Order Declaring that the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations Do Not Apply in Saskatchewan: SOR/2019-167

Canada Gazette, Part II, Volume 153, Number 12

Registration
SOR/2019-167 June 3, 2019

CANADIAN ENVIRONMENTAL PROTECTION ACT, 1999

P.C. 2019-601 May 31, 2019

Whereas, pursuant to subsection 332(1) ^{footnote a} of the Canadian Environmental Protection Act, 1999 ^{footnote b}, the Minister of the Environment published in the Canada Gazette, Part I, on February 16, 2019, a copy of the proposed Order Declaring that the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations Do Not Apply in Saskatchewan, substantially in the annexed form, and persons were given an opportunity to file comments with respect to the proposed Order or to file a notice of objection requesting that a board of review be established and stating the reasons for the objection;

And whereas, on May 3, 2019, the Minister of the Environment and the Government of Saskatchewan entered into a written agreement referred to in subsection 10(3) of that Act to the effect that there are in force by or under the laws of Saskatchewan

(a) provisions that are equivalent to the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations ^{footnote c} made under subsection 93(1) of that Act; and

(b) provisions that are similar to sections 17 to 20 of that Act for the investigation of alleged offences under environmental legislation of Saskatchewan;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of the Environment, pursuant to subsection 10(3) of the Canadian Environmental Protection Act, 1999 ^{footnote b}, makes the annexed Order Declaring that the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations Do Not Apply in Saskatchewan.

Order Declaring that the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations Do Not Apply in Saskatchewan

Declaration

Non-application

1 The Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations do not apply in Saskatchewan.

Expiry

Termination of agreement

2 This Order ceases to have effect on the day on which the agreement between the Minister of the Environment and the government of Saskatchewan, entitled “An Agreement on the Equivalency of Federal and Saskatchewan Regulations for the Control of Greenhouse Gas Emissions from Electricity Producers in Saskatchewan, 2020” terminates or is terminated in accordance with subsection 10(8) of the Canadian Environmental Protection Act, 1999.

Coming into Force

January 1, 2020

3 This Order comes into force on January 1, 2020.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

The Minister of the Environment is proposing an Order in Council (the OiC) that will suspend the application of the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations (the federal Regulations) in the province of Saskatchewan, effective January 1, 2020. The basis for the Order is an equivalency agreement for which a notice of availability was published on May 11, 2019, in the Canada Gazette, Part I. This agreement will ensure an equivalent outcome in terms of greenhouse gas (GHG) emissions over the July 1, 2018, to December 31, 2029, period. The OiC will reduce regulatory overlap and administrative burden, allowing Saskatchewan to achieve equivalent GHG emission reductions in a manner that best suits its particular circumstances.

Background

Federal Regulations and amendments

In September 2012, the Government of Canada published the federal Regulations. ^{footnote 1} The Regulations establish an emission standard for coal-fired electricity generation of 420 tonnes of carbon dioxide per gigawatt hour of electricity produced (t CO₂/GWh) from electricity generating units fuelled by coal, coal derivatives or petroleum coke. New units that came online after July 1, 2015, became subject to the emissions standard immediately. Existing units, which were commissioned prior to July 1, 2015, must comply with the emissions standard after a period that ranges from 45 to 50 years of operation, depending on the unit’s commissioning date. On December 12, 2018, amendments to the Regulations were published in the Canada Gazette, Part II, to accelerate the phase-out of coal-fired electricity generation by December 31, 2029.

Equivalency agreements in general

The protection of the environment is a shared jurisdiction between the Parliament of Canada and provincial legislatures. As a tool for minimizing regulatory duplication and offering flexibility in achieving equivalent policy outcomes, section 10 of the Canadian Environmental Protection Act, 1999 (CEPA) allows the Governor in Council, on the recommendation of the Minister of the Environment, to make an Order in Council so that the provisions of the CEPA regulations that are the subject of an equivalency agreement do not apply in a province or territory. For this to occur, the province or territory must first enter into an equivalency agreement with the Government of Canada. An equivalency agreement is a written agreement signed by the Minister of the Environment and the province or territory declaring that there are in force in the province or territory, laws containing provisions that are equivalent to the given federal regulation and environmental legislation containing provisions that are similar to sections 17 and 20 of CEPA for the investigation of alleged offences.

