This may not be what you expect to hear from someone who spends their days working for improved domestic climate change policy: the biggest drivers of Canadian climate policy in 2024 and beyond won’t come from Ottawa, but from Washington and Brussels.
That’s right: with the United States and the European Union setting the pace with two major policy initiatives, Canada has no choice but to keep up. And in both cases, Canada already has a response at hand: robust industrial carbon pricing.
The first of these policies, the 2022 U.S. Inflation Reduction Act, is a monumental piece of legislation that’s supercharging the clean economy and cutting climate pollution south of the border. Alongside two other bills that passed with bipartisan support (the Bipartisan Infrastructure Deal and the CHIPS and Science Act), it’s reorienting the North American economy in fundamental ways.
The U.S. has seen $225 billion in clean growth investment over the past year, according to the Clean Investment Monitor, which tracks these developments in detail. That represents a huge increase—up 38 per cent from the previous year— and includes tangible investments in every corner of the country to support things like clean energy manufacturing and deployment, electric vehicle uptake and supply chains, building electrification, and more.
This transformation in the industrial strategy of our largest trading partner matters a great deal for Canada’s future prosperity — the Business Council of Canada calling it a “game-changer” and a “tectonic shift.” It piles onto a broader global trend that has seen exponential growth in clean sectors worldwide. In China, investment in clean energy sectors was almost as large as total global investments in fossil fuel supply last year, making clean energy the largest driver in the country’s economic growth in 2023.
The second development shaping Canada’s economic prospects is the arrival of carbon border adjustments in Europe. Carbon border adjustments are basically tariffs on imported goods that don’t price-in the cost of their climate pollution through a carbon price.
The European Union began phasing in its carbon tariff last October, and will eventually apply the carbon price that domestic manufacturers already face to imported goods coming from places like Canada—unless they have an equivalent carbon price in their home country. The United Kingdom is also poised to follow suit with its own carbon border adjustment by 2027.
There’s even a growing chance that America implements something similar. In the U.S., there have already been four pieces of legislation related to carbon border adjustments put forward for lawmakers to consider. Betting Canada’s prosperity on none of these proposals coming into law is a remarkably risky prospect.
The U.S. is Canada’s largest trading partner, and the European Union and the U.K. its second and third respectively. Maintaining and strengthening Canada’s industrial carbon pricing system to align with these announcements is an absolute necessity for Canadian competitiveness.
Industrial carbon pricing supports competitiveness on three fronts. First, if designed well, it means lower-polluting firms can generate and sell credits, allowing them to compete with the U.S. Second, it can keep carbon tariffs off our exports to our largest trading partners. And third, it has been designed to create incentives for more heavily polluting firms to reduce emissions without undermining their competitiveness.
Taken together, these developments make abundantly clear that for Canada, good climate policy is good economic policy. This is especially true for our large, export-oriented industries. The economic case for keeping in place strong policies like industrial carbon pricing and other smart regulations, as well as targeted incentives to spur the clean transition here at home, has never been stronger.
Significantly, even given the volatile political winds blowing this year, carbon border adjustments in Europe and the U.K. have significant support from conservative parties. And the U.S. Inflation Reduction Act is unlikely to be dismantled even if the Republicans prevail in the November election.
Here’s the bottom line: the die is cast on the global clean energy transition. Momentum is building and business is demanding access to clean electricity and clean supply chains as a must-have for investment.
The Canadian Climate Institute recently published a scoping paper called Fuelling the Transition that explores whether—and under what conditions—oil and gas projects should qualify for a “transition” label under a Canadian climate investment taxonomy. It’s a complex topic, but it asks a deeply important question: how can capital markets have confidence that investments to clean up the production of oil and gas in Canada are credibly aligned with global efforts to keep dangerous temperature increases below 1.5C and assure that these investments don’t end up simply delaying Canada’s clean energy transition?
The case for including oil and gas within a Canadian Climate Investment Taxonomy
If the oil and gas sector is going to reduce its upstream emissions—which it must if the world is to protect the next generation from catastrophic climate change—it will need to invest capital on an unprecedented pace and scale. Yet there’s a significant risk that additional investments in this sector could extend or lock in future emissions and compromise Canada’s chance of hitting its national and international climate commitments.
With greenwashing in capital markets already receiving increased regulatory scrutiny in Canada, investors want greater certainty that investments that claim to decarbonize heavy industries like oil and gas actually align with credible, science-based pathways to net zero.
In 2023, Canada committed to develop a climate investment taxonomy, but what comes next—and when—is unclear.
Providing this certainty is the primary purpose of the green and transition investment taxonomy that Canada is currently developing, and Fuelling the Transition digs into the specifics to propose criteria and principles to shape how Canada’s taxonomy should assess oil and gas projects.
The standard that we propose walks a fine line. A taxonomy isn’t worth the paper it’s written on unless it has credibility. If transition-aligned is defined too loosely, it will rightly be dismissed as greenwashing. At the same time, however, the oil and gas sector is responsible for nearly a third of Canada’s total emissions; whereas most sectors are getting cleaner, oil and gas emissions remain stubbornly high. There’s a clear need to clean up the sector’s climate pollution quickly, and a taxonomy could help projects that significantly reduce that pollution attract more private finance.
Weighing a range of perspectives
This paper was intended as a conversation starter, and so far it has delivered. Early drafts sparked rich discussions with more than 40 people and organizations, along with regular input from an external oil and gas climate policy working group established by the Canadian Climate Institute.
The feedback we received ran the gamut. For some, the bar set by our proposed framework is too high. For others, the mere idea of considering oil and gas investments in any type of transition taxonomy is a non-starter. But a broad swath of people we spoke with recognize that Canada needs to swiftly ramp up private investment to decarbonize oil and gas production, with the massive caveat that these investments must proceed carefully and in a way that is aligned with global targets to limit global overheating.
