Toward Greater U.S.-Canadian Energy Integration

This spring, two reports were released that touched, in different ways, on the importance of greater U.S.-Canadian integration in the electricity sector. These reports reflect the value of the U.S.-Canadian electricity relationship in reducing CO₂ emissions and enhancing the reliability of the grid.

The first report – the Department of Energy’s (DOE) Quadrennial Energy Review (QER) – is part of President Obama’s Climate Action Plan and examines challenges related to energy transmission, storage and distribution infrastructure. While the media attention has focused predominately on the QER’s recommendations relating to natural gas pipelines and U.S. electric transmission, the review has an entire chapter entitled “Integrating North American Energy Markets.” The QER reports that there are over 30 cross-border electricity transmission lines facilitating electricity trade between the U.S. and Canada, which totaled approximately $3 billion in 2014. According to the report, both countries cooperate on ensuring reliability, with three out of the eight North American Electric Reliability Cooperation regions spanning the U.S.-Canadian border. Given the electricity relationship between the U.S. and Canada, the QER offers some important recommendations to policymakers, including increasing integration of energy data among the U.S., Canada and Mexico, as well as establishing collaborative programs in each country to develop legal, regulatory and policy roadmaps for harmonizing regulations across the border.

In addition, the QER notes that Presidential Permit applications for cross-border electricity transmission facilities filed with DOE over the last five years could add approximately 4,100 megawatts of additional hydropower to the U.S. electricity mix. DOE notes that “this carbon-free generation has the potential to help the United States achieve its long-term greenhouse gas reduction goals.”

To enjoy the benefits of this CO₂-free resource, it is important that U.S. policies encourage, not inhibit, greater U.S.-Canadian integration in the electricity sector. A key question that is beyond the scope of DOE’s QER is how EPA might treat Canadian hydropower exports to the U.S. under its Clean Power Plan, which would establish state-specific standards for CO₂ emissions from existing power plants. In its draft rule on the Clean Power Plan, EPA did not specifically address this issue, but the Agency subsequently released a notice requesting comments on a host of items associated with the proposal, including how to treat Canadian hydropower exports to the U.S.

A recent Center for Climate and Energy Solutions (C2ES) report offers a potential path forward for the Clean Power Plan in recognizing Canadian hydropower. The report argues that existing renewable electricity tracking systems, such as the Midwest Renewable Energy Tracking System and the New England Generation Information System, provide verification for Canadian hydropower exports to the U.S. and guard against the possibility of double-counting for any renewable energy credits, which could be used for compliance under the Clean Power Plan. In addition, the report concludes that the risk of carbon leakage is remote due to existing Canadian federal and provincial policies. C2ES suggests that EPA’s Clean Power Plan recognize not just new hydropower projects but also new power purchase agreements with U.S. utilities from existing Canadian hydropower facilities.

The C2ES report notes the integral role that Canadian hydropower can play in helping states meet their Clean Power Plan requirements. For example, C2ES found that recognition of a new 250 MW Canadian hydropower project “could help reduce Minnesota’s power sector emissions by five percent, which would move the state 19 percent of the way toward its proposed 2030 target.”

The recognition of Canadian hydropower by EPA’s Clean Power Plan would be an important step in leveraging the benefits of this clean and reliable resource. It is also essential that U.S. and Canadian policymakers continue a dialogue on climate and energy issues. Thankfully, DOE Secretary Ernie Moniz appears to appreciate the importance of the relationship. Appearing before a recent Senate Energy and Natural Resources Committee hearing on the QER, Secretary Moniz called it “crazy” that a DOE Secretary had not visited Canada in over ten years, but he committed to holding trilateral North American energy minister meetings at least once a year going forward.

Electricity trade, much like CO₂ emissions, is not constrained by artificial borders. In bolstering the electricity relationship between the two countries, the U.S. and Canada can find ways to work together, not just on ensuring grid reliability, but also reducing CO₂ emissions.

Andrew Shaw is a member of the Public Policy and Regulatory Affairs practice at McKenna Long & Aldridge LLP.