Building on Canada’s electrical advantage

Originally published in Policy Options

Electricity is the shining light of Canadian climate policy. While overall greenhouse gas emissions in Canada have risen since 1990, emissions from the electricity sector have fallen by more than one-third — even as the population and economy have grown. A mix of regulations (e.g., Ontario’s coal phaseout) and more stringent carbon pricing are behind this trend.

The federal government wants to go further by setting a goal of net-zero emissions in the sector by 2035. But how can it deliver on this target when the provinces face very different challenges and electricity is provincially regulated?

One option that has been discussed recently is a “clean electricity standard,” a regulation on allowable emissions from electricity generators across the country. This is squarely in federal jurisdiction under the Canadian Environmental Protection Act of 1999, as is the second option, carbon pricing, per the Supreme Court decision in 2021. Together, these two policy levers would give the federal government the tools it needs to deliver on net-zero electricity.

So, how should the federal government use these two options to achieve net-zero emissions in the power sector by 2035? We argue it should do so by strengthening its approach to carbon pricing in the electricity sector, and by putting a clean electricity standard in a supporting role. We unpack each policy in turn.

Strengthen carbon pricing

Perhaps nowhere is the effect of carbon pricing as clear as in the power sector. By raising the marginal cost of carbon-emitting power generation, the mix of generation is shifted toward lower carbon options. Evidence from the U.K. shows its carbon-price floor (specific to the electricity sector and on top of the EU-wide carbon-pricing scheme) was instrumental to the country’s rapid move away from coal power. In Alberta, too, the provincial carbon-pricing scheme implemented in 2018 led to a marked decline in coal-fired generation. By 2023, the province expects all coal-fired generation to be gone, well ahead of the 2030 coal phaseout deadline.

Yet, Alberta’s example illustrates one of the deficiencies of the current suite of policies in terms of a net-zero future: much of the coal-fired generation is being replaced by generation from natural gas. This leads to lower emissions, to be sure, but it’s still a far cry from the goal of net-zero.

The question is: Can carbon pricing go even further? Is it capable of achieving the federal goal of net-zero emissions by 2035?

A first critical step would be to strengthen the way the federal carbon price is applied in the electricity sector. Under the federal policy, electricity generators in Canada fall under a carbon-pricing scheme called the output-based pricing system (OBPS). The specific way that the federal OBPS is currently applied in electricity has design issues that undermine its effectiveness. It’s also not clear why the sector needs the OBPS treatment in the first place, because electricity does not meet the standard of being an emissions-intensive and trade-exposed sector that warrants OBPS treatment, unlike sectors such as steel or cement. Granted, the current approach helps reduce electricity price impacts, but it also reduces the effectiveness of the policy.

By doing away with OBPS for the electricity sector altogether, the federal government could considerably strengthen the effectiveness of its carbon-pricing policy. Removing the current OBPS treatment would ensure the emissions differences of the various types of power generation were properly reflected, and it would remove the distortions created by current policy.

To avoid consumer price impacts and large interprovincial transfers, all the revenue collected could simply remain in-province (as is the current approach under the federal carbon levy) and be returned directly to electricity consumers on their bills. The result of these changes would be that while the price of power would rise, the ultimate cost to end users would be offset by the consumer rebate. This follows the model of California, where power generators face a carbon price, but distribution utilities return the carbon revenues to consumers.

The net effect of doing away with the OBPS in electricity and returning carbon-price revenues from the electricity sector to provincial ratepayers would be 1) increased incentive to reduce emissions from power generation, and 2) protection of consumers and businesses from significant increases in electricity prices.

Because the federal policy would act as the benchmark for assessing whether provincial policies were equivalent, this change would ensure that provincial policies were (or became) equally strong. As long as electricity regulators were directed to not consider the effects of the rebate when weighing utility investment decisions, there would be no concern about the rebates undermining the overall imperative to reduce emissions.

But even with these changes an additional step may be required. Alberta’s provincial carbon-pricing policy for electricity, for example, avoids the shortcomings of the federal approach. Yet, in that province, new natural gas-fired capacity is being built (i.e., beyond coal-to-gas retrofits) that is unlikely to remain competitive as climate policy stringency tightens in line with stated federal targets.

This raises the question: Why would any generation company or provincial utility be considering building a generating facility using natural gas right now? A significant part of the answer is because of uncertainty over future carbon policy. Case in point: while the federal government has declared that prices will rise to $170 per tonne by 2030, the government of Alberta only recently set out its carbon-price path to 2022; its price path beyond this year remains uncertain. Even if a $170-by-2030 carbon price was the active policy across the land, investors and utilities might still be uncertain as to the political durability of that policy. After all, it was only a few months ago that an election was held that, with a different outcome, would likely have changed the outlook for future federal carbon prices.

Reducing policy uncertainty would help drive investment decisions that are more in line with stated policy and emissions targets. One key way the government could do this is through financial instruments, for example via the Canada Infrastructure Bank (CIB), that guarantee future carbon prices. Effectively, the CIB would take on the risk of 2030 carbon prices being below $170. Investors could then be assured that they would not be affected by potential future policy reversals. Policy certainty would improve even for those who didn’t secure these kinds of contracts, because once others did, they would see that any future government had a credible reason to maintain its policy path (i.e., to avoid the financial losses associated with reversing course).

In short, using financial instruments could smartly place the policy risk where it is best held, with government, leaving firms to invest according to “fixed” future carbon prices – strengthening carbon pricing simply by making its future path more certain.

Implement a performance-standard regulation

While more stringent carbon pricing, coupled with more certainty on future prices, could do most of the heavy lifting in eliminating emissions from the electricity sector, it couldn’t guarantee that the 2035 net-zero target will be met.

A performance-standard regulation for the electricity sector (such as the proposed but still undefined clean electricity standard) could backstop a strengthened carbon price by ensuring the 2035 target for net-zero electricity production is reached. It could also help to resolve policy uncertainty, to the extent that firms believe regulations are less likely to be repealed than carbon pricing.

The performance standard could be applied in two tranches.

First, the clean electricity standard could set a limit on the emission intensity of all newly constructed generation facilities. The level could be set lower than that of unabated natural gas (to rule out construction of new gas capacity) but leave room for near–zero technology, such as carbon capture or certain forms of hydrogen. Setting the limit this way would avoid letting the costs of new natural gas assets fall on ratepayers (or taxpayers) in the event that those assets were later stranded.

Second, the clean electricity standard could ratchet down such that by 2035 all new and existing facilities would need to be net-zero. Regulated facilities could comply in part (if they chose) by procuring negative emissions, and the allowable types of emissions offsets, as well as procurement and validation protocols would be clearly laid out in the regulation. This compliance flexibility is critical to avoid large electricity price spikes or reliability problems in the event that non-emitting sources of dispatchable, or “on-demand” generation and other types of flexibility that can help manage the variability of renewables are not sufficiently advanced by 2035 to cost-effectively displace the relatively small amount of gas-fired generation that might remain economically viable under a high carbon price. It would allow electricity systems to use some fossil generation — sparingly, with volume limits to keep emissions in check, and fully offset — when other options are scarce.

