Carbon tax to be applied to new natural gas plants built after 2021, changing Saskatchewan’s options

If natural gas is no longer as promising, coal with carbon capture and storage could be

Weyburn – Saskatchewan had been shifting towards natural gas-fired power generation, but a change in carbon tax regulation for new power plants of that nature announced by the federal Liberal government has thrown a monkeywrench into the strategy, and could have wide-ranging impacts on the province’s energy mix going forward. It could even mean a continuation of coal, using carbon capture and storage and cause SaskPower to reconsider its planned upcoming Moose Jaw power station, to be fueled by natural gas.

Environment Minister Dustin Duncan, who also holds the portfolio of Minister Responsible for SaskPower, explained these implications on July 8 by phone from Weyburn. (Duncan was formerly Minister of Energy and Resources.)

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He pointed out that the initial regulations announced in December, and the province had been consulting with the feds with for the last six months, were not what they saw come out in late June. Federal Environment Minister Catherine McKenna met with provincial environment ministers on June 27, yet didn’t tell them about the changes. Duncan said Saskatchewan found out about them via a press release from the federal government the following day, by which point McKenna was in Brussels.

“This is completely different from what was contemplated,” he said.

The issue at hand is the carbon dioxide emissions of what is known as combined cycle natural gas-fired power plants. A simple cycle natural gas power plant burns the gas to heat a boiler, and the steam passes through the generator once. Plants like that are used at Spy Hill and North Battleford, among other places, as peaking plants when the utility needs additional power right away.

But a combined cycle plant is much more efficient, capturing heat that would otherwise be unused, and using it to create more power. They are up to 50 per cent more efficient, according to GE. The result is a much more energy efficient powerplant that is used for baseload power. Northland Power built a 260 megawatt facility of this type at North Battleford in 2013 to provide power for SaskPower, and SaskPower itself is currently completing the 360 megawatt Chinook Power Station at Swift Current.

Duncan explained that when it comes to coal-fired power, our coal plants generally put out 1,100 tonnes of CO2 equivalent per gigawatt hour (GWh) of power produced. We must pay carbon tax on anything over 800 tonnes. That carbon tax is currently $20 per tonne now, but ratchets up by $10 each year to $50 per tonne in 2022. Duncan does not expect it will stop there, despite what McKenna has been saying. By 2022, SaskPower is expected to have paid cumulatively over $500 million in carbon taxes as a result.

Going past 2030, coal plants can only emit 420 tonnes CO2 equivalent per GWh, which effectively means they must have carbon capture and storage applied.

“Really, you can’t get to 420 with coal without carbon capture. So basically today’s combined cycle natural gas is better,” Duncan said.

But a combined cycle natural gas plant produces typically 370 tonnes per GWh, which is one of its key points. “The cost equation wasn’t going to be that onerous,” Duncan said.

The new rules will see any new combined cycle natural gas power plant that goes into operation after 2021 have the carbon tax applied, on a sliding scale that will reduce the exemption to zero by 2030.

The new regulations, as printed in the Canada Gazette on July 10, say in their regulatory impact statement, “Starting in 2021, new industrial or electricity generating facilities that start generating electricity from gaseous fuels using equipment or a unit that has a capacity of 50 megawatts (MW) or more and that is designed to operate at a thermal energy to electricity ratio of less than 0.9 will have a standard that starts at 370 t of CO2e per GWh in 2021 declining linearly to 0 t of CO2e per GWh in 2030.”

Since the proposed Moose Jaw power station is not yet in the request for proposals stage, it would be directly affected by these new rules, but Chinook and Northland would not.

“That 370 standard, from 2021 to 2030 goes to zero,” Duncan explained. “Basically, by 2030, you will not be able to create a single tonne of carbon dioxide emissions from a natural gas plant that won’t be taxed. It’s going to be taxed 100 per cent.”

And that has real repercussions.

“We’ve got to put pause on the Moose Jaw plant, because we don’t know what the cost is going to be” he said.

“This is so short-sighted.”

Duncan said the federal government had been implying that everyone shouldn’t “dash to gas,” and now we know why. The federal government is pushing renewables and hydro power.

Indeed, the discussion of the new regulations in the Canada Gazette alludes to just that, stating, “In regards to the output-based standard for electricity from gaseous fuels (i.e. 370 t of CO2e/GWh), some industrial stakeholders commented that a 420 t of CO2e/GWh would be more appropriate for peaking units and cogeneration. Non-emitting industry groups and environmental stakeholders commented that the standard for new gas units is not sufficient to prevent an investment in new natural gas over lower emitting generation sources, and will result in Canada falling short of the PCF (Pan-Canadian Framework on Clean Growth and Climate Change) target of 90 per cent non-emitting electricity target by 2030. The non-emitting sector and ENGOs (environmental non-governmental organizations) recommended a long-term signal for new investments in electricity generation to shift toward lower emissions intensity electricity generation over time, i.e. an output-based standard for new gas generation facilities that ramps down from 370 t of CO2e/GWh to 0 t of CO2e/GWh in 2030. The Department recognizes that, over time, new electricity generation capacity should come from non-emitting sources and agreed to implement this recommendation.”

Duncan said, “We can’t bring on renewables without baseload to support them. In the past, our baseload, in this province, has largely been coal and natural gas. And they’re making it impossible for both of those. So if they want Saskatchewan or any other jurisdiction to bring on more renewables, this doesn’t help. It only hinders.

“The second part is, if they want to drive us to more hydro, who is smiling today? I would say Manitoba’s smiling, because they know we don’t have any alternatives now.”

Other options could be small modular nuclear reactors, but they’re a long ways off, or coal with carbon capture and storage (CCS), but we still have to figure out the cost on that.

Duncan said, “Natural gas is looking less and less like an alternative, and we have no bargaining power with Manitoba, because Manitoba knows that natural gas, likely, is not, under these regulations, an alternative. So thanks, Ottawa, for really giving away our bargaining power with Manitoba. And the same would be for any other jurisdiction that has hydro, and they are looking to sell it. The price just went up, because of these regulations.”

Manitoba is the most likely place to get more hydro power, but Duncan said this new regulation substantially damages this province’s negotiating power with our neighbour to the east.

He noted that some people are concerned with the environmental damage caused by large-scale hydro. “The notion of cheap hydro is antiquated, because it’s not cheap anymore,” he said.

And then there is the question of how Manitoba would be able to supply such large quantities of power to this province, with Duncan saying we would need to upgrade our grid interconnects. We recently signed a deal to bring in 215 megawatts of power from Manitoba, and have that capacity. But anything more would require hundreds of millions of dollars to upgrade the interconnects.

He said he doesn’t know how much surplus power Manitoba could provide for Saskatchewan, but “We don’t have any way to get large scale hydro into the province beyond what we’re already getting.”

Manitoba’s recent “Bipole III” direct current transmission project from northern Manitoba dams to the Winnipeg area ended up costing more than twice its original estimate, according to the Winnipeg Sun.

Duncan said, “The regs don’t only put pause on future natural gas, it also will likely change the spread that currently exists between gas and CCS. Too early too say how much it tightens up, but it might be good news to CCS.”

If carbon capture and storage were to be implemented, the captured carbon dioxide would most likely be sold for utilization in enhanced oil recovery, such as what is being done in the Weyburn and Midale Units.

To see the regulations yourself, go to and start on Page 5232 with the Greenhouse Gas Pollution Pricing Act. They run 110 pages to Page 5442.


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