What Must Canada Do to Fulfill Its Net Zero Ambitions?

Aiming for net zero changes everything. This was what we discovered when we compared the results from our first net zero modelling exercise for Canada as a whole, with those generated in preparation for the second edition of the IET’s Canada Energy Outlook series. Many assumptions that were compatible with a 70% to 80 % emission reduction target turned out to be unable to deliver an economy with zero GHG emissions when summing up remaining emissions and carbon removal efforts. 

Let me focus on five of the main conclusions of our report, which will be covered in the same order below. 

1. Transitioning to a low-carbon world will be less costly than we can imagine today as technologies and know-how are developing quickly. 
2. The short time scale does not allow for transition energies or transition technologies: all investments and choices must be net zero-ready.
3. Clean electricity will play a central role in the energy transition, as a much more productive and efficient type of energy than clean fuels. 
4. Reaching net zero efficiently imposes a strategic and systemic approach that takes into account sectorial particularities. 
5. Carbon capture and sequestration must be a last-resort solution. Even in this case, with current technologies, modelling suggests that 150-250 Mt.CO₂e will have to be sequestered annually in Canada — about a third of current emissions! This represents a major technological challenge.

Canada’s Complex Net Zero Choice

Irrespective of Canada’s action, the rest of the world, including the USA, Europe and China, is set to make bold and rapid moves towards a low-carbon economy, leading to rapidly accelerating technological progress. The issue, therefore, is not whether or not Canada decarbonizes its own economy, but rather how it will leverage the billions of dollars that will accompany this transformation in order to improve its citizens’ quality of life through faster economic growth, improved services, and a healthier environment.

“The rest of the world, including the USA, Europe and China, is set to make bold and rapid moves towards a low-carbon economy, leading to rapidly accelerating technological progress.”

By waiting, as our country has largely been doing for the last few decades, Canada can benefit from efforts taking place elsewhere that will lead to a lower transition cost. On the flip side, such a wait-and-see approach would mean that Canada will be left behind in terms of intellectual property, know-how, and leading industries. The choice is therefore between paying a bit more today and contributing to orienting technological and social choices or waiting for bargain prices, which will come with adopting technologies and ways of life imposed from the outside.  

Transition Energies and Net Zero Ambitions

Our modelling also suggests that there is no place for transition energies on the path to net zero due to time constraints: it is simply impossible to deploy two subsequent transformations of the energy system in less than three decades. Given the people and financial capital needed to reach net zero, efforts need to be targeting solutions that are fully compatible with this goal, ignoring any dead-end technology. Indeed, it is preferable to wait a few more years and implement a net zero solution than to invest in technology able to reduce today’s emissions by 50%, but that will still need to be replaced in a decade.

This conclusion contrasts with approaches that were acceptable when GHG emission reduction targets were less strict and it forces us to constantly revise our policies and choices to ensure that these are compatible with the latest evidence. Regrettably, few policies in Canada have an internally mandated feedback mechanism that would impose regular reevaluations. This results in the maintenance of policies that are pushing us away from net zero goals. 

Clean Electricity is the Answer

All modelling exercises show that clean electricity is at the core of a successful energy transition. As electricity is a much more productive source of energy than fuels, it allows the transition to maintain and expand the services while reducing the overall energy demand. To support the crucial role of electricity, the federal government has announced a new clean energy regulation that will set a path to decarbonizing Canada’s electricity production by 2035. We expect a first draft of this regulation to be published before the summer.

“As electricity is a provincial jurisdiction, it is essential to support provinces as they embark on the path to the electrification of their economy.”

Federal regulation alone is not sufficient. As electricity is a provincial jurisdiction, it is essential to support provinces as they embark on the path to the electrification of their economy. This is not a minor matter, depending on the province, we estimate that electricity production will need to increase by 50% to 150% by 2050, even when including all economically viable investments in energy efficiency. Recognizing this challenge, Canada’s last federal budget announced $26 billion to support investment into clean electricity production, transport, and distribution.

But even with these subsidies, a major gap remains in terms of the electricity needed to support various decarbonization targets in the building sector and personal transport sector as well as planned investments in the electricity sector, as we showed in a report published last summer. This gap raises the risk that citizens, business owners, and investors ready to move to net zero will be forced, instead, to renew their commitment to fossil fuels for lack of sufficient supply of clean energy. Yet, any such commitment will lock these citizens into fossil fuels potentially for decades, both slowing Canada’s transition and increasing its cost. 