This kind of simple performance standard for the emission intensity of power plants operating in Canada could serve as the model for the clean electricity standard promised by the federal government. It would provide a backstop to a strengthened carbon price by ensuring delivery of net-zero electricity by 2035, while still letting market incentives from carbon pricing play the primary role in driving cost-effective emissions reductions. By providing a measure of flexibility, it would ensure that the 2035 target could be met in a way that would not impact electricity system reliability.

Making smart use of available tools

The federal government has already put carbon pricing at the centre of its greenhouse gas emission-reduction strategy. So, rather than building an elaborate clean electricity standard that would duplicate much of what a strengthened carbon price could do, the federal government should strengthen its existing approach to carbon pricing in the sector. An optimal clean electricity standard, for its part, will be one that complements carbon pricing, rather than substitutes for it.

Of course, these are not the only roles for the federal government in electricity. Enabling better integration between provinces through co-ordination and expanded transmission is another. Stay tuned for a deeper dive on using federal and provincial policy to align electricity systems with net-zero in a forthcoming report by the Canadian Institute for Climate Choices.

My cancer diagnosis brought the links between pollution and health close to home

Originally published in The Globe & Mail

One of the images from 2021 that will stick with me – and with a lot of Canadians – is that of the residents of Lytton, B.C., loading up their cars and fleeing as a wildfire engulfs their town. For three terrifying days before the fire, this tiny town on the Fraser River set records for the highest temperatures ever recorded in Canada. Scientists have since confirmed that this heatwave would have been “virtually impossible” without climate change.

From cyclones in Indonesia to deadly flooding in Germany, devastating hurricanes in the U.S. and heat domes and atmospheric rivers in British Columbia, carbon pollution and the extreme weather it’s causing are making the suffering we saw in Lytton last summer much more common.

As dramatic as these incidents were, they’re unfortunately nothing new. Pollution and the havoc it creates have been a recurring theme throughout human history. In ancient Sumer, over-irrigation created salt pollution in the soil, which archeologists believe led to that civilization’s decline. Sewage has caused deadly typhoid and cholera outbreaks. Chemicals such as DDT have killed wildlife and threatened human health before being banned. And air pollution around the world is still responsible for millions of premature deaths each year.

For more than two decades I’ve researched and written about the link between pollution and human health. I’ve created campaigns to get hormone-disrupting, carcinogenic chemicals out of baby bottles and kids’ toys. I’ve even conducted experiments on myself to make the story personal and connect it to people’s daily lives. Most recently, I’ve been investigating the extent to which microplastics – with all of their nasty chemical ingredients – are being absorbed into our bodies. I currently lead the country’s biggest climate change research and policy organization to help tackle what is arguably the world’s most serious pollution problem.

The one thing all of this has revealed is that it’s only when the effects of pollution start hitting close to home that people become truly concerned and demand action from their governments. When parents realized that BPA was in the bottles they used every day to feed their vulnerable newborns, they demanded – and got – a foot-dragging federal government to classify the chemical as a toxin to protect Canadians’ health.

Now that extreme weather caused by climate change is regularly harming communities, people are demanding action to reduce greenhouse gas emissions. And make no mistake, once people get riled up, change will happen, as it has with even the most entrenched interests. To name but one example, once the link between talc and ovarian cancer became clear, consumer goods giant Johnson & Johnson was forced to pull its iconic baby powder from the market.

But like all things in life, direct, personal experience is often the best teacher. Despite knowing a lot about the consequences of pollution, it’s with considerable embarrassment that I have to confess I didn’t really understand these effects I had so often written about until my own diagnosis a few months ago.

Like almost 200,000 other Canadians in 2021, I got a call from my doctor telling me I had cancer. In my case the thyroid cancer is slow-growing, and because I don’t have any symptoms, the surprise of it hit me like a ton of bricks.

My first thoughts, of course, went to dark places. I immediately started to worry about life insurance and whether my wife would be able to pay the mortgage if anything happened to me. Dropping “oh, and by the way, I have cancer” into casual conversation makes talking about it difficult. The language we use to discuss cancer often glosses over the enormous distress experienced by patients and their families. I’m luckier than most: The kind of thyroid cancer I have is more easily dealt with through surgery, and though the odds of recurrence are high, the incidence of mortality is quite low.

One of the questions you start to dwell on when you’re diagnosed with cancer is “Why me?” Thyroid cancer is one of the types of cancer linked to hormone-disrupting pollutants in the environment. A recent publication makes the point clear: In addition to genetics and lifestyle, a full two-thirds of all cancers are environmentally linked in some way. One of the chemicals scientists believe may be driving thyroid cancer rates is flame retardants, commonly found in electronics and upholstered furniture – one that I’ve found in my own body in the course of my research.

What a perverse situation we’ve created for ourselves. Millions of us around the world are suffering from diseases caused or at least made worse by pollutants that were originally created in an attempt to make our lives more comfortable. Rita Banach, a former president of Thyroid Cancer Canada, and someone with whom I’ve worked over the years to get carcinogenic ingredients out of cosmetics, sums up the frustrations many of us feel.

“So many chemicals are put into consumer products or released into the environment, then questions about their safety are only asked later, once we’re all exposed,” she said. “This has to stop. We need to put the pollution genie back in the bottle.”

The real question in this continuing battle against pollution is not whether the human race will survive. Contrary to the fiery apocalypse featured in the allegorical climate change movie Don’t Look Up, it will. But how many casualties will there be before we finally learn from our mistakes?

For some pollutants, such as the hormone disruptors linked to certain cancers, our respective biologies are contributing to susceptibility. In terms of breast cancer, for example, it’s now clear that those with certain inherited genes are at higher risk of developing the disease. Tom Zoeller, an endocrine and thyroid specialist and professor emeritus at the University of Massachusetts, told me, “I have no sympathy for the notion that cancer is a random event. Take smoking as an example. Only 11 per cent of smokers get lung cancer. Is that random? No way. It’s genetic predisposition.” Though the underlying genetics of thyroid cancer are not well understood, I guess the inescapable conclusion is that my thyroid is weaker than most.

The casualties of climate-changing pollution are somewhat easier to predict. Those who are already vulnerable in our society – including the elderly, the poor, the racialized and Indigenous communities – are far more likely to suffer from extreme weather. Among the 595 people killed during last summer’s heatwave in B.C., many were elderly citizens.

I’m headed back for cancer surgery in late January. I’m hopeful it will go well. But what’s really required to keep me, my family and all Canadians safer in the long term is some significant political leadership in 2022. The federal Liberals were recently re- elected on what is arguably the most comprehensive pollution-fighting platform in Canadian history, ranging from a pledge to ban certain types of single-use plastics to modernizing the Canadian Environmental Protection Act, curtailing toxic pollutants, historic cuts in carbon pollution and investments in climate change adaptation.

None of us can avoid or outrun pollution’s deadly effects on our own. It’s only through working together that we can protect ourselves and future generations from more unnecessary suffering.

Consider the Ocean: Climate change’s invisible solution

The Institute asked Douglas Wallace of Dalhousie University, Canada Research Chair and Canada Excellence Research Chair Laureate in Ocean Science and Technology, to explain what role the oceans could play in meeting Canada’s net zero commitments.

