Advocacy

March 18, 2024

Official submission in response to the Clean Electricity Regulations Public Update: “What We Heard” report

The Honourable Steven Guilbeault, P.C., M.P.
Minister of Environment and Climate Change
229 Wellington Street
Ottawa, Ontario, K1A 0A6

Dear Minister Guilbeault,

We are pleased to comment on the Ministry of Environment and Climate Change Canada’s (ECCC) recent Clean Electricity Regulations Public Update: ‘What We Heard’ during consultations and directions being considered for the final regulations report (hereafter, the “What We Heard” report, or just “the report”) released on February 16, 2024.

The BCA is a non-partisan, non-profit organization composed of the chief executives and leading entrepreneurs of Alberta’s largest enterprises. Our members represent the majority of Alberta’s private sector investment, job creation, exports, and research and development. We are dedicated to building a better and more prosperous Alberta within a strong Canada.

BCA and its membership recognize deep emissions reductions in the electricity sector are a critical step toward Canada achieving its 2050 net zero target. But as our recent submission to ECCC states, Alberta’s unique geography and history, including: its lack of hydroelectric capacity; its historical access to cheap and abundant fossil fuels; and its energy-intensive economic composition together create unique challenges to achieving the affordable, reliable, and low-carbon grid envisioned in the Canada Gazette 1 (CG1) draft Clean Electricity Regulations (CER)—especially compared to provinces like BC, Quebec, Ontario, and Manitoba. Moreover, the CG1 regulations placed on Alberta a disproportionate share of the affordability and business competitiveness challenges inherent in the drive to a net-zero grid.

We are pleased to see the “What We Heard” report take several steps toward recognizing that more flexibility for unit operators is needed to ensure system-level reliability and affordability. In theory, many of the changes recognize the role that thermal baseload and dispatchable technologies play in creating grid reliability in Alberta. The changes represent a step away from a one-size-fits-all solution and movement toward recognizing Alberta’s unique electricity market and generation profile.

However, the report lacks important details that are needed to fully understand the impacts of its suggested changes; and some problematic elements within the CG1 draft regulations remain unaddressed. We outline these concerns in the Appendix attached to this letter.

Above all, the proposed modifications represent a fundamental change in approach of regulatory design from CG1, so much so that we believe it would be imprudent to proceed immediately to final regulations in Canada Gazette, Part II (CG2) without re-releasing another round of draft regulations (a new CG1) for industry review and comment.

Thank you for the opportunity to provide input on the “What We Heard” report. We look forward to working collaboratively with the Ministry to craft policy that drives down emissions in Alberta’s electricity sector while preserving the province’s economic competitiveness.

Sincerely,

Adam Legge

President

Cc:  Hon. Jonathan Wilkinson, Minister of Energy and Natural Resources
Jean-François Tremblay, Deputy Minister of Environment and Climate Change
Michael Vandergrift, Deputy Minister of Natural Resources
Paul Halucha, Deputy Secretary to the Cabinet (Clean Growth)
Jamie Kippen, Chief of Staff, Environment and Climate Change
Kyle Harrietha, Chief of Staff, Energy and Natural Resources

Appendix: Official submission of the Business Council of Alberta in response to the CER “What We Heard” report

BCA’s comments on the “What We Heard” report are organized into three broad categories: observations regarding several of the proposed changes outlined in the report; thoughts on matters the report left unaddressed; and suggested recommendations and next steps for the federal government.

Comments on the Report’s Proposed Changes

In general, BCA is pleased to see that many of the changes being considered by ECCC create more compliance and system management flexibility for unit owners and system operators. In theory, the suite of proposed changes better recognizes the capacity of different technologies and primary energy sources to contribute to the stability of the grid. This is particularly important in Alberta where our access to local, affordable fossil fuels and our industrial economic base have led to the buildout of predominantly thermal powered legacy generation infrastructure.