“In spite of the large number of studies that demonstrate the economic benefits of such a collaboration, planning remains largely done in isolation, province by province, at the moment.”

As countries from around the world compete for supply in clean energy production, transport and distribution hardware, it is likely that the capacity to provide this equipment will be exceeded and so further delays are to be expected for those who start late. To minimize costs and increase reliability, provinces will have to revise their traditional territorial position on electricity production and start real collaboration and planning with their neighbours, strengthening interprovincial links and trade. Yet, in spite of the large number of studies that demonstrate the economic benefits of such a collaboration, planning remains largely done in isolation, province by province, at the moment.  

Subsidies are not sufficient to force the hand of the provincial governments, electric utilities, and regulators. In addition to those, the federal government should work to increase demand for clean energy, particularly electricity, in the building, transport, and industry sectors, through targeted subsidies or regulation. This would add pressure on provincial structures from citizens and industry and accelerate the needed investments in electricity production and distribution. Current relatively inefficient home retrofit programs could easily be reoriented for that purpose while improving associated GHG reductions. 

Net Zero Solutions for Specific Needs

Most net zero modelling exercises also underline the fact that zero-emission solutions, at the moment, do not exist across the board. Two lines of strategy must be deployed to address this issue. First, Canada must support the strategic development and integration of critical technologies while creating the market conditions for these technologies to be deployed. Such an approach has been used by the United Kingdom for its Offshore Wind Industrial Strategy, a fully integrated approach that combines fundamental research, IP sharing, industrial development, and a drive to lower prices.

“Canada must support the strategic development and integration of critical technologies while creating the market conditions for these technologies to be deployed.”

While Canada, which has almost systematically shied away from such an approach to rather focus on broad and unfocused innovation support, should not duplicate the details of this strategy, it should adopt the thought and policy processes, focusing on challenges that are not currently addressed abroad or teaming up with world leaders to, at least, obtain a large share of the benefits. For example, as a producer of natural resources, Canada could deploy strategies to decarbonize this production, working with other countries with similar goals to transform the steel, cement, and aluminum industries.

Is Carbon Capture and Sequestration Effective?

In parallel, achieving net zero will require carbon capture and sequestration on a large scale, with the utilization aspect of the equation largely prevented by the fact that it is not compatible with net zero unless it leads to permanent carbon removal. It is therefore essential for the federal government to support the deployment of large-scale (one million t. CO2e per year or more) demonstration infrastructure associated with non-energy industries to validate the technology and the geology across the country and not only in oil and gas-producing provinces. Here again, Canada should not simply mimic the Inflation Reduction Act but rather design an approach that will favour complementary knowledge and technological development coupled with the creation of a strong local industry. 

Can Canada Win in the Net Zero Future?

The above recommendations will require considerable public and private investments. It is therefore essential that this money be spent in the wisest way possible, which is not to say that everything will go as planned, but, rather, that errors and successes will be leveraged to move forward efficiently. In its last few budgets, Canada has announced major financial efforts to support the energy transition and move to net zero by 2050. Regrettably, most of the programs announced are largely lacking a strategic and integrated vision that would make the most of the promised investments, creating a significant gap between climate objectives and the transformations taking place on the ground.

“Canada must rapidly produce sectoral decarbonization strategies, with a detailed analysis of the bottlenecks and how these can be lifted and leveraged.”

Indeed, it is remarkably easy for governments to jump on the bandwagon and distribute billions of dollars. It is much more of a challenge to do that efficiently. This is why Canada must rapidly produce sectoral decarbonization strategies, with a detailed analysis of the bottlenecks and how these can be lifted and leveraged. These strategies must be developed openly, bringing together civil servants, experts, and people on the ground, building on solid and quantitative analysis of where Canada should position itself. They must focus on improving productivity, lower infrastructure costs, and leveraging the transition to net zero to improve Canada’s competitiveness.

“Federal, provincial, and municipal governments continue to develop unsubstantiated plans behind closed doors, sharing little data and analysis with experts and the public in general.”

In a fast-changing world, these strategies will have to be constantly reassessed, corrected, and revised, accepting that some decisions or orientations that seemed good a few years ago might no longer be worth following. Yet, instead of choosing openness, federal, provincial, and municipal governments continue to develop unsubstantiated plans behind closed doors, sharing little data and analysis with experts and the public in general. They move one step at a time, without developing a global understanding of the issues in which to insert the various parts. Unless this is addressed rapidly, and I have very little faith in that, I do not see how Canada will succeed in leveraging the immense efforts needed to reach our net zero objectives while placing Canada among the world leaders on this issue.