Production and use of clean fuels
Oil and gas
On 29 March 2022, the government of Canada (the federal government) delivered its 2030 Emissions Reduction Plan (the Plan). The Plan outlines current and new policies by the federal government to meet its greenhouse gas (GHG) reduction targets and, in some cases, associated funding. This article is the second in a three-part series that outlines certain strategies of the Plan (supplemented by the recent federal budget) to further Canada's transition toward a low carbon economy.(1)
Production and use of clean fuels
Low carbon intensity fuels have been a priority of the federal government for a number of years. Landmark initiatives such as the Clean Fuel Standard (CFS), the Hydrogen Strategy for Canada and the C$1.5 billion Clean Fuels Fund are pillars of Canada's strategy. While industry continues to respond to these opportunities, some other federal initiatives are identified as coming priorities on clean fuels:(2)
- bioenergy strategy – the federal government plans to turn to Canada's agricultural and forestry resources in developing a bioenergy strategy to achieve net-zero energy production in this sector. Canada has, to date, lagged behind other countries in bio-economy initiatives; many stakeholders active in bio-based energy initiatives will welcome this plan; and
- accelerated emissions reductions under the Clean Fuel Regulations.
According to the Plan, decarbonising the buildings sector is imperative to Canada's pathway to 2030 and 2050. As building stock continues to grow, emissions in the buildings sector have been trending upwards. The Plan outlines the problems the buildings sector faces and offers solutions with respect to decarbonisation. Below is a high-level summary outlining some of the key issues affecting Canada's buildings sector:
- current buildings sector emissions – buildings accounted for 12% of Canada's direct GHG emissions in 2019. Taking into account off-site electricity generation for use in buildings brings the total to approximately 17%;
- space and water heating – more than 85% of buildings sector emissions come from space and water heating, due to the use of fossil fuel equipment, such as natural gas furnaces and extra energy demand to heat and cool buildings with insufficient envelope performance. Remaining emissions come from electricity used to power appliances, lighting and auxiliary equipment; and
- retrofit of existing buildings – the Pembina Institute projects that reaching net-zero in 2050 will require carrying out retrofits at an annual pace of nearly 600,000 homes (11.4 million in total) and the equivalent of 32 million metres squared of commercial property until 2040, at a cost of approximately C$21 billion per year.
The Plan suggests that much of the technology needed to decarbonise the buildings sector already exists. The Plan describes changes that can be implemented as economic and viable options for decarbonising the buildings sector, such as switching from fossil fuels to electric heat pumps and upgrading the building envelope with improved insulation. Reducing embodied carbon in construction materials such as steel and concrete is another key opportunity presented in the Plan as a way to lower emissions in the buildings sector.
As described in the Plan, it is suggested that regulation through building codes can help effect the changes needed to decarbonise the buildings sector. The development of increasingly stringent, performance-based model building codes, including net-zero energy-ready model codes for new construction and the code for retrofits to existing buildings, would promote decarbonising the buildings sector in Canada.
So far, the federal government has launched the following initiatives with respect to decarbonising the buildings sector:
- the Canada Greener Homes Grant – the Canada Greener homes Grant provides up to 700,000 grants of up to C$5,000 to help homeowners make energy efficient retrofits to their homes, supported by an EnerGuide evaluation;
- the Green and Inclusive Community Buildings programme – the Green and Inclusive Community Buildings programme commits C$1.5 billion in projects that improve energy efficiency through retrofits, repairs or upgrades, and new builds, 10% of which is reserved for projects benefitting indigenous communities;
- Canada Infrastructure Bank's grown plan – the Canada Infrastructure Bank has targeted C$2 billion in financing for large-scale public and commercial building retrofits; and
- energy efficiency in indigenous housing – the First Nation Infrastructure Fund supports energy efficiency on reserves, and the Northern Responsible Energy Approach for Community Heat and Electricity programme supports Inuit and indigenous communities in the north with renewable energy and energy efficiency projects.
Successful decarbonisation of the buildings sector will also depend on factors such as electrification and clean grids, a zero/low carbon supply chain, innovation in construction practices and private financing. To that end, the federal government will invest C$150 million to develop a national net-zero by 2050 buildings strategy. The federal government has also made additional investments aimed at retrofits and net-zero new builds across Canada, including affordable housing.
