Department of the Environment and Department of Health
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issue: Greenhouse gases (GHGs) are primary contributors to climate change. The most significant sources of GHG emissions are anthropogenic, mostly as a result of combustion of fossil fuels. The emissions of GHGs have been increasing significantly since the industrial revolution and this trend is likely to continue if no action is taken. In 2008, the latest year of emissions data available under Canada’s National Inventory Report under the United Nations Framework Convention on Climate Change (UNFCCC), GHG emissions from the electricity generation sector contributed around 16% (or approximately 120 megatonnes [Mt]) to Canada’s inventory of emissions. In the same year, coal-fired electricity generation was responsible for 93 Mt of GHG emissions in Canada, which represent 78% of total electricity sector emissions. Canadian historical data indicates that emissions in 2008 were about 19% above the 1990 levels.
In December 2009, the Government of Canada committed to a national greenhouse gas reduction target of 17% below 2005 levels by 2020, and inscribed this in the Copenhagen Accord. Our 2020 target is aligned with that of the United States (U.S.).
To achieve its target, the Government has established and is implementing a comprehensive plan to reduce greenhouse gas emissions in all major emitting sectors, on a sector by sector basis. On June 23, 2010, the Government announced it would take action to reduce carbon dioxide (CO2) greenhouse gas emissions in the electricity sector by moving forward with regulations on coal-fired electricity generation.
Description: The proposed Reduction of Carbon Dioxide Emissions from Coal-Fired Generation of Electricity Regulations (the proposed Regulations) will set a stringent performance standard for new coal-fired units and those that have reached the end of their useful life. This will phase out high-emitting coal-fired generation and promote a transition towards lower- or non-emitting types of generation such as high-efficiency natural gas, renewable energy, or fossil fuel-fired power with carbon capture and storage.
The performance standard element of the proposed Regulations would come into effect on July 1, 2015. In addition, units would be required to begin reporting two years in advance of when they reach their end of useful life date or, in the case of new units, in the first year of operation. Regulated entities would then be subject to enforcement and compliance requirements and penalties as specified under the Canadian Environmental Protection Act, 1999(CEPA 1999).
The Government’s approach to addressing climate change is based on the principle of balancing environmental and economic considerations. The electricity industry is facing major capital stock turnover and regulatory uncertainty is impeding investments in new generation capacity.
Cost-benefit statement: The proposed Regulations are estimated to result in a reduction of approximately 175 Mt CO2e of GHG emissions over the period 2015–2030. The present value of the costs of the proposed Regulations is estimated at $8.2 billion, largely due to the incremental natural gas costs ($4.8 billion), reduced net exports and new capital costs. The present value of the benefits are estimated at $9.7 billion, largely due to the avoided social cost of carbon (SCC) of $4.3 billion, avoided generation costs of $3.8 billion, and health benefits from reduced smog exposure of $1.4 billion. The net present value (NPV) of the proposed Regulations is estimated at $1.5 billion. A sensitivity analysis shows that this NPV could change somewhat depending on the value of key variables such as fuel prices and discount rate. The results of the analysis are expressed in $2010 and are discounted at 3%.
Business and consumer impacts: The estimated cost increase from the proposed Regulations would represent approximately 0.63% of the average total electricity bill over 16 years. It is expected that the cost increase would be passed onto consumers in proportion to their consumption. The estimated average cost increases over a 16-year period are expected to be small, ranging from $0.73/month in Saskatchewan on the lower end, to $2.14/month in Alberta.
The proposed Regulations are also expected to result in increases in electricity prices paid by industrial sectors. However, such impacts are expected to be a very small portion of total industry costs over the 16-year period analyzed.
Domestic and international coordination and cooperation: The proposed Regulations will help move Canada towards the Government’s stated commitment to reduce GHG emissions to 17% below 2005 levels by 2020, which was inscribed in the Copenhagen Accord and is in alignment with the U.S. target. There are not expected to be any impacts on international trade agreements, and within the domestic market, the proposed Regulations reinforce the significant commitments that have already been made by provinces (e.g. Ontario) to reduce emissions from coal-fired electricity generation.
Performance measurement and evaluation plan: The Performance Measurement and Evaluation Plan (PMEP) describes the desired outcomes of the proposed Regulations such as GHG emissions reductions and reduced high-emitting coal-fired generation and establishes indicators to measure and evaluate the performance of the proposed Regulations in achieving these outcomes. The measurement and evaluation will be tracked on a yearly basis, with a five-year compilation assessment, and will be based on the information and data submitted in accordance with the reporting requirements and other readily available data and information sources.