During its unveiling, Prime Minister Justin Trudeau called the Emissions Reduction Plan “the boldest and most specific step yet” on Canada’s path to zero emissions. The government has set ambitious sectoral targets and added significant new funding in several areas to meet its target of reducing emissions by 40% by 2030. It aims to achieve half of these reductions by 2026, in just four years.
Canada last raised its ambition in December 2020, releasing a plan to cut emissions to 503 Mt. Tuesday’s release added another 64 million tonnes to the planned reductions, almost half from the oil sector and carbon-intensive gas from Canada. Buildings, industry and transport accounted for the second largest reductions, with the balance split between the remaining sectors.
The government will also explore options to secure the future price of carbon, including contracts with industry and legislative means to keep the price of carbon on its current path. This measure aims to remove uncertainty around the future benefits of emissions reduction investments and, if advanced, could be key to unlocking significant demand for large decarbonization projects and the financing structures that will make them possible.
The plan calls for deep emissions reductions in oil and gas production, with sector-wide emissions falling 42% from 2019 levels. It relies heavily on methane reductions in conventional production , but despite predicting significant reductions in emissions from the oil sands, it leaves out key information on basic tools like the carbon capture investment tax credit. The government should publish more details on ICT in the federal budget.
The planned reductions are a call to action for producers, as oil sands emissions in 2030 are 7 million tonnes lower than those proposed by industry.
Notably, the plan also calls for Canadian oil producers to increase production by up to 1 million barrels per day by 2030. It underscores Canada’s challenge to balance climate change commitments with a promise of increase oil and natural gas production to curb runaway energy inflation. .
In his speech, Trudeau warned Canadian consumers about rising energy prices amid fallout from Russia’s invasion of Ukraine – a sign the government is walking a delicate tightrope. While the oil industry is set to be further challenged with an upcoming emissions cap, the bill for increased climate action could still fall on the government in the form of increased support for decarbonization projects. That would be a tough move for Ottawa, given the industry’s high profitability due to soaring commodity prices.
Ambitious targets for zero-emission vehicles
Efforts to green Canada’s buildings require a rapid retrofit upgrade and require an additional $1 billion in funding. Although modest, a building retrofit effort at the community level could provide lessons on how to deploy retrofits more effectively. Further efforts will be needed to alleviate labor supply issues in construction.
The plan added interim mandates for zero-emission vehicle sales, requiring 20% of light-duty vehicles sold by 2026 to be ZEVs, 60% by 2030 and 100% by 2035. It also added efforts on electric vehicle chargers, using the Canada Infrastructure Bank. a nod to the greater role that Crown corporations will play in the transition.
We expect these short-term mandates to be challenging given the supply chain issues that have plagued the automotive industry in recent years. The plan also sets sales targets for medium and heavy vehicles, aiming for 35% of sales to be ZEVs in this segment by 2030. Given the growing role of freight in transport emissions, this is good news. But the technology in this segment is still nascent, and more efforts to develop this market are needed.
A significant investment will be made in nature-based climate solutions, with $780 million allocated to programs focused on reducing emissions by taking advantage of Canada’s wetlands, peatlands and grasslands. The announced funding for agricultural emissions reductions also relies on farmers to harness the power of nature, using cover crops to sequester carbon in Canada’s soils. Agricultural emissions remain roughly constant over the forecast horizon, underscoring how difficult this sector will be to green.
Previous plans have largely been an exercise in funding new programs to accelerate emissions reductions. As these program announcements continue – to the tune of $9.1 billion in additional spending and more to come in next week’s budget – efforts will now focus on aligning all government policies. on planned emission reductions, and foster innovation and collaboration between different levels of government and with industry.
Efforts to develop new technologies and finance their deployment will be led by the private sector, with financial support from the government. The plan tripled funding for the Clean Technology for Agriculture program and allocated funds for “transformative” research into on-farm sustainability. It has pledged to develop an innovation hub for low-carbon building materials, develop a carbon capture deployment strategy, and will fund a tax credit to do so in the next budget. He also signaled the openness to bioenergy and carbon capture as a technology capable of removing historic emissions from the air.
But this spirit of collaboration does not yet go beyond our borders. While discussions at COP 26 in November set out a framework for international emissions trading, the current plan is mostly unaware of the role it could play. Particularly for Canadian natural gas which facilitates the phase-out of coal elsewhere, or for traded goods like steel and aluminum where major decarbonization investments have begun to take shape domestically. As Canada is a leader, the ability to offset emissions elsewhere can help reduce the cost of meeting our interim targets.
Overall, the plan is detailed and comprehensive, provides greater transparency on how the government is considering emissions reductions, and in some ways provides regulatory clarity. While the devil is in the details of implementation and regulation, the plan represents an important first step, outlining the large-scale system change that needs to be accelerated. But to achieve these ambitious goals, we will still need more: more investment, more funding, more collaboration and more innovation.
Colin Guldimann is an economist at RBC. He mainly works on issues related to the public sector, energy and climate change. Prior to joining RBC, Colin worked in housing policy and macroeconomic research at the Department of Finance in Ottawa.
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