On Thursday, August 10th, Canadian federal Environment Minister Steven Guilbeault publicly announced a new set of draft regulations on clean electricity- the Clean Electricity Regulations (CER). Not surprisingly, the regulations were of high interest to producers of natural gas.
Published with the title “Powering Forward Canada: Building a Clean, Affordable and Reliable Electricity System for Every Region of Canada”, the draft proposes nationwide, economy-wide regulation of electricity. The regulation is described on the Natural Resources Canada website as “A vision…about how to build a clean, reliable, and affordable electricity grid from coast to coast to coast.” It is further described as a “national power grid” on the Liberal party website which romanticizes the national grid by relating it to another grand national project – the creation of the national railway.
“Just as Canadian governments invested in the national railway and national highways, we can work with our provincial and territorial partners to support the development of a national power grid that will secure affordable and net-zero power for all Canadians and create thousands of good-paying jobs.”
The idea that a nationwide grid is even needed is in question and the promise to ”work with provinces and territories” and the actual “affordability” seem to be sticking points.
The reality is the provinces own their grids and as quoted from sencanada.ca:
“As per the Constitution Act of 1867, the provinces are owners of their ground energy resources except for those in Aboriginal and federal lands. As well, the provinces and territories are responsible for electricity systems within their borders.”
Both Alberta and Ontario have created their own electricity markets to manage and increase investment in their grids. The CER would be an intrusion on that ownership and disrupt investment.
The CER is also a plan to phase out the use of fossil fuels to generate power in Canada by 2035, which is increasingly criticized as extremely costly and an unrealistic timeline.
It would mandate that the use of natural gas in power generation be eliminated by 2035, unless 95% of CO2 emissions are captured and geologically sequestered. Contrary to federal assertions, critics like Heather Exner-Pirot, director of energy, natural resources and environment at the Macdonald-Laurier Institute are pointing out that switching to “clean electricity” will not save Canadians money.
“That’s not being realistic,” Exner-Pirot is quoted as saying in a recent article. “Natural gas in Canada is cheap and reliable. Heat pumps and EVs do not work well in large parts of the country in winter, and that’s a fact.”
In another article in the National Post, Adam Pankratz, lecturer at the University of British Columbia’s Sauder School of Business quantifies the cost of the proposal to switch to “clean electricity”.
“No matter the option chosen, Canada would theoretically be on the hook for $300 billion or more by 2035 in order to hit the current goals and timelines laid out… where is the money for all this coming from? … Right now, for example, Canada has enormous reserves of natural gas which could replace coal generation. This is a cleaner burning alternative and would be far less expensive in terms of transition.”
Pankratz goes on to point out that the federal government oddly fails to see the value and the business case for natural gas, while the U.S. and Qatar are profiting immensely from the revenues from their natural gas exports.
In the Leadership Dialogue on July 11th at the global LNG 2023 conference in Vancouver, BC, Saad Sherida Al-Kaabi, the current Minister of Energy in Qatar, and the President and CEO of QatarEnergy confirmed Qatar’s confidence in natural gas as a global solution to the security of energy supply, energy affordability and sustainability (the energy trilemma).
In contrast to Canadian government leaders, he stressed Qatar’s confidence that natural gas baseload power will be essential for electricity globally. This year, Qatar, as a leader in LNG production, is expanding production from 77 million tonnes per year up to ~126 million tonnes per year and investing in a huge fleet of carriers to ensure that production can go to markets.
“We agree that (natural) gas is absolutely needed as the cleanest possible fuel that you need for a baseload – for electricity and for powering factories and manufacturing,” Al-Kaabi stated. “Some say by 2050, we will not need any more gas. I think gas will be needed indefinitely as you need a baseload… and you need nuclear. For those who can afford it and have the capability and the technology to safely do nuclear, this could be the baseload with everything else added on top. People talk about renewables as the only solution we have. But it only gets you electricity. It doesn’t manufacture a lot of the stuff we have around us – everything is (made of) oil and gas, coming from petrochemical plants and so on… So we need to have this discussion.”
So if leaders in Qatar are so confident of the environmentally responsible nature of natural gas, and of its security of supply, affordability, and sustainability – what is the disconnect in Canada?
