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March 20, 2025Reading time: 7 minutes
Full Story: Corporate Knights
Author: Victoria Foote
Canadian leaders are strategizing how to improve grid interconnection between the provinces. (Photo: Canva/CK Staff)
Canadian leaders are strategizing how to improve grid interconnection between the provinces. (Photo: Canva/CK Staff)
As much as 8% of the electricity Canada generates is sent south of the border, enough to power some six million homes in the United States. Net exports rose over the past decade, and north–south transmission connections between Canada and the United States are more numerous than east–west connections between provinces.
The free flow of energy between the two countries benefits suppliers and consumers alike as the arrangement takes advantage of differing demand levels among jurisdictions so that rates remain consistent, writes Corporate Knights. But this relationship is changing rapidly as President Donald Trump unleashes a barrage of trade threats and tariffs.
Suddenly, the direction in which Canada’s electricity moves is top of mind. For the first time in recent memory, provincial governments are expressing a shared interest in dismantling interprovincial trade barriers, including those that apply to energy.
Several sub-national governments have already announced plans to allow for unimpeded movement of goods and services between provincial jurisdictions, and some premiers have raised the prospect of increasing interprovincial trade in energy – a proposal that had been put forward in years past but had yet to gain traction until very recently.
British Columbia Energy Minister Adrian Dix told The Globe and Mail that since the White House first declared its intention to impose steep tariffs on Canadian goods, he has been in discussions with Alberta’s Brian Jean, minister of energy and minerals, to figure out how regulatory red tape between the two provinces’ energy sectors can be reduced.
On the east coast, Newfoundland and Labrador announced a historic agreement with Quebec to generate more hydropower at the Churchill Falls power plant in Labrador and install more transmission lines to transport the additional power load.
For many business leaders, reducing internal obstacles will be key to surviving the economic fallout of U.S. tariffs on Canadian goods.
Canada’s Trade Agreement With Itself
The Canadian Free Trade Agreement (CFTA), signed by the federal, provincial and territorial governments in 2017, is intended to either eliminate or reduce trade barriers within Canada. But governments are allowed to name exceptions.
Ottawa has said that it will reduce its 39 federal exceptions to 19 in addition to the 17 federal exceptions the government removed last June. Provincial governments, in turn, have vowed to do more to liberalize domestic trade.
Nova Scotia Premier Tim Houston declared that his government will introduce legislation that would ease trade and labour mobility with other provinces, so long as they do the same.
Ontario Premier Doug Ford promised to look at similar legislation. Ford also pledged to remove all of Ontario’s exceptions in the CFTA.
Even a partial removal of interprovincial barriers could deliver considerable savings to Canadians. An RBC report released in February references an International Monetary Fund study that found that the cost of non-geographic interprovincial trade barriers was roughly equivalent to an average tariff of 21%.
Interprovincial Grids Make Electricity Cheaper and Cleaner
The Pembina Institute, a clean energy think tank, released a report in 2021 on how Canada’s surging energy needs coupled with its decarbonization targets makes the case for constructing electricity interconnections and allowing provincial neighbours to buy and sell clean energy from one another. The report states that interprovincial grids are essential to maximize clean electricity resources, allowing renewable energy to be generated in one jurisdiction and distributed to another.
According to the Canadian Climate Institute, to achieve net-zero carbon emissions Canadian electricity demand will grow to be 1.6 to 2.1 times larger by 2050 relative to 2022. And to meet that demand, Canada’s electricity generation capacity will need to be 2.2 to 3.4 times bigger than it is today.
Not only would a nationwide grid network deliver more energy; it would also make energy cheaper. A North American Renewable Integration Study released in 2021 concluded that a continent-wide transmission grid, along with storage and flexible operation of different generation technologies, in particular hydropower, could deliver system-wide net benefits of $12.6 to $38 billion.
Ultimately, however, it falls to provinces and territories to determine whether and how much they want to integrate their energy systems. Under a functioning U.S.–Canada free trade arrangement, the path of least resistance has been to buy and sell energy with our U.S. trading partner, and provincial governments have been in no rush to change that arrangement.
Additionally, governments balked at the price tag of big infrastructure projects. On that point, Kate Harland, research lead with the Canadian Climate Institute, says that before making major capital investments in new transmission lines, provincial governments should take a close look at the infrastructure that’s in place now.
“The cheapest option,” Harland argues, “is to use the infrastructure we have in better ways. There are interprovincial connections in place now, but they aren’t used to capacity due to regulatory and political challenges. So step one would be to use what we have. Until recently, north–south trade was so beneficial there was little incentive to break down barriers to east–west trade. This has changed.”
Atlantic Canada Leads on Interprovincial Clean Energy
The benefits—as well as the difficulties—of interprovincial trade in energy can be seen in Atlantic Canada. The Muskrat Falls project, an energy trade arrangement through which hydropower generated in Newfoundland and Labrador is sent to Nova Scotia, has helped Nova Scotia Power increase the proportion of clean energy in its grid supply from 9% in 2010 to 35% today.
Nevertheless, warns Brendan Haley, senior director of policy strategy with Efficiency Canada, the Muskrat Falls project can be seen as a cautionary tale. Haley points out that in Newfoundland and Labrador, the cost of the Muskrat Falls project nearly doubled from the initial 2012 forecast of about $7 billion to more than $13 billion by 2021. Fear at the time that electricity rates would also double resulted in two bailouts from the federal government totalling $5.2 billion in 2021. The federal support was part of the province’s rate-mitigation plan limiting annual electricity rate increases to 2.5% until 2030.
As Nova Scotia Power waited for clean electricity to start flowing its way during the long project delays, the province spent $1.6 billion in replacement fuel costs. “Be wary of technological optimism,” says Haley, who argues that a better approach is to combine microgrid technology and efficiencies with macrogrid build-outs within and between provinces.
Haley notes that making sure buildings are well insulated and instituting demand-side management strategies that reward customers for using electricity during off-peak hours, such as charging an electric car overnight, are the sorts of inexpensive solutions that can be deployed almost immediately, says Haley.
Establishing robust microgrids does not diminish the importance of and need for more infrastructure, Haley adds, nor does it contradict the upside of more interprovincial trade.
While the Muskrat Falls project suffered from cost overruns, multiple delays and, at times, vigorous opposition among local Indigenous communities, the Atlantic provinces continue to push ahead with interprovincial clean energy projects. New Brunswick and Nova Scotia are set to begin construction of the first phase of a large joint project they say will help them keep their commitment to phase out coal by 2030.
Sometimes referred to as the Atlantic Loop, the project includes building an interprovincial electricity transmission line that will span 160 kilometres. Construction is expected to start in both provinces in 2026. In 2023, the estimated cost was tagged at $1.4 billion.
“There is no question that as demand rises, we will need more interconnections in the future,” Harland says. But it should be done judiciously, she adds, understanding how to minimize new builds, maximize existing lines, smooth out energy demand peaks and enforce energy efficiencies.
This story originally appeared in Corporate Knights and is part of Covering Climate Now, a global journalism collaboration strengthening coverage of the climate story.