The Institute’s report outlining Canada’s pathways to reaching net zero, Canada’s Net Zero Future, recommended a broad portfolio of solutions including “safe bets” like non-emitting electricity, and “wild cards” that may play a role, including nature-based solutions. While nature-based solutions do not replace the need to dramatically reduce fossil fuel emissions, the enhancement of natural sinks for carbon dioxide could prove essential if emission reductions continue to be inadequate. One such solution that has so far received scant attention is, well, a solution—of carbon dioxide within ocean waters—and it now requires urgent attention.

The ocean is, by far, the largest carbon reservoir connected to the atmosphere (Figure 1). Over the past 270 years, only the ocean has been effective in limiting accumulation of carbon dioxide in the atmosphere due to fossil-fuel combustion (Figure 2). In contrast, the carbon reservoir on land has remained almost constant in size despite massive changes in land use. Over the past one million years, storage of inorganic carbon in the deep ocean interior was responsible for the large reductions of atmospheric carbon dioxide that accompanied the ice ages.

Despite this importance, a widely used definition of natural climate solutions lists only “global forests, wetlands, grasslands and agricultural lands.” And the ocean was almost invisible in the Canada’s Net Zero Future report, with the word land appearing 94 times and ocean only twice.

Fig 1. Relative magnitudes of global carbon reservoirs that exchange with the atmosphere on timescales of millennia or less. (The carbon content of mangroves and seagrass is too small to be visible on the chart).
Fig 2. Integrated between-reservoir flows of carbon mobilized by humankind since 1750 (including a small budget imbalance).

Natural, but not biological

The ocean’s present-day carbon sink—its ability to reduce climate change by pulling carbon dioxide out of the atmosphere—differs fundamentally from land-based and coastal sinks, in part because its carbon capture process relies on chemistry rather than biology. The ocean sink involves carbon dioxide dissolving in water and reacting with both water and dissolved alkaline substances (such as carbonate ions dissolved from carbonate rocks). These reactions take place globally and are abiotic—which means they don’t involve living organisms directly. They have operated throughout Earth’s history and are thoroughly “natural.”

Given this, it may be surprising that most discussion of carbon dioxide removal by the ocean focusses on biotic processes: enhancing capture of carbon by photosynthetic organisms, as on land. This started with the early idea of ocean iron fertilization but extends now to other, less controversial blue carbon approaches, including enhanced growth of seaweed, seagrass, and mangroves in the coastal zone. Blue carbon can be thought of as a marine analogue or extension of land-based solutions. An aquatic version of Bioenergy with Carbon Capture and Storage (A-BECCS), involving seaweed farming, has also been proposed.

Blue carbon blues

A focus on ocean carbon removal by photosynthesis risks obscuring the reason that the ocean has been effective as a sink in the first place, which is seawater chemistry. It may also involve ethical and safety-related issues.

Blue carbon will not contribute significantly to global-scale mitigation of climate change, and its over-promotion even risks distracting or misleading policymakers, politicians, and the public.

A major problem is that the amount of carbon that can be sequestered by blue carbon interventions in coastal environments is extremely limited because the carbon reservoirs themselves are so small (Figure 1). Even the most optimistic estimates of blue carbon sequestration potential do not exceed three per cent of the world’s annual fossil fuel emissions, and sequestering that much carbon would require restoration of wetlands on a massive, global scale. This, in turn, would impact land use and livelihoods in developing countries, and raise questions about the role of the Global South in mitigating problems caused largely by the Global North, and, as with land-based carbon dioxide removal, whether costs and benefits could be shared equitably. While important benefits to ecosystems and biodiversity would accrue, blue carbon will not contribute significantly to global-scale mitigation of climate change, and its over-promotion even risks distracting or misleading policymakers, politicians, and the public with well-intentioned but ultimately ineffective approaches.

The ocean presents other challenges for carbon dioxide removal that relies on photosynthesis and biomass growth. For example, ocean iron fertilization was based on enhancement of photosynthesis and was determined, by some, to be risky and of limited effectiveness. More generally, enhanced conversion of inorganic carbon dioxide to organic carbon (biomass) can have unintended consequences. For example, growth of biomass requires nutrients that are usually in short supply in the ocean. There is a risk that carbon dioxide removal robs essential nutrients from other fragile ecosystems, so sources and demands for nutrients must be considered very carefully.

Any additional organic carbon produced by blue carbon interventions would have to be sequestered far from contact with the atmosphere, through sediment burial, sinking to the deep ocean, or some other form of carbon preservation. Otherwise, it will simply be respired and returned rapidly to the atmosphere as carbon dioxide. If sequestered in the deep sea, respiration of the additional organic carbon would contribute to ocean acidification and deoxygenation. Efforts to harness ocean biota to reduce atmospheric carbon dioxide should be considered but must take this potential for unintended consequences into account.

Abiotic ocean sequestration is permanent and makes use of processes that have removed carbon dioxide from the atmosphere effectively over geological time.

Abiotic, chemical solutions may be the fix

Abiotic carbon dioxide removal has vastly larger carbon sink potential than blue carbon. As a result, Canadian researchers and private sector innovators are starting to investigate approaches based on harnessing the chemical ability of seawater, or rocks on the sea floor, to react with or “neutralize” carbon dioxide. This can be achieved by adding alkaline substances such as carbonates or, more likely, hydroxide ions to surface seawater, which enables seawater to take up more carbon dioxide from the atmosphere. An alternative is to use the natural ability of rock minerals in the oceanic crust to react with carbon dioxide via chemical weathering reactions. Other approaches are likely to emerge. In marked contrast to carbon storage in forests, which is subject to re-release due to fire and disease, abiotic ocean sequestration is permanent and makes use of processes that have removed carbon dioxide from the atmosphere effectively over geological time. The reactions do not involve direct intervention with living organisms, so they are potentially both effective and low impact for marine ecosystems, though this remains to be tested.

Are abiotic solutions restorative?

The world’s oceans have absorbed so much of the carbon dioxide from our burning of fossil fuels—up to 40 per cent—that seawater chemistry has changed globally. This is the end result of uncontrolled, unregulated, unbalanced “ocean dumping,” on a global scale, of an industrial waste product: carbon dioxide. The resulting ocean acidification is of increasing concern for marine ecosystem health.

Chemical changes driven by carbon dioxide uptake have also decreased the ocean’s effectiveness as a carbon sink. This highlights another key difference between land and ocean: whereas higher atmospheric carbon dioxide drives increased carbon uptake on land due to carbon dioxide fertilization of plant growth, the effect is the opposite in the ocean. Uptake of carbon dioxide has reduced the chemical capacity of surface seawater to accommodate continued emissions by 40 per cent since 1750.

Given this, could adding alkaline substances to seawater, to buffer the effects of “ocean dumping” of carbon dioxide, be considered restorative for the ocean’s ecosystems and carbon sink? In a sense, the process might be analogous to the practice of adding alkaline substances to forests and watersheds to restore soils, lakes, and rivers damaged by acid rain. The quantity of alkaline substance required to restore the ocean to its pristine, pre-industrial chemical state is mind-bogglingly large, although model-based studies suggest it might be feasible to stabilize ocean pH and prevent future ocean acidification on a regional scale, for example to protect sensitive marginal seas, bays, fjords, or marine protected areas.

