As the world faces ever increasing disruptions caused by human-induced climate change, the characteristics of Canada’s energy production and consumption profile offer both challenges and advantages as it plans an aggressive reduction in its GHG emissions. The challenges include nationwide energy-hungry extraction and industrial sectors, a highly polluting transport sector, a strong economic regional dependence on fossil fuel production, and significant provincial disparity in addressing the energy transition. The advantages consist in the electricity sector being decarbonized at more than 80%, possession of the largest installed hydro reservoirs in the world, considerable potential resources for variable energy production, and substantial uranium and biomass resources.
Building on Canada’s GHG emission status, this Outlook explored potential transformations of its energy sector through various optimal techno-economic scenarios centered around Canada’s GHG targets for 2030, 2050 and beyond. As the modelling demonstrates, while reaching net-zero by 2050 is technically and economically attainable, it requires deep changes in Canada’s energy system. Although some of these changes are already taking place, they are still largely insufficient to ensure the targets will be reached on time.
In lieu of a conclusion, we review a number of issues that are determinant for the transformation of Canada’s energy system and that further understanding of the challenges that the country faces not only to reach its GHG targets, but also how it can move forward to overcome them.
15.1.1 A missed collateral effect of the pandemic
The effects of the 2020-2021 pandemic on the energy sector and GHG emissions have been drastic. Although the official numbers are not yet available, the pandemic, particularly in the first part of 2020, coupled with an oil-price war, hit Alberta and other fossil-fuel producing provinces very hard. According to ECCC estimates, the slowing down of the economy could have led to a 11% drop in GHG emissions from 2019 to 2020, bringing them to (still) 637 MtCO2e (ECCC 2021).
While there has been much speculation since March 2020 as to the long-term structural effects of the pandemic, evidence suggests that they will be minor. Canada’s GDP has largely bounced back in 2021 and by the end of June it had almost returned to its pre-pandemic level, although employment levels in May 2021 were still 3.9 points below February 2020. Given extensive vaccination, the pandemic should not have any lasting effect on Canada’s overall economy—with the exception of a rise in telecommuting. Since both governments and economic actors missed the opportunity to initiate deep transformations in energy production and energy usage, it is likely that energy consumption and GHG emissions will be back to 2019 levels by 2022. This explains in large part why the effect of the pandemic is not specifically treated in the modelling.
15.1.2 The 2030 milestone
The REF scenario of this Canadian Energy Outlook (CEO2021) suggests that measures in place at the federal and provincial levels are insufficient to prevent the growth of GHG emissions; with respect to 2005, these are projected to grow by 3 % by 2030. Although including the raising of the carbon price to $170/t by 2030 (CP30) and the proposed Clean Fuel Standards will reverse this trend, these two initiatives would lead to overall reductions of only 16% with respect to 2005 by 2030. This is far from the previous 30% reduction target for that year and even further from the recently revised objective of 40%-45% reduction. As the sections below explain, special attention to the 2030 horizon is essential in analyzing the impact of choices made today – or the absence thereof – for the pathways to net-zero on the longer-term.
What do the various scenarios teach us for 2030?
Extending the modelling period until 2060, the CEO2021 presents cost-optimal transformation trajectories given a certain number of constraints. While REF and CP30 do not impose specific emission reductions, NZ60, NZ50 and NZ45 constrain trajectories compatible with various Canadian GHG targets. In particular, as explained in Chapter 1, NZ60 imposes the official 30% reduction by 2030 with respect to 2005, while NZ50 requires the newly announced goal of a 40% reduction over the same time window.
Comparing CP30’s evolution with that of NZ60 and NZ50 (Table 15.1) over the next years enables us to make some specific observations as to foreseeable difficulties and ways to achieve the required transformations, while underlining the challenge that reaching these targets represents and remaining on a path to net-zero by 2050.
The holdout sectors
While technology is available to transform building heating, costs and barriers to investments limit the transformation of this sector over the 2030 horizon and total reductions are below overall targets at -22% and -32% respectively for NZ60 and NZ50, when combining residential and commercial buildings. The building sector is therefore both a low-hanging fruit, because of existing solutions, and a resisting sector due to barriers to entry associated with the technologies needed and the scale of the transformation, which involves hundreds of thousands of buildings.
Table 15.1 – Emission reductions by sector for NZ60 and NZ50 with respect to the model reference year (2016) #
Transport and agriculture are also difficult to decarbonize over a short horizon. While emissions rise in both CP30 and NZ60, transport decreases its emissions by only 13 MtCOe2 (-6 %) in NZ50, with a similar percentage reached for agriculture.
Energy efficiency and productivity
Many analyses place energy efficiency at the center of decarbonization.1 While energy efficiency must be sought, historical trends do not support its use as a deep change actor. There are a few reasons for this. First, low-cost energy efficiency is already being implemented in cost-optimized projections, irrespective of GHG targets. Second, energy efficiency requires often careful management that is not sustained over time.2 Lastly, in the quest for net-zero emissions, it is sometimes necessary to reduce energy efficiency, for example by replacing natural gas with biomass in a furnace.