Having spent the last year working on this paper, I’m confident that this balance can be struck. At its core, Canada’s proposed taxonomy is about standardizing and communicating both transition risk and transition opportunity for financial markets as the clean energy transition accelerates. Given the need to decarbonize existing oil and gas production on this pathway, including the oil and gas sector as a potential recipient of transition-aligned funding makes sense as long as it’s done cautiously, credibly, and backed by an independent process.
What we learned
Here are a few of the big takeaways from researching and writing this piece.
1. The taxonomy’s transition label can and should help facilitate pollution-reducing projects within the oil and gas sector
In Canada, upstream oil and gas emissions represent more than one-quarter of national emissions. Globally, this number is around 15 per cent. Given that the full transition away from fossil fuels could take a couple of decades, even in the most optimistic climate scenarios, there’s a clear need to make sharp reductions in the sector’s emissions, and quickly. At the same time, demand for petrochemicals and other non-combustion uses of fossil fuels could see continued growth in the energy transition. Decarbonizing oil and gas production would help reduce the lifecycle emissions for things like fertilizers, plastics, and pharmaceuticals.
To get the taxonomy’s transition label, an oil and gas project would have to result in transformational emissions reductions. Specifically, the facility as a whole would need to significantly reduce its Scope 1 and 2 emissions over time, to a level that is consistent with 1.5°C pathways. These are the emissions that oil and gas facilities have direct control over — (the emissions these facilities don’t have direct control over, known as Scope 3 emissions, matter as well, as we’ll see).
While setting the precise benchmark is beyond the paper’s scope, the figure below shows what it could look like using data from the Canada Energy Regulator’s global net zero scenario. It charts the historical emissions intensity of Canadian oil sands production alongside a trajectory consistent with a 1.5°C pathway. A project would, in other words, need to demonstrate that it can stay at, or below, the benchmark over time.
2. These decarbonization projects also need to show capital markets how they guard against carbon lock-in and manage demand-side risk
Just as industry must decarbonize its emissions, it must also reckon with its biggest vulnerability: declining global demand. Under the proposed taxonomy framework, oil and gas companies would need to have credible emissions reduction targets that align with net zero by mid-century and account for all of the emissions that occur both upstream and downstream from the oil and gas facility’s operations (Scope 3 emissions). They would also need to have credible transition plans and comply with the emerging best practices in climate-related disclosures (an area where oil and gas companies have led other sectors).
The figure below shows our proposed framework in a nutshell, including both the general requirements at the corporate level, and the requirements at the project level that determine whether a specific project meets the transition label.
3. Funds can only be spent on emissions-reducing projects if the investment is to be considered eligible for the taxonomy’s “transition” label
An important feature of our proposed framework is that the transition label would only be available for emission-reducing projects within facilities. In other words, if an oil and gas company issues a transition bond, it can’t use the proceeds for day-to-day expenditures or what is known as “sustaining capital.” Any transition loan or bond issued under the taxonomy would need to be ring-fenced for specific decarbonization investments, such as direct air capture, electrification, carbon capture, or methane leak and detection. To help ensure proper follow-through, the taxonomy would leverage international best practices for issuing sustainability bonds through the International Capital Markets Association.
4. Our framework adds much-needed sophistication in how Scope 3 emissions are treated and communicated
The bucket of Scope 3 emissions is unhelpfully large. It includes emissions from upstream suppliers, emissions from employee travel, tailpipe emissions, and also the indirect emissions from financial investments. In total, there are 15 categories of Scope 3 emissions. In writing this paper, I was shocked that no one seems to have a sophisticated way of differentiating transition risk across these 15 categories. Yet it’s clear thatdifferent types of Scope 3 emissions come with different levels and types of transition risks, and that these nuances should be reflected in a taxonomy framework.
The most important category for the taxonomy are Category 11 Scope 3 emissions. This covers emissions associated with the burning of fossil fuel products downstream from the oil and gas facility itself, and is by far the largest and most material category for the oil and gas industry. And while there’s broad agreement that industry doesn’t have agency over these emissions, it’s exactly this lack of agency that makes Category 11 emissions for oil and gas companies so different from all other types of Scope 3 emissions. The oil and gas sector—particularly upstream—cannot control consumer preferences as people and businesses increasingly shift to electric vehicles, heat pumps, and other zero-emitting technologies. This is why downstream Scope 3 emissions weigh so heavily in our proposed framework.
5. The proposed framework also adds greater sophistication in how Canada distinguishes “new” oil and gas facilities from “existing” ones, and go beyond international terminology
Organizations like the International Energy Agency and the Net Zero Asset Owner Alliance make it clear that investments in new oil and gas fields are incompatible with the pathway to net zero. For Canada, however, limiting investments only to “existing” oil fields does not provide any type of binding constraint on production. In other words, even with no new oil and gas developments in Canada, continued investments in existing fields could result in emissions well beyond Canada’s 2030 and 2050 targets.
Most oil and gas fields in Alberta, for example, have had some type of activity on them over the past 100 years, which means that major expansions and new, greenfield facilities could meet the criteria for “existing” according to the definition used internationally. The same challenge applies to the Monteney gas fields in British Columbia and Alberta, which have the potential to produce for another 60 or so years at current (record) production levels.
What does this mean in practice for the taxonomy? It means that major expansions of existing oil sands operations or conventional oil and gas fields would likely be defined as “new” under the proposed framework and therefore ineligible for taxonomy financing—even if all the other requirements are met.
