Comments on the Proposed Regulatory Approach for the Clean Fuel Standard - Canadian Nuclear Association

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Comments on the Proposed Regulatory Approach for the Clean Fuel Standard

Ms. Paola Mellow
Executive Director, Clean Fuel Standard
Environment and Climate Change Canada
351 St. Joseph Boulevard, 21st Floor
Gatineau, QC K1A 0H3
Via: ec.cfsncp.ec@canada.ca

August 30, 2019

Dear Ms. Mellow,

The Canadian Nuclear Association (CNA) continues to closely track the development of the Clean Fuel Standard (CFS) and appreciates this opportunity to provide comments on the Proposed Regulatory Approach discussion paper (the Discussion Paper) published on June 28, 2019.

The CNA is a non-profit organization established in 1960 to represent the nuclear industry in Canada and promote the development and growth of nuclear technologies for peaceful purposes. Our national trade association represents the interests of clean energy generators, mining companies, the medical isotope community and others connected to the nuclear sector across Canada. The design of the CFS, including the liquid, gaseous and solid fuel streams, will significantly impact the interests of CNA members.

The Importance of Nuclear Energy, Globally and in Canada

Nuclear energy provides safe, reliable, clean power around the world. 446 operating nuclear reactors produce 11% of global electricity, which avoids about 2.5 billion tonnes of CO2 emissions annually. In Canada, 19 power reactors generate 16% of the electricity supply, including 63% in Ontario. Canada is the second largest producer of uranium in the world, which supplies the domestic reactors and is also a valuable global export.

All told, the nuclear industry contributes $6 billion to Canada’s annual Gross Domestic Product and is responsible for 60,000 direct and indirect jobs. These jobs are high paying and high skilled. The nuclear sector also makes significant contributions to R&D, medicine, manufacturing, and the mining sectors.

The world needs more nuclear energy if it is to hold global temperature increase below 2o Celsius. Canada has a home-grown nuclear advantage and must build on this strength as society moves to a more environmentally sustainable and affordable energy future. Canadians understand that nuclear power is an important national advantage in the fight against climate change and that the nuclear sector is a key source of good jobs and economic activity.

Striking the Right Balance

The CNA supports the objective of the CFS to achieve 30 million tonnes of annual reductions in greenhouse gas emissions by 2030 and agrees that the regulation can contribute significantly to the achievement of Canada’s target of reducing national emissions by 30% below 2005 levels by 2030.

While the CNA agrees with the Government’s aims to “stimulate investments and innovation in low-carbon-intensity fuels while enabling low-cost compliance,” we worry that market signals will be muddled by the complexity of the regulation and its fit with other GHG emission reduction policy tools like the federal carbon pricing system. The Discussion Paper recognizes that the CFS and carbon pricing “send mutually reinforcing price signals.” The CNA is concerned that the CFS, rather than being complimentary, is duplicative to carbon pricing, and the overall impact will be to reduce business competitiveness. For facilities that will be impacted by both the federal carbon pricing system and the CFS, especially in the manufacturing and mining sectors, this is causing real concern.

The Discussion Paper, at 125 pages long, sets out a very complicated system. CNA members worry that it will be burdensome to implement. The overall goal of carbon policy should be to encourage the transition of society towards non-emitting energy sources in an administratively simple manner.

Large resource projects, whether a nuclear plant, a mine or a pipeline, require large amounts of capital. Capital is fluid and investors do not like uncertainty. Investment in Canada is currently facing significant challenges – including uncertainty around a suite of changes to federal regulatory policies, as well as provincial regulatory policies, trade restrictions and tax rates. The CNA believes it is important to keep in mind the impact on investment when considering all legislation and policies. The CFS is no exception.

Implementation will be key. The government must strike the right balance between sending clear signals today that clean energy is Canada’s future and negatively impacting economic growth and the cost of living. To achieve this, the Government should be focused on ensuring that the regulation gives businesses and energy consumers flexible compliance options and pathways.

Valuing Fuel Switching

In particular, fuel switching to low-carbon options should be seen as equivalently valuable compliance pathway to reducing the carbon intensity of fuels. The Proposed Regulatory Approach includes specific details on credit creation from end-use switching in transportation. Similar approaches should be extended to the gaseous and solid streams as well.

Numerous studies, including the Trottier Energy Futures modeling work, recognize that widespread electrification is a critical pathway to deep decarbonization. Canada’s electricity system is powered by an electricity generation mix over 80% non-emitting. This is Canada’s climate change advantage, which must be leveraged to its full value.

