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CANADA'S CLEAN ENERGY

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IEA published Canada 2022 Energy Policy Review

Executive summary

Overview

Since the International Energy Agency’s (IEA) last in-depth review in 2015, Canada has made a series of international and domestic commitments, putting it on a path toward achieving an ambitious energy system transformation and climate transition. Most recently, Canada announced a target to cut greenhouse gas (GHG) emissions by 40-45% from 2005 levels by 2030 and legislated a commitment to reaching net zero emissions by 2050.

Canada’s current energy and economic profile presents both challenges and opportunities in achieving these targets given its profile as a major producer, consumer and exporter of energy, and its northern climate. Energy is critical to Canada’s economy; it makes up 10% of the nation’s gross domestic product and is a major source of capital investments, and trade flows, and a key generator of middle-class jobs, including for Indigenous peoples.

Energy production and use in Canada accounts for over 80% of the country’s GHG emissions, with fuel combustion in energy industries (including oil and gas extraction, electricity and heat generation, and refining) representing 26%, transportation 26%, buildings 13%, manufacturing industries 9%, and fugitive emissions 7% of overall emissions. Canada’s electricity system is 83% non-emitting and among the cleanest in the world, with heavy dominance of hydropower as well as an important role for nuclear. Considerable variation in electricity generation profiles across jurisdictions means that increased interconnectivity across regions will be crucial to ensuring balanced progress across provinces and territories to meet national targets.

Improving the rate of energy technology innovation will be critical to enable the deep decarbonisation across sectors required to achieve net zero emissions by 2050. To this end, Canada is actively advancing a number of technologies, most recently announcing additional support for carbon capture, utilisation and storage (CCUS); hydrogen; and nuclear small modular reactors (SMRs), with a view to serving as a supplier of energy and climate solutions to the world.

Canada has a number of policy measures in place to support its national and international targets. To start, Canada introduced an ambitious carbon pricing scheme in 2019, which will notably provide appropriate price signals to shift consumption to cleaner fuels. To complement the carbon price, Canada’s policies include: the 2016 Pan-Canadian Framework on Clean Growth and Climate Change (PCF) and 2020 Strengthened Climate Plan, the Greenhouse Gas Pollution Pricing Act, the Clean Fuel Regulations, a commitment to phase out unabated coal use by 2030, nuclear plant extensions, upstream methane regulations, stringent vehicle emissions standards and energy efficiency measures.

As one of the few energy exporting country members of the IEA, the security considerations prompted by the clean energy transition are different for Canada than for those of energy importers, particularly regarding its ability to diversify its economy to remain an energy security partner to its global allies. As such, Canada needs clear policy signals to help attract energy sector investments that align supply capacity with demand trends. Policies must also take into account Canada’s plans to become a major producer of clean electricity and clean fuels to support global energy security during the transition. 

Central to this will be maintaining energy investments at sufficient levels to ensure that physical infrastructure continues to function properly and supply is adequate to avoid disruptions or price spikes that could adversely affect consumers. This includes energy production facilities, transmission and distribution systems, and export infrastructure. 

And as the clean energy transition brings new vulnerabilities from an energy security perspective, Canada has developed plans to increase its production and supply chains of critical minerals for both domestic consumption and export. 

Canada also remains committed to ensure a people-centred approach to its clean energy transition, and has put forth initiatives to promote diversity and inclusion of marginalised groups in clean energy sectors, measures that empower the participation of Indigenous peoples, and actions to enable a just transition for coal power workers. 

With a highly decentralised system of government, Canada’s provinces and territories hold considerable jurisdiction over energy policy and regulation, making co-ordination across provinces and with the federal government an essential element to successful energy transition outcomes.

Importantly, Canada has attempted to align post Covid-19 recovery efforts with its climate ambitions by developing green stimulus measures, targeting areas such as upstream emissions, clean energy infrastructure, buildings efficiency and zero-emission vehicles.

Canada’s Strengthened Climate Plan, aimed at meeting and exceeding Canada’s Paris Agreement targets and achieving net zero by 2050, will also be central to the government’s goal of creating 1 million jobs, restoring employment to pre-pandemic levels – of which climate action and clean growth is a cornerstone.

Climate change plans and targets

Over the past several years, the government of Canada has made near and long-term emissions-reduction pledges and released plans and legislation to reach them. Under the Paris Agreement, in 2015, Canada pledged to meet or exceed a GHG emissions-reduction target of 30% below 2005 levels by 2030.