However, there are many unanswered questions and missing details in the report that limit our ability to comment substantively on the proposed changes to the CER. These are highlighted below:

Change #1: Proposed Approach to Emissions Limits
  • Proposed switch from a uniformly-applied, emissions-intensity-based performance standard, to a unit-specific annual emissions limit:
    • We are unable to assess the unit-specific emissions limit formula without understanding the proposed emissions-intensity performance standard value.
    • We are concerned that administering a unit-specific limit will be administratively inefficient and expensive relative to relying on carbon pricing.
    • We are unable to determine how the unit-specific limit fits within a broader regulatory framework, and how this will change fundamental assumptions in the Regulatory Impact Analysis Statement (RIAS).

  • Potential adjustment to the performance standard:
    • Making adjustments to the CG1 intensity-based performance standard solely based on load-following considerations does not account for all the real-world conditions impacting the performance of carbon capture systems on natural gas fired units. No large, combined cycle natural gas units operating on a steady-state basis have met the CG1 performance standard to-date.
    • If a per-unit annual emissions limit is applied, the intensity-based performance standard should be set at a level a CCS manufacturer would be willing to contractually guarantee to a natural gas operator in real world conditions. For natural gas fired units providing baseload power, this is likely closer to an 80-85% carbon capture rate.

  • Proposed compliance flexibility through offsets:
    • Critical details on how offsets will work are yet to be outlined, including the level of offset remissions permitted.
    • While not directly related to offset remissions, we are missing clear guidance in the report about how fuels like renewable natural gas (RNG) and hydrogen (H2) will enable unit operator compliance since the transport of such fuels are often delivered through common carrier pipelines. More discussion with industry is needed.

  • Proposed compliance flexibility through pooling:
    • Critical details on how pooling will work are yet to be outlined, including: whether/how the benefits of pooling can be shared between multiple unit owners; whether pooling makes sense in Alberta given the administrative difference facing Alberta’s system operator and the competitive implications for the many participants generating Alberta’s market; and whether offsets can be remitted for a pooled group of units.
    • These and other critical details should be discussed with electricity sector stakeholders and with the Alberta Electricity System Operator well in advance of the release of finalized regulations.

  • Proposed changes to the 450-hour peaker provisions:
    • The treatment of peaker plants in the report remains vague. Without more detail, critical capital investment into peakers is unlikely to be made. This, in turn, may impact investment in renewables, which require the dispatchable power that peakers provide to contribute to system reliability.
Change #2: Possible extension to the End-of-Prescribed-Life (EoPL) provision
  • While BCA is pleased to see ECCC consider extending the EoPL provision, to avoid stranding assets, the EoPL should be extended into an end-of-technical-life provision (or 2050, whichever is earliest).
  • This is particularly important given the recent US Environmental Protection Agency (EPA) announcement that removes existing natural gas units from their proposed emission standards for fossil fuel-fired plants.
Change #3: Possible extension of the unit commissioning date
  • To protect units currently advancing through the investment and planning cycle, the commissioning date for new natural gas-fired units (after which the emissions limit applies by 2035) should be moved to December 31, 2026 at the earliest; and the EoPL for these units should extended into an end-of-technical-life provision that is trimmed on the back-end only if this provision would extend the asset’s life beyond Canada’s 2050 net-zero target.
  • Adjusting this commissioning date is even more important in light of the US EPA’s proposed electricity power plant carbon rules that, under the previous proposed version, had a commissioning date of 2030 for new natural gas-fired units. The latest proposal will exempt natural gas-fired units from the rule altogether.
Change #4: Proposed changes to the emergency declaration provisions
  • While BCA is pleased to see ECCC grant independent system operators unilateral power to declare time-limited emergencies without Ministerial interference, we cannot provide constructive comment without knowing how long this period will be.
  • For renewals of emergency declarations, the Minister should automatically recognize system operator-declared emergencies if they fit the definition of a North American Electric Reliability Corporation level 1, 2, or 3 Energy Emergency Alert.
Treatment of Cogeneration

