Climate change is coming for your wallet

This opinion piece originally ran in the Toronto Star.

What comes to mind when you think about the costs of climate change?

Is it parched fields or unprecedented heat waves? A wildfire sweeping through a town in B.C. or Alberta? A house swallowed by a swollen river in Manitoba or Quebec?

These events are devastating and memorable—and yes, they represent some of the costs of climate change that Canada is already paying for.

But climate change isn’t just about isolated extreme weather events. It isn’t about costs to somebody else, somewhere else, sometime in the future. The costs of climate change are already here today, they’re already driving up the cost of living for Canadians, and they’ll escalate dramatically in the years to come.

Climate change is reaching into your wallet in hundreds of ways, from higher grocery bills due to supply-chain disruption, to soaring insurance premiums on your home and cottage, to the inevitable tax hikes to pay for climate damage and climate-proofing infrastructure.

That’s the major takeaway from our new report: climate change impacts are a present and growing drag on the economy, pulling down GDP, depressing investment and exports, and killing jobs—and Canadians will bear the brunt of those costs. Households face a double whammy: climate change pushing up expenses while economic opportunities evaporate due to slower growth. 

For more than three years, the Canadian Climate Institute has been researching the costs of climate change, and that research has culminated in Damage Control: Reducing the Costs of Climate Impacts in Canada. We ran 84 different scenarios, among them two separate global-emissions scenarios and a range of plausible climate change impacts in Canada, and tested the results through an expert review process to reveal the most detailed picture yet of what climate change is doing to the Canadian economy.

Maybe the most important finding is this: climate change is no longer a distant threat; it’s here today, and it’s doing real damage to Canada’s economy. Our research shows that as soon as 2025 — just over two years from now — climate-induced damages will be slowing Canada’s economic growth to the tune of $25 billion annually, equal to about half the expected annual growth in our economy. Beyond 2025, the damages will escalate, potentially wiping out half a million jobs by 2050 and almost 3 million jobs by end of century.

Fortunately, Canada is not powerless before this threat. Our research shows that proactive adaptation measures to protect Canadians can cut the costs of climate change in half. Canada needs to quickly scale up our adaptation and investment strategies to match the scale of the risk we’re facing, starting with the forthcoming National Adaptation Strategy. For too long, Canada’s response has failed to match the magnitude of the climate threat.

Investing in adaptation is a no-brainer. A dollar invested today in adaptation measures will return $15: $5 in direct benefits, like reducing the cost of repairing damaged infrastructure, and $10 of indirect benefits, such as avoiding the costs of supply-chain disruptions and maintaining labour productivity.

Obviously, limiting further climate destabilization needs to be a priority as well. If Canada and other countries are able to successfully reduce emissions in line with their targets on top of proactive adaptation here at home, Damage Control finds that future climate damage to our economy and reduction to our GDP could be reduced by three-quarters.

For years, we’ve collectively underestimated the costs of climate change inaction and undervalued the benefits of mitigation and adaptation. Inaction, it turns out, is eye-wateringly expensive.

Climate change impacts don’t just show up as catastrophic losses, like the loss of your house to a flood or a fire. They will increasingly start to show up as the red ink on your bank balance, the loss of a job, the decline in the value of your retirement nest egg, and the stress of expenses piling up while earnings slow.

Climate change costs. But we have an opportunity to act now, and slash the bill by up to 75 per cent before it fully comes due.

Getting Canada’s proposed clean electricity regulations right to reverse our poor climate performance

Originally published by Policy Options.

The federal government has proposed a framework for clean electricity regulations that may not be consistent with its commitment of achieving net zero electricity by 2035. Clean electricity will power Canada’s net zero transition, enabling a “big switch” from fossil-fuel energy, which emits the heat-trapping gasses that cause climate change, to clean electricity. Clean electricity relies on sources like wind, solar and hydro. Only under a specific set of design choices, however, would the proposed policy deliver the clean electricity systems Canada needs.

The 2035 target is necessarily ambitious, recognizing that Canada’s clean electricity production must increase significantly to meet our emissions reduction commitments in 2030 and 2050. But with Canada batting zero on its past climate targets, it is critical we learn from previous failures and do what is required to meet that ambitious target. Humanity cannot afford more missed climate promises from countries like Canada.

