Editorials

Editorial

Author:  * | April 2025 – Volume 13, Issue 1, 2025

EDITORS’ NOTE

It has been the practice since the launch of Energy Regulation Quarterly in 2013 to focus the Editorial in the first issue of each year on developments in Canadian energy regulation during the preceding calendar year. The incoming Managing Editors of ERQ have not participated in preparing the following 2024 Year in Review; as the Managing Editor for this issue, I bear sole responsibility for its content.

It has been a privilege to serve as one of the Managing Editors of ERQ. I wish to thank the many supporters who have contributed to the journal over more than a decade.

I wish to acknowledge the support throughout of the Canadian Gas Association as publisher. In particular, the Association’s President and CEO, Tim Egan, has been unwavering in his commitment to ERQ, while always strictly respecting its editorial independence.

2024 YEAR IN REVIEW

Canadian energy policy and regulation in 2024 were fraught with tension — particularly the tension between the pursuit of “net-zero”, on the one hand, and, on the other, the reality of increasing reliance on fossil fuels, specifically oil and gas. While governments and regulators (and, perhaps less obviously, industry) pursue measures directed towards the goal of net-zero, in fact Canadian hydrocarbon production increased during the year and, indeed, is forecast to continue growing significantly for several more years.[1]

Major projects that would further expand production of both oil and gas are in active development. It was reported in November that Enbridge Gas Inc. was considering expanding its Mainline pipeline system by late 2026 and in the first week of 2025 the Alberta Premier announced that the province had signed a letter of intent with Enbridge to “explore Alberta’s production and egress capacity.”[2] The government, she added, was in discussions with other oil companies “about doubling production.” It was reported in mid-December that three oilsands majors planned to increase output in 2025 even in the face of the possibility of tariffs being imposed by the incoming administration of President-elect Donald Trump.[3]

These two paths often appear to be at odds, presenting a form of cognitive dissonance that begs for a resolution and that will likely continue to engage the federal and provincial governments, energy policy-makers and regulators well into the future. Developments throughout 2024 attested to the reality of this dichotomy and illustrated the challenges that it presents.

By the close of the year, however, political developments in both Canada and the United States presaged the two immediate preoccupations of energy policy and regulation as 2025 unfolds. By the time this Issue of Energy Regulation Quarterly (ERQ) is posted, Canada is likely to be in the midst or on the verge of an election that will likely result in the repeal or replacement of the federal carbon tax. By that time, there may also be at least some clarification of President Donald Trump’s proposed tariffs on imports into the United States from Canada of a wide array of goods and commodities, including energy. Canada is by far the biggest supplier of energy imported into the United States, including oil, gas and electricity. The United States Energy Information Administration reported that imports of crude oil into the United States from Canada reached a new record of 4.3 million barrels per day in July 2024.[4] Crude oil is Canada’s largest source of export revenue.

FEDERAL-PROVINCIAL TENSIONS

Federal-provincial tension flared into open hostility with the tabling on November 4, 2024 of draft regulations to implement the federal government’s proposed “oil and gas greenhouse gas (GHG) pollution cap.”[5] The cap, the government said, would put the oil and gas sector “on a pathway to carbon neutrality by 2050, while enabling it to continue to respond to global demand.”[6]

The proposed Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations[7] and proposed Regulations Amending the Output-Based Pricing System Regulations[8] would be promulgated under the Canadian Environmental Protection Act, 1999[9]. The cap level for the first compliance period of 2030-2032 would be set at 27 per cent below emissions reported by operators for 2026, which the federal government estimates to be equivalent to 35 per cent below 2019 emissions. Emissions allowances allocated to facilities covered by the system would be tradeable.

