Canada Releases The Clean Electricity Standard Draft Regulations

Canada’s Environment and Climate Change Minister, Steven Guilbeault, today announced the release of draft 1 of the Clean Electricity Regulations (CER).

An unofficial version of the draft regulations has been published on the Environment and Climate Change Canada website. The draft regulations will be formally published in the Canada Gazette 1 on August 19, 2023, which will kick off a 75-day formal consultation period.

The proposed CER would come into force on January 1, 2025, and is set to be implemented via the Canada Environmental Protection Act (CEPA). The CER will cover all sources of emitting electricity generation that sell to the electricity grid and is intended to send a signal that no new unabated natural gas facilities should be commissioned after 2025.

Key Details
The CER sets out an emissions performance standard regime for electricity generation units that meet the following three criteria: (1) sells electricity to a North American Electric Reliability Corporation-regulated (NERC-regulated) grid; (2) has a capacity equal or larger than 25 megawatts; (3) burns any amount of fossil fuel to generate electricity.

The CER’s emissions performance standard is 30 tonnes of CO2 per gigawatt hour (30 t/GWh), measured on average on an annual basis. All qualifying electricity generation units must meet this standard as of January 1, 2035, with the following exceptions:

• Units commissioned before January 1, 2025, will be required to meet the standard on the latter of January 1, 2035, or December 31st of the calendar year that is 20 years after the commissioning date (the end of the unit’s prescribed life). It should be noted, however, that units that increase their electricity generating capacity by 10% or more after registering the unit under the CER will be required to meet the performance standard as of January 1, 2035.                                                                          

• “Significantly modified” units (i.e. units that have ceased burning coal) subject to regulation under subsection 4(2) of the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-fired Generation of Electricity will be required to meet the standard on the latter of January 1, 2035, or January 1st of the calendar year under which a prohibition has been set out under the existing regulation governing natural gas-fired generation.

Electricity generation units can also be exempted from meeting the CER’s emission performance standard under the following circumstances:

• Emergency Circumstances: Under emergency circumstances (defined within the regulation) where the unit is required to produce electricity to avoid a threat to electricity supply or to restore electricity supply within an electricity system.

• Carbon Capture and Storage (CCUS): When the unit includes a CCUS that started operating within the last seven calendar years, it can emit up to 40 t / GWh if specific criteria are met (this is true until December 31, 2039).

• Peaking Power: When the unit provides peaking power and operates for 450 hours or less per year and emits no more than 150 kt of CO2 per year.

Treatment of Other facilities

• Exempted facilities: Remote and indigenous communities, not connected to a NERC-regulated grid will not be subject to the regulation.

• Behind-the-fence: Behind-the-fence emitting electricity generation units, such as Combined Heat and Power are generally not subject to the regulation.
• A behind-the-fence generating unit (of 25MW or over) would only be subject to the regulation in a given year when it is a net exporter onto a NERC-regulated grid.

• Coal: All units that combust coal or petroleum coke would be subjected to the 30 t/GWh performance standard starting on January 1, 2035.

• Hydrogen: A electricity generation unit would have to include into its yearly calculation of total emissions the quantity of emissions associated with the production of any hydrogen fuel or steam that is used by a unit to produce electricity, regardless of the location or supplier.

‍Regulatory Impact Analysis Statement
The release of the unofficial draft regulations was accompanied by the release of an unofficial version of a Regulatory Impact Assessment Statement (RIAS). The analysis for this document indicates that in a scenario where electricity demand increases by 140% by 2050:

• The regulations would result in a net reduction of 342 million metric tons of CO2e between 2024 and 2050.                                                                                          
• Between 2024 and 2050 it is estimated that the CER will provide a net benefit to society of $28.9 billion.

• National average residential electricity rates would increase relative to the baseline (no CER) scenario by 0.08 cents / kwh in 2035 (0.35% increase), 0.49 cents / kwh in 2040 (1.9% increase), and 0.26 cents /kwh in 2050 (0.89% increase).

• Relative to the baseline, national annual average electricity payments would be $19 to $33 higher per household in 2050.

Next Steps
Over the coming days, the Sussex team will continue to review and analyze the draft legislation while engaging with government on areas that require clarification. We will also be working closely with clients to determine how they might be impacted by the CER and on their comments back to government.

We are pleased to provide this overview to Sussex clients and contacts.