Ottawa will invest in expanding interprovincial electricity grid but only if provinces are interested

Ottawa will contribute financially to expanding the interprovincial electricity transmission grid required to achieve net-zero emissions – but only if provinces are interested, says Canada’s energy minister.

“The federal government has to recognize that the electricity grids are the purview of the provinces,” Jonathan Wilkinson (photo at right), Minister of Energy and Natural Resources, said during an Energy vs. Climate podcast on June 27.

“So this has to be something that the provinces are actually interested in. We can’t force provinces to do this, nor should we,” he said.

Most experts say Canada will have to expand its national electricity grid by two to three times by 2050 to transition to clean electrical power for industry, commercial buildings and homes, accommodate electric vehicles and other zero-emissions technologies, and achieve net-zero emissions.

“It’s the biggest challenge facing us in terms of being able to scale [the energy transition] at a pace that climate will demand us to do,” Wilkinson said.

Ontario and Quebec have done a lot of work developing roadmaps for electricity infrastructure to get those provinces where they need to go, he said. The federal government has done detailed infrastructure road-mapping work with Nova Scotia and New Brunswick.

“But we don’t have all of the provinces working on plans that actually show how they’re going to get to where they need to go by 2050,” Wilkinson said.

Ottawa had been working on a concept called the Atlantic Loop which would involve building new electricity transmission interties to link Nova Scotia and New Brunswick with Quebec’s and Newfoundland and Labrador’s hydropower supply. The project was supposed to help Nova Scotia and New Brunswick phase out coal-fired power.

But the Nova Scotia government backed away from the original Atlantic Loop concept last October, after 2020 capital costs for the project tripled – to more than $9 billion – and Quebec couldn’t commit to providing a regular supply of hydropower.

Wilkinson said the federal government brought all sorts of financial resources to the table for the Atlantic Loop, including a loan from the Canada Infrastructure Bank. The project “made sense until Quebec became short of power,” he said.

Instead, Nova Scotia and New Brunswick now plan to pursue a “modified Atlantic Loop,” a scaled-back project that involves building a new transmission line running parallel to an existing line across the two provinces’ shared border.

The new 345-kilovolt intertie – currently estimated to cost at least $700 million – would help carry power from future renewable energy projects between Nova Scotia and New Brunswick. A construction start date has yet to be announced.

In Western Canada, Wilkinson said, “there has been talk for a long time about [building new] interties.”

 New transmission lines could connect B.C.’s and Manitoba’s hydropower supplies with wind and solar energy in Alberta and Saskatchewan, he said. “There are a lot of synergies there.”

“We are very interested in engaging in that conversation, but it has to come from the provinces. The federal government cannot tell the provinces that this is a thing they must do.”

Ottawa offers a federal investment tax credit to provincial public utilities to build transmission lines between provinces, but not for transmission within provinces.

Is Ottawa doing enough to encourage new interprovincial lines?

 The Energy vs. Climate panelists suggested there’s more the federal government could be doing to incentivize new interprovincial electricity transmission lines.

The U.S. has similar challenges, with state-owned utility “fiefdoms” unwilling to give up control over transmission lines in regions they operate in, said Sara Hastings-Simon (photo at right), a professor in the University of Calgary’s Faculty of Science, whose research focuses on the energy transition.

Yet in Texas, she noted, a lot of the development and integration of new renewable energy came because new transmission lines simply were built and then the electricity generation followed.

Texas is the lone state in the contiguous U.S. with its own power grid, which is isolated from the two national electricity networks.

David Keith (photo at left), professor and founding faculty director of the Climate Systems Engineering Initiative at the University of Chicago, suggested Canada’s federal government could play a greater role in creating a market structure that would incentive new transmission lines between, for example, B.C. and Alberta. He pointed to how Ottawa stepped in to buy the Trans Mountain crude oil and refined petroleum products pipeline from Alberta to B.C. to ensure the pipeline got built.

