As part of its goal of regulating carbon dioxide (CO2) emissions on a sector-by-sector basis, the Federal Government published the draft Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations (the Regulations) on August 27, 2011, pursuant to the Canadian Environmental Protection Act, 1999 (CEPA).
On September 5, 2012, Environment Canada announced that the Regulations have now been finalized, the official version of which will be published in an upcoming edition of the Canada Gazette. The Federal Government’s authority to enact the Regulations arises pursuant to section 93(4) of CEPA, under which the Governor in Council is granted the power to regulate any toxic substances specified in Schedule 1 of CEPA, which has included CO2 since 2005.
The Regulations apply to all coal-fired electrical generators in Canada and impose intensity limits on the amount of CO2 that may be emitted by individual coal-fired generation units, which are characterized as “old” (units that have reached the end of their useful life but continue to produce electricity), “new” (units whose commissioning date is on or after July 1, 2015) or “existing” (units that are neither old nor new).
The intensity limits will initially apply to old and new units beginning July 1, 2015. In their first 21 years of operation, the Regulations are expected to achieve a net cumulative reduction in CO2 of approximately 215 megatonnes (the equivalent of eliminating 2.6 million personal vehicles from the road each year).
Although they will apply across Canada, the Regulations will primarily affect Alberta, Nova Scotia and Saskatchewan, where coal-fired generation represents 74%, 73% and 60% of provincial electricity generation, respectively.
Consequently, the possibility of negotiating “equivalency agreements” with the Federal Government is a desirable option. Under such agreements, provincial legislation may supersede the Federal Regulations, provided it serves the same purpose and achieves at least an equivalent reduction in emissions.
Equivalency agreements avoid duplicative legislative regimes, offer increased control and flexibility to the provinces in achieving emission reductions, and permit more cost-effective solutions for provinces that are currently heavily dependent on coal.
Environment Canada recently announced that a draft equivalency agreement has been developed with Nova Scotia, Saskatchewan is working towards such an agreement, and similar discussions have begun in Alberta. While the terms of these proposed equivalency agreements are still unknown, equivalent provincial legislation will be required. Nova Scotia already has provincial legislation in place that would require the reduction of greenhouse gases (GHGs) from the electricity sector by about 25% by 2020, which would be extended to 2030 to match with the Federal Regulations.
In Saskatchewan, where coal-fired generation is produced by the government itself through one of its Crown corporations, a $1.24-billion project to retrofit an existing unit at the Boundary Dam plant to incorporate carbon capture and storage (CCS) is expected to come into commercial operation by 2014. However, Saskatchewan does not have existing emissions legislation that would likely be seen as equivalent to the Regulations.
Whether Alberta’s current legislative regime regulating CO2 will be seen as equivalent in the eyes of the Federal Government is unknown.
Since 2007, the Specified Gas Emitters Regulation (SGER) has applied to any facility in Alberta (not just coal-fired plants) with direct emissions of certain specified gases totalling 100,000 tonnes or more (CO2 equivalent) in 2003, or any subsequent year.
The specified gases include CO2, methane, nitrous oxide, hydrofluorocarbons and various other GHGs. It also applies to any facility whose activities fall within one or more of 35 enumerated activities, including the manufacturing, processing or storage of pulp and paper, petroleum products, natural gas, fertilizers, coal, heavy oil, oil sands, salt and chemicals, or other industrial purposes.
SGER requires established facilities to reduce their emissions intensity by 12% per year from their government approved baseline emissions intensity limit, whereas the limits for new facilities varies depending on the year of commercial operation.
Unlike the Regulations, the SGER permits compliance in various ways: in-house reduction of the facility’s emissions to the regulated limits, utilizing emission offsets, making contributions to the Climate Change and Emissions Management Fund and/or utilizing performance credits from prior years.
This market-based approach allows facilities to manage GHGs emissions across their entire fleet of operations and incorporates a cap and trade system. However, due to its flexibility, the SGER does not result in an absolute cap on CO2 emissions by coal-fired units per Gigawatt hour (GWh) in light of the ability to purchase offsets, obtain fund credits or utilize performance credits.
If Nova Scotia legislation becomes the benchmark for equivalency, it would be unlikely that the current SGER would be deemed equivalent. What remains to be seen is whether Alberta will revise its existing legislation in response to the Regulations to attempt to be seen as equivalent or whether coal-fired electrical generators in Alberta will, as a sector, bear the burden of the Regulations when they come into force in 2015.
Leanne Krawchuk is a partner at Fraser Milner Casgran LLP.