The importance of the energy production sector in the Canadian economy calls for careful consideration of the implications of net-zero pathways.
First, fossil fuel production is largely dependent on export markets, worldwide demand and pricing. However, irrespective of these markets, in a cost-optimal trajectory, Canada must reduce its crude oil and natural gas production rapidly before 2030 to conform to net-zero targets. The sector’s high emission intensity and limitations to fugitive emissions reductions techniques make it difficult to use an adequate quantity of negative emission technologies, such as direct air capture, at a reasonable cost and with realistic assumptions about CO2 storage to compensate for a substantial emissions from the sector (see Chapters 8 and 12).
Short of such a reduction, reaching net-zero would require choices that involve reducing agricultural production or industrial processes. Reducing emissions by cutting production for the energy production sector is also cheaper in the short term than rapidly decarbonizing other sectors. However, this assessment must be carried out with care to ensure that the policy can help compensate for job losses in specific regions and export revenues that will be lost in the process. Sensitivity analyses exploring the consequences of maintaining higher levels of oil and gas production show how this transfers GHG reduction costs to other sectors, especially in the short term, increasing the challenge of reaching the emission targets.
It is crucial to note that if the rest of the world follows a trajectory similar to Canada’s, with aggressive GHG reductions around the planet, international demand for oil and gas products will fall, directly affecting Canada’s energy exports. In this context, given international pressure to address climate change, expanding or even maintaining subsidies to this sector is unlikely to be a worthy investment. Instead, following international commitments, Canada should support an accelerated transformation of the economy away from this industry, particularly in oil- and gas-producing provinces, which will significantly reduce the social costs of a worldwide transition away from fossil fuels. In other words, prevention is better—and cheaper—than cure.
Second, a dramatic expansion of low-emission electricity production is expected in all net-zero scenarios, most of which will come from variable technologies with careful consideration for grid resilience. Given this very large share of wind and solar energy over the longer term, in addition to limited additional capacity to expand hydroelectric production, the role of nuclear energy through SMRs could grow and support the expansion of uranium mining to supply it. However, significant uncertainty remains about this technology. Storage (outside of hydroelectricity reservoirs) also expands. This is an area where the technical potential of hydrogen may be of interest when long-term storage is needed. Third, bioenergy is expected to rapidly play an expanded role, especially in transportation. This role could be crucial to achieve reductions in the short term, while keeping costs in check and without impeding later transformations. However, beyond a certain point, the availability of biomass and the remaining emissions associated with it combine to limit its role in approaching net-zero emissions.