To achieve its climate agenda, elected leaders of all provinces and territories and the federal government endorsed the PCF in December 2016. The PCF is built on four pillars: 

1) pricing carbon pollution;

2) complementary actions to reduce emissions;

3) adaptation and climate resilience; and

4) clean technology, innovation and jobs. The PCF includes over 50 concrete actions that cover all sectors of the economy.

In December 2019, the federal government committed to strengthening existing and introducing new GHG reduction measures to exceed Canada’s 2030 emissions-reduction goal, and to set Canada on a path to achieve net zero emissions by 2050. In November 2020, the government introduced in parliament the Net-Zero Emissions Accountability Act as part of its commitment to develop a plan to achieve net zero emissions by 2050.

In December 2020, the federal government proposed Canada’s Strengthened Climate Plan, A Healthy Environment and a Healthy Economy. Building on the PCF, the plan includes 64 new measures and CAD 15 billion in investments.

At the April 2021 Leaders Summit on Climate hosted by the United States, Canada’s prime minister pledged to update the country’s nationally determined contribution under the Paris Agreement to 40-45% below 2005 levels by 2030. 

Carbon pricing

The Pan-Canadian Approach to Pricing Carbon Pollution, released in October 2016, set a “federal benchmark” requiring all provinces and territories to implement carbon pricing systems with a certain level of stringency, while also ensuring the provinces and territories have the flexibility to design their own policies and programmes. A “federal backstop” carbon pollution pricing system applies in any jurisdiction that requested it or that did not implement its own system that meets the federal benchmark’s stringency requirements.

The backstop has two components: a fuel charge and an Output-Based Pricing System for large industrial emitters, which is a regulated emissions trading programme. Canada’s 2021 carbon price is CAD 40 per tonne of carbon dioxide equivalent (t CO2-eq) and will rise to CAD 50/t CO2-eq in 2022.

More recently, the government has confirmed an escalation of the carbon price by CAD 15/t CO2-eq annually to reach CAD 170/t CO2-eq in 2030. 

Electricity transition

Canada already has one of the cleanest electricity systems in the world (led by hydropower), with over 83% of production from non-emitting sources, and aims to increase that to 90% by 2030. Early actions, like the federal commitment to phase out traditional coal power across the country by 2030 and new hydro projects, will help to meet this goal.

The dominant role that hydroelectricity plays in several Canadian provinces, along with the fact that many hydro projects in Canada are large and have sizeable reservoirs, will also significantly assist with the integration of variable generation, as wind and solar generation are poised for growth.

Canada also identifies a significant opportunity to leverage regional advantages to increase the penetration of both hydro and variable renewables through the buildout of interprovincial interconnections. Strengthening interprovincial connectivity offers considerable upside to allow fossil fuel-dependent provinces to decarbonise and electrify their economies.

The role of nuclear energy is recognised as fundamental to achieving and sustaining Canada’s climate change goals and the technology is seen as a long-term source of baseload electricity supply. In particular, SMRs are considered a key priority. 

Decarbonising upstream oil and gas production

Canada’s oil and gas sector is a major contributor to GHG emissions, accounting for an estimated 25% of all emissions in Canada, and will need to be addressed as part of its overall emissions reduction policies. The industry, in part bolstered by government policies, has made inroads in reducing emissions intensity of operations, which have fallen by 32% in the oil sands since 1990. An additional 17-27% reduction in emissions intensity is expected from operations over the period 2018-30. Still, more work is needed to meet 2030 and 2050 goals, in part because the reductions in intensity are partially offset by increased oil and gas production.

Canada announced in October 2021 its commitment to join the Global Methane Pledge, which aims to reduce global methane emissions by 30% below 2020 levels by 2030. 

Methane accounts for 13% of Canada’s reported GHG emissions. The majority of these emissions come from three sectors – oil and gas (37%), landfills (27%) and agriculture livestock (24%). Meeting the objectives of the pledge will require significant reductions across all three sectors, but a focus in the near term on methane emissions from oil and gas is essential to achieving rapid, large-scale reductions.

