Federal Government Proposes Potential Changes to Draft Clean Energy Regulations

February 27, 2024

Written By Martin Ignasiak, Jessica Kennedy, Sharon Singh, Sean Assié, Larissa Lees, Nathan Green and Lauren Peebles

Updates to Draft Clean Energy Regulations

On February 16, 2024, the Canadian government released an update on the Draft Clean Energy Regulations (Draft CER) and provided some proposed changes in response to the significant feedback affected parties provided on the Draft CER. For background on the Draft CER, see our previous blog post, Federal Government Asserts Jurisdiction over Electricity in New Draft Regulations.

Environment and Climate Change Canada (ECCC) is looking at changes to the electricity emissions performance standard under the Draft CER. ECCC has stated that the proposals are intended to give more flexibility to the provinces and electricity generators, but also to deliver "significant emissions reductions."¹ Both the Alberta and Saskatchewan governments have publicly criticized the proposed changes, stating that they include "no meaningful corrections" (Alberta Minister Rebecca Schulz) and that "no tweaks or adjustments can adequately address the fundamental flaws in these regulations" (Saskatchewan Minister Dustin Duncan).²

New Proposed Emissions Limit Approach

First, the ECCC is looking at reframing the emissions performance standard to a facility-specific annual emissions limit based on that generating unit’s capacity and an adjusted performance standard used to calculate that generating unit’s allowable emissions.

ECCC explained that the feedback received to date suggested that the previously proposed 30 t/GWh emissions intensity limit would not likely be achievable for fossil fuel fired units paired with carbon capture and storage (CCS) and operated on a load-following basis to fill in gaps during low renewable power generation periods or to meet higher demand periods. The previous 450 hour per year exemption for peaker facilities would be removed from the Draft CER.

The below formula illustrates how this approach would function instead of the previous proposal for a uniform 30 t/GWh emissions intensity limit:

Generating Unit Pooling and Use of GHG Offsets

The revised emissions limit approach may include a pooled emissions limit for entities responsible for multiple generating units, and may also potentially allow for the use of GHG offsets to achieve compliance. In comparison, the Draft CER previously did not contemplate the use of GHG offsets or pooling of generating units. Allowing for the pooling of generating units may be more advantageous for larger companies or crown corporations with a large number of generating units who would have greater flexibility to shift their operations between their generating units to remain in compliance.

Cogeneration

Perhaps the most significant shift in approach in ECCC’s update applies to cogeneration. The ECCC clarified that it may only differentiate between electricity produced for self-use and electricity exported to the grid by cogeneration units for a time-limited period, and that ECCC is considering treating new cogeneration units in the same manner as all other generating units. This would be a significant change, since the Draft CER originally contemplated that generating units with no net exports to the grid would be fully exempt from the emissions performance standard.

Exemptions for Units in Advanced Development and Small Units

With respect to the Draft CER’s end of prescribed life (EoPL) provisions, the ECCC is considering allowing for generating units in advanced development, but which would not be commissioned by January 1, 2025, to have a delayed start to the application of the emissions performance standard. This change was primarily proposed to protect owners of approved natural gas-fired generating units in advanced development from suffering significant adverse impacts to their investments.  This change would allow those generating units to benefit from a shortened prescribed life period, similar to the existing provisions in the Draft CER that enable generating units commissioned since January 1, 2015 to operate for a full 20 years before becoming subject to the emissions performance standard.

The ECCC is also looking to clarify the minimum size exemption threshold to avoid attempts to bypass the emissions performance standard. The proposed change is to include those new units which have, individually or collectively at the same facility, 25MW or greater generating capacity. This change is meant to reflect the potential that parties would combine multiple smaller generating units that individually are exempt from the CER, but collectively would exceed the 25MW threshold. 

Emergency Exemptions

Finally, the ECCC proposes revising the emergency exemption provisions so that retroactive federal approval would no longer be needed. This would enable generating units to qualify for the emergency exemption from the emissions performance standard when the system operator declares a power grid emergency.  The Draft CER’s requirement for retroactive approval would be replaced by a notification to the federal Minister of the system operator’s emergency declaration. As set out in the Draft CER, any emissions during that emergency would then not be counted towards the unit's annual emissions limit. The proposed changes would retain the need to obtain federal approval to operate beyond the system operator’s emergency exemption period.

How these changes will be implemented remains to be determined, especially with respect to the pooling of generating units and the use of GHG offsets. The deadline to provide the federal government feedback on these proposed changes to the Draft CER is March 15, 2024.

If you have any questions about the potential impact of the draft CER on your business, please contact one of the authors of this post or a member of the firm's Energy Regulatory practice group.

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