Are ocean-based solutions ethical, practical, and safe?

From an ethical perspective, ocean-based abiotic carbon dioxide removal has some advantages over land-based sequestration. Competition for productive land and issues of distributive justice and sharing of costs and benefits are major issues for land-based approaches. As noted here, global-scale blue carbon interventions would face similar issues. Approaches that rely on waters of the global ocean, or rocks of the seafloor, face fewer ethical challenges as long as impacts on marine ecosystems are minimal. Such approaches need not displace existing uses of ocean spaces and could, consequently, be equitably deployed. Ocean-based approaches do not, however, avoid the twin moral dilemmas of betting on the success of wild cards at the expense of safe bets and hubris concerning scalability. These moral hazards are shared with all natural climate solutions.

Development of ocean-based carbon dioxide removal is now limited by a lack of policy support, research, and visibility. However, private-sector interest is increasing rapidly—more rapidly, it seems, than awareness within the policy and research communities. In Canada, several private initiatives are underway in the absence of any national research effort or plan. Examples include initiatives focussed on ocean alkalinity enhancement in Atlantic Canada, kelp farming on the West Coast, and seafloor uptake in the deep northeast Pacific.

Until now, most research into ocean-based carbon dioxide removal has been conceptual, conducted with earth system models, and has not evaluated specific technologies, effectiveness, or impacts. This may be changing as a result of growing interest within the private- and non-governmental sectors. Ocean-based approaches appear to be emerging largely as a result of technology innovation projects, rather than as a result of government policy or research.

There has been little research into impacts, with the exception of studies of ocean iron fertilization. While it is tempting to expect that abiotic approaches, which do not involve direct manipulation of living organisms, will minimize ecosystem impacts, there is a near-complete lack of knowledge. The knowledge gap is coupled with a common perception that alteration of seawater chemistry is, somehow, “unnatural.” Any technology-driven developments will have to address these knowledge gaps and perceptions through an intensive program of independent research. The need for research makes the requirement to raise the visibility of ocean-based solutions with policymakers even more urgent.

Making the ocean sink visible, verifiable, and governable

The potential of deliberate ocean-based carbon dioxide removal is unlikely to be realized unless challenges to sink verification, impact assessment, and governance are overcome. Assessment and verification are complicated by the fluid nature of the ocean, which means that sequestered carbon does not stay in a fixed location where it can be easily measured and impacts assessed. New measurement and modelling approaches will be required. National legislation such as Canada’s Fisheries Act, which did not envision a role for the ocean for climate change mitigation or beneficial aspects of addition of substances to ocean waters, will likely require revision.

Canada is exceptionally well-placed to initiate a balanced scientific approach to natural climate solutions that include the ocean as well as the land.

In contrast to land-based solutions, the global commons characteristic of the ocean offers opportunities for the benefits of carbon dioxide removal to be shared equitably amongst nations. However, this will require new governance frameworks. Other ocean resources beyond national jurisdiction, such as minerals, have led to international management and financial policy frameworks. Fisheries in ocean waters beyond national jurisdiction are the current focus of negotiation. The climate-relevant resource of the ocean’s carbon sink now justifies similar attention, urgently.

Given its potential, and the urgency of attaining net zero, an ocean solution is now coming into view for technology innovators. If the potential is to be realized, it must now become visible to policymakers.

Canada, with its extensive forests, agricultural lands, and permafrost, but also with the longest coastline of any nation, is exceptionally well-placed to initiate a balanced scientific approach to natural climate solutions that include the ocean as well as the land. A critical step will be to examine the ocean’s potential with an early emphasis on research into governance, sink verification, and impacts assessment so that rapidly emerging technological developments can be evaluated and implemented rigorously, safely, and effectively.

Three things governments need to do to protect homeowners and renters from the insurance industry’s perfect storm

When the waters recede and everyone is out of harm’s way, British Columbian homeowners will turn to their insurance providers to help cover the damage. In such dire times, the insurance industry plays an important part in the recovery, providing homeowners with financial stability and peace of mind over what is often their largest asset. But as climate disasters become more frequent and severe as B.C. has seen, Canada’s insurance market is coming under increasing strain. That’s bad news for homeowners across the country.

Right across Canada, the costs from extreme weather and climate-related disasters like floods and wildfires are growing rapidly, leading to higher payouts from insurers. As a result, insurance companies are increasingly limiting, or hiking rates for, the kinds of damages they’ll cover, which could leave a large number of Canadians uninsured or with skyrocketing premiums. This blog considers what governments can do to protect homeowners from the perfect storm of rising insurance premiums and declining insurance coverage.

Increasing climate disasters, increasing costs

Climate-related disasters are on the rise in Canada, and they are getting costlier. As we highlight in our Tip of the Iceberg report, the average cost per disaster has jumped 1250 per cent since the 1970s.

While not all of these costs can be fully attributed to a changing climate, climate change is already accelerating extreme weather worldwide and increasing risks almost everywhere—including Canada.

The costs of extreme weather will only get larger. For example, the Canadian Climate Institute’s Under Water: The Costs of Climate Change for Canada’s Infrastructure report recently highlighted that the annual costs of damage to homes and buildings from flooding in Canada could be three to four times today’s costs by mid-century—amounting to over $5.5 billion. In British Columbia, these costs could be upwards of $820 million annually over the same period.

How much risk is too much risk?

The risks are becoming too great for the insurance industry to bear as weather-related insurance payouts are starting to exceed home insurance premiums collected by insurers. To protect their revenues, many insurance companies are increasing premiums. Average home insurance premiums rose by 140 per cent in Alberta since 2011 and by 64 per cent in Ontario over the same period. In areas where climate-related risks are very high or extremely uncertain, insurers may even stop providing coverage to homeowners entirely, decreasing competition, leaving fewer choices, and increasing prices.

Often seen as “insurers of last resort”, the federal and provincial governments are also finding that the costs of providing public assistance for uninsured losses after climate-related disasters are skyrocketing. Since 2015, the federal government and some provincial governments have been modifying their disaster assistance programs to reduce the amounts they will pay out after a disaster. In the aftermath of unprecedented destruction, the B.C. government was forced to step in and cover for uninsurable property.

On the current trajectory, homeowners will increasingly be left without insurance and financial backstops when they need them most. 

Those that can afford the higher premiums are left with fewer funds to adapt to the looming threats. Those who can’t could be left with no protection and facing the full costs of rebuilding after a flood, wildfire, or other disaster. In B.C., just under half of policy holders are covered for flood damages while five per cent of homeowners are at too great a risk to access flood insurance. In other cases, homeowners may be unable to renew their mortgages if they can’t find home insurance.

