Federal Environment Minister Jim Prentice recently announced plans for the federal government’s ambitious new climate change regulations. The regulations, expected to be introduced later this year, will apply to Canada’s electricity sector and are intended to help the federal government meet its target of a 90% emissionsfree electricity sector by 2020. The proposed regulations will require existing ‘dirty’ coal-fired power plants to be phased out once they reach the end of their useful life cycle, and all new coal-fired plants must be clean and must capture and store carbon, as well as other greenhouse gas emissions. In addition, existing coal-fired plants will have their emissions capped at a specific amount. It is also noteworthy that the proposed regulations and 90% emission free target are very similar to requirements introduced by British Columbia last year.
Concerns are already being expressed by observers in Alberta, Saskatchewan and Nova Scotia that the regulations could lead to large increases in electricity prices. Electricity users in these provinces currently rely on coal for more than 70% of their power. In addition, Ontario relies on coal for some of its power generation. Many existing coal-fired plants are not currently scheduled for retirement before 2020. Further, generation companies and utilities have invested heavily in the existing plant inventory to extend the useful life of many of the plants and these investments were made without reference to the proposed regulations and will still need to be recovered.
The challenge of mitigating electricity price increases could be particularly difficult for provinces that rely on coal-fired generation for much of their supply. Alberta and Saskatchewan may also find it challenging to mitigate electricity price increases due to predicted increases in electricity demand. In addition, electricity prices could rise over time as a result of the less expensive existing coal-fired generation plants being replaced with generation from “clean coal” plants, natural gas-fired turbines, renewable resources, or perhaps, more nuclear plants, all of which may prove to be more expensive.
The regulatory requirement that new coal-fired generation must capture and store carbon could also lead to increases in electricity prices as generation companies seek to recover costs incurred to investigate and ultimately develop options for capturing and storing carbon emissions. The technology for capturing and storing carbon is still being developed and significantly more government funding may be necessary to develop viable, economical and sustainable carbon capture and storage technologies and mitigate price increases. If the federal government wants to ensure that carbon capture and storage is widely used by 2018, it might need to offer additional incentives and grants, as well as tax credits to help generators and utilities pay for and recover the costs of carbon capture and storage projects.
The regulations also contemplate that an existing coal-fired plant might not be able to reduce its emissions below its emissions cap and, as a result, will likely include a variety of options to ensure that such operators comply with the regulations. The options could include activities such as using domestic offsets that are issued for verified domestic reductions in greenhouse gas emissions from activities outside the ambit of the regulations; inter-firm trading of emission credits; requiring companies that exceed their cap to be in compliance if they make contributions to a technology fund. The technology fund will be used by government to fund a range of technology development and deployment of projects intended to reduce or offset emissions.
Whatever happens, there is little doubt that the proposed regulations will have significant impact on power generation in Canada and will lead to significantly more new generation from renewable sources, natural-gas fired turbines, and even nuclear plants instead of coal-fired generation (clean or otherwise).