The federal government claims that the proposed Regulations would impose “a limit on pollution, not production”[10] and that they have been “carefully designed around what is technically achievable…while enabling continued production growth in response to global demand.”[11]

Alberta outright rejected the claim. The province insists that the federal  scheme is in reality a cap on production and, as such, is a direct incursion into provincial, constitutionally-protected authority with respect to the management of the province’s natural resources. Premier Danielle Smith, fresh off endorsement of her leadership by 91.5 per cent of the membership of the United Conservative Party just two days prior to the release of the draft regulations, accused the federal government of having a “deranged vendetta against Alberta.”[12] She was quoted as likening the Prime Minister to the “bad renter who wrecks the furniture”[13] on the way out. The Premier said her government would seek to launch a legal challenge “as soon as possible” and would use the Sovereignty Within a United Canada Act[14] to protect the province’s interests.

Industry weighed in, running full page newspaper ads damning the federal proposal as “short-sighted and punitive.”[15]

Alberta’s legal challenges of federal initiatives are not, however, confined to its proposed challenge of the federal cap on emissions from the oil and gas sector. In June 2024, extensive amendments to the federal Impact Assessment Act[16] (IAA) became law. The amendments were aimed principally at addressing the 2023 ruling by the Supreme Court of Canada that large parts of the IAA were unconstitutional.[17]

In a letter from the Premier of Alberta to the Prime Minister, dated October 3, 2024, the province rejected the amendments as not addressing “Alberta’s concerns with the IAA nor do they adequately address the Supreme Court of Canada’s ruling.”[18] The Premier’s letter attached proposed amendments that “would be necessary to address [the province’s] ongoing concerns.”[19] The letter stated that if the province did not receive a “satisfactory response,”[20] in writing, within four weeks, it intended “to bring a further legal challenge.”[21] On November 28, the Premier announced that federal government had not amended the IAA as the province had requested and that the province had asked the Alberta Court of Appeal to rule on the constitutionality of the Act.

Rounding out a trifecta of proposed legal challenges, Premier Smith announced on October 29 that the province had filed an application in the Federal Court for judicial review of the federal government’s tax exemption from the carbon tax on heating oil, arguing that the exemption “is unconstitutional and inconsistent with the Government of Canada’s stated purpose for enacting the Greenhouse Pollution Pricing Act.”[22]

On December 17, yet another potential Alberta legal challenge of federal initiatives directed to the goal of net-zero emerged in the wake of the release of the finalized Clean Electricity Regulations.[23] Most significantly, the previously-proposed federal target of net-zero by 2035 has been postponed to 2050, as had been vigorously promoted by Alberta (and others). On the same day, the Premier, jointly with two of her Ministers, issued a statement stating that they were “gratified to see Ottawa finally admit that the Government of Alberta’s plan to achieve a carbon neutral power grid by 2050 is a more responsible, affordable and realistic target.”[24] However, the joint statement added that the federal regulations “remain entirely unconstitutional. [They impose] unreasonable and unattainable federally mandated interim targets beginning in 2035 that will still make electricity unaffordable for Canadian families. Alberta will therefore be preparing an immediate court challenge of these electricity regulations that we fully expect to win.”[25]

The tension between Alberta and Ottawa over energy appears to have intensified during the year to a level of acrimony that may rival the province’s challenge in the early 1980s of the federal National Energy Program — a challenge that, it may be well to remember, was resolved largely in the province’s favour.

In the meantime, a welcome sign of cooperation between industry and a federal agency to support a proposed $16 billion carbon capture and storage project came with the announcement of financial backing by the Canada Growth Fund. The Pathways Alliance comprises six producers representing 95 per cent of oil sands production and has pledged to reduce gas emissions from oil sands production to net zero by 2050. The Canada Growth Fund was incorporated in 2022 as a subsidiary of the Canada Development Investment Corporation “to support the growth of Canada’s clean economy.”[26] The Pathways Alliance is not without controversy, however. Environmental and Indigenous groups requested that the Alberta Energy Regulator (AER) require an environmental impact assessment of the project. In November, the AER determined that an assessment for the project would not be required. Eight First Nations then announced that they would request a review under the federal Impact Assessment Act.[27] As the new year arrived, commentators were suggesting that political uncertainty at the federal level was also threatening the Pathways Alliance project as it was unclear whether a new government would be supportive.

