Provincial utilities and private power producers will be allowed to run natural gas plants under the Clean Electricity Regulations published Thursday by Environment and Climate Minister Steven Guilbeault, but only if they can capture 95% of the climate pollution they produce.
That means utilities that want to keep burning gas will be relying on carbon capture and storage (CCS) systems that won’t be ready for widespread use by the time the regulations take effect in 2035, their counterparts in the United States warned this week.
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The draft regulations were published in the Canada Gazette August 10, kicking off a consultation and revision process aimed at finalizing the rules by January 1, 2025. After that date, Ottawa’s “technology-neutral” approach will allow utilities to choose the electricity sources they rely on, senior government officials told media in a background briefing. But they won’t be allowed to emit more than 30 tonnes of carbon dioxide for every gigawatt-hour (GWh) of power they produce, roughly 95% less than the emissions from the most efficient gas-fired power plant.
“This inclusive approach is important,” they said, because “affordable, reliable power is going to be the foundation of the net-zero economy.”
The regulations are expected to cut Canada’s greenhouse gas emissions by a cumulative 342 million tonnes from 2024 to 2050 and reduce household energy costs by 10%, according to one recent economic analysis, or 12%, according to the Canadian Climate Institute. Canadians will pay more for electricity, and they’ll be using more of it, an official said. But those costs will be “more than offset by the fact that we’re no longer going to buying gasoline or diesel to power our cars and trucks, we’ll no longer be paying for natural gas to heat our homes and cook our food, and we’ll no longer be using natural gas for things like cement and steel and aluminum,” all costs that are passed on to households in the price of consumer goods.
The new rules exempt small power plants with capacity below 25 megawatts, as well as small and remote communities with no connection to the power grid.
While the regulations are at the centre of the federal government’s plan to tackle climate change and “become an engine of the net-zero, prosperous economy,” Guilbeault said, the “core of this vision” is to keep electricity rates affordable across the country.
“Without these regulations, provincial utilities will still need to invest at least C$400 billion by 2050 for ongoing maintenance, and to build out the electricity grid to meet growing demand,” he added. So “the obvious question is, why not make sure that buildout is clean and affordable?” If provinces and utilities take full advantage of the funds Ottawa is making available to cover the additional cost of that transition, “the federal government will offset more than half the cost of cleaning the grid and reducing costs to ratepayers,” he said.
Earlier this week, Natural Resources Minister Jonathan Wilkinson said those funds would be conditional on provinces buying in to the 2035 net-zero target. “To access the tax credit will require that we are moving in the direction of a non-emitting grid,” he told The Canadian Press.
For consumers, officials said the remaining incremental cost of a net-zero grid would add up to half a cent per kilowatt-hour in 2040 and one-quarter of a cent in 2050. For utilities, the 12-year lead time between this week’s announcement and the net-zero deadline is meant to “send a signal” to shape longer-term planning and investment decisions.
“Our investment in a net-zero electricity grid will pay huge dividends in avoided climate change damage,” while reducing air pollution and economic costs, Guilbeault said. He estimated those net savings at $29 billion by 2050, including lower costs for generators that will no longer have to pay for fuel.
5,000 MW of Renewables Per Year
Vittoria Bellissimo, president and CEO of the Canadian Renewable Energy Association (CanREA), said the new regulations create “a clear market signal for further deployment of renewable electricity from coast to coast to coast. They will spur significant new investment in Canada, and this will translate into increased economic opportunities for Indigenous communities and companies,” since “to most of my members, working with Indigenous peoples and businesses is THE business model.”
Hitting a 2035 target to decarbonize the grid will require more than 5,000 megawatts of new wind and solar development per year, Bellissimo said. Renewables will deliver two-thirds of the electricity required to meet the federal goal, she added, “because they work, because they are ready today, and because they are the most affordable way to meet Canada’s net-zero target.”
Evan Pivnick, clean energy program manager at Clean Energy Canada, said his Vancouver-based organization had been worked more than a decade for a moment like this, “one where government finally centres the critical importance of clean electricity in the future of our countries.”
Clean electricity “is the foundation upon which the entire clean energy transition happens,” he said. “Cleaner cars, cleaner industries, cleaner homes—all of it needs, and is powered by, clean electricity.” So “no government can credibly say they are working towards a net-zero economy by 2050 while blindly opposing a 2035 target for clean electricity. One foot needs to go before the other.”