6. Midstream and downstream oil and gas facilities are also eligible for a “transition” label in our proposed framework, and may actually have more opportunities to diversify and decarbonize
Midstream oil and gas facilities include processing, storing, and transporting of fuels, while downstream facilities include refineries. We include these types of activities within our framework for the same reasons that we include upstream activities: reducing climate pollution from midstream and downstream facilities is a critical challenge in the transition that requires both significant private investment as well as firm guardrails against locking in more carbon emissions.
In its treatment of midstream and downstream facilities, the framework recognizes that any new facilities could have significant implications on emissions further upstream, as well as for emissions from when consumers ultimately use (burn) the fuels. In particular, building new midstream facilities can induce demand for continued or expanded oil and gas production further upstream, which is necessary to supply the midstream facility. For example, Phase 2 of the LNG Canada project is expected to induce demand for drilling additional gas wells to provide gas that the project will liquify and transport. Because that project is predicated on such increases in production it would likely not meet our framework’s definition of “existing” oil and gas.
However, it’s also true that midstream and downstream companies have more opportunities to diversify their businesses as demand for fossil fuels declines, so are less at risk of becoming stranded assets. Some fuels retailers, such as Parkland and Petro Canada, for example, are starting to integrate electric charging stations within their business model. Sustainable biofuels, electrification, and pipelines that can be future-fitted to move clean fuels like hydrogen in the future are all examples of how midstream and downstream companies can shift into markets that are expected to grow in the energy transition, and could therefore become eligible for the taxonomy’s transition label.
7. Without a made-in-Canada taxonomy framework, investors could default to using other international frameworks that don’t always align with this country’s economic and climate objectives
An effective and credible taxonomy is critical to Canada navigating (and funding) its clean energy transition at the speed and scale required. Canada has a unique opportunity to become a leaderwith its Climate Investment Taxonomy and provide a sophisticated definition of what qualifies as a “transition” investment in the energy transition. Few jurisdictions have made progress in this space, and clear guidance on the transition label could position Canada’s economy to be increasingly competitive in a low-carbon world.
To seize this opportunity, however, Canada needs to create an independent, inclusive, and established body to build and maintain a national taxonomy. The taxonomy roadmap released by the Sustainable Finance Action Council in March 2023 provides an excellent foundation, and the Canadian Climate Institute’s Fuelling the Transition paper clarifies how the roadmap could be applied to a single sector. Future research can propose similar standards for other important sectors that need to decarbonize in the transition, such as Canada’s mining sector.
Ultimately, however, if markets are going to implement and use the taxonomy to guide investment decisions, regulatory oversight bodies in Canada must formally adopt it as a standardized framework. The Government of Canada committed $1.5 million in the 2023 Fall Economic Statement toward developing the taxonomy, but what comes next, and when, is unclear.
Taxonomies being developed in other jurisdictions, such as the European Union and Australia, are starting to shape best practices for international capital markets. There’s a real risk that if Canada doesn’t act quickly to develop its own taxonomy, it will have to accept the framework of others, which may not align with the country’s climate and economic goals.
Taken as a package, the proposed criteria and thresholds outlined in Fuelling the Transition provide a credible path for determining which pollution-reducing projects in the oil and gas sector could qualify for the taxonomy’s transition label and therefore be eligible for preferential lending terms.
Canada needs a taxonomy that can help drive transformational investments to decarbonize the oil and gas sector, while guarding against locking in emissions from new fossil fuel projects. Striking this balance will not be easy, but this paper lays out a sound and credible path that can help Canada both meet its climate goals and keep the country competitive in a low-carbon world.
The burn doesn’t stop there—wildfires also harmed the economy. Though the full extent of the damage is yet to be assessed, it’s already clear that the unprecedented wildfires this year had significant impacts on the forest industry, which constitutes 1.7 per cent of Canada’s GDP and directly employs more than 200,000 people, especially in rural and remote communities.
As climate change intensifies, more fire is inevitable in the near-term, unless further actions are taken. To reduce future impacts, governments and industry need to consider ways to immediately scale up solutions to increase the resilience of Canada’s forests and forest sector by reducing the risk of widespread wildfires in the future.
Severe wildfire seasons impact livelihoods and Canada’s ability to supply forest products
There are a variety of ways wildfires impact the forest sector. The most visible is that they disrupt forestry operations and reduce the amount of timber supply available, hurting workers and forest-dependent economies in the process. Resolute Forest Products, for example, temporarily closed sawmills this summer after devastating fires tore through Quebec forests. During the 2017 wildfires in B.C., up to 40 forestry companies shut down.
Sawmill closures can set back the forest economy for months. In June and July 2023, lumber production in Canada was 20 per cent lower than the previous five-year average during the same months.
Lower timber supply can lead to a temporary increase in lumber prices, impacting homebuilding and housing affordability. June and July 2023 saw the price of lumber futures rise nearly 20 per cent as wildfires burned across the country, eventually settling back down in August.
Sawmills are just one part of Canada’s larger forest-product sector. When they close, pulp and paper mills also feel the knock-on effects, given that they rely on residual chips and bark to feed their operations. And vice versa—sawmills benefit from the sale of this residual fibre to pulp and paper mills.
Wildfires can also create supply chain challenges and transportation backlogs for forest products, stalling trade. These disruptions result in revenue losses for companies and in some cases lost income for forestry workers. Canfor, for example, reported losing $44 million in the second quarter of 2023, in part due to wildfires.
Beyond immediate supply shortages, wildfires threaten Canada’s timber supply in the medium-term. While some timber can be salvaged after wildfires, previous wildfire seasons have led to lower-quality and less timber available to harvest in some areas.
Climate change means the forest sector needs to adapt to a future of fire
While forest fires are naturally occurring disturbances that contribute to the health and renewal of many forest ecosystems, hotter and drier conditions fueled by climate change will make wildfires more frequent, more severe, and more difficult to manage.