TMX BEGINS SERVICE

In the wake of the defeat of several major pipeline projects in recent years by a combination of political, regulatory and market challenges, completion of the expansion of the Trans Mountain Expanded Pipeline System (TMX) and commencement of service on the expanded system in May[28] came as welcome news for Canadian oil producers. TMX has nearly tripled the capacity of Trans Mountain, to approximately 890,000 bpd, thereby easing a shortfall of oil pipeline export capacity in Canada — a shortfall that has resulted in Canadian oil being sold at a substantial discount to West Texas Intermediate. Going forward, this differential is expected to narrow further, resulting in increased income for producers — and increased royalties for government.

Concerns that the commissioning of TMX might negatively affect flows on Enbridge’s Mainline system (the largest crude oil pipeline system in North America) were allayed when it was reported in November that the Mainline had been in apportionment (with capacity being rationed) in July and August and was expected to be apportioned again in November. Further, Enbridge reported that it was in discussion with shippers over expanding the Mainline in 2026 and beyond in order to handle growing volumes from Canadian producers.[29] In light of the opposition that Canadian pipeline projects have encountered in recent years, the regulatory review of any such expansion may prove to be controversial.

After the November election of Donald Trump as the incoming President of the United States, the Alberta Minister of Energy was also reported to be hopeful that the Keystone XL project might be resurrected, but it was reported that TC Energy, the project sponsor, would not revive the project.[30]

The completion of TMX certainly came at a cost, however; the final outlay for the project was $34.2 billion, more than quadruple the original estimated cost of $7.4 billion. Late in the year, the Parliamentary Budget Office told the House of Commons that Ottawa was likely to lose money on an eventual sale of the project.

Trans Mountain now faces a regulatory challenge as it seeks approval from the Canada Energy Regulator (CER) of its proposed tolls. The CER hearing on Trans Mountain’s application for approval of its tolls (which is being strongly opposed by some interests) is scheduled for May, 2025.[31]

The potential for future growth in Canada’s offshore oil production also reemerged in 2024, with reports that work on developing the proposed Bay du Nord Project (BDN) was proceeding. BDN is a proposed development by Equinor Canada[32] in the Flemish Pass, more than 200 nautical miles offshore from Newfoundland and Labrador. The project was approved, somewhat controversially, by the federal government in 2022.[33] In May 2023, the project developer announced that it was postponing the project for up to three years, due to “changing market conditions and subsequent high cost inflation…”[34] In June 2024, however, Equinor Canada’s CEO was quoted as saying he remained optimistic about the project and that the company was “actively working to look at everything we can to improve the project.”[35] Exploratory drilling offshore from Newfoundland and Labrador is continuing.[36]

LNG PROJECTS ADVANCE

While further growth in Canadian oil production and firmer prices were foreshadowed by developments during 2024, natural gas producers on the other hand continued to face depressed prices. At the same time, production reached record levels. However, a glimmer of optimism (although not shared by all producers) began to appear towards the end of the year in anticipation of the completion and startup in 2025 of the LNG Canada Project, near Kitimat, B.C. LNG Canada will be Canada’s first LNG export project. As with TMX, the project had overcome significant regulatory hurdles and protests along the way, particularly around Coastal GasLink, a TC Energy project promoted as the “first direct path for Canadian natural gas to global LNG markets.”[37]

Meanwhile, two other LNG projects on the West Coast continued to advance during the year. Woodfibre LNG, owned by a partnership of Pacific Energy Corporation (Canada) Limited (70 per cent) and Enbridge Inc. (30 per cent) is located on Howe Sound. Construction began in the fall of 2023 and substantial completion is expected by 2027. It is designed to produce 2.1 million tonnes of LNG per year for overseas markets. It claims to be “the world’s first net zero LNG export facility.”[38]

Woodfibre LNG is also notable for its emphasis on constructing and operating the project “in a manner that is respectful of Indigenous values.”[39] The project claims to be “the first industrial project in Canada to recognize a non-treaty Indigenous government, the Squamish Nation, as a full environmental regulator.”[40]

Further development of Canada’s emerging LNG export industry came during the year with the announcement on June 25, 2024 of a Final Investment Decision to proceed with the Cedar LNG Project.[41] Cedar LNG is a proposed floating facility with a nominal capacity of 3.3 million tonnes per year, located in the traditional territory of the Haisla Nation. The Haisla Nation is the majority owner (with Pembina Pipeline Corporation), making Cedar LNG the world’s first Indigenous majority-owned LNG project. It is expected to be one of the lowest emitting LNG facilities in the world, powered by renewable electricity supplied by BC Hydro. Construction is underway, with a projected in-service date in late 2028.

