Ottawa reveals details of proposed Clean Electricity Regulations, outlining flexible compliance options

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Ottawa is playing down the demands that its new rules to restrict the use of fossil fuels in electricity generation will place on power utilities, as it attempts to quell mounting backlash from western provinces that produce and rely on natural gas.

The proposed new Clean Electricity Regulations, long-awaited details of which were announced on Thursday, represent an unprecedented intervention into electricity policy that is traditionally in provincial jurisdiction. Coupled with promised federal tax credits for renewables, the new rules are aimed at ensuring that non-emitting power serves as the backbone of Canada’s transition to a low-carbon economy amid widespread electrification of transportation, buildings and industry.

But in outlining Ottawa’s plans, Environment Minister Steven Guilbeault emphasized that the government has prioritized flexibility – including allowing continued use of fossil fuels at times when consumer demand is highest, and grandfathering existing gas-fuelled power plants. He also pushed back against complaints that the rules will make electricity significantly more expensive and increase the risk of shortages.

“They probably won’t say it publicly, but I think privately, many will be pleased with what we’ve introduced,” Mr. Guilbeault said in an interview, referring to the Prairie governments that have expressed the most opposition. “I suspect many will feel that they’ve been listened to.”

That was indeed not the public reaction on Thursday. In a statement, Alberta Premier Danielle Smith called the proposed rules – which are to be implemented under the Canadian Environmental Protection Act – “unconstitutional” and “irresponsible,” vowing they would not be implemented in her province.

The crux of the draft regulations is a cap, starting in 2035, on greenhouse-gas emissions from each large generating facility. It’s being proposed at a level (30 tonnes per gigawatt hour) that would allow gas plants with carbon capture technology to keep operating, but require those lacking it to curb output.

However, Mr. Guilbeault specified on Thursday that power plants which are already operational by 2025, when the regulation is to come into effect, would be exempt from that cap for 20 years from the date when they were commissioned. That means that some gas plants without carbon capture could keep operating well into the 2040s.

Regardless of when gas plants are built, the rules would allow them to keep operating for up to 450 hours per year – a response to concerns about power shortages when demand is at its highest, as well as around the variability of wind and solar power on which grids will be increasingly expected to rely.

The government also emphasized that the regulations will be “technology neutral,” meaning that they will not reward or punish certain types of non-emitting power – including nuclear and hydro, in addition to newer forms of renewables – compared to others.

Not all of the policy’s potential implications are yet clear. While Ottawa offered technical briefings and released background documents on Thursday morning, it did not immediately provide the actual draft regulations. And energy-sector representatives and experts indicated that they expect to spend days wrapping their heads around some complexities that could have major impacts.

An example of those complexities is how the rules will treat co-generation, in which oil and gas companies use methane to simultaneously produce steam for their bitumen extraction and to generate electricity. Mr. Guilbeault has indicated that Ottawa intends to apply the regulations to electricity that is produced that way and then sold back into the grid, which commonly happens in Alberta.

But industry is waiting to see whether the wording of the regulations could also lead to penalties being applied to the production of energy that is used on the oil and gas sites, which is not the government’s stated aim.

Regardless of those nuances, the rules stand to have a much greater impact on provinces where fossil fuels are currently a major part of the electricity supply mix – especially Saskatchewan, Alberta and Nova Scotia – than others where they play a lesser or non-existent role, mostly because of comparatively abundant hydroelectricity.

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However, the policy has also been motivated by federal concern about provinces such as Ontario upping their reliance on fossil fuels in response to power demand that is projected to at least double in the coming decades, during widespread electrification of transportation, buildings and industry.

Leading up to the announcement, as it was developing the regulations, Ottawa signalled that the primary objective was to discourage investments in new unabated gas power plants, which would be uneconomical given the short span to earn back capital investments before the restrictions take effect. And it repeatedly indicated that it was not aiming to force abrupt shutdowns of existing facilities.

Nevertheless, the premiers of Alberta and Saskatchewan already railed against the regulations before seeing them, insisting that aiming for a net-zero emissions grid starting in 2035 was impossible, and slamming Ottawa for rules they said would quash use of their abundant natural gas reserves.

Ms. Smith’s government also last week announced a seven-month moratorium on development of wind and solar projects, which she framed partly as a response to federal heavy-handedness.

While Ottawa aims to disprove those complaints, it is already coming under criticism from some environmental groups for the draft regulations being too lax.

Stephen Thomas, the clean energy manager at the David Suzuki Foundation, said on Thursday that the proposed rules underscore the oil and gas industry’s efforts to dilute climate action.

“These regulations as written will allow more fossil fuels to be built and continue to supply electricity on the grid,” Mr. Thomas said in a statement.

“This area of the policy will need much improvement before the regulations are finalized.”

Such debates will now play out during a consultation period that Ottawa has set aside until early November.

In keeping with the flexibility theme, Mr. Guilbeault indicated that the feedback could yet lead to significant changes to the regulations before they’re finalized.

“We think we’ve struck the right balance,” he said in the interview. “We worked really hard to try to ensure that the draft regs would be as close as possible to final. But we’ll be listening to what people have to say and adjusting accordingly if need be.”