The broader direct and indirect impacts of wildfires on the forest industry will likely worsen. Modelling from the Canadian Climate Institute shows that without further action, the impacts of climate change on forestry, including wildfires interacting with pests and other disturbances, will result in $4 billion in export revenue losses and 32,000 fewer jobs by the end of the century.
These are sizable numbers that threaten further economic hardship on forest-dependent communities, if we don’t implement further measures.
What can be done?
Governments, the forest industry, Indigenous knowledge holders and practitioners face mounting pressure to implement and scale-up solutions to prevent and adapt to the growing impacts of wildfires. There are no quick fixes. The increased role of Canada’s forest sector to address the risk of catastrophic wildfires will require coordinated and whole-of-society actions.
Reducing carbon emissions is crucial to avoid further warming and reduce extreme weather events; at the same time, adapting to a future with more fire is now a necessity.
For governments, communities, and forestry businesses there is a pressing need to assess the current and future risk levels from wildfires on the workforce and infrastructure, and to continue to invest in wildfire emergency preparedness and response.
The forest industry can be more involved in supporting the implementation of these climate-adaptive forest management practices. Doing so will not only help lessen the economic impact of wildfires on the forest industry, but can protect communities in wildfire-prone areas, and build more resilience in Canada’s forests.
There is also a potential greater role for bioenergy in Canada. The forest products industry can continue to innovate and use emerging technology to convert residual forest material to usable energy, most often in the form of biopellets or wood chips for industrial heat or electricity. Forest harvest residues (e.g. tree tops and limbs) can be used as bioenergy, and at the same time, removing these sources of fuel can reduce the risk of wildfire in fire-prone landscapes.
The wildfire season in 2023 highlighted the urgent need for resilience-building within Canada’s forest sector, one of the nation’s largest employers. As the impacts of climate change continue to intensify, proactive actions from governments and industry players are crucial to ensure Canada’s forests and the livelihoods they sustain can thrive in a future fraught with fire.
British Columbia has just hit the accelerator on the clean energy transition, announcing a $36-billion investment in electricity grid expansion and upgrades over the next decade. BC Hydro’s updated capital plan, announced last Tuesday, marks a 50 per cent increase over the utility’s previous plan. The bulk of these investments will go towards new customer connections and upgrading existing assets, including substations, transmission lines and hydro dams to produce power more efficiently.
The driving force of this transformative investment? A rapidly growing demand for clean power across homes, businesses and industries in British Columbia, with a projected 15 per cent rise in electricity demand by 2030. Clean electricity is increasingly understood as critical to meeting Canada’s climate targets — Canadian Climate Institute modelling has shown that every conceivable pathway to decarbonization will require substantial electrification in virtually every sector of the Canadian economy.
As the population grows, industry takes steps to reduce its carbon pollution, and customers switch over to clean technology, BC Hydro needs to upgrade the electrical network to keep pace. And with the province already seeking to improve housing affordability, including through densification, and with households facing increased costs due to worsening damage from climate change, grid upgrades are crucial. Why? Because households need affordable, reliable power and access to clean technologies like electric vehicles and heat pumps that can provide financial savings and other benefits.
This big switch from powering our homes, vehicles and workplaces with fossil fuels to powering them with clean electricity is well underway everywhere, but particularly in British Columbia. Over the past six years, the number of electric vehicles on B.C. roads skyrocketed twenty-fold. One in five new light-duty passenger vehicles sold in B.C. was electric in 2023 — the highest percentage for any province or territory. Over 200,000 B.C. homes now have heat pumps. With households increasingly choosing to switch from fossil fuels to B.C.’s renowned clean electricity (98 per cent renewable), BC Hydro has seen the writing on the wall: the grid must keep up.
This investment also aims to catalyze industrial emission reductions and attract industrial investment. The demand for transmission along the North Coastline, from Prince George to Terrace, could easily double this decade, and this demand comes from a variety of sectors, including mining. Mining companies, like everyone else, are increasingly focused on reducing their carbon pollution and seek to invest in locations with access to clean power. This pressure is elevated for firms supplying materials for clean technologies like electric vehicle batteries and solar panels.
B.C.’s grid-strengthening strategy mirrors initiatives in other provinces like Quebec. Hydro-Québec took early leadership late last year, announcing $155 billion to $185 billion in capital and operating investments in its 2035 Action Plan. Drivers are similar: supporting decarbonization and facilitating economic growth. By 2050, Hydro-Québec estimates the province will need double the amount of electricity (additional demand by 2035 is roughly split between homes and transport, industry and supporting economic growth).
The two utilities’ plans aren’t about building out indiscriminately; they fund both new construction and getting more from existing assets, including upgrading dams and transmission lines. Hydro-Québec’s plan, for example, prioritizes affordability by including energy efficiency targets that will double current customer savings. This should free up over 3,500 megawatts, the equivalent of multiple new hydro dams.
Even with this level of investment, provinces need to be facilitating conversations about priorities and defining the best use of clean electricity resources. Quebec has also moved away from a first-come, first-served approach to reviewing significant requests for new industrial power as demand surges.
B.C. has signalled its own move toward strategic prioritization, through the province’s ongoing development of a climate-aligned energy strategy. In 2023, the province began by introducing a moratorium on new connections for virtual currency mining facilities. Cryptocurrencies, such as Bitcoin, use energy-intensive, high-powered computers in their production and validation.
New room for Indigenous partnership and leadership is core to success given the anticipated pace and scale of grid buildout. B.C.’s upcoming Call for Power this spring and Quebec’s call for financial partnerships with Indigenous communities both signal a growing commitment to a collaborative approach. British Columbia has also put up $140 million to support Indigenous-led power projects through the BC Indigenous Clean Energy Initiative.
But what about the rest of Canada?
