as reduce carbon contributing technology which uses fossil fuels.

One of the specific aims of the CER is to reduce the use of natural gas as feedstock for electricity production. Although the Federal government agrees that current power generation technology is still dependent on natural gas as a source for baseload, backup and emergency requirements and to compliment variable wind and solar use, they believe that over time as technology advances the use of natural gas should decline. The Federal government believes that compliance payments corresponding to the federal carbon price should help in promoting less use of natural gas for power generation. The Federal government also believes that the CER will promote the development of Indigenous power producers and wider adoption of energy-efficient technologies.

CER aims to regulate emissions of carbon dioxide (CO2), from electricity generating units that:

• combust any amount of fossil fuel for generating electricity;
• have a capacity higher than a small megawatt (MW) threshold; and
• offer electricity for sale onto a regulated electricity system.

There is also a proposal to have a standard for emissions. This would establish a minimum output required under the standard and any emissions below the standards would be subject to financial compliance. The government aims to regulate emission to net zero while also making the technology affordable and reliable. The performance standard of the CER would be implemented under the Canadian Environmental Protection Act, 1999.

Special provisions have been made for treatment of generation units which use gas, liquid or fossil fuels. Any new unit commissioned in 2025 or after, would be subject to current electricity sector policies until January 1, 2035. After January 1, 2035, the proposed regulations for performance standards and associated financial compliance will apply. The CER limits will become binding from 2035. Any new fossil fuel units that continue after 2035 will require technology to reduce emissions and resolve the financial implications of complying with the new regulations.

All existing gas, liquid or fossil fuel units commission before 2025 will become subject to CER’s performance standards on January 1, 2035. After which date, the units will be subject to the new CER regulations.

The below are the minimum requirements for financial compliance:

• units must operate within the limits and compensate for any emissions related to the environment;
• financial compliance may include purchasing high quality offsets or paying an amount equal to the Federal government carbon price for the relevant period;
• emissions by units operated for emergency situations will be exempt from financial compliance.

CER regulations also affect the industrial units that offer electricity for sale. Units that generate electricity for their own needs are not regulated by CER but such regulations may be revised later.

There are some proposed exemptions under the CER performance standards for regulated units:

1. units providing electricity during emergency circumstances defined as extraordinary, unforeseen and irresistible, will be exempt from performance standards and financial compliance. The exemptions do not define what “extraordinary, unforeseen and irresistible” means.
2. units that operated in areas not regulated by the North American Electric Reliability Corporation will be exempted.

Overall, the CER appears to be putting forward a national framework to encourage energy efficiency as well as further adoption and use of carbon capture and storage and electricity generation from solar, wind, geothermal, small modular nuclear reactors (SMRs) and hydro, among others. Any provincial jurisdictions which still use fossil fuels to generate electricity delivered to public grids should be very concerned as these assets are moving closer to being stranded sooner. Jurisdictions like Saskatchewan are building new natural gas-fired power generation facilities right now, which, when energized will already be obsolete and plans for decommissioning may have to be implemented as the ribbon are cut by politicians. Other existing and operational natural-gas and coal power generation facilities only have about 12 years to shut down or retrofit with carbon capture technology. It is not new that economic development increases in jurisdictions that have cheap and reliable electricity. However, what is new is that increasingly, economic development is linked to the provision of clean electricity. Businesses are moving away from jurisdictions that have dirty power to jurisdictions that have clean power. The sooner provincial jurisdictions accept this, the faster they will improve their provincial economies.

2023 will see draft regulations put forward for consultation and with the politicized environment around energy in Canada, there is sure to be a lot more to talk about in this area in the coming year ahead.

Procido LLP is deeply familiar with clean energy regulations and continues to follow the development of these regulations across Canada. We can assist you in how these regulations affect your business and what opportunities they may present.

Do not hesitate to contact a member of our team to learn more about what services we offer.

Disclaimer

This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice. Contact Procido LLP (www.procido.com) if you require legal advice on the topic discussed in this article.