Laser Talk: Carbon Pricing of Methane-fired Electricity Generation

Laser Talk: Carbon Pricing of Methane-fired Electricity Generation
Laser Talk: Carbon Pricing of Methane-fired Electricity Generation
Posted on February 22, 2023 in Laser Talk

Laser Talk: Carbon Pricing of Methane-fired Electricity Generation

The goal of Canada’s national carbon pricing system is to send a market signal that will incentivize a transition away from fossil fuels to low-carbon energy sources. Given the projected increase in methane-fired electricity generation in Canada, it would appear that the current level of carbon pricing of methane-fired generation is not high enough to achieve this goal.

Electricity generation is subject to the Output-Based Pricing System (OBPS) component of the Greenhouse Gas Pollution Pricing Act (GGPPA). Some provinces have their own emissions trading systems which apply in place of the federal backstop OBPS, and so in these provinces, it is appropriate to lobby provincial politicians on this issue as well.

Methane-fired generation of electricity in Canada is projected to increase substantially in the coming years. Approximately 8,900 MW of new methane-fired generating capacity is projected to be added by 2035 under federal, provincial, and territorial policies [1]. While coal-fired electricity in Canada is being rapidly phased out, in most cases, methane has replaced coal [2]. In Ontario, methane-fired generation is set to account for 25% of the province’s electricity generation by the late 2040s, more than triple its current role and roughly the same portion as coal-fired generation at its peak, before its phase-out in 2013 [3].

Thus, any progress in incentivizing clean electricity production as well as reducing greenhouse gas (GHG) emissions from coal-fired electrical generation plants is largely erased by increased production from methane-fired electricity plants. [4]

The resulting increase in GHG emissions from methane-fired electricity generation is clearly bad for the planet, and for Canada’s 2030 Emissions Reduction Plan [5] which aims to reduce national GHG emissions by up to 45% below 2005 levels by 2030.

The risk to Canada’s climate plans from building new methane-fired generation plants is compounded by the fact that, once that capital is locked in, the resulting emissions will be locked in as well, or the plants will become stranded assets.

Methane-fired electricity generation must be subject to increased carbon pricing that will send a sufficient market signal to incentivize the transition away from methane-fired generation to low-carbon energy sources.

This can be accomplished in the following manner:

  • make methane-fired electricity generation subject to the Fuel Charge component of the federal carbon pricing system (GGPPA) instead of the OBPS, so that methane-fired generation plants pay the full carbon price on all the methane they use, or
  • if methane-fired generation remains in the OBPS, increase the level of carbon pricing on GHG emissions.

Although the federal government is in the process of developing a Clean Electricity Standard Regulation to provide for a transition to a net-zero electricity supply by 2035, this process is too slow and may still permit unabated methane-fired electricity generation for years thereafter. Instead, the above action is needed now.

In a nutshell:

  1. What some people call natural gas is a fossil fuel, and it is not clean. It is methane – a very potent GHG. It is dirty and it is not natural.

  2. The current system of Output Based Carbon Pricing for methane-fired electricity is disincentivizing clean energy production.

  3. The current projected building of methane-fired electricity plants is increasing our GHG output.

  4. The Clean Electricity Standard Regulation process is too slow to address this grave problem.

  5. There is a real risk of stranded assets and those costs being passed onto the taxpayer and ratepayer.

  6. We can avoid the risks by either making methane-fired electricity generation subject to the Fuel Charge component of the federal carbon pricing system (GGPPA) instead of the OBPS, so that methane-fired generation plants pay the full carbon price on all the methane they use, or if methane-fired generation remains in the OBPS, increase the level of carbon pricing on GHG emissions.

Notes

[1] A Clean Electricity Standard in support of a net- zero electricity sector Discussion paper,  Environment and Climate Change Canada (2022) at p. 7 https://www.canada.ca/en/environment-climate-change/services/canadian-environmental-protection-act-registry/achieving-net-zero-emissions-electricity-generation-discussion-paper.html

[2] Canadian electricity’s bright (and windy) future, Canadian Climate Institute Blog, February 2, 2023https://440megatonnes.ca/insight/Canadian-electricitys-bright-and-windy-future/

[3] Prof. Mark Winfield and Colleen Kaiser, “Ontario on track to see major increases in greenhouse gas emissions”, Hamilton Spectator December 19, 2021 https://www.thespec.com/opinion/contributors/2021/12/19/ontario-on-track-to-see-major-increases-in-greenhouse-gas-emissions.html

[4] Stop the Dash to Gas and Green the Grid, Citizens’ Climate Lobby Canada Media Packet, November 9, 2020
https://canada.citizensclimatelobby.org/media-packet-stop-the-dash-to-gas-and-green-the-grid/

[5] Canada’s 2030 Emissions Reduction Plan https://www.canada.ca/content/dam/eccc/documents/pdf/climate-change/erp/Canada-2030-Emissions-Reduction-Plan-eng.pdf

 

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