Contributed By Dentons Canada LLP
Carbon Regulation Developments
The landscape of carbon regulations in Canada has undergone significant developments over the past year. On 1 April 2019, the federal 'back-stop' carbon price came into effect through the Greenhouse Gas Polluting Price Act. At that time, Manitoba, Ontario, New Brunswick and Saskatchewan did not have provincially mandated carbon taxes. As a result, those provinces are subject to the federal carbon price, set at CAD20/tonne for 2019 and rising to CAD50/tonne by 2022.
British Columbia, Newfoundland and Prince Edward Island (PEI) had provincially mandated carbon taxes in place before the federal law came into force. British Columbia has implemented a provincial carbon tax at CAD40/tonne whereas Newfoundland and PEI have implemented a provincial carbon tax at CAD20/tonne. Because those provinces already impose their own carbon taxes, they are not subject to the federal back-stop price.
Québec and Nova Scotia have implemented cap-and-trade programmes instead of a carbon tax. Because those cap-and-trade regimes were approved by the federal government, Québec and Nova Scotia are not subject to the federal back-stop price. Ontario participated in a similar cap-and-trade system under its former government. However, the newly elected Conservative government repealed that system in the autumn of 2018.
In June 2019 the newly elected Conservative government in Alberta followed through on a central campaign promise and passed legislation to repeal the broad-based carbon tax implemented by the previous government. In response, the federal government announced that Alberta will be subject to the federal back-stop price beginning in January 2020.
Several provinces have challenged the constitutionality of the Greenhouse Gas Polluting Price Act, arguing that the federal government lacked jurisdiction to enact the legislation under the division of powers. A recent split decision from the Saskatchewan Court of Appeal affirmed the federal government's power to set a minimum nationwide standard for greenhouse gas (GHG) emissions and upheld the Greenhouse Gas Polluting Price Act as a valid exercise of federal jurisdiction. The Saskatchewan government has expressed its intention to appeal the decision to the Supreme Court of Canada.
On 28 June 2019, the Ontario Court of Appeal released its decision on Ontario’s reference question about the constitutionality of the Greenhouse Gas Polluting Price Act. The majority of the court ruled that the Act is constitutional, with four out of five justices agreeing that the Act falls within the federal Parliament’s Peace, Order and Good Governance power in the 1867 Constitution Act. The decision turned on the majority's characterisation of GHG emissions as a national and international concern that requires a collective approach. One dissenting justice held that a federally imposed taxation regime that dictates minimum national standards of GHG emissions would unconstitutionally expand Parliament’s legislative authority. The Ontario government indicated it will appeal this decision to the Supreme Court of Canada.
In Manitoba, the federal government deemed Manitoba's carbon tax to be for the purposes of the Greenhouse Gas Polluting Price Act. As a result, Manitoba repealed its carbon tax entirely. In Ontario, the government passed the federal Carbon Tax Transparency Act, which requires all gasoline retailers to post a notice of the federal carbon tax to demonstrate the amount that individuals are taxed when they fill up their tank.
Two major provincial elections in Ontario and Alberta as well as court challenges in several provinces created some uncertainty about the future of carbon pricing in Canada. While decisions in the coming months from provincial appellate courts and the Supreme Court of Canada could provide clarity on the legal foundation for carbon pricing laws, the fate of the federal back-stop is likely to be a key issue during the upcoming federal election, to be held in October 2019.
There is a trend towards increasing use of 'green' and 'sustainable' financing tools to finance alternative energy and power projects, and in particular 'green bonds', 'green loans' and 'sustainability bonds'. Energy producers are increasingly looking at expanding their green and sustainability credentials beyond operations to their capital markets and borrowing activities. At the same time, although still slower to develop in Canada than in many markets, there is a growing investor and lender base focused on the transition toward 'green' and 'sustainable' opportunities. Traditional providers of debt funding for renewable projects like banks and insurance companies, for example, have gone to market with sizeable green bond financings with proceeds earmarked for the development of renewable power and energy efficiency. 'Green loans' would be an obvious tool for this on-lending by market intermediaries. These same debt providers are coming under increasing pressure to 'green' their loan portfolios by shifting more of that portfolio to renewable and alternative energy. Institutional investors, including Canada’s largest pension funds, are more publicly stating their green and sustainable investment goals. A number of Canada’s power producers have issued green bonds. For the most part these have been issuers whose business is focused around wind and hydro power generation. These trends have and will continue to interest Canadian municipalities and provinces in issuing their own green bonds to finance projects relating to alternative energy and power, and as these issuances deepen the market for green finance, this firm expects more, and more diverse kinds of power producers, to issue green or sustainability bonds into the market.
