The initial deadline for the federal-Alberta memorandum of understanding (MOU) negotiations has passed and the Alberta government still hasn’t hinted how it intends to build a reliable, affordable electricity grid to meet the province’s growing energy needs while also reducing electricity emissions.
This is the commitment the province must present — backed up by a credible plan — during MOU talks, to justify the long-term suspension of the Clean Electricity Regulations (CER). These federal rules, barely a year old, are in law across the country.
While the regulations do not come into effect until 2035, the MOU led to their immediate suspension in Alberta in November, pending a negotiated agreement to strengthen the province’s industrial carbon pricing system “and factoring all other measures." The latter part of this sentence is important, because Alberta has made many changes to its electricity market recently that undermine the competitiveness of low-cost renewable energy development.
The Clean Electricity Regulations ensured Canada was on a path to competitiveness
Like all climate regulations, the CER are complex. But to explain them in the most straightforward way, from 2035 onwards they set a slowly declining limit on greenhouse gas emissions from polluting electricity generation units. They were a timely addition to Canada’s energy development rules given that, across the country, electricity use is forecast to rise significantly over the next couple of decades, as a growing number of households switch to more efficient, electrified technologies such as heat pumps and electric vehicles, and more power-hungry industries set up their operations.
The CER provide the guardrails to make sure that this growth in demand for power does not result in a similarly massive growth in emissions, which would not only be unsustainable for the climate, but would also make Canada’s electricity supply needlessly expensive and less energy-secure.
Canada’s CER matter now — even though they do not come into force until 2035 — because electricity systems, investment decisions and climate outcomes operate on long time horizons. The CER are designed to give industry time to plan years in advance, and to influence what does or does not get built today.
Opponents of the CER have often complained that the rules are too rigid, and would increase the risk of blackouts if, for example, natural gas is phased down too quickly and the grid becomes unstable. But this is a misrepresentation. The CER were designed with flexibilities, providing numerous ways for the operators of natural gas plants to reach annual emissions limits; for example, natural gas plants can still be used up to a certain amount for reliability services, or the carbon they emit could be captured.
Replacing the CER with carbon pricing only solves half the problem
Despite these flexibilities — many of which were added to the CER to address concerns that provincial governments raised during the CER’s development — the CER have remained a cause of consternation, especially in Alberta.
Given they’ve become such a sticking point, it is perhaps no surprise that the MOU negotiators are looking for a different way to achieve the same outcome. To be clear, this would be a totally reasonable outcome — as long as the same environmental outcomes are, in fact, achieved. The key question is: can Alberta rapidly build up its electricity supply and create a reliable, affordable, low-carbon grid, without the CER?
Some have suggested that the same emissions outcomes could be achieved just by strengthening Alberta’s industrial carbon pricing system. It’s true that carbon pricing, via Alberta’s Technology Innovation and Emissions Reduction (TIER) program, is a powerful tool to drive investment in clean electricity — in fact it was a key factor in the phase out of coal-fired power and the (until recent) boom in renewable energy in Alberta. We agree that TIER needs to be fixed, urgently, as part of the MOU talks, and that it can do a lot to reduce emissions on Alberta’s grid by subjecting the operators of high-emitting electricity options (natural gas) to a steadily rising price for every tonne of carbon they emit, which in turn makes those facilities less and less economic to run.
But if the goal is to build a low-carbon grid in Alberta and meet all the near-term electricity demand growth that we know is coming, then TIER only solves half of the problem. While putting a price on emissions may make investors less keen on building new, emitting gas plants, it does not ensure clean electricity options are built instead if the market locks them out.
This is why the CER were always an important complementary regulation to TIER. They provide more investment signals to developers of clean electricity projects that they should move ahead and build, as not only will emissions from gas plants be priced through TIER, but Alberta will also need to meet emissions milestones set out in CER. In this way, the two regulations worked in lockstep, incentivizing clean electricity while disincentivizing gas.
Rejuvenating clean energy growth in Alberta
And this is where it’s important to look at what’s happened to clean electricity development in Alberta of late. Our analysis has found a 93 per cent drop in new installed wind, solar, and storage capacity in Alberta last year compared with just three years earlier, when the province led the country in renewable energy development. The litany of new restrictions on wind and solar development introduced since 2023 have had a number of overlapping and reinforcing impacts. Some limit where projects can be physically located, others impose market conditions that further decrease revenue for renewables in the windiest and sunniest parts of the province, and others make it increasingly difficult for renewables projects to actually get their electricity to customers, meaning they end up powering down when electricity lines are congested and they literally can’t get enough of their product — their electrons — to market.
This is a problem. Even if Alberta has longer term plans to power some of its grid with nuclear energy and/or gas plants with carbon capture and storage (CCS), these are high-cost and long-term projects that have a history of being delayed or cancelled. Wind and solar are now low-cost and can be scaled up quickly to ensure emissions start coming down in the next few years — not hoping they will 15 years from now, which is the earliest point that the Alberta Electric System Operator expects the first nuclear plants could come online.
The simple truth is, if proponents of clean electricity projects can’t build their projects, it doesn’t matter how high the carbon price gets — the low-carbon options to keep on growing electricity supply in the province in the short term still won’t be there.
The way forward
Alberta (and any other province) has always been free to find its own path to meet the same goals as the CER. By claiming it cannot do so, it is admitting it does not think its market is attractive enough for cleantech investment the way it is elsewhere in the world. Despite both industry and financial institutions raising concerns about Alberta’s ongoing market restructuring, we do not believe this needs to be the case. In the absence of the CER, Alberta needs to do other things to attract wind and solar investment back into the province. On this front, there are several no-regret things that Alberta could offer to do as a part of the MOU negotiation. These include:
- Upgrading and building more interprovincial interties and energy storage, so that wind and solar developers can see their electrons will have good market access and they won’t need to curtail generation in the way they often are now.
- Building the transmission lines that are urgently needed in southern Alberta (where a lot of current wind and solar is concentrated) to more quickly and easily move that lowest-cost power to market without the wires getting congested.
Both of these above solutions would not only improve conditions for renewables, they would also bolster the overall affordability and reliability of Alberta’s grid.
There is still an untapped well of potential that would drive renewable energy development. For example, there are still many multi-national companies with sustainability targets looking to buy clean, carbon-free energy. Canada’s top 100 companies will need 7.7 gigawatts (GW) of renewable electricity by 2040, more than half by 2030, according to a recent Business Renewables Centre-Canada report. In Alberta alone, companies will need 1.4 GW of renewable energy to meet their climate targets, with steep increases by 2030.
A thriving renewable energy sector is the key that would unlock many doors in Alberta’s economy — not least helping to satisfy emissions outcomes. But it won’t be achieved through industrial carbon pricing alone. If Canada were to suspend the CER for the long term in Alberta, it can only justify doing so if Alberta has credibly committed to its end of the deal — and removed the red tape targeting low-cost, fast to deploy wind, solar and batteries to make investors feel truly welcome again in the province.