Renters are also at risk because they aren’t in control of what happens to their homes. If landlords don’t have adequate insurance to fix damage from extreme weather, renters can be left to live in unsafe conditions for weeks, months, or years. Compounding the risk, record levels of household debt overlay all of these pressures, leaving households less able to deal with sudden financial shocks. Adding it all up, it’s clear that the insurance industry will not be able to solve this growing problem on its own. Governments will need to step in so that this gathering storm doesn’t become a hurricane.

Long-term resilience and short-term risks

Canada’s home insurance market is already showing that it’s ill-prepared for a changing climate. As disasters become more frequent, more extreme, and less predictable, these gaps could become even bigger. Here are three major policy measures the federal, provincial, and territorial governments can implement in tandem to limit the risk to homeowners in Canada:

  1. Accelerate adaptation investments where they’re most needed in order to reduce climate-related risks. This is crucial not only to ensure private insurance remains accessible, but to protect all the infrastructure we depend on. For B.C., this could mean significant investments in dike infrastructure upgrades in the Lower Mainland, as 96 per cent of them are deemed too low. Municipalities don’t have the necessary means to adapt at the required scale, or even maintain existing protection. Senior orders of government will need to pool capital to support them.
  • Discourage investments in risky real estate by producing and requiring disclosure of physical climate risks in real estate transactions and by institutional real estate investors. Publicly available flood maps are out of date, including in British Columbia. Wildfire and permafrost thaw information is also limited or non-existent. The federal government should take the lead in ensuring Canadians have the climate risk information they need when making major decisions like where to purchase a home.
  • Create safety nets to ensure that the most vulnerable homeowners can continue to access insurance that protects them from extreme weather events while governments work to minimize the risks of a warming climate. This could be a delicate balancing act between protection and creating a moral hazard. The National Flood Insurance Program (NFIP) managed by the United States federal government exemplifies potential pitfalls. In addition to protecting homeowners from flood risk, governments may also need to support homeowners who find themselves under water financially due to falling property values as housing markets adjust to new climate realities that put particular regions at higher risk.

Insurance is critical to a household’s economic stability. It’s supposed to provide peace of mind during tough times. Yet that stability is seriously threatened by a warming and increasingly volatile climate. The catastrophic flooding in B.C. is a devastating preview of Canada’s climate future. Governments need to invest now to reduce our climate risks and take steps to ensure that insurance remains a viable part of how we recover from the climate impacts that we can’t avoid.

Canada’s economy won’t prosper without climate change investments

For years, climate action has been tied up in a false dichotomy of the economy versus the environment: two intractable foes, pitted against each other. The greens versus the bean-counters. Canadians’ pocketbooks versus the safety of the planet.

As of this week, that frame has been soundly discredited. It was never the economy or the environment, it’s climate action and future prosperity or inaction and economic destruction.

The B.C. floods and mudslides are shaping up to be the largest weather-related disaster for Canada this year. Businesses have been forced to shut down – they’re either literally under water, or their balance sheets soon will be, as their supply chains are abruptly cut off.

A terrorist attack on multiple points in our rail and road system could not have been more destructive for the B.C. economy than the “atmospheric river” caused by our increasingly volatile climate. Rail traffic has been halted in and out of the port of Vancouver, with losses estimated at more than $300 million per day until service can be restored.

The floods, wildfires, and heat domes that B.C. has experienced in 2021 can no longer be considered anomalous, freak events. As the climate warms, they will become inevitabilities. And as outlined in our recent report Under Water, we must prepare to meet them with urgency and at scale – just as we would respond to any other known threats to our national and economic security.

Climate and weather impacts already had the economy in a headlock and have been putting the squeeze on our growth.  Since 2010, the costs of weather-related disasters and catastrophic events have amounted to about 5 to 6 per cent of Canada’s annual GDP growth, up from an average of 1 per cent in previous decades. The 2013 southern Alberta floods cost the province over $5 billion dollars in economic output due to employment disruption; the costs for B.C. will be far more.

Climate change may have us down, but we’re not out.

We need to prepare for what’s coming, and that means better information. Where are our weak points, the regions, the people and the infrastructure most vulnerable to catastrophic risk? A lot of the time we don’t know, because in Canada information on climate-related risks is often unavailable or at best out of date. For example, B.C. flood mapping for the Nicola and Coldwater Rivers around the evacuated City of Merritt was last updated in 1989 –  32 years ago. Government flood maps are, on average, 20 years out of date, and don’t adequately consider the changing climate. Even bigger information gaps exist for climate-fuelled threats like wildfire.  A lack of climate risk information and transparency is a roadblock preventing us from preparing. This is fixable.

It’s clear from looking at the washed-out highways and rail lines in B.C. that we need a huge investment in climate-resilient infrastructure. B.C.’s current crisis shows that such investment is the most cost-effective way to protect the services that people, and businesses depend on.  Canada already has an infrastructure deficit, with governments, utilities, businesses, and homeowners already struggling to keep what already exists in good condition; we need to ensure that this deficit is addressed with future-fit, low-carbon infrastructure that builds for the climate of today and tomorrow.

It’s hard for municipalities, provinces and the federal government to spend money upgrading infrastructure to address long-term risks, when there are so many short-term demands that seem more urgent. But future-fit infrastructure is a good investment. New infrastructure lasts a lifetime, and it’s far less costly to build now for a warmer, low-carbon future than for a past that no longer exists.

While the flooding in BC is a disaster that has caused the country to sit up and take notice, it is important to remember that climate-related disruption was already regularly hurting productivity, mobility, trade, communications, and food and water security, impacting economic growth and the health and well-being of people across Canada. We live in a country that is warming twice as fast as the global average. It’s time we started building for that reality.

This opinion piece originally appeared in Maclean’s on November 22, 2021.

Canada needs a whole-of-government approach to climate change. How do we get there?

Climate impacts and accelerating global climate action threaten Canada’s current and future prosperity.  Examples include the devastating wildfires and catastrophic flooding in British Columbia this year and the sea change underway in global financial markets now that countries representing over 90 per cent of global GDP have committed to net zero by mid-century. To meet Canada’s emission-reduction commitments and accelerate the transition to a prosperous low-carbon future, Canada needs a whole-of-government approach capable of galvanizing action from all sectors of society.

A whole-of-government approach involves working across departments and agencies to implement a coordinated response to a complex issue or challenge. Of course, rapidly turning the entire ship of state in response to a threat is easier said than done. What follows are some considerations and recommendations that can guide the Canadian government’s efforts to implement a whole-of-government response to climate change.

Why a whole-of-government approach is needed

Climate policy, historically the purview of Environment and Climate Change Canada (ECCC), is increasingly, and necessarily, on the doorstep of many different departments—from agriculture to transport to natural resources, and from innovation to Crown-Indigenous relations and infrastructure.

Yet while more and more departments are being looped into the government’s climate agenda, they mostly continue to work in silos. The result is ineffective, and at times conflicting, policies—across and even within government departments. Departments and agencies need clearer direction and more support to work collaboratively towards common climate goals.

In other words, they need a whole-of-government approach to climate change.

We’ve fought this war before

The whole-of-government approach is not a new concept. During the Second World War, Canada established war committees and cabinets to direct sustained and coordinated emergency responses across government, successfully reorienting Canada’s entire society and economy around a new goal. And more recently, governments at home and abroad have applied whole-of-government approaches specifically to the climate crisis.

