This issue of the Energy Regulation Quarterly (ERQ) comes at a time when Canada is facing a real prospect that the country will not meet its carbon reduction goals. Canada is not unique. Most counties are behind.

To meet the carbon goals most countries face a significant upgrade and expansion of their electricity grid. That leads to two major problems. First, there will be a significant increase in spending on new generation, distribution and transmission assets. Second, many of those assets involve new and untested technology. If they fail there will be further cost implications and delays.

To meet this challenge the federal government in Canada is making new and significant regulatory changes This issue of the ERQ looks at four of these: new tax credits, new clean energy regulations and new investment in small nuclear and offshore wind.

New Federal Energy Policy

New Tax Credits

On August 4, 2023 draft legislation with respect to a new Clean Technology Investment Tax Credit was announced by the federal government. It is reviewed in detail in an article in this issue of the ERQ by Colena Der, Jake Sadikman and Edward Rowe of the Osler law firm.

The 30 per cent tax credit applies to certain types of eligible property including zero emission electricity generation technologies like solar, wind, small hydro, small nuclear reactors and electric storage systems that do not use fossil fuels in their operations.

To be eligible the property must be new equipment situated in Canada and intended for use exclusively in Canada. The credit is available for eligible property acquired on or after March 28, 2023. The property is considered to be “acquired” when it is available for use. The credit will be available for ten years.

New Clean Electricity Regulations

On August 10, 2023, less than a week after the federal government announced the draft legislation on the new tax credits, the government issued draft new Clean Electricity Regulations. The proposed Regulations are reviewed in this issue of the ERQ by Dufferin Harper of the Blakes law firm in Toronto.

The Regulations establish strict GHG emission performance standards that will apply to electricity generated by fossil fuel within Canada. As of January 1, 2025 the Regulations will apply to any electrical generating unit or EGU that meets the following three conditions:

  1. The EGU has an electricity generation capacity of 25 MW or greater.
  2. The EGU generates electricity using fossil fuel.
  3. The EGU is connected to an electricity system that is subject to the North American Electricity Reliability Corporation or NERC standard.

An EGU that exports more electricity onto an electricity system, subject to NERC, than it imports from a system, subject to NERC, during a calendar year is subject to an average annual emissions intensity performance standard of 30 tonnes of CO2 per GWh. As of January 1, 2035 the Performance Standard will apply to:

  1. An EGU that burns coal or petroleum coke.
  2. An EGU commissioned after January 1, 2025.
  3. An EGU that has increased its electricity generation capacity by 10 per cent or more since the registration of the EGU.

The article by Dufferin Harper considers the terms and conditions of the new legislation in greater detail but it is safe to say there will be mixed reactions. The Regulations are open for comments until November 2, 2023.

Small Nuclear

The next article that considers the scope of federal efforts to develop renewable energy in Canada is the article by John Richards and Christopher Mabry of Simon Fraser University in British Columbia. It is called “Power When You Need It: The Case for Small Nuclear Reactors.”

Small nuclear reactors are nuclear reactors to produce less than 30 MW of electricity. They are much smaller than traditional nuclear plants which generally produce more than 800 MW. They are also cheaper to build and scalable which means they can target specific industrial requirements as well the requirements of remote communities.

Three Provinces, Ontario, Saskatchewan, and New Brunswick have been active in this initiative since 2019. Alberta joined the development process in April 2021. SMRs will qualify for the tax credits mentioned above in the future but over the last three years federal funding has been key.

The first project to go online is the project located at Darlington, Ontario where the federal Infrastructure Bank is investing $970 million. That facility is expected be in service by 2028. The next project will be the Saskatchewan project which is being backed by $74 million in federal government funding. Following that is another SMR design being developed at the New Brunswick Power nuclear plant located at Point Lapreau, NB. That facility is forecasted to be operational by 2030.

Nuclear technology is complex but Canada has a long-standing highly regarded skill in the technology. To date only the provinces of Ontario and New Brunswick have relied on nuclear to produce electricity. That is about to change as pointed out in the Richards Mabry article. That article which is based on a larger study by the CD Howe institute in Toronto offers a detailed analysis of the costs and benefits of this important new technology.

Offshore Wind

The last of the four areas where the federal government has recently taken strides to develop renewable energy involves offshore wind in the Atlantic Ocean. Canada has been slow to develop offshore wind. Ontario started a project to develop offshore wind in Lake Ontario ten years ago but shut it down after two years only to face a multimillion-dollar claim under NAFTA.

The Atlantic coast is more complicated than Lake Ontario because there is international, national, and provincial jurisdiction. The solution to this problem was less dependent on money then it was on changing the regulatory framework.

On May 30, 2023 the Canadian government introduced Bill C-49 to amend the Canada Newfoundland and Labrador Atlantic Accord and the Canada-Nova Scotia Offshore Petroleum Resources Accord. The amended legislation established a framework for the development and regulation of offshore projects that expands regulation of current petroleum projects and clarifies jurisdictional rules regarding domestic boundaries.