INDIGENOUS EQUITY

The increasing role of Indigenous equity participation in energy development projects and infrastructure ownership was also evident in other ways during the year. In a call for new clean electricity power in April, BC Hydro specified that projects must have a minimum percentage of equity ownership held by First Nations.[42] It noted that the Canada Infrastructure Bank would make loans available as an option for First Nations to help finance as much as 90 per cent of their equity position in any project that was awarded an electricity purchase agreement under the call for power. It was reported that the utility received proposals for three times more energy than it was targeting.[43]

In October, a vision statement issued by the Government of Ontario (discussed further below) noted that the Wataynikaneyap Power Transmission Project, which was expected to reach substantial completion by the end of the year, would be the largest Indigenous-led infrastructure project in Canada. The project is owned by 24 First Nation communities in partnership with Fortis Ontario and Algonquin Power & Utilities Corporation.

ONTARIO’S ENERGY VISION STATEMENT

The challenges posed by anticipated growth in Ontario’s power needs were outlined by the provincial government in its vision statement “Ontario’s Affordable Energy Future: The Pressing Case for More Power”[44], released on October 22. The statement notes the forecast of the province’s Independent Electricity System Operator that electricity demand will increase by 75 per cent, requiring 111TWh more energy by 2050, “the equivalent of four and a half cities of Toronto.”[45] In articulating a vision of “an economy powered by affordable, reliable and clean energy”, the statement emphasizes the need “to plan for electricity, natural gas and other fuels to ensure that the province’s energy needs are anticipated and met in a coordinated way.”[46]

Following the tabling of the vision statement, Bill 214 was introduced in the Legislative Assembly “to amend various energy statutes respecting long term energy planning, changes to the Distribution System Code and the Transmission System Code and electric vehicle charging.”[47] The amendments include adding a statement of purpose to the Electricity Act[48] “to promote electrification and facilitate energy efficiency measures aimed at using electricity to reduce overall emissions in Ontario.”[49] The amendments also replace long-term energy plans with “integrated energy resource plans…” The Affordable Energy Act, 2024[50] received Royal Assent on December 4, 2024.

Ontario’s vision statement is also noteworthy for its reference to an emerging additional demand for electricity from the proliferation of data centres — forecast to roughly equal by 2026 adding the demand of the city of Kingston to the grid. It added that the rise of artificial intelligence (AI) and the data centres that power advances in computing could also lead to significant increases in demand on energy grids.

In December, the Alberta government announced a strategy aimed at becoming “North America’s destination of choice for Artificial Intelligence (AI) data centre investment.”[51] The announcement noted that the AI data centre market size was anticipated to double by 2030 to more than $820 billion. Days later, entrepreneur Kevin O’leary announced that O’leary Ventures had signed a letter of intent to purchase land near Gran Prairie for a proposed AI data centre industrial park.[52] However, commentators noted that the rise of data centres in the burgeoning high-tech sector raised questions about the province’s grid.[53]

‘GREENWASHING’ AND ‘GREENHUSHING’

Most federal measures intended to pursue the goal of “net-zero” have been aimed at reducing carbon emissions more or less directly. In 2024, however, with the enactment of Bill C-59[54] amending the Competition Act,[55] the government expanded its arsenal for addressing climate change with a measure of a different character: Bill C-59 is aimed at greenwashing, “the process of conveying a false impression or misleading information about how a company’s products are environmentally sound.”[56]

The amendments prohibit representations for the purpose of promoting the supply or use of a product or any business interest that is not based on “an adequate and proper” test or substantiation, the proof of which lies on the person making the representation. Beginning in June 2025, private parties will be able to seek leave from the Competition Tribunal to commence enforcement proceedings.