Nuclear power has the ability to achieve vast reductions in GHG emissions annually, and investment to transition fossil fuel sources of power to nuclear power must be eligible to generate credits.

To this end, the CNA is encouraged that the Government of Canada will prioritize the credit generation quantification method for electrification projects. We ask that we are kept informed of this work as it moves forward and that the Government actively seeks our input. As an initial comment, emission reductions should be valued in full even if they go well beyond the regulatory requirements. Also, there is abundant clean power across Canada to enable widespread fuel switching. Credit qualification should not require that non-emitting generation capacity be additive. Credits for fuel switching should incent electrification, not promote one electricity generation type over another.

In addition to eligibility, credit mechanisms between the CFS and other carbon policy instruments such as the output-based pricing system must be aligned and linked.

Liquid Stream Credit Generation for Fuel Switching

Under the proposed structure for credit generation under the liquid stream, end-use fuel switching in the transportation sector from a higher carbon intensity fossil fuel to a less carbon intensive fuels will be eligible for credit creation. The CNA is encouraged by the recognition that fuel-switching is in some cases more valuable than reducing the carbon intensity of a fossil fuel. We are puzzled, however, by the Government of Canada’s proposed approach to the parties eligible to generate credits.

The CNA is disappointed that electricity generators are not being considered as a party for credit generation. The environmental benefit of electric vehicle (EV) fuel switching is largely a function of the generation sources supplying the power. An EV powered by coal-fired electricity is no better than one powered by gasoline – perhaps worse. The value of the credit, then, is based on the carbon intensity of the electricity mix. The cleaner the mix, the larger the credit and the greater the environmental benefit.

It stands to reason, then, that the providers of clean electricity, on whom so much of the value creation depends, should be beneficiaries of the credit-generating system. Those who provide the value should be included in the rewards. A portion of the credits could be pooled and flow to the generators in a ratio consistent with the percentage of non-emitting power they contribute to the provincial electricity grid. A company that supplies 40% of the non-emitting power in Ontario, for example, would receive 40% of the generator-assigned credits. The funds would support the continuous greening of the electricity mix.

Whether generators receive a portion of the credits or not, it is clear to the CNA that the reinvestment requirement for residential charging credit creators should be set at 100%. The CNA agrees that eligible revenue reinvestment for electricity distribution utilities should include electricity grid improvements and infrastructure upgrades to accommodate additional electric vehicle charging.

For their part, many OEMs have expressed that the relatively slow adoption of EVs in Canada is due to inadequate charging infrastructure. OEMs, should they generate credits, ought to be required to reinvest the revenues in infrastructure readiness. Credit generation must not flow to bolster company bottom lines or duplicate the purchase incentives already in place under the iZEV program. Without adequate investment the infrastructure barrier to high-penetration EV adoption will not be overcome. CFS credits must be put to good use in this regard.

The CNA calls for an approach to credit generation under the gas and solid streams that better reflects the value that non-emitting electricity generation provides as a way to reduce the emission intensity of Canada’s energy system. CNA staff and members will continue to advocate for this approach in the months ahead.

Small Modular Reactors

The CFS is appropriately designed to consider the carbon intensity of fuels over the full lifecycle including all emissions associated with the extraction and cultivation of raw material used to produce the fuel, as well as the processing, refining, upgrading, transporting, distributing and combusting of the fuel itself.

Upstream, small modular reactors are becoming increasingly viable as a means to greatly reduce carbon intensity. Canada’s SMR Roadmap, published in 2018 with the support of Natural Resources Canada, stresses our national advantage to being global leaders in SMR development and deployment. The CFS should leave open the opportunity for SMRs to be deployed ‘behind-the-fence’ at large industrial sites in the future.

Conclusion

The CNA acknowledges and respects that the CFS is an important piece of the Government’s regulatory approach to combatting climate change. In terms of the liquid stream regulations, our priority, as outlined above, is to ensure that credit generation for EVs is managed in a way that rewards clean electricity systems and enables widespread EV adoption. As the focus turns to the details of the natural gas stream, the CNA will remain engaged in the discussion. Canada must ensure that the GHG emission reduction from fuel-switching to electricity is valued equal to the reductions in the carbon intensity of fuels. Canada should be focused on the outcome, not picking winners amongst energy options.

The CNA again thanks the Government for providing this opportunity to comment and looks forward to staying engaged on this highly impactful issue going forward. If you have any questions or wish to discuss our comments further please contact Steve Coupland at couplands@cna.ca

Sincerely,

Steve Coupland
Director of Regulatory and Environmental Affairs
Canadian Nuclear Association