The good, the bad and the equivocal

On Nov. 26, Bill S-4: An Act to amend the Energy Efficiency Act was introduced in the Senate. The bill’s first reading came weeks after Budget 2025 proposed legislative action to modernize the Act. 

Canada’s Energy Efficiency Act, first passed in 1992, enables Natural Resources Canada (NRCan) to set and enforce energy efficiency standards, EnerGuide energy labelling, and collect energy-use data for regulated appliances and equipment. The bill contains several welcome changes to the existing Act — which was last amended in 2017 — but also some revisions that could be of potential concern.

Efficiency Canada and CLASP published the How to Modernize Canada’s Energy Efficiency Act report in 2024, which provides an in-depth review of the Act and outlines 10 recommendations for modernization. Drawing upon this research and the latest energy efficiency developments, here are some positives, negatives and areas of uncertainty in the proposed bill.

The good 

Expanded definition of energy efficiency standard

Rather than just setting maximum energy and water consumption requirements, if passed, the Energy Efficiency Regulations could start setting standards for an expanded set of characteristics, including product durability; interoperability or energy demand; the performance of energy, exergy or emergy; system design; and technological composition. 

Increased demand flexibility and management are essential to lowering energy system costs as the Canadian electric grid decarbonizes, and utility demand flexibility programs offer a valuable tool for households and businesses to get paid for shifting electricity use to off-peak times. 

Household appliances and equipment like electric storage water heaters, dishwashers, and clothes washers are increasingly Wi-Fi-enabled, allowing households to schedule runtimes for when time-of-use electricity rates are at their lowest. However, hardware and software that enable this capability are often proprietary to the original equipment manufacturer rather than open-source, and therefore may not be able to “talk” to a home’s energy management system or a utility’s automatic demand response signal. Setting requirements for interoperability could remedy this and greatly scale up the potential of demand response programs for impressive peak demand and cost reductions.  

Added “Purpose of Act”

Bill S-4 proposes the addition of a new section titled “Purpose of Act” that lists six purposes, including to “encourage the transition to a low-carbon economy” and “foster collaboration with Indigenous peoples.” Canada’s Energy Efficiency Regulations are a powerful and cost-effective climate change mitigation tool. From their inception in 1995 to 2023, the Regulations were responsible for 680 Mt of avoided greenhouse gas (GHG) emissions. 

Taking a market transformation approach could be a future strategy for fostering the transition to a low-carbon economy. For instance, in our How to Modernize Canada’s Energy Efficiency Act report, Efficiency Canada recommends requiring all new or replacement residential air conditioners to be heat pumps. Air conditioners and heat pumps are fundamentally the same equipment, with heat pumps having just a few additional components. The Cool Way to Heat Homes report estimated that installing heat pumps instead of residential central air conditioners in Canada starting in 2025 would produce $12.6 billion of net benefits by the end of 2035. 

As specifics of how the Energy Efficiency Act will foster collaboration with Indigenous peoples are not detailed in the bill, hopefully this purpose will be reflected in the process for the consultation for Amendment 19 to the Regulations scheduled for Spring 2026. 

Including energy-using systems

The bill adds language around “systems” to both the definition of an energy efficiency standard and the description of the types of energy-using products covered by the Energy Efficiency Regulations. Considering system efficiency was one of the recommendations in our report. Including systems would enable the Regulations to set efficiency standards for packaged dual-fuel hybrid heating systems and electric motor systems, for example,  which could achieve much more significant energy and cost savings than regulating the system components separately.  

Coverage for online retailers

Bill S-4 proposes to expand the definition of “label” to include digital energy labels. Currently, mandatory EnerGuide labels are only required in physical retailers, so expanding coverage to online retailers will allow consumers to make informed appliance purchases wherever they shop. Digital labelling was another recommendation in our report. NRCan could make this update to the Act more impactful by expanding mandatory EnerGuide labelling, which is currently required for only eight out of the more than 70 regulated categories.

Higher fines for non-compliance

Bill S-4 would increase the fine for every person “guilty of an offence punishable on summary conviction” from a maximum of $50,000 to a maximum of $250,000 for first offence and $500,000 for subsequent offences. Additionally, the fine for those “guilty of an indictable offence” would be increased from a maximum of $200,000 to a maximum of $2 million for first offence and a maximum of $5 million for subsequent offences. The current fines under the Act for contravening energy efficiency regulations and labelling requirements were set over two decades ago and need an adjustment to account for inflation to meaningfully deter non-compliance. The addition of higher fines for subsequent offences also discourages repeat offenders.  

