Proposed regulations south of the border will bring Canada and the U.S. into even greater alignment on climate action.
What’s new
The United States and Canada are about to become more aligned on climate policy than ever, with ambition and action moving in lockstep. This is especially true for the electricity sector, where both Canada and the U.S. have committed to net zero electricity systems by 2035 and are using similar policy tools to get there.
While Canada’s Budget 2023 responded to the carrots in the U.S Inflation Reduction Act, it’s been reported that the U.S. is set to introduce a new stick that would regulate emissions from the electricity sector, as Canada is already doing.
While the final details will be critically important, the new regulations could be one of the more significant U.S. climate policies announced in recent years.
The electricity sector is essential to climate progress on both sides of the border
In both countries, the electricity sector has done the lion’s share of the work in reducing emissions since 2005. In Canada, emissions from the sector have declined by 66 Mt, or 56 percent, since 2005—equivalent to a 9 per cent drop in national emissions. In the U.S., emissions have declined by 35 per cent, in the same time period—equivalent to a 12 per cent drop in national emissions.
While Canada and the U.S. have made progress cutting carbon from their electricity sectors over the past couple of decades, hard work lies ahead for both countries as they move towards their common goal of achieving net-zero emissions in the electricity sector by 2035 (Figure 1). Much of the emissions reductions to date have been a result of both countries switching from coal to gas, which means the road ahead will require a big switch from any remaining coal and unabated natural gas to renewable sources, like wind and solar.
Achieving net zero electricity systems is fundamental for both countries in their efforts to reach net zero emissions economy-wide by 2050 and remain competitive in the global low-carbon transition. While the net zero destination is the same for both countries, their point of departure is different. Currently, about 60 per cent of electricity in the U.S is generated from fossil fuels compared to less than 20 per cent in Canada.
However, the generation mix varies widely across Canada. Some provinces rely almost entirely on non-emitting sources, whether hydro, nuclear, or renewables. Others are more like the U.S, with significant shares of fossil generation. For instance, if we exclude provinces and territories with majority shares of clean sources and combine the profiles of the remaining provinces and territories (Alberta, Saskatchewan, Nova Scotia, Nunavut, and New Brunswick) they collectively generate almost 80 per cent of their electricity from fossil fuels.
Using carrots and sticks to reach net zero
Getting to net zero electricity—at a national and regional level—is going to take a combination of carrots and sticks, and both the U.S. and Canada are bringing to bear tools fit for the challenge. Canada is developing clean electricity regulations, with a draft proposal expected later this year, and in Budget 2023 the government committed $25.7 billion in tax credits for clean electricity. The U.S., for its part, introduced a swath of new and expanded investment and production tax credits in the Inflation Reduction Act in 2022. Now, the Biden administration is reportedly planning to introduce new rules to regulate emissions from both new and existing natural gas power plants, as well as existing coal plants, and require electric utilities to either switch to non-emitting sources or deploy carbon capture technologies.
The regulatory sticks proposed in both countries can increase the certainty that the sector will achieve the net zero goal, whereas the carrots can make achieving those regulated targets more affordable—for utilities and ultimately ratepayers.
However, the details of each new regulatory regime will determine how likely both countries are to meet their goals. What exactly the U.S. is putting on the table, as well as the ultimate design of Canada’s proposed clean electricity regulations, will have huge implications for how, and whether, the proposed tools will deliver net-zero electricity systems.
Regardless, the growing cross-border alignment in ambition and action on climate policy is encouraging, both for emissions reductions and maintaining Canada’s economic competitiveness in the global race to net zero.
Anna Kanduth is a Research Lead with the Canadian Climate Institute and manages the 440 Megatonnes initiative.