Arbitrage, with Alberta buying B.C. hydro power and B.C. buying wind and solar power from Alberta, would work in a well-structured market, Keith said. “It would improve the net welfare on both sides, it would be good for both [provinces].

But Wilkinson maintained that since the electricity grids within each province are owned by those provinces, “there needs to be a conversation with the provinces about how this can actually work.”

Wilkinson’s and the federal government’s position – that essentially Ottawa is unable to act to get more interprovincial electricity transmission lines built without provincial agreement – is challenged by some experts.

Ottawa has the constitutional jurisdiction to regulate interprovincial transmission lines but has made a policy decision not to do so, Kristen van de Biezenbos, a law professor at California Western School of Law (and a former professor at the University of Calgary), told Research Money last October. “They have the legal ability to do it but the federal government has chosen not to do that.”

In a published study, van de Biezenbos said the lack of interprovincial transmission is a national problem that’s discouraging private investment and making the country a laggard in renewable energy technologies – particularly wind and solar – and is frustrating further decarbonization.

The federal government does regulate interprovincial oil and natural gas pipelines, like the Trans Mountain pipeline. From a jurisdictional perspective, van de Biezenbos said, there isn’t a difference between those pipelines and interprovincial electricity transmission lines.

Ottawa’s decision not to regulate interprovincial electricity transmission lines “isn’t based on the belief that they don’t have the legal power do it,” she said. “It’s based on something else, which I assumed to be a desire to stay out of what traditionally is an area of provincial control.”

Andrew Leach, energy and environmental economist at the University of Alberta, said in testimony to the Parliamentary Standing Committee on Natural Resources last September that Canada’s biggest opportunity in achieving a clean national electricity grid is through interprovincial power lines.

“On either side of Saskatchewan and Alberta, we have provinces with great hydro resources. We should have projects under construction right now that integrate those markets more,” Leach said.

The Canada Electricity Advisory Council, in its final report to the federal government, urged Wilkinson to engage counterparts at the July 3 to 5, 2024 Energy and Mines Ministers’ Conference to jointly develop, and table in time for the conference in 2025, a collaborative framework to identify and financially support inter-regional electricity transmission projects. This framework should outline governance, cost allocation, and funding components.

The council’s report also recommended that the federal government bring a series of changes to clean electricity-related investment tax credit programming, including adopting more pragmatic conditions criteria, expanding tax credits to intra-provincial transmission, and adjusting credit levels.

Oil and gas sector is lagging in reducing GHG emissions

When it comes to reducing greenhouse gas emissions in industrial sectors, Wilkinson told the Energy vs. Climate podcast that while the steel, aluminum and cement manufacturing sectors are all making progress, “the sector where we haven’t seen progress is the oil and gas sector.”

“That is the one of the only sectors in the economy where emissions are going up, not down. That is largely because [oil] production is going up, not down.”

The federal government’s regulation to require the oil and gas sector to reduce methane emissions by 75 per cent and Ottawa’s proposed cap on the sector’s GHG emissions are very important to ensure the sector reduces its emissions, Wilkinson said. “With the cap, the level that we are asking the industry to achieve is what the industry has told us they can [achieve].”

However, the oil and gas industry opposes the cap, arguing that it amounts to a cap on production. The Alberta and Saskatchewan governments also oppose the cap.

Wilkinson noted that the federal government’s national carbon price on industrial emissions, investment tax credits, and carbon contracts for difference for carbon capture and storage (CCS) projects, all provide incentives for the oil and gas sector to reduce emissions.

Hastings-Simon said the federal incentives are essentially a test of the sincerity of oil companies’ claims and commitments to reducing emissions.

“If we don’t see a lot of CCS deployed with this level of support, then I think it’s also reasonable to come to the conclusion that the companies themselves just don’t see a business case for it,” she said.

Podcast moderator Ed Whittingham (photo at right), a clean energy/policy finance professional and Public Policy Forum fellow at the Pembina Institute, said another challenge is the growing popularist resistance to the “visible costs” of decarbonization.