Electricity planning will look different in provinces with partially or fully deregulated electricity markets like Ontario and Alberta. But these provinces are also adapting: Ontario has made a historic intervention that provides clear guidance to its system operator, amounting to a similar level of ambition seen in B.C. and Quebec.
Utilities are moving quickly, not only to expand and modernize their energy grids, but also to make them more resilient, more affordable, and smarter — better able to handle and shift peak demand loads.
Hydro-Québec is focusing on enhancing grid reliability and affordability, while B.C. is conducting smart-grid and load-shifting trials, like bidirectional charging.
Ontario and B.C. offer incentives for consumers to reduce consumption in real time (BC Hydro’s Peak Rewards program, Hydro One’s myEnergy rewards). The potential of such demand-side management was shown only just recently in Alberta. In response to an emergency request, customers shaved 150 megawatts off demand and saved the system from rolling blackouts. Proactively integrating demand-side management in the future could enhance the stability and resilience of Alberta’s grid and make existing energy resources go further as demand grows.
The time is right for every province in Canada to build the bigger, smarter energy grids needed for a sustainable future. Utilities are starting to take big steps in the right direction.
Streamlining Canada’s regulatory review process — the reviews, permits, and approvals required before a major project can go ahead — will be crucial to building clean growth projects at the speed and scale necessary to achieve the country’s climate and economic objectives. The Canadian Climate Institute has set out to explore this challenge, focusing on how to create a regulatory review system for clean growth initiatives that is both efficient enough to speed-up competitive, transition-accelerating projects and effective enough to allow for public input, meaningful engagement with Indigenous Peoples, and environmental protection.
A central question in this research is how to streamline projects that will accelerate and enable the clean energy transition — the battery plants, solar installations, lithium mines, and geothermal drilling sites that will power our future prosperity.
As we continue to advance this research, however, the evidence is pointing to an unexpected conclusion: while reducing heat-trapping pollution from all sectors is paramount to Canada’s climate commitments and long-term competitiveness, Canada’s regulatory review process is simply not the best tool for enforcing Canada’s climate targets at the project level.
Streamlining the regulatory review process
We recently published a series of papers identifying ways to effectively streamline the regulatory review process for clean growth projects, including harnessing the power of strategic assessments, fast-tracking certain low-impact clean energy projects, and drawing on lessons from recent permitting reforms in New York and California. All of this research focuses on how to accelerate low-carbon projects through the regulatory review process.
One challenge these papers did not address, however, is the growing regional opposition over federal authority to regulate project approvals for emissions-intensive projects, such as major energy and mining projects, that threaten Canada’s climate commitments. This political tug-of-war recently saw the Supreme Court deem parts of the 2019 Impact Assessment Act unconstitutional, and the conflict as a whole has left a cloud of uncertainty over the entire regulatory review process that threatens the build-out of all projects.
This raises a big-picture question: Is Canada expecting too much of its regulatory review system? Our research suggests case-by-case impact assessments may not be the best way to determine whether and how new projects will comply with Canada’s legislated emissions reduction pathways. Instead, overarching policies and regulations like industrial carbon pricing and the recently announced oil and gas emissions cap are much better positioned to ensure development of projects within various sectors is compatible with Canada’s climate goals.
Problems the regulatory review system can’t solve
While the regulatory reform conversation in Canada is complex and too often defined in political terms, substantive criticisms are driving some of the tension. The subjectivity and lack of strategic direction of the regulatory review system at the federal level, for example, has become a major sticking point. The Impact Assessment Act uses a set of five criteria to determine whether a project undergoing impact assessment is in the public interest, one of which is a project’s impact on Canada’s climate change commitments. Other criteria include a project’s contributions to sustainability, its adverse effects within federal jurisdiction, the appropriateness of its mitigation measures, and its impacts on Indigenous groups and the rights of Indigenous Peoples.
Various policy measures play a role in holding proposed projects accountable to these criteria and managing potential adverse impacts to ecosystems, communities, and the economy. But attaching them to the Impact Assessment Act under a“public interest” test has added an additional burden to regulatory approvals, risking projects being delayed or abandoned.
The decision on whether projects are in the public interest or not, and under what conditions, inherently requires value judgments about how to weigh a project’s adverse effects (such as emissions, environmental degradation, or impacts on Indigenous rights and nearby communities) against its benefits (such as economic development and jobs). The recent ruling from Canada’s Supreme Court made it clear that these criteria — in their current form — are too subjective and poorly defined to ensure they stay within federal jurisdiction.
Solutions from beyond the regulatory review process
If we are correct that Canada’s regulatory system is trying to do too much, it’s worth recalling how the country got here in the first place. Canada has historically lacked consistent approaches to regulating sustainability impacts from major projects, and successive governments did not implement the policies necessary to deliver on key policy objectives — with climate as the prime example. In some cases, governments explicitly weakened environmental rules to speed up project approvals. A major overhaul of the regulatory reform system in 2018 set out to address that (and compensate for ineffectual policy in other areas) by adding to the list of considerations that factor into project decisions. But, as noted above, the recent Supreme Court ruling has the federal government revising its approach.
If the current regulatory review system is a product of historical policy gaps, we should step back to consider what regulatory review can — and should — achieve within Canada’s broader climate policy approach. For example, can regulators and elected officials effectively determine whether a singular project’s emissions are unacceptably high? Or is that better left to broader policies that are purpose-built to keep overall emissions in line with Canada’s climate goals?
Where possible, addressing the root cause of the policy problem is far more effective than trying to fix it through the regulatory review process—an idea that’s not new in Canada (see here, here, and here). The imperative to consider project-level emissions through Impact Assessments has shifted as Canada’s policy landscape has evolved, making it far more effective to reduce emissions using targeted policies to ensure projects align with net zero.