A quick backgrounder

In 2021, the federal government made a commitment that Canada’s electricity generation would be net zero by 2035. This means that any remaining emissions of heat-trapping gasses would be offset by the capture and permanent storage of atmospheric carbon. This followed analysis and recommendations from Canadian researchers (including from co-author Mark Jaccard) and aligned with the policy direction of the United States government, which issued a similar target after determining its feasibility.

The Canadian government committed in its 2030 Emissions Reduction Plan, released earlier this year, to implement clean electricity regulations that would drive emissions down. Public consultations began in March with a discussion paper.

Following those consultations, the government laid out its framing of the proposed regulation. The specific regulations are still to come and would themselves go through a consultation process. But the newly released proposed framework sets out a direction that raises some substantial concerns.

Making it genuinely net zero

The first problem with the regulations is that after 2035, emissions that would be permitted would have to be offset by negative emissions (the net in net zero) or be subject to a financial compliance payment in line with the carbon price at the time. This second option risks weakening the entire framework by greenlighting continued emissions, meaning a failure to hit Canada’s net zero electricity goal.

Policy Options piece earlier this year argued that focusing on offsetting negative emissions would be the way to ensure power generation was genuinely net zero without creating risks for system reliability.

This regulation will fall under the Canadian Environmental Protection Act, which carries criminal liability for failing to meet its requirements. System operators might not be assured of their ability to successfully secure negative emissions. So having financial compliance as an alternative option can make sense. But it does not mean that the net zero target needs to be abandoned.

The federal government could commit to using the proceeds from financial compliance payments to purchase negative emissions on behalf of the sector. This would offer a way to make electricity generation genuinely net zero in a way that avoids putting utilities and system operators in a difficult legal position.

Get carbon pricing right

In its report Electric Federalism, the Canadian Climate Institute discusses the value of doing away with the output-based treatment that electricity currently gets in some provinces under the federal carbon price. (There can be good reasons to do output-based pricing, but most of them don’t apply to electricity.)

By instead applying the full carbon price to all electricity-related emissions and returning the revenue to ratepayers (to help keep electricity costs low), carbon pricing could work effectively with the clean electricity regulations – and help avoid significant negative effects on electricity ratepayers. However, the federal government’s proposed framework appears to be silent on these potential changes to carbon pricing. This raises the question of what kind of price signal the sector will get between now and 2035, when the federal performance standard takes effect.

Maintaining the current output-based approach will provide only a weak incentive for facilities to cut their emissions over the next decade. This could leave the sector poorly positioned to achieve net zero by 2035.

Instead, the government could do away with output-based pricing for electricity immediately. Or as we discuss in the Canadian Climate Institute’s formal response, it could remove electricity from federal carbon pricing altogether, and instead apply a price schedule under the regulations. This would create the added benefit of having the regulations drive emissions reductions in this decade, instead of well into the next.

Address affordability and equity directly – federally and provincially

The proposed framework seems to be strongly concerned with the effect that the policy could have on the price of electricity for a small percentage of consumers in just a few provinces in 2035. Concerns about affordability and equity are, of course, warranted, but they should not be used to justify less ambitious climate policy.

Instead, these challenges can be addressed directly, by bringing in new supports or strengthening existing ones. Indeed, provinces (through policies of their governments, utilities and utility regulators) commonly provide supports to low-income ratepayers already. Also, the Canadian government is providing support to households for efficiency improvements and heat pumps, and such support can be especially targeted to lower-income households and social housing.

The federal government made a commitment to have net zero electricity generation by 2035, and presumably it did so with some knowledge of what the costs and impacts could be. Concerns about affordability can and should be addressed directly through other policies and measures, rather than by reducing the stringency and effectiveness of this essential pillar of our national net zero commitment.

Walking the path to net zero

There is still a path to putting this policy in alignment with Canada’s commitment to achieving net zero electricity generation by 2035. It requires the government committing to procuring negative emissions to offset any emissions from the sector post-2035, fixing the carbon price treatment the sector gets now, and addressing concerns about affordability and equity directly. In its 2030 Emissions Reduction Plan, Canada finally has a path to a policy framework for reaching our legislated emission reduction targets (see the Canadian Climate Institute’s independent assessment here). Staying on that path will require that it get this policy right.

How climate change is costing us

Originally published in Maclean’s.

