Canada launches consultation on clean electricity standard

On March 15, the Government of Canada launched consultations on the development of a federal Clean Electricity Standard (CES) and is seeking input on the scope and design of the CES regulations. 

What you need to know

• The CES is part of the Government of Canada’s efforts to achieve a net-zero electricity grid by 2035.
• The federal government released its CES discussion paper, which includes: 1) considerations for achieving a net-zero electricity grid by 2035, 2) the purposes and objectives of the proposed CES regulations, and 3) key questions for public input on the development of the CES.
• The government is seeking input on the general design and scope of the CES regulations, including on the options for regulated facilities to achieve compliance, the alignment of CES with the federal backstop carbon pricing regime (which includes the federal fuel charge for fuel producers and distributors and the Output-Based Pricing System (OBPS) for large industrial emitters), and the treatment of natural gas generation, biomass generation, and industry, private generation and remote generation under the CES.
• Those interested are invited to submit comments on the CES discussion paper by April 15, 2022.

Discussion

Federal government’s net-zero 2035 target

In Canada’s Strengthened Climate Plan for a Healthy Environment and a Healthy Economy (the Climate Plan), released in December 2020, the federal government indicated that it would work with the provinces and territories, as well as other stakeholders, to achieve an electricity grid with net-zero emissions by 2050. This target timeline was subsequently accelerated. At the 26^th United Nations Climate Change Conference of the Parties (COP26) in Glasgow held in October-November 2021, Prime Minister Justin Trudeau announced Canada’s commitment to achieve a net-zero electricity grid by 2035¹.

In its CES discussion paper, the federal government identified the CES as the “cornerstone” of its effort to achieve the net-zero 2035 target, complemented by other government policies, programs and investments supporting the transition to a clean economy.

The CES (along with complementary measures) is also an integral part of the government’s plan to achieve Canada’s emissions reduction target of 40% to 45% below 2005 levels by 2030 and net-zero emissions by 2050.

Overview of CES discussion paper

The purposes of the CES discussion paper are to:

• “send a clear signal” of the federal government’s plan to introduce regulations to achieve the net-zero 2035 target;
• set out the considerations related to the government’s net-zero 2035 target, including the proposed CES regulations; and
• initiate consultations on the CES.

The discussion paper acknowledges that although approximately 82% of Canada’s electricity generation does not emit greenhouse gases (i.e., is “non-emitting”), the sector is still Canada’s fourth largest source of emissions. In order to meet the 2035 target, innovations to reduce or offset emissions from existing electricity generation sources and incentives to meet new demand through new zero-emitting or low-emitting generating sources will be key.

In sending “a clear regulatory signal” now, the government aims to, among other things, discourage investments in high-emission generation assets that could become stranded during the transition to non- or low-emitting generating sources, encourage investment in, and the development of, climate solutions and non-emitting technologies, and attract capital from private actors with Environmental, Social and Governance (ESG) targets and commitments.

Like the proposed federal Clean Fuel Regulations, the CES regulations will be made under the federal Environmental Protection Act. The CES regulations are intended to:

• cover all sources of emitting electricity generation that sell to the electricity system;
• set emissions performance standards for emitting electricity generators;

• be technologically neutral, to allow for a wide possibility of options to reduce emissions and ease the transition to low- or zero-emitting generation sources; and
• ensure that the treatment of electricity generation under the OBPS and the CES work together, which may require some changes to the OBPS (or equivalent regimes adopted by provinces or territories, such as Ontario’s emissions performance standards).

Importantly, the discussion paper does not preclude the continued use of natural gas-fired generation. Rather, the discussion paper notes that,

“[c]urrent and emerging technologies, including carbon capture, utilization and storage (CCUS) and non-emitting hydrogen blended with natural gas to generate electricity, could help make natural gas an option for low-emitting generation. Over time, however, natural gas coupled with CCUS will increasingly be in competition with other emerging options that are both non-emitting and flexible in the roles they can play in electricity systems”.

The CES discussion paper emphasizes that achieving net-zero emissions from electricity by 2035 will require nation-wide collaboration, with an important and leading role for provincial and territorial governments, electricity generators and regulators. This will be particularly necessary during the transition to a net-zero electricity grid to mitigate, as much as possible, potential impacts on reliability and rates, to ensure the cost-effective deployment of non-emitting options and carbon offset innovations, and to encourage the development of these options and innovations (e.g., through incentives or programs).

Next steps

The federal government is seeking input on the CES discussion paper by April 15, 2022. Those interested can provide written comments to [email protected].

The CES discussion paper sets out 22 key questions for stakeholders. These questions touch on various issues, including compliance flexibilities, conditions for offset credits, alignment of the CES with existing carbon pricing regimes, the treatment of natural gas generation, industry, private generation and remote generation, and biogas generation, and other investments or measures required to achieve a net-zero electricity grid by 2035.

The federal government has indicated that, following the publication of the CES discussion paper, it will continue to engage with stakeholders, including provinces and territories, Indigenous Peoples, utilities and other electricity sector stakeholders, industry, non-governmental organizations, and the public on the regulatory design of the CES.

While stakeholder input on complementary policies and measures will be noted during the CES consultation, potential new actions to support the transition to a net-zero electricity grid will be discussed under a separate engagement process led by Natural Resources Canada on the broader transition strategy.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

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