Take Suncor’s proposed Base Mine expansion in Alberta. This project has been undergoing an impact assessment since 2021 with climate impacts being a major source of contention, and that assessment may not conclude anytime soon given the recent uncertainties in regulatory review. If Canada had had an oil and gas cap in place at the time the project was proposed, its climate impacts could simply have been assessed according to its ability to comply with that cap.
The importance of climate policy
Project-by-project regulatory approval processes are — and will always be — invaluable for averting specific environmental harms. In fact, setting high standards around public input, sustainability, and meaningful engagement with Indigenous Peoples are a boon for competitiveness as more international investors seek to align financial returns with social returns.
When it comes to enforcing national greenhouse gas emissions reductions for emissions-intensive projects, however, regulatory review processes are the wrong tool for the right job.
Doing so could make space for a simpler and more transparent regulatory review system to accelerate the clean growth projects that will drive Canada’s energy transition. That’s good both for reducing emissions and for reaching emissions targets. It’s also critical for attracting investment and keeping Canada’s economy competitive in the global energy transition.
Jonathan Arnold is Acting Director for Clean Growth at the Canadian Climate Institute.
A series of storms battered Ontario in July and August, causing almost $350 million in damage, but these went practically unnoticed amidst other climate chaos across the country.
The pain of each of these events was much more than financial — each one left devastated communities in its wake and disrupted lives and livelihoods. Across British Columbia, Alberta, Saskatchewan, the Northwest Territories, Quebec, and Nova Scotia, over 200,000 people were under evacuation orders at some point in the year.
But 2023 represented more than just another year where climate change, primarily from the burning of fossil fuels, drove extreme weather in Canada. It represented a seismic shift into a new realm of unpredictability and volatility.
So far, however, global and Canadian policies to phase out the fossil fuels that cause climate change are falling short, and the window to stay within 1.5 C is closing before our eyes. So, what do we do?
We must redouble our efforts on both offence and defence.
But the emissions of the past now mean climate change is baked in for centuries. Adaptation is our defence — building our resilience to an unfamiliar and increasingly volatile climate by, for example, securing our infrastructure against storms and making sure people have access to the cooling necessary to weather increasingly severe heat waves.
The year has shown us, more than ever before, that dithering over climate policy is not just unproductive, it’s ruinous. What we’ve experienced should be a call to action that transcends politics, a call to safeguard our future against the relentless force of a wilder climate. Governments wise enough to answer that call must press forward with robust mitigation and adaptation policies and investments.
In 2023, we got a clearer look than we ever have at the new climate we’re creating. In 2024, can we rise to the challenge and meet the threat head-on?
Ryan Ness is director of adaptation research at the Canadian Climate Institute.
Canada’s long-term competitiveness relies on achieving a net-zero electricity grid without compromising reliability or affordability.
Landing policy that achieves those outcomes requires constructive public discussions grounded in the facts. Recent commentary on Saskatchewan’s electricity transition doesn’t move the discussion forward.
The Government of Saskatchewan’s recent response to the federal government’s draft Clean Electricity Regulations sounds the alarm over potential implications for the province.
The government claims the regulations are “technologically and logistically unattainable” and cites cost estimates to argue that they would make electricity unaffordable.
Saskatchewan claims that the regulations will “impose a net-zero electricity grid across Canada by 2035.” In May, Premier Moe claimed the regulations would turn off all of the province’s natural gas power plants by 2035. But that is simply not the case.
In fact, the draft regulations would allow newer gas plants to continue serving the grid beyond 2035 without constraint, and for all gas plants to provide backup, within certain limits, when demand peaks or renewables aren’t producing.
And, in case of emergency, natural gas generation could operate as needed to ensure reliability.
Indeed, Saskatchewan has one large gas-powered plant, plus another one under construction that will start operating next year. Under the draft regulations, these plants can run without constraint until the end of 2039 and 2044, respectively.
Add the opportunities for upgrading or building new plants with carbon capture and storage — which can continue operating indefinitely under the regulations and receive a relaxed performance standard in their first years of operation — plus the exemption for providing backup power, and there is simply no basis to the claim that Saskatchewan has to stop using gas as a source of electricity.
Distorting costs, benefits
The government also claims that complying with the regulations will cost Saskatchewan $40 billion, but that figure does not stand up to scrutiny. According to SaskPower, three-quarters of it is investment in electricity infrastructure planned to take place anyway — with or without the regulations.
Moreover, the numbers don’t appear to account for the significant federal money on the table to help Saskatchewan build a cleaner grid — which, for Saskatchewan, could number as high as $2.6 billion by 2035.
Investments in new low-cost and low-emission generation will also protect consumers from volatility in fossil energy prices, and are vital to attracting investment.
Time to talk
As the federal government works to finalize its draft clean electricity regulations, there is no better time for an open, thoughtful and factual discussion about the barriers and benefits of building a bigger, cleaner, smarter electricity grid in every province.
Concerns about impacts on provinces like Saskatchewan are legitimate, and changes could help make sure the regulations work better for them. To this end, the Canadian Climate Institute has proposed expanding the flexibilities in the final regulations to better support grid affordability and reliability.
Provinces with emissions-intensive grids like Saskatchewan have much at stake and deserve to have their concerns and feedback heard. Saskatchewan has an opportunity to offer constructive ideas to improve the draft electricity regulations, as SaskPower has recently done in a submission to the federal government.
But the latest arguments from the Saskatchewan government only muddy the waters.
Robust public debate about the clean electricity regulations is critical, but that debate needs to be grounded in facts — something people in Saskatchewan deserve more of in the conversation about how to build, and benefit from, a stronger electricity system that is clean, affordable, and reliable.
Sara Hastings-Simon is an associate professor in the department of Earth, Energy and Environment and School of Public Policy at the University of Calgary, and co-host of the Energy vs Climate podcast. Jason Dion is the senior research director at the Canadian Climate Institute, a national climate policy research organization.