Wilkinson said governments need to reframe the conversation to talk about the economic opportunities of decarbonization and “how affordability can actually be driven by climate action.”

Keith, however, cautioned that “a bottom-line simple fact is that cutting emissions will cost money. If politicians and experts run around too much telling people that it’s all win-win, people hear that but they know it costs money,” so there’s a disconnect that builds distrust.

Wilkinson responded that he believes climate change can be addressed effectively “in a manner that doesn’t significantly affect global GDP, but it may have different impacts in different parts of the world.”

But Vaclav Smil, author of over 30 books, distinguished professor emeritus at the University of Manitoba, and an internationally respected expert on energy transitions, said in an essay in March that the estimated cost of global decarbonization by 2050 likely would be $440 trillion, or nearly $15 trillion a year for three decades, “requiring affluent economies to spend 20 to 25 percent of their annual GDP on the transition.”

Will decarbonization initiatives survive a new federal government?

Wilkinson insisted there will be “massive opportunities” in Canada for critical minerals and nuclear power, and in Alberta for producing and exporting hydrogen made from reforming natural gas while capturing and storing the carbon dioxide emissions.

“The Japanese are begging us to ship them hydrogen that is produced through the [steam] reformation of natural gas” with CCS, he said. “That’s a long-term future for natural gas from Alberta in a low-carbon, net-zero world.”

Keith, however, was skeptical, saying there are some fundamental physics reasons why hydrogen is difficult to transport long distances by pipelines and ships. Because of its extreme low density and flammability, hydrogen is complicated and expensive to transport –requiring a lot of energy in the process.

“I get why it politically feels just great to imagine that Alberta can magically decarbonize its natural gas and send hydrogen overseas,” Keith said.

But he thinks it’s “extraordinarily unlikely” that hydrogen will move long distances as an energy carrier. Also, there’s currently no transportation infrastructure or viable international market to enable that to happen, he added.

The Energy vs. Climate panelists also questioned the slowness of carbon contracts for difference being signed under the Canada Growth Fund, which allocated $7 billion of its $15-billion fund for such contracts.

Carbon contracts for difference essentially provide a company capturing and removing carbon a guaranteed future price per tonne of carbon dioxide removed. Such contracts reduce some of the risk for companies considering investing capital in CCS projects.

So far, three contracts for difference have been signed since the Canada Growth Fund launched in 2023.

Wilkinson said the fund has been looking to create a few models that can be used for more template-type approaches to the contracts. “I think you’ll see more of these [carbon contracts for difference],” he said, noting the government is committed to recapitalizing the fund if the demand is there.

The current Liberal government, which has made decarbonization in response to climate change a top priority, has put in place numerous policies, regulations and incentives to encourage and accelerate the transition to a net-zero economy.

But Whittingham said Energy vs. Climate has heard from its sources that the “rollback script” for a government led by Conservative Party leader Pierre Poilievre has already been written.

“They’re going to get rid of the Clean Fuel Regulations, the retail carbon tax, the oil and gas emissions cap, replace the Clean Electricity Regulations with something more flexible,” soften methane-reduction regulations, and make the industrial carbon price less stringent, Whittingham said.

“It’s going to be a year of shock and awe,” he said, adding such rollbacks would be a huge blow to the Liberal government’s climate legacy.

But Wilkinson said he thinks market forces and investors will continue the momentum of many of the measures the government has put in place, “irrespective of what governments say must be done from a regulatory perspective.”

A new government can get rid of legislation, “but that’s a very public thing to do, to actually cancel an existing law,” he said.

Canadians who actually care about the climate issue will have a choice at the ballot box during the next federal election which has to be held no later than October 2025, Wilkinson said.

“They have a choice between somebody who effectively has a climate plan which is just let the planet burn, and an economic plan which is just pump oil and gas,” he said.

“Or [they can choose] a government that has actually invested enormous amounts of time, energy and financial resources in ensuring that Canada is actually taking the steps to do things that science simply tells us we must do.”

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