While BCA is pleased to see progress on the issues discussed above (pending more details), we remain concerned about the report’s treatment of cogeneration for the following reasons:

  • Discouraging exported behind-the-fence power will create unintended consequences for Alberta’s heavy industry, grid stability, and absolute emissions.
  • While we support the differentiation of behind-the-fence power emissions versus those tied to grid power exports, we are skeptical that this differentiation is as straightforward as it is presented—especially for oil and gas cogeneration unit operators, who are also subject to Alberta’s carbon pricing framework, a future sector emissions cap, and more.
  • A “time-limited” exemption for existing cogeneration is not sufficient. All existing cogeneration should be exempt from the regulations since it is already subject to Alberta’s carbon pricing framework.

To provide meaningful comments on all the changes presented above, businesses need a complete picture of how the various puzzle pieces presented in this report will fit together to form an overarching regulatory framework. As is, the proposed changes represent a fundamental re-think of the initial CG1 regulatory design; and the yet-to-be disclosed technical details create further knowledge gaps.

Matters Left Unaddressed in the “What We Heard” Report

BCA’s official submission on the CG1 draft regulations highlighted significant overarching concerns that, if left unaddressed, will continue to seed doubt in the CER’s ability to achieve an affordable, reliable, and clean grid. These concerns remain. They include the following:

  • BCA members lack confidence in the RIAS and many of the assumptions therein.
  • The policy approach continues to favour provinces with baked-in geographic and legacy infrastructure advantages (i.e., hydroelectric potential and legacy nuclear buildout) while provinces like Alberta disproportionately bear CER compliance costs and face affordability and economic competitive disadvantages.
  • The affordability and reliability of a clean grid in Alberta relies on having commercially available, scalable, and technologically feasible options for clean baseload and dispatchable power that do not currently exist or that aren’t yet economically viable at the scale required.
  • A series of non-CER related obstacles remain—such as slow project review and permitting processes stacked on top of multi-year-long capital allocation decisions involving carefully costed project design, engineering, and execution phases; and a lack of sufficient federal fiscal supports—before buildout can commence in earnest.

Recommendations and Proposed Next Steps

While many of its proposed changes are positive steps toward a workable CER, the “What We Heard” report represents a dramatic shift in approach compared the regulatory structure first proposed in CG1. Many critical technical details remain open for feedback; and several overarching considerations that created pause for BCA members from CG1 have not been addressed. In keeping with the Treasury Board Secretariat’s Policy on Regulatory Transparency and Accountability and the 2024 Guide to Regulatory Development and RIAS Writing section 3.3.7.1.1., these factors together can only be properly understood in the context of a re-drafted regulatory framework open for public and stakeholder input.

Recommendation:

  • ECCC should re-release a new draft of the comprehensive proposed regulatory framework through CG1 for another 60-day comment period before proceeding to the competed regulations in CG2. As with the regulations presented in the original CG1, this process should also include a fully recalculated Regulatory Impact Analysis Statement that addresses the deficiencies BCA highlighted at that time.

Concluding Remarks

BCA supports the federal government’s goal of achieving deep decarbonization in the electricity sector. We also acknowledge that the “What We Heard” report proposes significant changes to the CG1 draft CER regulations that explicitly respond to many of the concerns we have addressed earlier.  

However, in the interest of getting these regulations right, and given the significant changes outlined in the “What We Heard” report, it would be prudent for the federal government to revisit its implementation timeline and publish a redrafted CG1 version of the CER before proceeding to CG2. Doing so will allow stakeholders the time to properly assess and comment on a specific, detailed regulatory framework before it is set in stone.  

We look forward to working collaboratively with ECCC to advance a low-carbon grid on a reasonable timeline and without creating undue impacts on power affordability, economic competitiveness, and grid reliability. BCA would be pleased to play a convenor role to support this effort: bringing the technical expertise of our membership together with ECCC experts as the department continues to work towards a finalized CER.

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