Market-driven averages

The bill would add market-driven averages as one of the manners by which energy efficiency standards can be set. According to NRCan, market-driven average-based standards encourage market competitiveness by setting an efficiency level that regulated entities must meet on average over a set of product models and would include phased increases over time. Environment and Climate Change Canada uses market-driven averages for vehicle fleet GHG emission performance. As long as market-driven average-based standards are not a substitute for traditional minimum energy performance standards (MEPS), which eliminate the least efficient appliances from the market, market-driven averages can be a good way for regulators to work with industry to increase efficiency over time. 

Promotion of emerging energy sources

Whereas the current Energy Efficiency Act is subtitled “An Act respecting the energy efficiency of energy-using products and the use of alternative energy sources,” language around alternative energy has been replaced by “emerging” energy sources. Referring to renewable energy as “alternative” is outdated, so the updated language is welcome — but could be strengthened by explicitly using “renewable energy.” There are significant opportunities to integrate renewable technologies with the demand management and flexibility that are part of the expanded definition of energy efficiency standards, and renewables are strongly tied to the transition to a low-carbon economy, which is a core purpose of the Act. 

The bad: Removing U.S. states from three-year comparison

The current Act requires NRCan to demonstrate “the extent to which the energy efficiency standards prescribed under this Act are as stringent as comparable standards established by a province, the United Mexican States, the United States of America or a state of the United States of America” in a report to Parliament every three years. Bill S-4, however, would remove U.S. states from this comparison. 

Many U.S. states have impressive energy and water efficiency standards, some of which Canada has adopted and could benefit from adopting in the future. For example, as part of the most recently finalized amendment to Canada’s Energy Efficiency Regulations, Amendment 18, Canada aligned with California’s excellent water efficiency standards for faucets and showerheads. With uncertainty around U.S. efficiency regulations and the move towards harmonization of federal and provincial standards, failure to compare to U.S. states could understate opportunities for progress. 

Canada should include more jurisdictions in the comparison, not fewer. According to CLASP’s World’s Best MEPS research, the European Union, the United Kingdom, China and Japan are world leaders in high-performance efficiency standards. If included in the triennial comparison, they would provide greater context for Canada’s comparative performance. This would align with one of the proposed purposes of the Act: fostering international and interprovincial trade and commerce and aiding in diversifying Canada’s business relationships. 

The equivocal

Introduction of regulatory sandboxes

Bill S-4 would introduce regulatory sandboxes under the Energy Efficiency Act. These offer a temporary exemption to the Energy Efficiency Act and Regulations for new products entering the market in an effort to increase innovation. The bill includes six-month exemptions for minor issues, like if the Minister deems it required for harmonization or to correct an error in the Regulations. Exemptions of up to three years, and extensions up to another three years, can be applied for an individual or class of energy-using products or systems and must follow the Government of Canada’s recently published Policy on Regulatory Sandboxes. In Budget 2024, the federal government announced its intention to amend the Red Tape Reduction Act and committed to increasing the use of regulatory sandboxes across government. As long as they are used judiciously and transparently, regulatory sandboxes could be an important tool for bringing new low-carbon technologies to Canada. However, we shouldn’t lose sight that strong efficiency regulations largely spur innovation rather than hindering it. Van Buskirk et al. (2014) found that energy efficiency standards even led to decreases in appliance purchase prices over time. 

Less frequent reporting to Parliament 

Currently, NRCan must release a Report to Parliament under the Energy Efficiency Act at the end of each fiscal year. Bill S-4 proposes switching that reporting requirement to every other year. Transparency is important, now more than ever. Starting Jan. 1, 2026, the Free Trade and Labour Mobility Act Regulations will allow lower provincial standards to be considered comparable to the federal Energy Efficiency Regulations, which could undermine energy and emissions savings. 

As long as the Departmental Sustainable Development Strategy reports, which provide a more detailed quantitative analysis of the performance of the Energy Efficiency Act and Regulations, continue annually, making the Report to Parliament under the Energy Efficiency Act biennial should not be a concern for transparency. However, it does raise questions about the reporting of the three-year Stringency Comparison of Canadian Standards. If the reports to Parliament are released every two years and the Stringency Comparison every three, would the latter be released in two out of every three biennial reports to Parliament?

The path forward

Canada’s Energy Efficiency Act is long overdue for a modernization of its powers to tackle 21st-century energy problems. Many of the proposed changes in Bill S-4 — like expanding the definition of energy efficiency standard, including energy-using systems, and coverage for online retailers — would support this. But as the U.S. DOE under the Trump administration attempts to roll back many of the appliance and equipment efficiency standards that NRCan had announced aligning with, Canada should look to other world-leading jurisdictions to benchmark against and harmonize with.