Under Bill C-49 regulatory authority for offshore wind power is granted to two existing jointly managed offshore boards that are currently exclusively responsible for regulating offshore oil and gas projects. Two new boards have been created, the Canada Nova Scotia Offshore Energy Regulator and the Canada Newfoundland and Labrador Offshore Energy Regulator. These two regulators have the power to govern all aspects of renewable energy activities including safety, environmental protection, decommissioning and royalties. The regulators can also conduct environmental assessments, public hearings and dispute resolution programs.

Bill C-49 also includes a series of broader changes to environmental jurisdictional and the enforcement aspects of the existing legislation. While Bill C-49 has yet to be adopted, Nova Scotia has already set a target of issuing 5 GW of licenses for offshore wind by 2030 with the stated aim to encourage green hydrogen production. Leasing under this scheme is expected to commence in 2025.

In connection with this initiative the Nova Scotia government on June 14, 2023 issued the first version of the Nova Scotia onshore roadmap which outlines the province’s vision for the offshore wind industry.

The article in this issue of the ERQ that addresses these offshore wind projects is written by five authors from the McCarthy law firm in Montreal: Dominique Amyot-Bilodeau, Louis-Nicolas Boulanger, Elena Sophie Drouin, Kimberly Howard, and Jacob Stone. It is worth careful reading. This could become a very important industry in Canada.

The Provinces

Ontario and British Columbia have recently been active in promoting renewable energy.

Ontario teamed up with the federal government and spent millions of dollars developing two plants to produce lithium batteries that would underwrite the province’s plans to develop electric vehicles.

More recently, Ontario teamed up with Québec in a very innovative agreement to swap energy that will reduce the demand on both of their systems. The provinces electricity operators, the Independent Electricity System Operator in Ontario and Hydro-Québec have agreed to trade up to 600 MW of energy each year.

The agreement makes sense because the majority of electricity from both provinces comes from renewable energy — nuclear in the case of Ontario and hydroelectric power in case of Québec. The trade also works because Ontario and Québec have different energy peaks. The Ontario energy demand peaks in the summer driven by air conditioning while Québec energy demand peaks in the winter driven by electric heating on cold days. The deal will last 10 years with reviews taking place throughout that period to modify the amounts traded if necessary.

British Columbia has a long history of leading the charge when it comes to renewable energy driven by the province’s aggressive energy goals and the ability to use the market power and technology of the province-owned British Columbia Electric Hydro & Power Authority.

British Columbia has recently taken steps to refine and develop a new regulatory regime for energy regulation which also involves new liabilities and wider jurisdiction. This is set out in an article in this issue of the ERQ by Sasa Jarvis, Ralph Cuervo-Lorens, Sean Ralph, and Jordan Ghag of the McMillan law firm.

On November 24, 2022 the British Columbia Energy Statutes Amendment Act was enacted by the provincial government to establish a comprehensive regulatory regime beyond oil and gas to “energy resources” which include hydrogen, petroleum, natural gas, methanol, and ammonia. The legislation expands the scope of the regulatory regime of the Oil and Gas Commission, changes its name to the British Columbia Energy Regulator and introduces new potential liability for responsible persons.

One key amendment is the purpose of the Energy Resource Activities Act. The purpose will be revised to expand the regulator’s mandate to regulate energy resource activities in a manner that protects public safety and the environment, supports reconciliation with Indigenous Peoples and the transition to low-carbon energy, conserves energy resources, fosters a sound economy and social well-being.

It is worth noting the Ontario government is currently reviewing the objectives of its energy legislation that defines the role of the Ontario Energy Board. In the energy regulation world, the objects or purpose set out in the legislation defines the tribunals jurisdiction. It will not be surprising if the Ontario amendments resemble those that have recently been enacted in British Columbia.

The new British Columbia legislation also sets out in some detail new liabilities for principles and/or responsible persons engaged in oil and gas or storage activities and prescribed energy resource activities.

As explained in the article by Sasa Jarvis et al., these amendments will impose significant new liabilities on the board of directors of energy corporations operating in the province.

International Policy Developments

The last article in this issue of the ERQ addresses an important international policy known as the carbon border adjustment. In particular it deals with the European Union’s new carbon border adjustment mechanism which was signed into law on May 10, 2023 which is substantially the same as the EU’s original draft published in July 2021. The article is by Neil Campbell, Talia Gordner, Lisa Page, and Adelaide Egan of the McMillan law firm in Toronto.

As countries around the world come closer to the deadline for net zero greater attention will turn to carbon border adjustments. The world can not achieve the net zero goal without some form of international regulation that creates the necessary incentives to make sure that all countries are aligned in this commitment. Sooner or later the Canadian government will have to face this issue. The article presents a very careful and helpful analysis of a complicated policy issue.

The Chairs Interview

This issue of the ERQ also includes an interview with the Chair of the British Columbia Utilities Commission, David Morton and the Vice Chair, Anna Fung. This interview was in fact carried out by the Ivey Energy Policy and Management Centre at the University of Western Ontario. It was originally published by the Centre two years ago. It is important today because of the growing interest in defining the role of the Utility Regulator in the massive energy transition that all Canadian provinces are facing.

The Iver Report notes that energy policy usually tries to balance three imperatives, affordability for consumers, reliability and security of supply. The Ivey Institute asked how an economic regulator like the BCUC deals with these three pillars of energy policy. The response in the article is worth reading.


Leave a Reply