Customer Logins

Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.

Customer Logins

Canada upgrades decarbonization plan

11 January 2021 Kevin Adler

The government of Canada took the next step towards its goal of net-zero carbon emissions by 2050 in December, releasing a climate action plan that details how it would invest billions of dollars and create new incentives for the transition to a clean-energy economy.

The plan, known as "A Healthy Environment and a Healthy Economy," would increase the country's carbon tax by C$15/metric ton (mt) annually through 2030, beginning in 2022. From the 2021 rate of C$40/mt, it will rise to C$170/mt in 2030; at that point, it would add an estimated C$0.38/liter (US$1.13/gallon) to the cost of gasoline and diesel fuel.

Canada's carbon taxes are rebated to consumers through legislation in the Greenhouse Gas Pollution Pricing Act, and the new plan would keep the rebates intact, while shifting the payments to consumers from annual to quarterly. "We are going to continue to increase the price on pollution and give more money back to Canadians and their families," Prime Minister Justin Trudeau said when announcing the plan 11 December.

The plan includes C$15 billion in new investments, including:

  • C$964 million for grid modernization to support renewable power distribution
  • C$1.5 billion for "green and inclusive community buildings"
  • C$2.6 billion for home energy efficiency upgrade grants
  • C$2 billion for retrofits of commercial and other large buildings
  • An additional C$287 million over two years for the Incentives for Zero-Emission Vehicles program
  • C$150 million over three years to build electric vehicle (EV) charging stations
  • 100% tax write-off for commercial purchases of light, medium, and heavy-duty ZEVs

The plan would reduce greenhouse gas emissions by 40% compared with 2005 levels by the end of this decade, compared with the current goal of a 30% reduction.

Reaction

Reaction across Canada's industrial spectrum was generally positive. "Electricity will be central to Canada achieving net-zero carbon emissions. That's why the electricity sector is pleased to see clean and affordable power at the center of the climate plan announced by the federal government," said Francis Bradley, president and CEO of the Canadian Electricity Association.

"Canada is already a world leader in clean power. More than 80% of the electricity produced is non-emitting, and the sector has reduced GHG emissions by more than 45% since 2005. New technologies including hydrogen, small modular reactors, carbon capture and utilization, and energy storage, will help us reduce the rest," he said.

Despite the significant increase in the cost of motor fuels due to the rising carbon tax, members of Canada's oil industry said they are generally supportive of the bill. In the final plan, the government withdrew an earlier proposal to impose the Clean Fuel Standard on all types of liquid, gaseous, and solid fuels. Instead, it applies only to liquid fuels, and it would require annual reductions in the carbon intensity of each fuel produced on a lifecycle basis.

"We note the positive decision by government to limit the application of the Clean Fuel Standard to liquid fuels in response to concerns raised by Canadians as well as the business community," Tom McMillan, president of the Canadian Association of Petroleum Producers, said in a statement.

The association also backs the C$1.5 billion to be directed into a Low-Carbon and Zero-Emissions Fuels Fund to increase the production of low-carbon fuels, McMillan said. "New technologies and innovation, particularly those developed by the natural gas and oil industry will play a major role in ensuring Canada can meet its domestic emissions reduction goals while contributing to global emission reductions by providing lower emission natural gas and oil to world markets," he added.

For environmental groups, the plan is full of positives as well, in particular the carbon tax and the proposed C$3 billion addition to the Net-Zero Accelerator Fund to decarbonize large emitters and scale up clean energy and carbon sequestration technologies.

But they said the government could take concrete actions now to demonstrate its net-zero commitment. "Increased spending on climate initiatives and the promise of creating 2 million climate jobs are great news, but Canada needs to do more if we're going to meet our Paris Agreement promises. We need stronger 2025 and 2030 targets and plans to meet them," said Amara Possian, Canada Campaign director for 350.org.

As an example, Possian said that a project to triple the capacity of the Trans Mountain Pipeline, which delivers crude and refined products from Canada to the US, should be halted. "Today's announcement is exactly the kind of increased climate action that the Parliamentary Budget Officer and the Canada Energy Regulator warned will make the Trans Mountain Pipeline obsolete," she said.

Environmental Defence Canada explained one flaw in the proposal that it would like to see fixed in final legislation: the lack of a firm cap on carbon, or "carbon budget," as interim requirements. "Not only does the legislation stipulate targets rather than budgets, the first five-year target is 10 years away. 2030, not 2025…. The government does not have to do anything if Canada is not on track, only develop yet another plan," it stated.

