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A dragline in front of the SaskPower Shand Power Station. Nova Scotia, Saskatchewan and Alberta rely most heavily on coal for electricity.

The federal government is offering the provinces a way to avoid tough new regulations that would eventually force power companies to shut down the country's fleet of coal-fired power plants.

Environment Minister Peter Kent and Prime Minister Stephen Harper have privately indicated they are willing to provide flexibility in how new power-plant emissions rules are implemented, provincial and industry sources said Thursday. Mr. Kent is expected to release the final version of the long-promised regulations in the coming months.

The change in stance by the federal government provides relief for some of the country's biggest utilities. Alberta-based power generators such as TransAlta Corp., Capital Power Corp. and Atco Ltd. – as well as Nova Scotia's Emera Inc. – have warned that a rigid approach to Ottawa's plant-by-plant rules would increase costs, drive up electricity prices for consumers, and strand valuable assets by imposing arbitrary deadlines for power plant closings.

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The Conservative government has long touted its proposed coal regulations as evidence it is serious about cutting the country's greenhouse-gas emissions, even as it faced international condemnation for withdrawing from the Kyoto Protocol, which set specific reduction targets for Canada. Coal-fired generation accounts for roughly 16 per cent of Canada's electricity.

Now the federal government is willing to cede regulation of power-sector emissions to the provinces – as long as they have rules in place that would achieve equivalent reductions. The new approach would allow provinces to set overall emissions targets, rather than adhere to strict targets for each individual power facility as set out by the government's original approach.

Mr. Kent has said he will follow the coal regulations with new rules on the broader power sector, and on the oil and gas industry. Energy industry executives are closely watching the rollout of the coal regulations for indications of what to expect. Typically, the sector prefers a more flexible approach that allows companies to manage their emissions across their entire operations, and to purchase credits to meet the targets.

Alberta, Saskatchewan and Nova Scotia – which rely most heavily on coal for electricity – have received assurances that Ottawa will not saddle them with cumbersome regulations in a sector that is primarily under their jurisdiction, the provincial and industry sources said.

A spokesman for Mr. Kent said the government is still reviewing submission on its draft coal regulations, which were issued last August, and that "it would be premature to comment."

First promised nearly two years ago, the regulations would essentially prohibit the construction of new coal-based plants after 2015 unless they include carbon capture and storage (CCS) equipment to dramatically reduce emissions. TransAlta and Capital Power are considering a massive investment in a CCS project at their jointly owned Keephills 3 plant near Edmonton, but have worried that inflexible federal rules could derail the project.

Ottawa's regulations would also require companies to close plants after 45 years of operation – considered the typical commercial lifespan – unless they are equipped with CCS. The government says two-thirds of Canada's coal-fired plants will reach the end of their commercial life by 2025, and more than 80 per cent will do so by 2030.

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But the government's regulatory impact statement issued last August noted that "some provinces expressed a desire for equivalency agreements" under which "the federal regulations would stand down and the provincial regime would apply."

Officials from Nova Scotia and Saskatchewan said Thursday their governments will certainly be pursuing equivalency agreements so they can pursue their own regulatory approaches.

Nova Scotia has passed legislation that targets emission reductions of 25 per cent in the power sector by 2020. The province's plan would not force Emera-owned Nova Scotia Power to close coal-fired plants but would require 40 per cent of overall electricity supply to come from renewables by 2020.

"We're looking for the equivalency agreement to be worked on," Environment Minister Sterling Belliveau said. "We're going to achieve in our own approach, and it's going to be less costly. So I'm hopeful they'll take this all into consideration."

Alberta has not yet pushed for an equivalency agreement, preferring to wait to see the final regulations, said Bob Savage, director of the province's climate change secretariat. He said the province would look for an equivalency deal if federal rules prove to be incompatible with Alberta's own regulations, which force companies to achieve annual reductions but allow for the purchase of credits from firms that can generate emission cuts more efficiently.

Saskatchewan is currently drafting climate rules for industry, and is counting on CCS technology to cut emissions from coal-fired power plants. But the province worries the federal regulations could snuff out CCS projects because they don't allow sufficient time to prove the technology or the averaging of emission reductions across SaskPower's fleet, said Kim Graybiel, director of the province's climate change branch.

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