In April 2018, Environment and Climate Change Canada published the final federal regulations for methane emissions from the oil and gas sector, which were developed in consultation with the provinces. The regulations, which took effect in January 2020, call for methane reductions from upstream oil and gas facilities of 40-45% below 2012 levels by 2025, including by requiring industry to regularly inspect and repair equipment to reduce emissions. As of October 2021, the government of Canada commited to strengthen its oil and gas methane emissions reduction target to at least a 75% reduction below 2012 levels by 2030. In fall 2020, the government of Canada launched the CAD 750 million Emissions Reduction Fund (ERF), to support oil and gas workers weather the double shocks of Covid-19 and global oil markets, by supporting investments to reduce methane emissions. 

Canada is also leveraging its abundant natural gas supply to position itself as a global liquefied natural gas (LNG) supplier, with a focus on reducing emissions from LNG facilities to well below the global average.

Energy efficiency

Canada sees significant potential for energy efficiency to contribute to its 2030 emissions goals and 2050 net zero targets. Energy efficiency in Canada is a shared responsibility between the federal and provincial/territorial governments.

The federal government has built partnerships and invested heavily in energy efficiency improvements since committing to the PCF, including energy efficiency investments through the CAD 2 billion federal Low Carbon Economy Fund in buildings, industry and transport, as well as CAD 950 million to support municipal efficiency intiatives. More recently in 2020, it committed to invest over CAD 6 billion through various initaitives to incentivise energy-efficient retrofits in homes and public and commercial buildings.

In August 2017, Natural Resources Canada (NRCan) released Build Smart: Canada’s Buildings Strategy in collaboration with provinces and territories. Build Smart, which falls under the PCF, outlines Canada’s plan to transform its buildings sector, articulating federal, provincial and territorial commitments in moving toward a clean energy future by making homes and buildings more energy efficient. This has been underpinned by sizeable budgetary outlays to improve energy efficiency through homes and building design, retrofits and new builds, as well as updated building codes for new and existing homes that are currently underway.

NRCan’s industrial energy efficiency programme helps industry improve energy efficiency through the implementation of energy management systems such as ISO 50001 and Superior Energy Performance, as well as other energy management activities and benchmarking tools such as the ENERGY STAR Certification and Challenge. 

In transport, the government applies emissions standards to light- and heavy-duty vehicles; green levies on fuel-inefficient vehicles, develops consumer information tools and materials to nudge consumers towards more efficient options as well as curriculum for fuel efficient driver training for the light-duty and freight sector; enables freight and logistics companies to benchmark their energy use; and supports the assessment and retrofit or fuel switching in freight fleets.

Clean fuels

Clean fuels represent an opportunity for Canada to transition its existing energy sector to a low-carbon future. Clean fuels include hydrogen, advanced biofuels, renewable natural gas, sustainable aviation fuel and synthetic fuels. Today, these fuels make up less than 6% of Canada’s total energy supply, but between 10% and 51% of Canada’s national energy demand is expected to be met with clean fuels in 2050 to reach its net zero goal. 

To achieve such an ambitious target, the government of Canada has introduced a number of measures that support the production of clean fuels industries: 

• the Hydrogen Strategy for Canada, which outlines opportunities for the domestic production and use of clean hydrogen, as well as export potential for clean hydrogen and technologies

• the Clean Fuel Regulations, which aim to reduce emissions, accelerate the use of clean technologies and fuels, and create jobs in a diversified economy

• the Clean Fuels Fund, which will support the buildout of new clean fuels production capacity, establish biomass supply chains, and develop enabling codes and standards; 

and 

• the Emissions Reduction Fund, which is a targeted Covid-19 relief measure to help oil and gas companies invest in green solutions to reduce methane and other GHG emissions. 

Technology and innovation

Canada sees technology and innovation as an integral component of its pathway toward net zero emissions. Through Budget 2017, Canada committed CAD 2.3 billion toward a clean growth policy agenda, as outlined in the PCF under the clean technology, innovation and jobs pillar. This investment resulted in the creation of new research, development and demonstration (RD&D) programmes that incorporated novel approaches to design and implementation, including cohort-based capacity building, milestone-based prize challenges, and partnerships with the private sector and foreign governments.

Notably, Canada has introduced the Strategic Innovation Fund, which has been supporting the creation and growth of innovative businesses across several sectors. Subsequent measures were announced under Budget 2021, including a Net Zero Accelerator, which will invest a total of CAD 8 billion to support faster decarbonisation from large emitters, scale up clean technology and accelerate industrial transformation.