However, the program does bring a new level of accountability to carbon reductions, said Robert Hornung, president and CEO, Canadian Renewable Energy Association. "C-12 is an effort to formalize the net zero target. More importantly, it's a mechanism to ensure transparency and accountability…for performance. There's been some discussion that you could pass net-zero goals into law, and then another government can change the law. But C-12 would set interim targets and reporting that provides a framework and accountability to hold the nation accountable. C-12 sets up the goalpost," Hornung explained.

Renewables

For Canada's renewable energy industry, the program has numerous potential benefits, Hornung told IHS Markit. "It's clear that the government is hoping that the biggest of emission reductions will be signals set through a carbon price—and, frankly, we think this makes sense. This will encourage the private sector to play a leading role," he said.

"The plan provides a very transparent and steadily increasing pricing of carbon," he added. "This is significant, and we think it will be a powerful signal to investors … now having the sense of long-term trends in pricing of carbon to determine viability of a power project."

According to Hornung, the plan also explicitly links the expansion of clean electricity production and the supporting infrastructure with the nation's long-term goals. "The plan references what many models have shown: that a doubling or tripling of the electricity sector will be needed…. A number of initiatives in the plan will encourage electrification, such as EV purchases, EV infrastructure, and funds available now to explore electrification of heavy industry. We see these also as very positive," Hornung said.

The plan also supports the evolution of the power industry, Hornung said. "A common theme you will find in any study on how Canada will get to net zero will be the need to improve the interconnections of our energy grid. In many ways, we are more connected north-south with the US than within Canada east-to-west. There are many opportunities for improving efficiency through better interconnections," he said.

Funds in the plan to improve the transmission grid also can support distributed power that renewables can cost-effectively provide. "There's going to be a significant shift in the energy grid as we shift from large production centers to a decentralized grid, to one where we will have lot more production along the transmission system and behind the meter. We will need to ensure that system operators have better insight into what's happening in the power distribution system," he said.

And looking out further, the plan can be leveraged by developers who see Canada's abundant renewable power potential as a source for generating emissions-free hydrogen, he said. "Solar and wind have demonstrated incredible reduction in costs over last decade, and now we are seeing an increasing shift of interest to exploration of hydrogen storage," he said. "Canada has been behind on that [technology], but we hope this will facilitate our industry."

Next steps

The next step is for the legislature to pass funding to implement the promises of the Health Environment and Health Economy plan. "A lot of the funding will be formally approved through a budget in the spring," Hornung explained. "But a lot of design work on programs can begin immediately, with the funds on green energy [planned to] be allocated over four-year period."

Meanwhile, Canada's provinces have a major role to play as well, he said. For example, he credited Quebec for a $7-billion, five-year strategy announced this fall to accelerate electrification of buildings and transportation that he called "by far the most advanced in Canada."

The commitment in Quebec is especially important because Canadian law prohibits corporate buyers from contracting directly for electric power, like they can do in the US. So, for the renewable power industry to get the commitment for long-term power purchases, it needs a deal with a regional utility such as Hydro-Quebec, rather than a big power user such as Amazon or Google.

Posted 11 January 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

Explore

Follow Us

{"items" : [ {"name":"share","enabled":true,"desc":"<strong>Share</strong>","mobdesc":"Share","options":[ {"name":"facebook","url":"https://www.facebook.com/sharer.php?u=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fcanada-upgrades-decarbonization-plan-.html","enabled":true},{"name":"twitter","url":"https://twitter.com/intent/tweet?url=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fcanada-upgrades-decarbonization-plan-.html&text=Canada+upgrades+decarbonization+plan++%7c+IHS+Markit+","enabled":true},{"name":"linkedin","url":"https://www.linkedin.com/sharing/share-offsite/?url=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fcanada-upgrades-decarbonization-plan-.html","enabled":true},{"name":"email","url":"?subject=Canada upgrades decarbonization plan | IHS Markit &body=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fcanada-upgrades-decarbonization-plan-.html","enabled":true},{"name":"whatsapp","url":"https://api.whatsapp.com/send?text=Canada+upgrades+decarbonization+plan++%7c+IHS+Markit+ http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fcanada-upgrades-decarbonization-plan-.html","enabled":true}]}, {"name":"rtt","enabled":true,"mobdesc":"Top"} ]}
Filter Sort