Environment and Climate Change Canada (ECCC, also referred to as the Department in the “Consultation” section) has indicated that it is willing to consider developing equivalency agreements for GHG emission regulations with interested provinces and territories, to reduce regulatory overlap and provide greater flexibility for regulated sectors. In the case of GHG regulations, provincial or territorial laws are considered to be equivalent if they result in equivalent GHG emission outcomes. In particular, GHG emissions under provincial or territorial regulations must be no greater than they would be if the federal Regulations applied. This allows a province or territory to attain the GHG outcome that would have occurred under the federal Regulations in a way that best suits its particular circumstances. To date, only one such GHG equivalency agreement has been reached, which is between the governments of Canada and Nova Scotia ^{footnote 2} and that came into force on July 1, 2015. ^{footnote 3}

Saskatchewan equivalency agreement and provincial policy

On November 22, 2016, ECCC and Saskatchewan signed the Canada-Saskatchewan equivalency agreement in principle (AiP). The AiP provided a framework for the establishment of an equivalency agreement such that the federal Regulations will not apply in the province of Saskatchewan until after 2029, provided that the province achieves an equivalent outcome in terms of GHG emissions, through the implementation of its provincial electricity regulations. The AiP also indicated that equivalency with the federal Regulations could serve to inform equivalency with the amended federal Regulations to accelerate the phase-out of coal-fired electricity generation.

On January 3, 2018, Saskatchewan published The Management and Reduction of Greenhouse Gases (General and Electricity Producer) Regulations (Saskatchewan Electricity Regulations). The Saskatchewan Electricity Regulations impose province-wide GHG emissions caps (hereafter referred to as caps) on electricity generating facilities emitting annually greater than 10 000 metric tonnes of carbon dioxide equivalent (10 kt CO₂e), from 2018 to 2029. The caps are the maximum cumulative GHG emissions permitted from the Saskatchewan electricity utility sector. They were established to ensure that the GHG emissions outcomes under the Saskatchewan Electricity Regulations will be equivalent to or better than those expected to occur under the federal Regulations.

An equivalency agreement between the governments of Canada and Saskatchewan was finalized and published on May 11, 2019. The equivalency agreement will provide Saskatchewan greater flexibility on future capital investment decisions in the electricity sector. In its recently published climate change strategy, Saskatchewan included a target to reduce SaskPower’s GHG emissions by at least 40% from the 2005 level by 2030. In support of this objective, the province plans to increase its non-emitting generation capacity up to 50% of its total generation capacity through increasing renewable energy (including wind and solar) sources, increasing imports of hydroelectricity from Manitoba and investigating the feasibility of energy storage services to expand renewable capacity. The province also plans to run two coal-fired units, Boundary Dam units 4 and 5 (BD4 and BD5), after December 31, 2019, which is their end of useful life date under the federal Regulations. In particular, BD4 is expected to run until December 31, 2021, while BD5 is expected to run until December 31, 2024. This will provide SaskPower with the flexibility to bring online additional low- and non-emitting generation facilities later, while achieving equivalent GHG outcomes over the entire period of the equivalency agreement. A non-emitting generation capacity target of 40%–50% by 2030, along with milestones leading up to that date, is included as a condition in the equivalency agreement to align with Saskatchewan’s commitment.

Equivalent environmental outcomes

For the purposes of determining equivalent outcomes, ECCC modelled the GHG emission levels of the electricity sector from 2018–2029 in Saskatchewan under the federal Regulations. These cumulative emissions were compared with the cumulative GHG emissions allowed under the provincial regulatory regime, and were determined to be equivalent.

Assumptions underlying electricity demand growth modelling included a number of factors, such as projections of growth and operational modernization in industrial sectors such as the potash industry, efficiency improvements in residential buildings, changes in the number of households, and consideration of SaskPower’s demand growth projections. Saskatchewan set the electricity sector emission caps under its regulations to reflect the outcome of this modelling exercise.

The ECCC analysis finds the provincial regulations are equivalent to the federal Regulations over the 2018–2029 period, as summarized in Table 1 below.

Table 1 — Comparison of GHG emissions under federal and provincial electricity regulatory regimes

Megatonnes CO2e		2018–2019	2020–2024	2025–2029	Cumulative 2018–2029
Federal	Modelled emissions under federal Regulations	33.6	72.0	71.1	176.7
Provincial	Provincial caps	33.5	77.0	64.5	175.0
	Difference	0.1	−5.0	6.6	1.7

Saskatchewan will need to make significant investments in non-emitting capacity to stay within its regulated caps and to meet its own 2030 target of up to 50% renewable generation capacity that, under the Saskatchewan Prairie Resilience strategy, will be met by a major expansion in wind power, augmented by other renewable energy sources (i.e. solar, biomass, geothermal, hydro, and demand-side management).

