Canada's Clean Electricity Standard Consultation Underway

April 04, 2022

Written By David Macaulay, Thomas McInerney and Nohayla Benayad

The Government of Canada (through Environment and Climate Change Canada) launched a consultation through the publication of a discussion paper, "A Clean Electricity Standard in support of a net-zero electricity sector: discussion paper" (the Federal Paper), to solicit comments on a clean electricity standard (CES) under the Canadian Environmental Protection Act, 1999 (CEPA). The consultation is in support of the stated goals of the federal government to transition to a net-zero electricity supply by 2035 (NZ2035) and to achieve economy-wide net-zero emissions by 2050.

Deadline for Comments

As this paper is critical to the electricity sector, many industry participants will be aware of the deadline for comments, however, comments on the discussion paper must be submitted by April 15, 2022 to ECD-DEC@ec.gc.ca.

General Summary of the Federal Paper

The federal government asserts that while provinces have jurisdiction over electricity planning and operations, the federal government has jurisdiction over emission reduction regulations. The paper states that the CES is intended to provide regulatory signals to support decision making at the provincial level.

To minimize stranded asset investments due to the long life of power generation assets, the CES is intended to send clear regulatory signals discouraging further investments in assets that the federal government believes could become stranded in the years to come by the net-zero transition.

The CES will recognize recent and emerging technologies as critical in this transition including CCUS, hydrogen, small modular reactors (see our recent blog on SMRs), energy storage, wind and solar and large scale inter-provincial/territorial transmission, while acknowledging that natural gas fired generation will be a necessary form of low-emitting generation for some time to come.

The federal government expects the capital investment requirements to be very significant to meet NZ2035 targets. The CES is to establish regulatory certainty to smooth the path for such significant capital investment.

The paper is signalling that carbon pricing alone is not going to be sufficient to ensure that the electricity sector achieves NZ2035, and the government is of the view that a Canada-wide CES requiring the phase-out of all conventional fossil fuel electricity generation will complement the carbon pricing mechanism.

Areas of Requested Input

The federal government is seeking input into federal regulatory actions to support its stated goal of NZ2035. They have posed many questions in the Federal Paper covering a vast and complex set of considerations including, to name a few:

• implications for offset credits available through federal, provincial/territorial, or other programs;
• consideration of changes to carbon pricing applicable to electricity generation;
• strategies to minimize stranded capital assets and associated rate impacts;
• use of natural gas including cogeneration pre and post 2035;
• considerations to different electricity markets, vertically integrated utilities, etc.;
• treatment of biogas based generation and negative emission technologies; and
• implications for electricity generation in remote, northern and Indigenous communities.

Regional Differences

This CES is expected to be hotly debated, as electricity generation across Canada differs significantly based on region and as such, the impacts of a CES will be largest in Alberta, Saskatchewan, New Brunswick, Nova Scotia and Ontario where electricity generation is dependent on fossil fuels.

Next Steps

Environment and Climate Change Canada will continue its engagement process with provinces, territories, Indigenous Peoples and electricity sector stakeholders to inform the regulatory development of a transition to a net-zero electricity generation by 2035 in Canada.

Bennett Jones has experience in all aspects of the electricity, CCUS, hydrogen development including climate change and emissions trading and developing strategies for industry to capitalize on the impending low-carbon economy. If you have any questions about the potential impact of the proposed Clean Electricity Standards on your business, contact one of the authors of this post or a member of the firm's Energy, Environmental or Climate Change Groups.

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