Governments and corporations have largely cast climate change as an environmental issue. Even in 2022, they rarely factor its economic toll into their decisions. And many individual Canadians think the same way. They’re still not connecting the rising cost of living to climate change, but evidence of this link is everywhere. Last year, record torrential rains submerged Vancouver, disrupting the $550 million worth of daily cargo that moves through the massive port, for months on end. Canadian homeowners have spent 42 per cent more on their home insurance premiums in the past decade as a direct result of climate change–related damage to properties. (Customers in Alberta, which is particularly vulnerable to wildfires, experienced a 140 per cent increase.) And climate change is also partly responsible for the grocery price tags we’re seeing now. Last year, extreme weather raised global food prices by 28 per cent. These kinds of expenses will just keep coming: according to my firm’s research, by 2025, Canadians could lose an average of $700 from their annual household income due to climate change–related factors alone.

Canada recently increased its previous emissions-reductions target—from 36 to 40–45 per cent by 2030—but the government needs to develop more aggressive policies to meet it. We still don’t have a national clean-electricity standard. And our carbon price policy may be world-leading, but it should be increased to reflect the full cost of the country’s emissions output.

Canadians also need more readily available information about environmental risks so they can anticipate related expenses in their day-to-day lives. Climate change is barely reflected in Canadian housing prices, for example, even in areas that have a high likelihood of flooding. Federal and provincial governments need to introduce policies that require the disclosure of climate-risk information for any property prior to sale. Homes should be built with materials and layouts that reduce energy consumption, and older homes will need to be retrofitted with the same goal in mind. Once a sale is completed, new owners might consider hiring an energy auditor to inspect their properties and make recommendations to reduce their energy costs and overall carbon footprint.

Policy-makers need to factor climate change into their tangible infrastructure decisions, like building new public roads that can handle more frequent freeze-thaw cycles. But some of climate change’s economic consequences are much more difficult to quantify. Power outages decrease worker productivity. Poor air quality increases the number of hospital visits due to respiratory illnesses. And the existential threat of environmental disaster has even given rise to a new mental health issue called “eco-anxiety.” To offset these health and productivity costs, the government needs to provide more extensive and equitable access to hospitals and mental health professionals. All of these measures—concerning infrastructure and otherwise—are added costs that will have to be covered by the government or taxpayers themselves.

Some of these things will be costly in the short term, but there’s plenty of evidence to suggest Canadians will reap significant benefits in the long run. According to analysis by the Canadian Climate Institute, if the world limits its warming and keeps its emissions low until 2100, climate change–related costs to Canada’s GDP would be cut in half. Looking at it another way, GDP costs will double if it doesn’t.

Extreme weather events are now hitting us with alarming regularity. The country’s most expensive disaster to date was the Fort McMurray wildfire in 2016, which caused $9 billion in damage. But it’s also the slow increases showing up in our heating and produce bills. It’s the physical damage to our homes and public facilities. If Canadians continue to delay our efforts, these costs will only get worse.

Four ways the Inflation Reduction Act can accelerate Canada’s clean energy transition

Initially published in the Toronto Star.

The Inflation Reduction Act has now been signed into law— and Canada suddenly finds itself in the unfamiliar position of playing climate catch-up with our southern neighbour.

The bill’s climate provisions will drive U.S. greenhouse gas emissions down 41 per cent below 2005 levels by 2030 — and it does this through a series of measures that incentivize Americans to make, sell, and buy the vehicles, heat pumps, wind turbines, and solar panels that will affordably and efficiently power their homes and businesses through the energy transition.

The implications of this powerful collection of policies not only transform U.S. law and capital markets to drive the clean energy transition, they’re also a game changer for Canada. Here are four ways the Inflation Reduction Act will accelerate Canada’s Net Zero transition.

Canada’s 2030 ambitions are now aligned with America’s 2030 realities.

Before the Inflation Reduction Act’s adoption, the U.S. had ambitious greenhouse gas reduction targets, but no clear federal policy support for the necessary action to get there. Sound familiar? That’s because Canada’s climate change policy is also a work in progress.

Our federal government is currently consulting on a new Clean Electricity Standard, a cap on emissions from the oil and gas industry, more stringent regulations on reducing methane leaks, and improvements to carbon pricing: all elements that the Canadian Climate Institute has calculated are necessary for Canada to achieve its own goals.

Moving expeditiously with these initiatives is critical if we want to keep pace with the giant economy to our south.

Capital markets are now unleashed, flipping Canada’s competitiveness challenge on its head.