Energy productivity is a much more reliable approach, especially in the context of electrification. Moving from fossil fuel to electric propulsion, for instance, can increase energy productivity by a factor of three to four. Similarly, replacing electric headboards with heat pumps can multiply energy productivity by two to four. However, this gain is already included in the cost-optimized trajectories presented here and, as such, cannot be counted in addition to the discussed transformations.
Acting on the only possible lever: oil and gas production
In both NZ60 and NZ50, with the exception of waste, electricity production and industry, no sector discussed in this section comes near to reaching its respective fraction of emissions reduction. The CEO2021 modelling for NZ scenarios underlines that to reach 2030’s targets, oil and gas production, including fugitive emissions, must compensate for the lack of GHG reductions of these sectors given how hard they are to decarbonize. To do so, oil and gas reduce emissions by 54% and 60% for NZ60 and NZ50, respectively, representing a decline of 86 to 97 MtCO2e with respect to 2016. With projected gains in emission intensity, these targets are associated with a production reduction of nearly 60%. While Chapter 7 discusses alternative pathways that preserve a high production level, all trajectories to reach 2030’s targets involve emission reductions for this sector that are above national targets and that compensate for the challenges of decarbonizing the other sectors.
If demand for oil and gas in the rest of the world decreases over the next year, with oil and gas prices falling, Canadian production will naturally falter along with emissions. However, with higher prices, reducing emissions will be more challenging and involve either limiting production or the rapid deployment of effective large-scale technologies to capture and sequester emissions.
The role of industrial transformation
As revealed by this Outlook’s modelling, the rapid reduction in emissions needed to reach 2030 targets cannot occur through changes at the individual or distributed level—be they in transport, buildings, or personal buying habits. Sectors that will drive the reduction include a relatively small number of units that interact closely with governments: electricity production, heavy industry and oil and gas. This makes it both easier for authorities to engage in dialogue and harder to resist lobbies. More openness about this challenge, similar to what took place in the 1980s with the ozone-layer, could help build popular pressure to make the appropriate moves.
15.1.3 Thinking in terms of pathways
Irrespective of the modelling tools, the challenge of reaching 2030 targets has changed with the long-term net-zero goal. As long as 2050 involved an ambitious 70% or even 80% GHG reduction, it was possible to see partial decarbonization solutions, such as fuel switching or more aggressive energy efficiency measures, as viable.
With a net-zero focus on a 30-year horizon, such an approach is no longer economically realistic. It makes no sense to deploy technological solutions, such as natural gas in transportation, that will have to be replaced in 15 or 20 years. Such a diversion will reduce investments for net-zero solutions, increasing their cost and further delaying the transformation. This emerges very clearly from the modelling results presented in this document, which show almost no adoption of such technology.
More important than 2030 targets is thus the deployment of measures and the start of deep transformations that will lead to net-zero over a 30-year horizon. It is essential to avoid making moves for the short run that will hinder the longer play.
15.1.4 Current plans need more coherence
As revealed in our modelling (REF scenario), Canada’s current approach, when including all publicly available federally and provincially adopted programs and measures, is insufficient to even halt the growth of GHG emissions. Largely driven by the oil and gas sector and transport, emissions are projected to slowly grow for the foreseeable future, in line with the Canada Energy Regulator’s projections.
Beyond the measures already adopted, the federal government presented a new plan in December 2020 that includes more than $6 billion in investments, as well as a significant price increase on carbon that will reach $170/tCO2e by 2030. While the expected outcome from the investments is not detailed enough to be modelled, the announced increase in carbon pricing, coupled with the coming clean fuel standards, should deliver a significant GHG reduction over this timeframe. However, according to our model, this reduction (-16%) is far from the 40-45% GHG emissions reduction promised with respect to 2005. Many emitting sectors, including buildings and transport, need more incentives and more guidance to be able to deeply transform on their own. Regrettably, even though many provincial governments and their federal counterpart have published various strategies for decarbonizing their economy, often announcing billions of dollars of investments, they are generally not coherent, focused or detailed enough to deliver the reductions needed to reach emission targets.3
This lack of internal focus within decarbonization strategies is compounded by the absence of overall coherence among the various governmental ministries: as some push for reducing emissions, others continue to support the development of fossil-fuel production and use, as well as GHG intensive industries, sending conflicting messages to citizens and investors.
1 J. Dion, A. Kanduth, J. Moorhouse, and D. Beugin. 2021. Canada’s Net Zero Future: Finding our way in the global transition. Canadian Institute for Climate Choices. https://climatechoices.ca/wp-content/uploads/2021/02/Canadas-Net-Zero-Future_FINAL-2.pdf
2 Saranya Gunasingh, Joe Zhou, and Scott Hackel. 2018. Persistence of Savings from Retro-Commissioning Measures. A field study of past ComEd Retro-commissioning projects. Report by Seventhwave. https://slipstreaminc.org/sites/default/files/documents/publications/retrocommissioning-persistence-studyfinal-reportoct-2018.pdf
3 It is, of course, possible that confidential programs, objectives and measures could deliver the missing reductions. We believe that it is essential for the federal and provincial governments to make this information public so that it can be assessed independently and used by citizens, industry and other governments, to orient their decisions, investments and orientations.