During Gordon Campbell’s 2001-2011 tenure as premier of British Columbia, the Climate Action Secretariat was an effective whole-of-government structure that helped the province adopt more ambitious targets and policies, though its influence lapsed under successive governments. Since 2019, the United Kingdom has placed a growing emphasis on whole-of-government structures and processes, including two new Cabinet committees on climate—the Climate Action Strategy Committee and the Climate Action Implementation Committee. In the United States, the Biden administration has committed to using whole-of-government approaches to support cross-government climate action. The president has used executive orders to direct procedural changes like the Executive Order on Tackling the Climate Crisis at Home and Abroad, and enact new structures—notably the new National Climate Task Force.

At the federal level in Canada, the government has already established some whole-of-government structures to advance climate policy, including a Cabinet Committee on Economy and the Environment and a climate secretariat housed in the Privy Council Office. It has also introduced external, independent advisory bodies to provide climate policy expertise to all parts of government—among them our Institute, the Canadian Climate Institute, and more recently, the Net-Zero Advisory Body.

The federal government has also implemented process changes, including using mandate letters to signal priorities and expectations around climate across departments, as well as announcing intentions to apply a climate lens throughout government decision-making. Most recently, Trudeau’s decision to move former Environment Minister Jonathan Wilkinson to head up Natural Resources Canada (NRCan) is a clear indication that experience on climate belongs beyond the environment department.

What needs to happen now

While the federal government is not starting from scratch, it’s clear that more needs to be done to embed climate considerations throughout government decision making. There was a lot of discussion leading up to the swearing-in ceremony of the new federal cabinet about just that, including the possibilities of merging ECCC and NRCan into a super climate department, or reassigning climate-related files to ECCC. But neither of those ideas has come to fruition.

Plus, as mentioned above, climate policy touches many departments, so merging a couple or shifting all responsibility to just one wouldn’t constitute a whole-of-government approach. So what can the federal government feasibly do now to create explicit cross-mandate accountabilities within government?

The federal government—specifically, the Prime Minister’s Office—could establish a new cabinet committee dedicated solely to climate change issues. It could establish smaller working groups and task forces across government departments focused on specific issues or sectors, such as a clean growth committee. It could expand the resources and role of the Privy Council Office’s climate change secretariat to give it more power and capacity to embed climate change decision making from the top down. And it could act on implementing a climate lens—which would integrate climate adaptation and mitigation considerations in all government decision making—and also expand it to include clean growth objectives.

Yet experience at home and abroad shows us that in practice, implementing a whole-of-government approach is easier said than done. And the details matter—a lot. Here’s what needs to happen to ensure success:

  1. First and foremost, success hinges on sustained executive leadership to set departmental priorities and incentivize inter-departmental coordination. It’s up to the Prime Minister to establish whole-of-government structures and processes and set the tone from the top down.
  2. Second, while executive leadership is critical, whole-of-government approaches also require buy-in from people at all levels (both on the political side and in the public service) to actually implement the approach across departments. Placing individuals with a strong commitment to climate in key posts is one way to ensure priorities from the centre are making their way throughout government decision-making.
  3. Third, whole-of-government structures and processes must receive sufficient resources and responsibilities. Without adequate funding or mandates, these approaches lack the capacity to enact change.
  4. Fourth, transparency and accountability are equally crucial, as they enable the public to know whether or not the government is following through on its commitment to prioritize climate across departments. While full transparency of government activities is unlikely (and impractical), external advisory bodies can enhance accountability by producing regular reports on progress and providing publicly available, cross-departmental advice.

Simply adding climate to every department’s checklist list won’t make for an effective whole-of-government approach. There is a real risk that without sufficient leadership, clear mandates, increased coordination, adequate resources, and enhanced accountability, a whole-of-government approach could actually result in less efficient and effective climate policy.

And as the COP26 climate summit in Glasgow underscored, governments must move quickly beyond commitment to implementation. The bottom line: implementing policies at the scale and speed needed to meet Canada’s pledges requires all government departments working  together in a more collaborative, coordinated way, with clear direction from the top. Without the solid foundation of an effective whole-of-government approach, Canada’s climate ambitions rest on shaky ground.

To learn more about how Canada can establish an effective whole-of-government approach to climate change, read our new case study, published today: Greater than the sum of its parts.

How COP26 made me believe that things are different this time

Glasgow, Scotland—Perhaps unsurprisingly, given how complicated the issues at play are, opinions on what’s occurring here at COP26, the United Nations climate summit in Glasgow, are many and varied.

Here’s mine: I’m pleasantly surprised at COP26’s success.

The most important thing that any public policy issue needs is a sense of momentum. It’s what bumps it up the political priority list. It’s what gives the public and decision-makers the feeling that progress is possible. And it’s what aligns disparate interests around that process of change.

After a week of announcements on issues ranging from coal phase-out to massive new corporate net-zero commitments to new protected areas, efforts to tackle climate change have undeniable momentum.

What makes this COP different from many others is the fact it has produced actual plans. Over the past week, real roadmaps have emerged on how nations will meet their long-agreed targets.

Significantly, these plans now encompass important areas of policy previously disconnected from the debate over how to deal with the climate crisis.

For instance, an agreement announced this week that the EU and the U.S. will work together to “achieve the decarbonization of the global steel and aluminum industries,” including through the use of focused tariffs, means that climate change policy is now trade policy.

The unveiling of a multibillion-dollar partnership between the U.S., the U.K., France, Germany and the EU to help South Africa finance a quicker transition away from burning coal for energy means that climate policy is now foreign aid policy.

And the fact that a new international coalition of the world’s biggest financial companies has amassed up to US$130 trillion (yes, that’s “trillion” with a “t”) of private capital committed to hitting net-zero emissions targets by 2050 means that climate change policy is now economic policy.

As a result of these detailed new initiatives, the International Energy Agency quickly calculated this week that, if implemented, the sum total of new pledges would put the world on track for 1.8°C of warming: a total that is below 2°C for the first time and getting close to the agreed target of 1.5°C.

The key phrase here is “if implemented.” Regardless of the agreements reached in Glasgow, countries can enact new global warming policies only through national legislation. So, when COP26 concludes at the end of the week, this is the necessary next step.

Canada has been a positive force here in Glasgow, launching numerous useful new initiatives and partnerships. And domestically, it’s all systems go for rapid progress. We are entering what may well be the most consequential period of carbon-reduction planning and action in our country’s history. We have a government that’s been re-elected with a detailed climate change platform. We have new ministers who are experienced and committed to progress on the climate change file. And we have a relatively new net-zero law at the federal level that mandates – by the end of December 2021 – that the federal government will deliver the country’s first 2030 carbon-emissions-reduction plan. The net-zero law is clear regarding what this plan must contain, namely:

“The greenhouse-gas-emissions target for the year to which the plan relates; a description of the key emissions-reduction measures the Government of Canada intends to take to achieve its greenhouse-gas-emissions target; a description of any relevant sectoral strategies; and a description of emissions-reduction strategies for federal government operations.”