Investors and capital markets need policy certainty before they will make the big bets in clean energy or climate tech. Clearer policy direction in Canada has helped, but global capital markets have been waiting for the U.S. to make its move. They need no longer wait.

The longstanding concern among businesses and financial institutions in Canada has been about moving too fast on climate policy, putting it at a competitive disadvantage to the U.S. That narrative has now been flipped on its head: the real danger now is not moving fast enough.

If Canada doesn’t keep up, there’s a risk that flows of talent and capital could be pulled south of the border. Even as market opportunities in North America get bigger, Canadian companies may not have the financial and human capital required to scale and succeed.

Canadian governments have an important role to play here, too. The Canadian Climate Institute recently highlighted a range of policies that can help Canadian companies compete in North American capital markets — from growing more startups to commercializing the next big anchor companies.

Smart climate policy is now one of the best antidotes for increased cost of living.

It’s “not called the Inflation Reduction Act for nothing,” Princeton engineering professor Jesse Jenkins recently pointed out: “Rising energy costs are the biggest driver of inflation right now. The Inflation Reduction Act would directly reduce annual U.S. energy expenditures by at least ~4% by 2030 in our modeling. That equates to a savings of nearly $50 billion annually for households, businesses, and industry and translates to hundreds of dollars in annual energy cost savings for U.S. households.”

With Canadians also feeling the pinch of inflation and high gas prices, policymakers here should be poring over the Inflation Reduction Act to see how we might unlock similar energy and efficiency savings for Canadian families.

Canadian industry has specific new opportunities.

Unlike an earlier draft of the bill that would have locked out Canadian auto manufacturers from electric vehicle incentives, the Inflation Reduction Act recognizes that Canada is a key partner in the success of America’s clean energy transition. It includes Canadian products and components (including Canadian-built vehicles and critical minerals for batteries) as eligible for the full $7,500 EV rebate.

Canadian automakers have been preparing for exactly this moment, committing billions to retool their facilities to make EVs. These investments are targeting the entire supply chain, from procuring the necessary minerals and metals within Canada to developing technologies that can help manage and recycle the influx of batteries in the waste system. Now, with clear direction from the US, Canada can move even faster to transform one of its largest economic engines.

The passage of the Inflation Reduction Act represents a watershed moment for climate policy. All of a sudden, the U.S. is fully engaged in the net zero transition. Now Canada needs to deliver the policies that will ensure we’re not left in their wake as we ramp up our own transition.

Clean electricity is a must-have for business — and for Canada’s economic prosperity

Originally published by the National Observer

How clean is your company’s electrical grid?

This isn’t a question that the chief financial officers of Canadian manufacturers are used to having to answer. But that’s changing fast.

In the face of global shifts toward disclosure and transparency, investors are carefully tracking greenhouse gas emissions as potential risks and expect companies to have credible plans to reduce them. That’s true for emissions across firms’ entire value chains, especially when it comes to electricity.

The leading greenhouse gas protocol corporate standard categorizes companies’ emissions into three groups.

Scope 1 emissions are from the fossil fuels that companies burn directly.

Scope 2 emissions are the indirect emissions from the generation of purchased energy, including electricity, steam, heating, and cooling.

Scope 3 emissions (also known as “tailpipe” emissions) are all other indirect emissions that occur in the company’s value chain, upstream and downstream.

Canadian firms have well-established practices in place for tracking Scope 1 emissions and are increasingly tracking Scope 3 emissions alongside customers, suppliers, and other partners as policy in the rest of the world accelerates.

Scope 2 emissions deserve additional attention. As the list of companies in Canada pursuing net-zero emissions grows, those firms need access to a reliable and affordable source of clean electricity. In other words, having a modern, clean electricity system is suddenly a major competitive advantage.

But here’s the thing: electricity users can’t always affect the emissions produced in generating the electricity they use. Companies can sometimes directly reduce their Scope 2 emissions, for example, by producing or procuring clean electricity. But that can prove challenging or costly and isn’t feasible in every province or territory. It’s far easier if the grid itself is already able to satisfy the demand for clean, reliable and affordable electricity.

That means jurisdictions with clean grids have a competitive advantage in attracting projects and investments concerned about Scope 2 emissions — many of which are poised to be big drivers of growth.

We’re already seeing companies deciding where to build based on electricity. According to media reports, LG Chem recently opted against building a battery plant in Ontario at least partly based on availability of electricity.