Canada’s SMR Roadmap, released in 2018, identified significant potential for these innovative reactors to address a range of energy needs, along with opportunities for the Canadian nuclear industry to meet international demand. Canada then released its SMR Action Plan in December 2020, and a number of reactor designs are in the pre-licensing review process with a view to deployment in the late 2020s and early 2030s. 

In addition to Canada’s strong leadership to advance SMRs, Canada is a global leader in CCUS technologies, with 4 of the world’s 26 commercial projects in operation. The country also hosts extensive expertise in CCUS research and development, and the Strengthened Climate Plan proposes the development of a national CCUS strategy. 

Canada sees a sizeable role and competitive advantage in the production and eventual export of hydrogen, given its abundance of feedstocks, skilled workforce and existing position as a leader in intellectual property and exporting hydrogen technologies. In December 2020, the government published the Hydrogen Strategy for Canada, which is designed to spur investment in hydrogen production and create partnerships that establish Canada as a global supplier of hydrogen.

People-centred energy transitions

The Canadian government is making progress to ensure that the transition to a low-carbon economy remains people-focused through several initiatives on gender equality, indigenous inclusion, and ensuring a just transition for coal workers and all affected communities.

To ensure that the low-carbon transition is equitable and inclusive, the government of Canada co-leads the Clean Energy Education and Empowerment (C3E) International Initiative, a joint effort between the Clean Energy Ministerial and the International Energy Agency (IEA), which works to advance gender equality in the energy sector globally. 

Canada also leads the Equal by 30 Campaign, under C3E International, which encourages voluntary commitments by both public and private sector organisations to work toward equal pay, equal leadership and equal opportunities for women in the energy sector by 2030.

Domestically, Canada has stepped up its own data collection efforts. Developed by Statistics Canada, and funded by NRCan, the Human Resource Module of the broader Natural Resources Satellite Account provides detailed and reliable statistics on the demographics of natural resources production in Canada. 

Canada is ensuring that Gender-Based Analysis Plus (GBA+) is applied comprehensively to all aspects of policy development and decision making, and is committed to strengthening the quality of GBA+ with better data and the full consideration of impacts. 

Canada’s Strengthened Climate Plan initiatives are also applying GBA+ analysis to programme design.

Canada has also recommitted its focus on empowering Indigenous peoples as part of its clean energy transition. Over 200 northern and remote communities in Canada, the majority of which are Indigenous, are reliant on diesel for heat and power generation.The government of Canada is committed to increase the opportunity of Indigenous, remote and rural communities to be powered by clean, reliable energy by 2030 through programmes such as the Clean Energy for Rural and Remote Communities Program, the Indigenous Off-Diesel Initiative, the Northern Responsible Energy Approach for Community Heat and Electricity Program, and the Arctic Energy Fund. 

Lastly, to address the implications of the accelerated phase-out of coal power on workers and communities, in 2018, the government established the Task Force on Just Transition for Canadian Coal Power Workers and Communities to engage coal-affected communities in Alberta, Saskatchewan, Nova Scotia and New Brunswick, and recommend a path forward. The task force released its final report in March 2019, which included a series of recommendations for the government’s consideration. In response, the government has committed funds toward skills development and infrastructure to support economic diversification.

In July 2021, the government of Canada announced its intention to develop just transition legislation that would include just transition principles that put people at the centre of the government’s climate action, as well as establish an external Just Transition Advisory Body to provide advice on regional and sectoral just transition strategies that support workers and communities. 

In June 2021, Canada, along with the United States and the European Commission, launched the “Empowering People Initiative” under the Clean Energy Ministerial. This initiative will focus on workers and communities in the clean energy transition across the range of energy technology initiatives.

Key recommendations

The government of Canada should:

 Model pathways to net zero by 2050 for Canada’s energy system, and develop national emissions reduction strategies in consultation with provinces, territories and other stakeholders for key sectors such as oil and gas, transport, buildings, and industry.

 Explore ways to enhance the federal government’s role in strengthening inter-provincial connectivity, expanding the use of interconnectors, and accelerating key projects of grid modernisation and electrification. 

 Develop a comprehensive energy efficiency strategy in consultation with provinces and territories that sets clear targets for energy efficiency in each sector (buildings, industry and transport).

 Increase federal funding in support of accelerating R&D and innovation of clean energy technologies to achieve 2050 targets, with an eye to also advancing future export opportunities.

 

Full PDF version

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