Why the Taxonomy has an Important Role to Play
Should natural gas be labelled ‘green’ or ‘transition’ in Canada’s sustainable finance rulebook? Simply put, no. And a new report from Environmental Defence and our Credible Taxonomy Canada partners explains why.
Beyond Gas: Financing a Net-Zero Electricity Grid with a Paris-Aligned Taxonomy is the latest in the coalition’s research series. It finds that Canada’s electricity sector must move beyond gas to achieve net-zero, and it outlines why Canada’s sustainable finance taxonomy should reflect this. The taxonomy is meant to be anchored in the ambition of the Paris Agreement, and the report is clear that gas-powered electricity is far too emissions intensive to credibly meet the threshold of a Paris-aligned investment.
The Beyond Gas report arrives as Business Future Pathways (BFP) nears completion of the first three priority sectors for the taxonomy: electricity, transportation, and buildings. In the taxonomy methodology report that was finalized in late October, BFP confirmed that natural gas is currently being considered for a ‘green’ or ‘transition’ label under the taxonomy’s electricity sector guidance.
BFP did hit pause on the development of the controversial ‘abatement’ category that was focused on oil and gas production, which is good news. However, the question as to whether gas use, where the majority of natural gas emissions actually come from, will be included in the taxonomy is still on the table.
The report outlines three major issues with giving gas-powered electricity a taxonomy label:
1) It would contradict Canada’s climate goals, even if gas is combined with carbon capture and storage (CCS)
Currently, Canada’s electricity system is becoming more polluting, not less, due to increased use of natural gas. Federal modelling from the Canada Energy Regulator shows that natural gas will play a declining role in the future of Canada’s electricity system – especially if the country moves towards a net-zero grid. Through increasing investment in clean electricity generation, transmission, and grid modernization, the use of gas-powered electricity must decline to a marginal role, intermittently backing up the system during peak demand.
Even when paired with CCS, gas-powered electricity is not low-carbon. There are currently no examples of any gas-fired power plants with CCS installed that are as low-emitting as renewables. The Glacier Gas Plant in Alberta is now running with CCS, and is described as the world’s first decarbonized gas plant. Even as a high performing facility due to its relatively small size, it emits 84 kg of CO₂ per MWh – above the 65 kg/MWh limit in Canada’s Clean Electricity Regulations and well above the life cycle emissions of wind power.
2) Impose a significant opportunity cost on Canada’s decarbonization efforts.
With over $1 trillion in investment needed to expand Canada’s electricity system and keep pace with rising electricity demand, the taxonomy’s electricity sector guidance comes at a critical moment for Canada. Taxonomy-aligned projects are expected to receive preferential financing, including through planned federal green and transition bonds. Every dollar directed towards gas is a dollar not invested in ‘green’ labelled activities such as renewables, transmission, or grid modernization. To avoid contributing to carbon lock-in, when fossil fuel systems delay the transition to clean alternatives, the taxonomy must exclude natural gas.
3) Conflict with net-zero progress and planning already underway, potentially reducing benefits for Canadians.
Canada’s existing Clean Electricity Regulations are projected to deliver socio-economic benefits for Canadians. While a net-zero electricity grid requires significant infrastructure investment, it is projected to deliver reduced household energy and health costs. In comparison, natural gas prices are inherently volatile and adding abatement technology, such as CCS, drives up the cost of gas-powered electricity even further. On cost competitiveness alone, natural gas is already more expensive than renewable energy, even when renewables are paired with battery storage. By excluding natural gas use, Canada’s taxonomy can be designed to complement and accelerate the trajectory of the regulatory framework, increasing the likelihood that the transition to a net-zero grid comes with the projected socio-economic benefits.
What happens next? BFP has committed to publishing a draft version of the electricity sector guidance, and the public will have a chance to comment on it. That comment period is an important opportunity to make the case that a credible, Paris-aligned taxonomy should point investment toward a clean grid, not toward gas. To read the full Beyond Gas report and the coalition’s other research, visit credibletaxonomy.ca/research/.