“Clean electricity is the backbone of a clean, competitive economy,” agreed Binnu Jeyakumar, electricity program director at the Calgary-based Pembina Institute. “By decarbonizing our electricity grids by 2035, the rest of the economy can electrify by 2050.”
In a follow-up statement, Pembina added that “the technologies needed to achieve a net-zero grid are ready and economic today. The lowest-cost options, wind and solar combined with storage options and interties, are already cost-competitive with existing gas assets in many provinces. Every province should accelerate the deployment of these technologies—not implement a seven-month moratorium.”
Environmental Defence Canada urged Ottawa to strengthen the regulations by setting interim targets to ratchet down power sector emissions before 2035, restricting fossil fuel plant operations after that year to emergency uses, and removing loopholes for “abated” gas plants using CCS.
“These regulations, as currently drafted, will not deliver on the promise of a net-zero grid by 2035,” said Programs Director Keith Brooks. “They are also unlikely to achieve the level of emissions reductions forecast in Canada’s Emissions Reduction Plan, putting Canada’s climate targets in jeopardy.”
Gas Plants Depend on CCS
A senior government official said the flexibility in the regulations was meant to “enable facilities to make the transition over a period of time and in a sensible way, while contributing to an affordable, reliable grid.” He explained that the emissions limit in the new standard was set “at a level that can be achieved by an existing efficient natural facility that is connected to a carbon capture and storage unit that is capturing about 95% of the emissions. So it’s achievable, and it’s achievable by existing technology.”
But just two days earlier, the top lobby group for U.S. utilities warned that the Biden administration was overestimating the affordability and readiness of CCS as well as green hydrogen technology, Bloomberg Green reports. The regulatory filing from the Edison Electric Institute (EEI) was a response to the 2035 grid decarbonization plan put forward by the Biden administration, not Guilbeault’s announcement. But it talked about the same application of the same carbon capture technology that Canadian gas plants would have to use to comply with the Clean Electricity Regulations, supported by a U.S. tax credit that may have been an inspiration for the one Canada introduced in the 2022 federal budget.
The U.S. Environmental Protection Agency “simultaneously downplays the various infrastructure challenges to deploying these technologies, while overplaying the current state of deployment and demonstration of each technology,” the institute said. “Neither CCS nor hydrogen blending are adequately demonstrated today as they are not deployable, available, or affordable across the entirety of the industry.”
U.S. environmental groups “seized on EEI’s position as evidence of hypocrisy,” Bloomberg says, after years of seeing the utility industry play up carbon capture and hydrogen rather than practical, affordable solutions like solar, wind, energy efficiency, and energy storage. “The utility industry has talked more about these fossil fuel solutions than all renewable energy technologies combined,” said Leah Stokes, associate professor of environmental politics at University of California Santa Barbara.
But even if the U.S. industry picked a politically opportune moment to shift its position on CCS, the critique of the technology isn’t new. Last year, a sweeping industry assessment by the Institute for Energy Economics and Financial Analysis (IEEFA) warned that carbon capture and storage projects are far more likely to fail than to succeed, and nearly three-quarters of the carbon dioxide they manage to capture each year is sold off to fossil companies and used to extract more oil. Of the 13 “flagship, large-scale” projects in the analysis, accounting for about 55% of the world’s carbon capture capacity, 10 underperformed, failed outright, or had to be mothballed.
A month later, the Global CCS Institute reported record interest in new project development in 2022, driven by rising carbon prices and government subsidies. The annual survey showed a record 153 new projects under construction, 61 more than the previous year. But even if all of the projects were completed—and even if they all met their operating targets—they would be sufficient to capture just 244 million tonnes of carbon dioxide per year, less than 1% of the estimated 36 billion tonnes humanity emitted in 2021.
During the launch announcement, Canadian officials did not say what share of the emission reductions to be achieved through the Clean Electricity Regulations would depend on bolting CCS systems on to gas-fired power plants. In a follow-up email, a federal spokesperson said the answer to that question would eventually come from the provinces.
“CCS is just one way of complying with these proposed regulations and we don’t prescribe how technologies meet it,” the spokesperson said. “What we require is that they reach the performance standard we’ve set without defining which technologies or measures provinces should use to achieve it.”
But Ottawa has some “strong evidence” for carbon capture, the spokesperson added. “Companies like Capital Power are employing CCS technologies that are able to meet the performance standard and we are having conversations with vendors that say they can meet them,” they said. “This is aligned with the U.S. government, and we have given companies long lead times of over 10 years to further develop and deploy these technologies.”