What’s clearer to me than ever after a week in Glasgow is that the carbon transition is spreading and it is accelerating. Gone are the days when, after brief spurts of activity at UN climate summits, everyone went home and little follow-through occurred. With the business community clearly deciding that climate change is something that they must wrestle with in order to ensure future prosperity and success, progress is going to proceed everywhere, regardless of the political cycle of the moment or the political party in power.

COP26 has produced inarguable evidence that carbon reduction is the new global political and economic imperative. It’s about time.

Originally published in Corporate Knights.

Cost-benefit analysis is the wrong tool for tackling climate change

Everyone loves a simple way to make hard choices. Cost-benefit analysis has long been the magic 8 ball for government policy decisions. If costs exceed benefits, then the policy proposal should be shelved. If benefits exceed costs, then it should get the green light.

When it comes to climate policy, however, cost-benefit analysis is leading decision-makers astray. It generally overestimates costs, underestimates benefits and is better suited to incremental changes than the system-wide transformation needed to address climate change.

It is time for governments to update the tools they use to make decisions on climate policy. The stakes couldn’t be higher. Making the wrong choices today will lead to far worse economic and societal outcomes down the line, especially in the face of the major global market shifts on the horizon. There are better alternatives, such as “risk-opportunity analysis.” See, for example, this 2021 study by Mercure et al., which evaluates a range of positive and negative impacts under plausible scenarios.

Cost-benefit analysis isn’t equipped for transformative change 

In evaluating specific policy choices to respond to climate change, cost-benefit analysis fails the test for four reasons. Under it,

  1. Company expenditures are considered costs, not investments. Traditional cost-benefit analysis does not account for the competitive benefits of actions that companies take in response to policy. It puts all costs in the “bad” column and pits them against benefits in the “good” column, but many expenditures that companies make today are likely to pay off in future as the global low-carbon transition accelerates. Expenditures that yield a future return should be seen as investments, not costs. Increased private sector investment in emission reductions and new, transition-consistent product lines are critical to improving the resilience of Canada’s economy to global change.
  2. Businesses that could benefit from the policy are ignored. The focus of cost-benefit analysis is usually large incumbent businesses that will face costs, rather than newer companies that could see increased demand for their products or services. Recent analysis found more than 500 Canadian companies that could benefit from increased climate action through increased demand for their technologies or products. Supporting the growth of new companies and sectors that are positioned to capture market opportunities through global low-carbon transition is key to strengthening Canada’s long-term competitiveness.
  3. Society is not benefitting from technology adoption. Policies that increase technology adoption also help to drive down costs, as they accelerate learning rates and economies of scale. This creates a positive feedback loop (or green vortex) that further increases technology adoption and improves the feasibility of more ambitious climate action. If a policy today leads to lower policy costs in the future (and therefore greater global progress in reducing emissions), it has a societal benefit beyond the direct emission reductions achieved.
  4. Policy-certainty benefits are not captured. Regulation is often viewed solely as a drag on economic growth and a burden to business. When it comes to climate policy, greater clarity for businesses on market transition scale and timing can also unlock private investment. Certainty on policy directions can generate economic benefits.

Consider, for example, the federal commitment to achieve 100 per cent zero-emission passenger vehicle sales by 2035. If governments use traditional cost-benefit analysis to assess policies aimed at reaching that goal, they might conclude that slower, incremental changes would be better for the economy because they would imply lower costs for auto manufacturers. However, that decision could actually lead to less economic growth and fewer jobs in the future.

When we at the Canadian Climate Institute stress-tested auto companies under global low-carbon transition scenarios for our report Sink or swim: Transforming Canada’s economy for a global low-carbon future, the future competitive benefits of early investments in electric vehicle readiness became clear. Figure 1 shows that auto companies that invest in electric vehicles would see increased profitability from now until 2050, while those that do not would see substantial profit loss. Well-designed policies that increase expenditures on electric vehicle manufacturing can improve competitiveness.

 

A broader set of companies will face risks and opportunities from the policy and could be missed in a narrow cost-benefit analysis. Supply chains and repair shops will have to adjust, and new businesses managing charging networks and recycling batteries will need to emerge. Canada has a number of businesses that could benefit, such as vehicle-charging software provider AddÉnergie, electric vehicle battery recycler Li-Cycle, and mining companies active in battery minerals such as lithium and copper. Greater demand for electric vehicles could also help attract more battery manufacturers.

Decisions based on cost-benefit analysis alone could lead to reduced competitiveness and missed opportunities, resulting in worse overall economic outcomes.

Even small adjustments would make a big difference

A relatively simple near-term step to address the problems with traditional cost-benefit analysis is to include some of the missing benefits in the analysis. As with early efforts to incorporate values for the social cost of carbon, there will need to be some methodological experimentation. Benefit estimates could be developed using analysis similar to that in the Sink or Swim report, which models company profitability under different global transition scenarios and analyzes areas of potential transition opportunity. Governments could also use economic modelling, similar to the 2021 Clean Energy Canada and Navius  Research projections of clean energy GDP increases, associated with the federal climate plan.

In the longer term, shifting to the risk-opportunity analysis proposed in the Mercure study would support better decision-making; for example, it

  • Assesses a portfolio of policies designed for transformative systems change rather than one policy aimed at incremental change
  • Evaluates a range of qualitative and quantitative risks and opportunities under various plausible scenarios rather than producing one metric
  • Considers positive feedback loops between components, such as declining technology costs; and
  • Presents decision-makers with findings that include uncertainty ranges and confidence levels.

Risk-opportunity analysis will not produce a magic yes-no answer, but it would support more thoughtful debate about the policy mix that would deliver the best overall climate, economic and societal outcomes.

Cost-benefit analysis is a small part of a bigger challenge

There is a reason that cost-benefit analysis was designed for incremental change. Incremental change is what governments, and often societies, prefer. People have a status quo bias and are less comfortable with large, sweeping transformation.

The problem is that incremental change is no longer in the cards. Canada will not succeed in climate change or in maintaining a strong economy without transformative change. The world is rapidly transforming around us, and unless we anticipate and adapt to new market realities we will be left behind.

There are massive opportunities, including the potential for a future that is much more inclusive and prosperous than the past. But success won’t happen on its own. It requires action, investment, planning, co-ordination, innovation, and a boldness that will be hard for some to embrace.

Changing how decisions are made to reflect the scope and scale of the problems we face and the solutions we need would be a good place to start.

Originally published in Policy Options

It’s time to kick Canada’s economic transformation into high gear

Canadian governments are counting on strong future economic growth to reduce debt burdens that ballooned during the pandemic. But realizing that growth depends on how well Canadian businesses adapt to rapidly changing market realities.

In the near term, Canada’s economic recovery looks promising as business activity bounces back.

In the longer term, however, Canada’s economy faces strong headwinds that are not being factored into government projections. Canada’s economic challenges go beyond slowing labour force growth and modest productivity gains. Fiscal recovery forecasts do not consider the probability of more frequent and costly natural disasters, or the implications of the massive global economic transformation driven by efforts to stave off the worst effects of climate change.

Accelerating international climate action, investors awakening to climate risks, and rapid technological change are combining in ways that will shift trade patterns and upend markets. Canada has a choice:  lead, follow, or be left behind.