The electricity sector is one of Canada's climate change success stories. Canada is already a world leader in clean electricity due to its abundant natural resources, particularly hydro. The sector has also seen the biggest jump in emissions reductions since 2005 compared to other sectors of the Canadian economy. The challenge for the sector, however, will be to continue to meet increasing and exponential demand with clean, non-emitting generation capacity. The Plan cites multiple reports that estimate that, by 2050, Canada will require two to three times the current generating capacity. This will be due to the electrification of Canada's transport system in part, but also an increase in economic activity and projected population growth.
The Plan notes that the federal government has already taken several measures to decarbonise the electricity sector. These include the accelerated coal-phase out,(3) implementation of natural gas regulations(4) and pricing carbon under the federal Greenhouse Gas Pollution Pricing Act; funding development of small modular nuclear reactors (SMRs).
In terms of new steps under the Plan to decarbonise the electricity sector, Canada's centrepiece is the proposed Clean Electricity Standard (CES) that would support a net-zero electricity grid by 2035. Given that energy is constitutionally of provincial jurisdiction, the development of the CES is meant to be collaborative with the provinces and industry.
The Plan also sets out new money for the deployment of commercially ready renewable energy technologies that will support decarbonisation in the near term:
- C$600 million to the Smart Renewables and Electrification Pathways Programme (renewable energy and grid modernisation); and
- C$250 million to the Electricity Predevelopment Programme (large clean electricity projects).
On the latter, it is unclear as to what large clean electricity project the government has identified that could be developed in the near term. However, any such project may also be tied to the regional interties initiative proposed in the Plan. Given that some provinces have cleaner electricity sectors than others, the federal government intends to help de-risk (ie, fund) and accelerate the development of interprovincial transmission lines to connect supplies of clean power to locations that currently rely heavily on fossil fuels for power generation.
Although the Plan does not provide further funding to develop SMRs, the technology gets at least five mentions in the Plan, including reference to the federal government's SMR Action Plan.
The federal government has made one point clear – it is doubling down on its expectations of Canada's oil and gas sector. This does not come as a surprise, considering the oil and gas sector continues to be the largest emitter of GHG emissions in Canada. Putting this in context, other sectors, such as heavy industry and electricity, have managed to reduce GHG emissions since 2005. However, the same cannot be said for the oil and gas sector, where increased production has caused overall emissions to rise by 20%. For further details, see "Top energy issues of 2021, with implications for 2022 and beyond".
The Plan sets out measures relating to:
- capping emissions;
- advancing carbon capture, utilisation and storage;
- further reducing methane emissions;
- eliminating subsidies for fossil fuel; and
- safeguarding jobs in the energy sector.
For further information on this topic please contact Kevin J Lambie, Robin Squires, Beverley Moore or Alan Ross at Borden Ladner Gervais LLP by telephone (+1 416 367 6000) or email ([email protected], [email protected], [email protected] or [email protected]). The Borden Ladner Gervais LLP website can be accessed at www.blg.com.
Jonathan Cocker, Peyman Ghaemi, Justin Cuperfain, Kristyn Annis, Sarah Sweet, Tanner Shapka and Luca Vita assisted in the preparation of this article.
(1) For the first article in the series, see "2030 Emissions Reduction Plan and Canada's journey to net zero: part one".
(2) For more commentary about low carbon intensity fuels, see:
- "Hydrogen: An Alternative Fuel to Watch";
- "Understanding Funding Opportunities in Canada's Energy Transition";
- "Clean Fuel Standard Needs Canada's Clean Hydrogen Strategy"; and
- "Ammonia Energy: From H2 Carrier to Low Carbon Fuel".
(3) Regulations Amending the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations, SOR/2018-263. By phasing out coal-fired electricity early, Canada strives to have 90% of electricity from non-emitting sources by 2030 and will cut carbon pollution from the electricity sector by 12.8 million tonnes.
(4) Regulations Limiting Carbon Dioxide Emissions from Natural Gas-fired Generation of Electricity, SOR/2018-261, made under the Canadian Environmental Protection Act 1999.