This additional non-emitting generation capacity will continue to operate beyond 2030 and is expected to lead to reduced generation from natural gas–fired sources. This decrease in natural gas–fired generation will lead to a further decrease in cumulative GHG emissions beyond 2029. The additional non-emitting capacity will also provide SaskPower with greater flexibility in achieving its GHG results.

Air pollutant emissions

For context, to understand the impacts of the OiC, ECCC has also analyzed changes in emissions of air pollutants from the electricity utility sector in Saskatchewan.

Standing down the federal Regulations will result in a low increase of sulphur oxides (SO_x) and nitrogen oxides (NO_x) emissions in the province of Saskatchewan. Over the January 1, 2018, to December 31, 2029, period, the cumulative change in SO_x will be a net increase of 37 kilotonnes (kt), while the cumulative change in NO_x will be a net increase of 8 kt. These air pollutants are known to cause adverse human health impacts, through inhalation of directly emitted pollutants or via their transformation in the atmosphere to secondary particulate matter (PM)_2.5 and ground-level ozone. The health effects of these pollutants are well documented in the scientific literature and include an increased risk of various cardiovascular and respiratory outcomes, which lead to an increased risk of premature mortality.

The air pollutant emission reductions expected as a result of the 2012 federal Regulations totalled 1 156 kt SO_x and 546 kt NO_x across Canada over the 2015–2035 period. In comparison, the increase in air pollutant emissions in Saskatchewan resulting from standing down the federal Regulations under the equivalency agreement over the assessment period, as summarized in Table 2, are considered to be low. The potential Canadian population health impacts associated with the increase in emissions from the equivalency agreement are therefore also expected to be low. It should be noted that Saskatchewan outperformed the federal Regulations from 2015–2017 due to its early installation of carbon capture and storage (CCS) at Boundary Dam 3 (BD3). Compared to a scenario without CCS, between 2015 and 2017, BD3 reduced SO_x and NO_x by an estimated 21.8 kt and 3.8 kt respectively.

Table 2 — Cumulative impacts of provincial policy on air pollutant emissions (kilotonnes) — Under the assumption of 50% renewable capacity by 2030

Pollutant	2018–2029 Net Cumulative Change (kt)
NOx	8
SOx	37
PM total	2

Objectives

The objectives of the Order in Council are to reduce regulatory overlap and reporting burden, while allowing Saskatchewan to achieve equivalent GHG emission reductions in a manner that best suits its particular circumstances.

Description

The OiC, made pursuant to subsection 10(3) of CEPA, will suspend the application of the federal Regulations, made under subsection 93(1) of CEPA, in Saskatchewan, effective January 1, 2020. This OiC includes an expiry clause stating that the OiC would automatically cease to have effect if the equivalency agreement is no longer in force.

“One-for-One” Rule

The OiC will reduce administrative costs to SaskPower and result in an “OUT” under the “One-for-One” Rule. SaskPower will no longer need to report to the federal government and, therefore, is likely to save administrative costs during the period of 2020–2029. Following the Treasury Board’s standard costing model and using a 7% discount rate, the expected annualized administrative cost reduction due to the OiC is approximately $1,200 ^{footnote 4} (in 2012 Canadian dollars). To calculate the avoided costs, it is assumed that under the federal Regulations, (i) five hours will be required to perform calculations, conduct an assessment, and check the change of electricity generation method in 2020, therefore resulting in an upfront cost of $200; ^{footnote 5} (ii) on an annual basis, an average of two hours will be needed to complete the administrative requirement associated with annual reporting, and about 25 hours will be needed to prepare documentation to demonstrate the permanent storage of carbon via the CCS technology at BD3, resulting in an annual cost of $1,100 ^{footnote 6} during 2020–2029; and (iii) approximately two hours will be required for senior management to approve the annual report each year during 2020–2029, resulting in an annual cost of $100. ^{footnote 7} It is also assumed that all the tasks mentioned in (i) and (ii) above will be performed by employees with training in natural or applied science at a wage rate of $42/hour, ^{footnote 8} and that the wage rate of senior management staff mentioned in (iii) will be $56/hour. ^{footnote 9}

Small business lens

No small businesses will be directly affected by the OiC. Coal-fired electricity generation facilities that sell their electric output to the grid are owned by provincial utilities or large companies, with revenues in the hundreds of millions of dollars. Consequently, ECCC will not conduct further analysis regarding the small business lens.

