441-01544 (Environment)

Canada is committed to achieving a net-zero electricity system by 2035 as a key part of its plan to achieve a net-zero economy by 2050 to help combat climate change. In order to achieve this goal, the Government of Canada is working closely with provinces, territories, Indigenous peoples, industry, and other key interested parties to identify and support regional priorities for clean electricity through the Regional Energy and Resources Tables, the Canada Electricity Advisory Council, and the Indigenous Council for Wah-ila-toos. Budget 2023 included approximately $45 Billion in investments over the next 10 years through investment tax credits, low-cost financing through the Canada Infrastructure Bank, and other funding to support the clean energy transition. Notably, it announced a 15% tax credit for non-emitting electricity generation and transmission, in addition to other complementary measures announced in Budget 2023 and the 2022 Fall Economic Statement, such as investment tax credits for clean technologies, clean technology manufacturing, clean hydrogen, and carbon capture and storage.

To achieve net zero by 2050, the electricity sector will need to phase out coal by 2030, achieve net zero electricity by 2035 and ultimately close to double generation capacity. This energy transition is being driven by federal climate policies. For example, in 2018 the Government of Canada published the Reduction of Carbon Dioxide Emissions from Coal-Fired Generation of Electricity Regulations, which regulates a phase-out of conventional coal-fired electricity generation by 2030. Additionally, the Government of Canada published the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-Fired Generation of Electricity, which set performance standards for new natural gas units and contains provisions for the conversion of coal units to run on natural gas for a limited period of time (up to 10 years beyond the regulated end of life date of the coal unit). These regulations help support Canada’s transition to cleaner energy, create well-paying jobs in the electricity sector, and support the development of a net-zero electricity grid.

To further help accelerate Canada on the path towards a net-zero electricity grid by 2035 the Government of Canada is designing the Clean Electricity Regulations (CER), which will maximize emissions reductions while maintaining reliability and affordability. Developing the CER now sends strong signals to avoid investment in new unabated natural gas generation and will help drive forward the development of emerging clean energy technologies. The CER will set a technology-neutral emissions performance standard for emitting generation of electricity that is provided to the grid and will include compliance flexibilities that recognize regional differences, including a future role for some natural gas generation. The CER has been designed to maximize emissions reductions, while maintaining affordable and reliable electricity systems.

Environment and Climate Change Canada is developing the CER in close consultation with key interested parties. This process started with the release of a discussion paper in March 2022 followed by a draft regulatory frame in July 2022. The Department has also held multiple technical webinars as well as meetings with representatives from across the country to hear specific and regional concerns. The Department will be publishing the draft CER in the coming months, after which a formal engagement period will take place.

Economy-wide carbon-pricing systems are designed to incentivize emissions reductions while allowing for maximum flexibility at the lowest overall cost. The flexibility afforded by these systems will result in different segments of the economy reducing emissions along different pathways, depending on the availability and cost of emissions reduction opportunities.

Fossil fuel-fired electricity generated is covered by carbon pricing in all provinces across Canada either by the federal output-based pricing system or the applicable provincial pricing system that aligns with the carbon pricing benchmark. All output-based pricing systems (OBPS) must have a rising compliance price that aligns with the minimum national carbon pricing which increases by $15/year reaching $170/t CO2e in 2030.

At present, most industrial emissions are subject to provincial OBPS, rather than the federal system, including in Ontario, where fossil fuel-fired electricity generation is covered by its Emissions Performance System Regulations. Provincial systems vary in size, context, and composition, and Canada’s approach allows provinces and territories to adjust their systems to meet local circumstances, as long as they meet national minimum stringency requirements.

Canada strengthened the minimum national stringency criteria for carbon pricing systems (the “benchmark”) in 2021 for the 2023-2030 period to ensure all carbon pollution pricing systems are comparable and effective across the country. New requirements mean that all OBPS must maintain a marginal price signal in line with Canada’s minimum carbon price thereby ensuring that facilities regulated under output-based pricing systems are subject to the same incentives to reduce emissions as the fuel charge.

The federal approach to electricity generation under the federal OBPS balances three goals:

• Incentivize greenhouse gas emissions reductions by applying a carbon pollution price signal to all forms of emitting electricity generation;
• Maintain the competitiveness of emission-intensive and trade exposed industry and potentially lead to carbon leakage;
• Introduce a system that is affordable for households and businesses, especially where energy choices are currently limited.

The approach balances these goals by setting emissions standards based on fuel type. The standards for gaseous fuels like natural gas are 370 tonnes per gigawatt hours (t/GWh) for existing generation, and for new generation, standards started at 370 t/GWh in 2021, and decline linearly to 0 t/GWh in 2030 – meaning under the federal system, new facilities will be paying the full price on every tonne of carbon pollution they emit by 2030.

The different OBSs are set to maintain an even playing field across the electricity sector and avoid high costs for consumers in locations where there are barriers to non-emitting generation, such as Northern Canada or in diesel-dependent industrial activities.

Increasing the stringency of the federal Output-Based Pricing System (OBPS) for industryhas been part of the design of the federal OBPS from its inception in the 2018 Regulatory Framework for the OBPS. Strengthening standards over time is consistent with Canadian and global climate goals, which require increasing ambition over time. To this end, Canada has committed to review the standards for electricity generation to reflect changes associated with the forthcoming Clean Electricity Regulations.

Concerning the increase in natural gas capacity predicted in Canada Energy Regulator’s Canada’s Energy Future 2021, note that this analysis did not include the Clean Electricity Regulations. The newly released Canada’s Energy Future 2023 does include the CER and finds that the electricity sector reaches net zero emissions by 2035, demonstrating the impact of the CER and other climate policies to substantially impact planning and operations of Canada’s electricity sector.