United States: Recent And Proposed Regulatory Changes In The Canadian GHG Emissions Landscape

Last Updated: July 2 2018
Article by John C. Goetz

Just days after the EPA announced its Clean Power Plan to reduce emissions from the power sector by 30 percent, the government of Canada announced a proposed Air Pollutants Regulation aimed at significantly lowering smog levels and improving air quality by reducing nitrogen oxide (NOx), sulfur dioxide (SO2), volatile organic compounds, ammonia and particulate matter emissions. The government of Canada estimates that these regulations will reduce GHG emissions (NOx) by 3.4 million metric tons between 2013 and 2035. The first phase of the regulations will cover industrial boilers and heaters, stationary engines such as those used for gas compression and the cement manufacturing sector. Like its US counterpart, Environment Canada is pointing to health benefits to be achieved through these regulations and projecting net health benefits totaling C$9 billion between 2013 and 2035. Canada introduced regulations in 2012 to reduce emissions from coal-fired generation plants by setting a new performance standard for generation plants and plants that had reached the end of their useful life, fixed at 420 metric tons of carbon dioxide per gigawatt hour (CO2/GWh). This effectively requires plants at the end of their lives to install carbon capture and sequestration (CCS) mechanisms or cease operations. This year, the province of Ontario became the first jurisdiction in North America to eliminate coal as a source of electricity. In 2003, coal produced 25 percent of Ontario's electricity. It now uses a mix of nuclear, hydro, renewable and cleaner burning natural gas and biofuels.

Changes are occurring in the GHG emissions regulatory landscape in Canada, principally in Alberta and Quebec. Alberta's GHG Emissions Regulation is due to expire on September 1 of this year and is expected to either be renewed in an amended form prior to that date or extended on a temporary basis until a new leader/premier is selected by the governing Progressive Conservative party. The province was considering increasing both its emission reduction targets and its carbon price by implementing a "double-double" plan that involved doubling the price of its government issued compliance credits from C$15 to C$30 per metric ton and doubling the emission intensity reduction requirement from 12 percent to 24 percent. These combined changes would have doubled the volume of annual reductions required from approximately nine million to 18 million metric tons and quadrupled the annual compliance costs for regulated emitters from approximately C$135 million to C$540 million. However, Alberta Energy Minister Robin Campbell was quoted in mid-June as saying that the province is not looking to increase its emissions reduction targets. It is not clear at this time whether or not the province will increase its price per metric ton, but it is beginning to seem less and less likely that the province will be making significant changes. Minister Campbell also indicated that the province hoped to have its new GHG emissions program released in October, which indicates that a temporary extension to the existing regulation is likely.

Emitters have spent more than C$800 million on emission offsets, performance credits and allowances since the regulation was introduced in 2007, but Alberta does not appear to be on track to meet its 2020 target of 15 percent below 2005 intensity levels or its 2050 target of 200 million metric tons (50 percent below projected business as usual or 14 percent less than 2005 levels). Due to its reliance on coal-fired generation and the growth of its oil sands sector, Alberta's GHG emissions are projected to nearly double by 2050 unless effective emission reductions are achieved.

Approximately 70 percent of the planned reductions are projected to come through CCS projects, but only two such projects are proceeding at this time, with estimated combined sequestration capacity of approximately two million metric tons of CO2 annually (1.5 percent of the 2050 CCS target). With a few exceptions, CCS is not proving to be economically viable using currently available technologies due to the high cost of capturing CO2 from power plants and the low price of carbon. As of 2012, Alberta has achieved about one-third of its annual emission reduction target for 2020.

The lack of meaningful progress on emission reductions has environmental critics around the globe pointing fingers at Alberta's growing emissions and calling for a shutdown of oil sands production. According to Environment Canada, Alberta's annual GHG emissions increased by approximately seven percent between 2005 and 2011 and are projected to increase by about 21 percent between 2005 and 2020, largely due to increasing population, increasing economic activity and a near tripling in oil sands production. These projections are based on existing government programs and technologies, which could change in the coming years and have a material impact on emissions. It will be interesting to see what changes Alberta makes in its revised emissions regulation.

Elsewhere in Canada, the province of Quebec completed its third GHG allowances auction on May 27, marking the first auction in which all available 2014 vintage allowances were sold. Previous auctions in December 2013 and March 2014 sold 34 percent and 98.6 percent of available 2014 allowances, respectively. The allowances continued to sell at the floor price of C$11.39 per unit; 85 percent of the 1,527,000 available 2017 vintage units were also sold at the floor price. California and Quebec announced that they will be holding their first joint auction in November and conducting a practice joint auction in August.

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