On December 23, the Competition Bureau released further draft enforcement guidelines.[57] However, commentators suggested that the guidelines do not entirely resolve the ambiguity in the provisions.

There has been widespread concern expressed that the amendments have introduced considerable risk, particularly arising from industry’s claims with respect to its efforts to address climate change. There have also been reports of businesses deleting their websites due to the uncertainty around how the amendments will be interpreted and applied.[58] A new word has entered the lexicon — “greenhushing.”

Two Alberta business groups have filed a statement of claim in the Alberta Court of King’s Bench claiming that the provisions violate their freedom of speech rights.[59]

CHURCHILL FALLS

Significant energy policy and regulatory developments also transpired in Atlantic Canada during the year.

On December 12, the Premier of Newfoundland and Labrador and the Premier of Quebec announced the signing of a memorandum of understanding covering the purchase by Hydro Quebec of electricity from Churchill Falls, starting in 2025. The agreement will replace the 1969 contract that had been a source of resentment in Newfoundland and Labrador for more than five decades. Under that contract, which would have run until 2041, Hydro Quebec purchased electricity for 0.2 cents per kilowatt-hour, while selling surplus electricity to U.S. distributors at current market rates. Under the new agreement, Hydro Quebec will pay 30 times more for electricity from Churchill Falls. Hydro Quebec also acquires the right to partner with Newfoundland and Labrador Hydro on new hydro installations.

The MOU was approved by the Newfoundland and Labrador Legislature on January 9, 2025.

NOVA SCOTIA DEVELOPMENTS

The widespread changes in the policy, legislative and regulatory framework for energy being wrought by electrification and the pursuit of net-zero in some cases require an overall restructuring of that framework. Such was the case in Nova Scotia with the establishment during the year of a new Energy Board and a new Independent Energy System Operator (IESO), as was reviewed in the December Issue of ERQ. At year-end, recruitment of the chair and members of the Board of Directors of the IESO was underway.

A further significant development in Nova Scotia’s electricity market was the announcement in September of a further loan guarantee from Ottawa for $500 million to avoid what would otherwise have meant skyrocketing rates for customers of Nova Scotia Power. Due to delays in receiving power from the Muskrat Falls hydroelectric plant in Labrador and the consequent need to purchase power elsewhere, Nova Scotia Power was expected accumulate unrecovered fuel costs that were expected to grow to more than $400 million by the end of the year. Without the federal loan guarantee, the company expected its customers would face an average rate increase of 19.2 per cent. The loan guarantee would reduce that increase to an average of 2.4 per cent for 2025. On November 29, the Nova Scotia Utility and Review Board released its decision approving Nova Scotia Power’s application for approval of the agreement.[60]

OFFSHORE RENEWABLES

The continuing evolution of the energy regulatory framework was also reflected during the year with expansion of the authority of Canada’s two offshore petroleum boards. Federal Bill C-49, developed in partnership with the Government of Nova Scotia and the Government of Newfoundland and Labrador, amended the Canada–Newfoundland and Labrador Atlantic Accord Implementation Act[61] and the Canada–Nova Scotia Offshore Petroleum Resources Accord Implementation and Offshore Renewable Energy Management Act[62] to establish a joint regulatory framework for offshore renewable energy development. The amendments also changed the name of each of the two joint federal-provincial boards from “Offshore Petroleum Board” to “Offshore Energy Regulator.”[63] Corresponding changes at the provincial level followed, to maintain the framework of mirror federal-provincial legislation that supports implementation of the respective offshore Accords.[64]

LOOKING AHEAD

As noted in introducing this Annual Review, political developments in the closing weeks of 2024 in both Canada and the U.S. introduced two pressing issues that are likely to be the focus of energy policy and regulation in 2025. Canada’s carbon tax, if not outright abolished, is likely to be replaced, with attention focusing on any proposed replacement.

Potential U.S. tariffs on imported Canadian energy, and proposed Canadian responses, will dominate Canada-U.S. relations — and, indeed, may strain intergovernmental relations within the nation itself.

 

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