In the autumn of 2023, climate policy in Canada was feeling shaky: the vibes, as the kids say, were off.
The draft Clean Electricity Regulations, released in August, were facing ill-founded criticisms from the Prairies; the consumer carbon price was proving a tough sell at a time when a box of cereal was costing $8. (Even though we all know that the carbon price doesn’t raise the price of groceries and most households, especially low-income ones, get back more in rebates than they pay — right?) The federal decision to remove the carbon price from heating oil in the Maritimes turned out to be like throwing water on a grease fire: it did the opposite of putting the fire out, and left a big mess behind.
My natural optimism took a bit of a beating this fall. If you had asked me in October how I felt about climate policy in Canada, I would have answered you truthfully: “not great.”
But I had underestimated 2023. As it turned out, the year finished strong, giving Canada’s clean energy transition a welcome boost of momentum.
December alone saw a series of consequential announcements that lay the groundwork for deep emissions reductions. The draft regulations to reduce methane emissions, announced in early December, aim to reduce the release of this potent planet-warming pollutant from the upstream oil and gas sector by 75 per cent below 2012 levels by 2030: this is a big deal. Reducing methane is widely considered one of the cheapest and most effective ways to cut fossil fuel pollution, and because methane only sticks around for about 12 years in the atmosphere, getting a handle on methane can help with the severity of climate effects in the short term.
The methane regulations were an important stepping stone to what came immediately after: namely the regulatory framework for the oil and gas sector emissions cap, which outlined an approach to the sector that is both reasonable and necessary. Oil and gas production is the single biggest and stubbornly still growing source of heat-trapping pollution in the country, and the sector’s backsliding is wiping out climate progress in other parts of the economy.
And to round out December’s federal policy hat trick, the Zero-Emissions Vehicle regulations were released, which will clean up Canada’s air and make it easier for Canadians, most of whom want their next vehicle to be electric, to buy one. EVs are easier on the planet, and on the wallet: analysis by Clean Energy Canada of popular Canadian EV models showed that Canadians who drive electric vehicles are saving a bundle—often $10,000 or more in ownership costs—compared to those driving equivalent gas-powered vehicles. More than a dozen countries have similar policies to what Canada introduced, requiring new vehicle sales to be 100 per cent electric by 2035 or sooner.
In addition to these December announcements, several other major policy pieces moved forward in 2023, either being put into law or edging closer to implementation: the Clean Fuel Regulations, updated carbon pricing, and draft Clean Electricity Regulations. The National Adaptation Strategy was finalized in June of this year—an essential building block to protect Canadians from the effects of climate change. That never felt more essential than the month it was finalized, after weeks of wildfire smoke polluting the air in communities across the country, and devastating floods in Nova Scotia.
Of course, it’s one thing to develop and announce policy: the real question is, will it do the job to reduce emissions? I don’t have a crystal ball, but I do have some independent analysis of the 2023 Emissions Reduction Plan progress report released this month, which shows that current policies are working, and that Canada is on track to achieve between 85 and 90 per cent of its 2030 emissions target.
In my line of work, it’s a bit of a cliché that every policy announcement is greeted by hearty applause, followed by the pronouncement that “more work is needed!” But it’s also the truth: more work is needed, and quickly, too. The rush of announcements this December provided a welcome boost of momentum, but now the whole country, including every provincial government, needs to keep things rolling, moving these policies from proposals and drafts to legislation, as quickly as we can, without any backsliding or delay.
Canada’s transition to clean electricity is under intense scrutiny, and the centrepiece of the debate is the federal government’s proposed Clean Electricity Regulations published in August 2023.
The proposed regulations would establish performance standards to reduce GHG emissions from fossil-fuel-generated electricity starting in 2035. Such regulations are critical to reaching our energy-transition targets and paving the way to a net-zero future.
Electrification is both key to reaching those targets and a pathway to securing economic prosperity in the decades to come, whether it’s through households looking to ditch the price volatility that comes with fossil fuels in favour of cost-saving heat pumps or EVs, or industries looking to leverage clean electricity as a competitive advantage.
Unfortunately, the ensuing debate has quickly polarized rather than bringing constructive discussions about the pros and cons of different approaches. Exaggerated claims about the costs and impacts of pursuing a clean power grid are largely dominating the discourse.
Pragmatic changes will help
These regulations are a key part of building a clean and affordable electricity grid at a time when demand is growing. But to be effective, they will need to remain flexible enough to ensure that power is reliable and affordable across provinces where the mix of electricity generation varies.
Canada needs power that is reliable, affordable and clean. Unfortunately, many of the public calls for redesign of the regulations seek to pursue some of these goals at the expense of others.
The Canadian Climate Institute and Clean Energy Canada have made recommendations for how the regulations can strike a more pragmatic balance.
A more achievable performance standard
First, more relaxed limits should be placed on emissions from power generators so an ambitious yet achievable performance standard for a typical well-performing gas facility is the benchmark.
The regulations are binary in nature, meaning a natural-gas facility that is covered by the regulations must either achieve the standard or cannot operate. If the performance standard is too stringent, there is a risk that facilities will wind up forgoing investments in abatement technologies like carbon capture and storage and instead cease operating altogether. This would undermine grid reliability.
More flexibility for gas acting as backup
Second, the regulations should expand provisions allowing natural-gas facilities without carbon capture and storage to operate as back-up power. Allowing natural gas to play a limited role as a backup to variable power sources like wind and solar will help ensure the reliability of the grid and the affordability of power in the near term as work is done to deploy other non-emitting sources.