Alberta is the first Canadian province to introduce Property Assessed Clean Energy (PACE) legislation. As PACE develops in Canada, new green financing opportunities are expected to emerge.
Large Hydroelectric Projects and International Transmission Projects
Several large-scale hydroelectric power projects are currently under construction across Canada, with completion dates set within the next five years. In British Columbia, BC Hydro’s 1,1000 MW Site C project on the Peace River is anticipated to generate about 53,00 GWh per year once completed in 2024. In Labrador, the 824 MW Muskrat Falls project on the Lower Churchill River is expected to go into production in the summer of 2020. Finally, the 695 MW Keeyask Facility in Manitoba is expected to begin production in 2021.
Demand for Canadian hydro energy in the USA remains strong. New York and New England pledged to reduce emissions to 25% lower than 1990 levels within the next two years, which has increased demand for hydro-power across Canada. Bipole III, Manitoba’s Hydro’s new 500 kV HVDC transmission project, was commissioned in July 2018 after five years of construction. Additionally, the federal government granted its approval of the Manitoba-Minnesota Transmission Project in June 2019, after the National Energy Board recommended approval of that project in late 2018.
Energy storage is a developing area in Canada but it seems clear it will be part of and will impact the evolution of the alternative energy and power sector. Storage solutions continue to be looked at as complementary opportunities to renewables development. Other storage solutions are being developed to function independently of other power developments and in fact to tap into yet untapped sources of energy in industrial and other processes. Larger utilities are experimenting with the use of storage solutions to defer investments in their distribution systems and system operators. The Ontario Independent Electricity System Operator, in particular, has successfully carried out a number of procurements for energy storage to provide technical services for grid stability.
Indigenous Participation in Renewables Development
Indigenous groups are increasingly taking a stake in Canadian renewable projects. Over 150 such projects with Indigenous participation are currently in operation, representing an estimated CAD2.5 billion in cumulative future profit for partner communities.
British Columbia leads the way nationally, with over 50% of its clean energy projects led by Indigenous communities. This past year, the First Nations Clean Energy Business Fund (FNCEBF) invested CAD2.09 million in Indigenous-led energy projects in British Columbia. As a result of that fund, several First Nations made investments to implement hydropower projects to reduce community reliance on diesel fuel. The FNCBEF also supported the Tsilhqot’in national government redevelopment of an industrial brownfield to create the province's largest First Nation solar farm, a 1.25 MW peak-solar photovoltaic project. British Columbia also announced in its 2019 Budget that it will invest an additional CAD18 million to work with Indigenous and remote communities to transition to cleaner energy sources.
The federal government announced an investment of CAD53.5 million over ten years to implement renewable energy projects in off-grid Indigenous and northern communities that rely on diesel and other fossil fuels. The federal government also announced an investment of CAD3.5 million in two Indigenous-owned corporation projects that will help local businesses and residential units run off solar energy during the spring and summer months.
In Saskatchewan, the federal government announced funding for a First Nations-owned Meadow Lake Tribal Council Bioenergy Centre. The Centre will generate carbon-neutral green power using sawmill biomass residuals. The Saskatchewan First Nations Power Authority, a not-for-profit development company that reduces development costs and risks for First Nations-led projects, has also commenced several solar and wind community-based projects. Last year, SaskPower and the FNPA signed a 20 MW Solar Opportunity Agreement that set aside CAD85 million over the course of 20 years for First Nations-led solar generation projects.
In Alberta, the recent change in government has seen a move away from funding for renewable energy. That said, the new Alberta Premier recently announced that he plans to table a bill in the autumn that will invest CAD24 million over four years to provide legal, technical and financial advice to First Nations participating in non-renewable energy projects.
On the east coast, Newfoundland and Labrador announced in April 2019 funds for remote Indigenous communities to transition from diesel to renewable energy. Additionally, First Nations in both Nova Scotia and PEI are involved in Indigenous-led wind projects through funding from each province.
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