Consultation

Consultations prior to the publication of the OIC in the Canada Gazette, Part I

In submissions of comments to ECCC respecting the Regulations Amending the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations, public health organizations and environmental groups expressed concerns with the equivalency agreement. Specifically, they indicated that standing down the federal Regulations would mean that provincial coal-fired electricity plants may not close as early and, therefore, could lead to higher emission levels of air pollutants. These concerns were made public through the Pembina Institute’s report on equivalency agreements ^{footnote 10} published on August 30, 2017. Similar concerns were received as formal comments to the Canada Gazette, Part I, publication of the amendments to the federal Regulations on February 17, 2018. ^{footnote 11} The federal Regulations establish a regime for the reduction of carbon dioxide (CO₂) emissions that does not directly address air pollutants. ECCC signalled that the proposed equivalency agreement and the proposed OiC will both be published in the Canada Gazette with a 60-day comment period and that it is open to receiving any comments at that time.

Extensive bilateral meetings were held with Saskatchewan government officials and with representatives from the electricity producer, focusing on key policy and technical parameters used in support of the determination of equivalent outcomes. Technical consultations focused on parameters related to electricity generation forecasts in the province for integration into the Energy, Emissions and Economy Model for Canada (the model used by ECCC to forecast domestic GHG emissions).

Comments received during the 60-day public comment period following publication in the Canada Gazette, Part I

A notice of the availability of the draft equivalency agreement was published in the Canada Gazette, Part I, on December 29, 2018, followed by the publication of the proposed OiC in the Canada Gazette, Part I, on February 16, 2019. During the 60-day public consultation period for the OiC, the Department received one comment from an industry association, which suggested that ECCC should work closely with the Government of Saskatchewan to “develop a plan and a regulatory framework that would allow Saskatchewan’s coal-fired electricity generating stations, and by extension, Saskatchewan’s coal mines, to operate well past the proposed timeframe of the end of 2029.” The stakeholder also took issue with the Regulations, stating that the phase out of coal-generating power by 2030 would cause the stranding of electricity generation capacity. The Department noted that the equivalency agreement can only be extended to the end of 2029. As a result, the continued operation of coal plants and potential issues caused by the 2030 phase-out are outside the scope of this agreement and proposed Order.

Rationale

GHG emission levels from Saskatchewan’s electricity utility sector that would have occurred under the federal Regulations were modelled by ECCC and compared to the caps under the Saskatchewan Electricity Regulations from January 1, 2018, to December 31, 2029.

ECCC is satisfied that the effect on the GHG emission levels of the caps, determined in tonnes of CO₂e, that are applicable under the Saskatchewan Electricity Regulations is, from January 1, 2018, to December 31, 2029, equivalent to the effect on emission levels of the GHG performance standard imposed under CEPA and the federal Regulations.

Mechanisms for the investigation of alleged offences apply in relation to the Saskatchewan Electricity Regulations. ECCC is therefore satisfied that Saskatchewan laws contain provisions similar to sections 17 and 20 of CEPA for the investigation of alleged offences under the Saskatchewan Electricity Regulations and, therefore, that all CEPA requirements related to equivalency agreements have been met.

An OiC suspending the application of the federal Regulations in Saskatchewan is recommended to minimize regulatory duplication in Saskatchewan and to allow the province to attain equivalent GHG outcomes in a way that best suits its particular circumstances. This is in line with the Government of Canada objectives regarding regulatory coordination and cooperation with relevant jurisdictions.

The OiC will reduce the administrative burden on SaskPower, as it will no longer be required to report to the federal government. The federal government is also expected to realize incremental cost savings related to inspections, investigations and prosecutions.

Implementation, enforcement and service standards

The OiC will suspend the application of the federal Regulations in Saskatchewan effective January 1, 2020. The amendments to the federal Regulations published on December 12, 2018, to accelerate the phase-out of coal-fired electricity generation by December 31, 2029, do not have an impact on the assessment of equivalency because the current OiC and the current agreement are only valid for the next five years and rest on a determination of equivalency for the 2018–2029 period only. As the federal Regulations will stand down, only the provincial regulatory regime will apply. No federal enforcement is therefore envisioned in Saskatchewan.

Saskatchewan will provide ECCC with annual GHG emissions and electricity generation information, as well as other information such as statistics on its enforcement actions concerning the Saskatchewan Electricity Regulations.

Contacts

Magda Little
Acting Director
Electricity and Combustion Division
Environment and Climate Change Canada
351 Saint-Joseph Boulevard
Gatineau, Quebec
K1A 0H3
Email: ec.electricite-electricity.ec@canada.ca

Matthew Watkinson
Director
Regulatory Analysis and Valuation Division
Environment and Climate Change Canada
200 Sacré-Cœur Boulevard
Gatineau, Quebec
K1A 0H3
Email: ec.darv-ravd.ec@canada.ca