Avoid locking in new unabated gas generation
Third, rather than only taking effect well into the next decade, the regulations should immediately apply an interim performance standard to newly commissioned natural-gas units. Those interim standards should then be progressively tightened until they eventually do meet the 2035 standard.
This approach will phase in the new regulatory requirements and help reduce the risk of new natural-gas plants that are designed and built to be compatible with carbon capture never actually getting equipped with it. Applying a gradually raised performance standard will encourage early adoption of carbon capture and storage while also leaving enough flexibility to give operators time to work out any kinks.
A larger suite of policies
The Clean Electricity Regulations policy discussion needs a broader view grounded in facts. These improvements will help ensure the need to decarbonize is balanced properly against the need to keep electricity reliable and affordable. But more help will be needed to achieve this.
Trying to meet our electricity goals using the Clean Electricity Regulations alone would be the wrong approach. A larger suite of policies needs to be leveraged:
Many of Canada’s closest trading partners – including all G7 countries – have joined the goal of net-zero power by 2035, and they are rapidly putting their own policies in place, including the U.S. There is an imperative that Canada act with the same urgency.There is room for healthy debate on how the Clean Electricity Regulations and other electricity policies should work. But it needs to be grounded in facts. By taking a pragmatic approach to the Clean Electricity Regulations that leverages a larger suite of complementary policies, we can remove unnecessary obstacles from the road to a clean, affordable and reliable electricity grid.
A well-constructed regulatory system is foundational to constructing the clean energy, critical minerals, and other clean growth projects necessary for Canada’s climate and economic ambitions. Clean growth projects need to be able to efficiently proceed through the country’s 604 federal regulations, which impose 150,569 distinct requirements. At the same time, clean growth projects also need to proceed in a way that preserves public engagement, meaningfully engages with Indigenous Peoples, and respects sustainability safeguards.
To inform progress, the Canadian Climate Institute has produced a series of papers on ways to streamline regulatory review for competitive, transition-accelerating clean growth projects. Drawing on this new research, this blog articulates four principles that should be reflected in regulatory reforms.
1. Prioritize transparency over discretion
Discretionary regulatory processes make the system more unpredictable for clean growth project proponents, which can cause delays. Greater transparency gives these proponents a clearer understanding of what to expect from the regulator, which empowers them to plan ahead. Establishing precise triggers for regulatory reviews exemplifies transparency. As explored in our scoping paper “Streamlining clean growth project approvals with strategic assessments”, strategic assessments are a promising tool for regulating impacts stemming from policies and systemic problems, but governments have implemented them with varying levels of transparency. In Canada, strategic assessments are only initiated at the government’s discretion, whereas the European Union employs a set of more formalized conditions that could trigger such reviews.
2. Optimize interactions in regulatory review processes
Regulatory reviews often touch upon many different issues, with each being regulated in its own self-contained way. By reforming processes to break silos, governments can reduce and simplify interactions with clean growth project proponents, boosting efficiency and effectiveness. A concrete way to optimize regulatory review interactions is by establishing a single, centralized “one-stop shop” regulator that clean growth projects can go through. California now does this with the California Energy Commission, which handles all major wind and solar project permitting.
Furthermore, processes can be optimized around elements shared between projects to simplify interactions during the regulatory review. For instance, “Expediting Clean Energy Projects in Canada” sorts projects based on commonplace elements, like the technology used or the scale of its impacts. New York City also previously conducted a regulatory review of waterfront development broadly, which has been used to exempt conventional buildings from redundant regulatory scrutiny.
3. Commit to meaningful and early engagement
Communities can delay regulatory review if they feel like the process is neglecting their interests or the Crown’s legal duty to consult Indigenous Peoples. Regulators can anticipate and mitigate the risk of local resistance by collaboratively designing processes with communities from an early stage. A regulatory process in Nunavut showcased meaningful engagement by including steps like joint report writing, Indigenous knowledge advisory committees, and information tours for members of Indigenous communities.
Meaningful engagement tends to involve proponents demonstrating value to communities. As of 2022, New York State and California require clean energy projects to implement benefit agreements. These agreements set the terms for how projects will tangibly benefit communities, which usually involves spending. For example, one New York solar project committed to giving US$20,000 annually to local initiatives and another will distribute US$1.25 million to be spent on local utility bills. Alternatively, projects are innovating beyond engagement by giving communities direct ownership. The Canadian utilities company Hydro One, for instance, has committed to offering 50 per cent equity ownership to First Nations in all future large scale electrical transmission projects.
4. Get ahead of the projects
Ultimately, regulatory reviews can be sluggish when they are set up to be reactive to projects of national strategic importance, rather than proactive. Regulators can be proactive by acting before a regulatory review is triggered. In Canada and Japan, nuclear waste regulators prefer engaging with communities long before a project is in the pipeline, so that stakeholders are sufficiently informed by the time decisions are made. Similarly, the Build-Ready program in New York preemptively files permits for promising sites. Upon acquiring the site, clean energy projects can then immediately start construction.
In addition to being proactive about projects, regulators can also be proactive about outcomes. The United Kingdom is exploring Environmental Outcomes Reports as a way to evaluate impacts relative to a desired outcome, rather than relative to the status quo. For instance, an Environmental Outcomes Report could evaluate whether a mine is detrimental given Indigenous reconciliation objectives. Standard regulatory reviews, meanwhile, would only evaluate whether a mine would harm current conditions, absent any greater context.
Crafting a regulatory system that accelerates clean growth
The way regulators review projects constitutes the backbone of tomorrow’s economy and will determine whether Canada succeeds in the global energy transition. Based on the Institute’s research on regulatory system design, fundamental principles for designing good systems are making them more transparent, more optimized as a whole, more engaged with the public, and more proactive. If Canada is skillful enough in its reforms, regulatory review can go from being a potential barrier to clean growth projects to being a potential boon.