Amazon, which has committed to being fully powered by renewables by 2030, announced last year it would build a major distribution centre in Alberta powered by a nearby solar farm.

Distinct global markets for green steel and zero-emissions aluminum (both of which require large amounts of clean electricity) are growing, while Canada’s role in the North American zero-emission vehicle and battery market is emerging.

Canada already has a head start. Over 80 per cent of the country’s electricity production is non-emitting — owing to our wealth of hydroelectric resources, as well as nuclear and a small but growing share of wind and solar.

For comparison, the U.S. and Australian grids are about 40 per cent and 20 per cent non-emitting, respectively. As Ivan Vella, chief executive Aluminum at Rio Tinto, has noted, this clean electricity advantage means “Canada’s in a wonderful position to both deal with its domestic needs, as well as export and other growth options that really help build the economy.”

Yet all across Canada, there is still work to do. Even provinces with clean grids such as British Columbia, Manitoba and Quebec, which rely almost entirely on non-emitting hydroelectricity, will need to at least double their capacity in the next few decades to meet growing demand and capitalize on emerging industries like hydrogen and low-carbon steel. And critically, these changes must be implemented in a way that does not detract from reliability and cost competitiveness, qualities that for decades have been a hallmark of Canada’s attractiveness as a location for industrial investment.

Still, there are encouraging signs that building a modern, clean grid is both doable and economical. Alberta, for example, is seeing some of the fastest growth in wind, solar and battery storage in the country, largely because these sources of energy are cost-competitive now. In Atlantic Canada, meanwhile, electricity companies are creating breakthrough microgrid technologies.

Given the scale of the challenge ahead, building a grid to support Canadian competitiveness will require government policy and an unprecedented amount of new investment. The federal government has committed to implementing a Clean Electricity Standard that aims to deliver a net-zero electricity sector by 2035. This year’s federal budget also earmarked funding to create a Pan-Canadian Grid Council to provide advice in support of national and regional electricity planning.

Provinces will also have to step up to meet industry demands for a clean grid. Provinces oversee electricity systems, so they will need to provide clear guidance to their public utilities, regulators and system planners, and give them the tools and resources they need to do the job.

Getting all of this right will require both levels of government working together. It’s increasingly clear which way the wind is blowing: future growth in Canada must be clean growth. Clean, reliable and affordable electricity will power that growth. CFOs have their eyes on the prize of lower Scope 2 emissions because lower emissions are what investors are demanding. The question now is whether Canada can grow its clean electricity capacity fast enough to deliver on Canada’s promise as a clean growth powerhouse.

Five ways to responsibly transition the oil and gas sector

A global low-carbon transition will have big implications for Canada’s oil and gas sector. How can this transition be managed to maintain and grow the prosperity and well-being of workers, communities, stakeholders, and rights holders, even in the face of major international market shifts? This is the goal of a just transition to a low-carbon future—and the federal government has been actively consulting on how to make it a reality for Canada’s oil and gas regions. 

Canada is not alone in facing these transition challenges. Denmark, Scotland, and New Zealand have all made commitments to create smooth transitions for their oil and gas sectors. In some ways, their contexts differ from Canada’s. For example, employment in Canada’s oil and gas sector is around 1.1 per cent of total employment, while in Denmark it is 0.5 per cent, New Zealand 0.3 per cent, and in the United Kingdom 0.1 per cent. However, in all these countries, as in Canada, the oil and gas sector is important to specific regions, both in terms of direct and indirect employment and economic contributions. That’s why Canada can learn valuable lessons from these countries.

Here are the top five lessons for Canada from a set of three international case studies that examined transition approaches in oil and gas regions in New Zealand, Denmark, and Scotland.  