The “discussion” Al-Kaabi refers to in the quote above has been muted in Canada. It is noticeably absent from mention in the draft CER and the recent press announcement.
Like Qatar, Canada is producing natural gas in the most environmentally responsible way with emissions reductions, CO2 sequestration and well electrification projects and more. So why drastically reduce its use and incur huge costs to discontinue its use for power generation in such a tight timeline, possibly causing the premature retirement of natural gas plants?
Provincial leaders like Saskatchewan’s Premier Scott Moe are beginning discussion in opposition to the CER plan, accurately pointing out that it is “unaffordable, unrealistic and unconstitutional” while Alberta Premier Danielle Smith has stated her concerns repeatedly since the announcement of the draft starting just hours after Guilbeault’s announcement.
“The draft federal 2035 net-zero power grid regulations are unconstitutional, irresponsible and do not align with Alberta’s emissions reduction and energy development plan that works towards a carbon-neutral power grid by 2050,” Smith said in her statement. “These regulations make desperately needed investments in new natural gas generation almost impossible. If implemented in Alberta, these regulations would endanger the reliability of Alberta’s power grid and cause massive increases in Albertans’ power bills.”
A massive increase in power bills threatens businesses and industry as well as consumers according to Larry Buzan, an Alberta oilpatch veteran, former two-term President of the CALEP Landman’s Association and current president of H-Gen Initiatives Ltd.
“Predictable energy costs have always been key to investment,” Buzan says. “Rising energy costs are a big risk to new projects. An increase in the price of energy raises the cost of production. It increases the cost of your product based on the share of the cost of energy in the total cost of your product. An unknown or unpredictable expected increase in energy cost can deter investment in your project as investors seek jurisdictions where energy costs are lower, stable and predictable over years of investment.”
Conflicting statements of federal vs provincial policies regarding power and energy control and costs have a dampening effect on investment and provincial economies.
Interestingly enough, Canada’s approach to restricting its natural gas industry runs counter to information provided by environmental advocates like Michael Shellenberger, founder and president of Environmental Progress, named Time Magazine “Hero of the Environment,” and Green Book Award winner. Shellenberger advocates that the natural gas industry is desperately needed right now by the whole world.
In last year’s visit to Banff, Alberta at the Canadian Energy Executive Association’s CEEA 71 conference, Shellenberger quoted a respected scientific study showing the United States had reduced its carbon emissions more than any other country in the world for the last 20 years with a 22% reduction between 2005 and 2020. He pointed out that 61% of that reduction came simply from the transition from coal to natural gas. He also pointed out that it was natural gas that made a 39% reduction coming from wind and solar possible.
Shellenberger has been calling on the US and Canada to step up natural gas production since 2021, when he saw fertilizer prices rising, indicating a lack of natural gas production. This was before Russian curtailments of natural gas to Europe.
Shellenberger’s warnings have not been heard by the current Canadian federal administration and their plans for the CER show it. However, the work of provincial premiers may prevail in implementing measures to retaining natural gas for baseload power – reduce energy costs instead of increasing them.
“One of the only positives at this point is that these are ‘draft’ regulations and Alberta is about to commence a working group with the federal government to discuss how to bring Ottawa’s efforts to decarbonize the economy in line with Alberta’s Emissions Reduction and Energy Development Plan,” says Premier Danielle Smith.
“If this alignment is not achieved, Alberta will chart its own path to ensuring we have additional reliable and affordable electricity brought onto our power grid that is available 24 hours a day, 365 days a year. This will be accomplished by ensuring an appropriate amount of high-efficiency natural gas base load is added to the grid while incentivizing carbon capture, utilization and storage (CCUS) abated natural gas generation, small modular reactors, hydrogen generation and a sustainable amount of wind, solar and other renewables to drive down electricity costs.”
Author’s Note: This week, Alex Epstein is the keynote speaker at CEEA ’72’s Energy Business Forum in Banff and one of his statements on current US policy is: “America is taking a “punish America” approach to reducing CO2, making our energy more expensive and less reliable while China, Russia, and others increase their emissions.” It will be interesting to hear his take on the draft CER.
Maureen McCall is an energy professional who writes on issues affecting the energy industry.