A future with significantly lower global demand for coal, oil, and gasoline-powered vehicles is now inevitable, regardless of current price volatility. More than 60 countries and counting have committed to reach net zero greenhouse gas emissions by mid-century. These countries represent over 70 per cent of global GDP, over 70 per cent of global oil demand, and over 55 per cent of natural gas demand.

Even if countries fail to hit net zero targets, their efforts will still have profound impacts on global markets. Government policy may not even be the main driver once markets hit tipping points where clean technology costs fall below their emitting counterparts. Solar and wind power are already there, and electric vehicles are not far behind. Moves by investors and insurers to reduce their own climate-related risks are raising the cost of capital for emissions-intensive projects.

Canada can capture new global opportunities in these market shifts, but is also more vulnerable than other countries with relatively carbon-intensive economies. Almost 70 per cent of Canada’s goods exports are in sectors expected to experience disruption. Those same sectors employ over 800,000 Canadians across the country.

Canadian businesses and governments need to step up and ready Canada’s economy and workforce to succeed. Every firm, every sector, and every government must be part of an unprecedented effort to transform Canada’s economy for future success. We should not discount key areas of recent progress in this endeavour, but the scale is not yet matched to the challenge.

Lisa Raitt and Anne McLellan, former Conservative and Liberal cabinet ministers respectively and co-chairs of the new business-led Coalition for a Better Future, have called for “a focused plan to strengthen economic growth, promote innovation, encourage investment, and accelerate the transition to a greener future.” They are right, and readying Canada for the global low-carbon transition should be a top priority.

Drawing on findings from a recent Canadian Climate Institute report, there are four key areas requiring Canadian business and government action.

First, readying Canada’s economy is about more than reducing emissions. Emission reductions are critical for heavy industrial sectors such as iron and steel, chemicals, and cement, but sectors facing declining global demand will need to shift into new business lines. As the global market for coal, oil, and gas shrinks, only the lowest-cost, lowest-emission suppliers will be able to compete. Many oil and gas companies will find that their long-term survival depends on entering growing markets such as clean hydrogen, aviation biofuels, and renewable energy instead.

Second, Canada needs new sectors and companies to capture more of the upside of transition. Fortunately, Canada has hundreds of companies active in markets that will experience significant growth globally. The challenge is that many of these companies struggle to attract the financing they need to scale, or they are snapped up by foreign buyers before they gain a foothold in Canada.

Third, traditional patterns of financial flows must be redirected to drive success. Despite looming risks and substantial opportunities, transition-related financing has so far been limited. Investors are turned off by policy, market, and technological uncertainty, as well as by high up-front capital costs and delayed payouts. Market information is also woefully insufficient, making it hard to distinguish transition winners from losers.

Finally, governments should use smart, targeted, and effective policy interventions to mobilize larger-scale private investment. Climate policies such as pricing and regulation can drive transition readiness and generate demand for promising new products and technologies. Public investments can reduce investor risk and encourage collaboration among investors, industry, and entrepreneurs. And clearer rules for climate-related reporting and financial products can help ensure that finance is flowing in the right directions.  Policy approaches need to be laid out in detail a soon as possible to reduce uncertainty about the future business environment. 

The global ground is shifting dramatically: moving too slowly is now a greater competitive risk than moving too quickly. The next generation is depending on us to get it right.

Don Drummond is an economist at Queen’s University, a C.D. Howe Institute Fellow-in-Residence, and an expert panelist with the Canadian Climate Institute. Rachel Samson is Climate Institute’s Clean Growth Research Director.

Originally published in The Globe And Mail

COP26 is a pivotal moment for Canada and the world

COP26 is bearing down on us like a deadline for a major assignment — and we’re the student who has frittered away the entire term. Now it’s six hours to midnight and we have a sketchy outline, some useful notes from our nerdy roommate, and a big mug of coffee. Our intentions may be good but we’ve made the assignment a lot harder on ourselves.

And while, yes, an extension may be possible, a deadline concentrates the mind wonderfully: there’s still just enough time to do what we need to do — so long as we’re smart, ambitious, and determined.

Of course, the stakes are much higher in Glasgow than simply flunking a class. The IPCC report that came out in August made this crystal clear: Global warming is happening faster than expected. It’s driving extreme weather on every continent. And the tipping points that would trigger far more destructive consequences are looming closer.

Too many people living in Canada are already experiencing first-hand the destruction caused by climate change: floods, fires, heat waves. And because Canada is warming, on average, twice as fast as the rest of the world, the consequences of continued warming would be catastrophic. We are, quite literally, in the hot seat.

To put it simply: action in Glasgow is imperative because a lot of people are going to die if we fail. This summer, 569 British Columbians died because of a heat wave, and that’s climate change just getting started. The WHO predicts that climate change will kill at least 250,000 people a year after 2030 if nothing is done to dramatically reduce carbon pollution.

Millions of people do not have to die. Getting serious at COP26 in Glasgow, rather than delaying another year or another decade, will translate directly into lives saved.

Because here’s the most important thing about this moment we’re in, the autumn of 2021: the worst impacts of climate change can be still avoided, if we act fast. It’s not too late to change course — though we are in a rapidly closing window.

Projections in the IPCC report show with a high degree of certainty that if we hit net zero emissions globally by 2050, we could still limit warming to 1.5 degrees Celsius, avoiding catastrophic tipping points. The scientific consensus is clear: the faster we reduce our emissions, the cooler the planet will remain.

But it gets a lot harder from here. Like the student with the big assignment and the looming deadline, we know now that we should have started working on this project ages ago. We should have started reducing our emissions in the 1990s, or even before, when we first began to grasp “the greenhouse effect,” and what it would mean.

In a recent analysis, climate scientist Zeke Hausfather makes the point that, “If emissions had peaked back in 2000 we would be skiing down a bunny slope toward 1.5C. Today we face a double black diamond, and in a few years it will be a cliff.”

If saving lives isn’t a sufficient incentive for Canada to make real change in Glasgow, what about jobs? Runaway climate change threatens Canada’s prosperity: it’s hard to hold down a job when your house has been destroyed by a wildfire, or to keep your business running when a flood sweeps through your town.

Since 2010, the costs of weather-related disasters and catastrophic events have amounted to about 5 to 6 per cent of Canada’s annual GDP growth, up from an average of 1 per cent in previous decades.

And as an export-driven economy, Canada faces a sink-or-swim decade as the world rapidly decarbonizes. It’s inevitable that we’re going to see trillions of dollars in global investment moving away from high-carbon sectors. Canada doesn’t want to be the guy behind the counter at Blockbuster, watching movies on his phone and wondering why the place is empty.

Of course, climate change policy, and climate itself, is not a light switch, or a pass-fail course. No one single event will change our planet’s trajectory. But COP26 in Glasgow is, without question, a pivotal moment for Canada and the world.

With a new federal government just elected on a clear and strong platform of accelerated climate change commitments, a new minister of environment and climate change, and a ticking clock, now is the moment for Canada to chart a more ambitious course.

Originally published in the Toronto Star.