  1. Involving communities and stakeholders in defining a just transition can help ensure broad public support. Defining a just transition for oil and gas sectors is often a negotiated process. While unions and industry must be central to that process, there are also implications for communities, businesses, and Indigenous rights holders. Denmark, New Zealand, and Scotland all used public engagement to determine what a just transition means for them. In Scotland, an independent commission convened a broad social dialogue to help define just transition principles. In New Zealand, a large, inclusive public engagement exercise in the transitioning region resulted in the Taranaki Roadmap 2050, which defined just transition and set out plans to get there. In Denmark, the government established 14 partnerships with the business community and a Green Business Forum to strengthen dialogue on the green transition of business. These forms of engagement define priorities and objectives and establish consensus for action. 
  2. Approaching transition as a regional challenge, rather than only a sectoral one, can reveal opportunities and assets that may otherwise be missed. An inclusive regional development approach helps identify assets and opportunities that can drive growth and opportunity in oil and gas regions. This approach emphasizes that just transitions are about more than just industry workers and recognizes that the broader community is also impacted. For example, in Denmark, there is political and social consensus that the North Sea will remain the key energy producer, but instead of oil, will focus on wind energy and other renewable energy activities. Therefore, Denmark’s transition is being managed in place, with new economic activities in a sector that has many transferable skills with oil and gas. The strength of the renewable energy sector reduces risks not just for workers and industry, but for the broader community.
  3. To be effective, just transition policies must be coordinated across departments and even orders of government. It would be a mistake to think of energy transition as a technical endeavour. Both regional development policies and sectoral policies should be effectively combined to support just transitions. For governments, this presents a horizontal and vertical coordination challenge. New Zealand has answered this by establishing a Just Transitions Unit within the Ministry of Business, Innovation, and Employment—it forms a centre of expertise in government for managing transitions, forming partnerships, and co-ordinating investments to bridge any identified gaps. Scotland has a new junior ministerial post—Minister for Just Transition, Employment and Fair Work—responsible for co-ordinating the national Just Transition Planning Framework. Both are examples of how to co-ordinate just transition actions and investments across government. 
  4. Tying just transition criteria to public funding for contracts can alleviate the concerns of energy workers. A major concern of energy workers is that the jobs that they transition to will be of lower quality and pay. Ensuring fair work and living pay standards through the transition is one way of addressing this. For example, the Scottish government required contractors receiving heat and energy efficiency contracts to ensure fair work terms as a condition of receiving the contract. Similarly, Scotland’s plans to create green freeports (large areas with transport links where businesses benefit from tax and other incentives) include the requirement that initiatives receiving public investment must demonstrate support for “just transition to net zero emissions by 2045 and the creation of high-quality employment opportunities with good salaries and conditions” in order to qualify. In these ways, just transition objectives are baked into program funding criteria.
  5. Setting and reporting on clear metrics of success helps ensure ongoing engagement and buy-in. There is a great deal of risk associated with transitioning industries, causing harm and anxiety to stakeholders and rights holders. A rigorous and independent assessment of how transitions are impacting people is important. In New Zealand, metrics and evaluation are included in the Taranaki Roadmap process, a novel approach as the indicators of success are designed upfront and include a variety of perspectives. For example, Māori worldviews of well-being and success were integrated into the process. Outcomes are assessed in annual public updates, reviewed every two years, with a detailed review every five years. Scotland has adopted a national approach. Their Just Transition Commission will evaluate progress on key just transition targets–for example monitoring how different groups either benefit or are impacted–with the goal of holding the government to account. 

Industrial and energy transitions are not new. Canada has long had boom and bust industries and some transitions have been managed better than others. And of course, the oil and gas sector is no stranger to periods of growth and decline. However, because global demand for oil is expected to fall significantly on the path to net zero, this transition could cause significant disruption and job loss if Canada is not prepared. The sector also has a disproportionate impact on the broader economy and environment. Although Canada has taken some steps to transition its oil and gas sector, for example, with the creation of new Regional Energy and Resource Tables, much more needs to be done. Canada should draw inspiration from other countries’ experiences while designing a home-grown approach reflecting distinct regional economies and Canadian federalism. A just transition for Canada may require new policy instruments and new governance and accountability frameworks. As the cases of New Zealand, Denmark, and Scotland illustrate, the tools are readily at hand to ensure a just transition for Canada’s oil and gas workers.

ZEV mandates are good climate policy—because they work

This opinion piece was originally published in the Toronto Star.

Electric vehicles are unambiguous “safe bets” on the drive toward net zero, but Canada’s vehicle fleet won’t electrify on its own. Achieving Canada’s climate goals will require policy to level the playing field and transform Canada’s transportation sector.

This transformation will benefit Canadian drivers in the most tangible of ways. Recent surveys have shown that nearly half of Canadians plan on buying an electric vehicle as their next car. That’s not because drivers are wild-eyed, altruistic, environmentalists. It’s because they recognize that EVs will free them from high gas prices.

A zero emissions vehicle (ZEV) mandate is a key policy plank to create a sustained, steady transition for Canada’s vehicle fleet toward net zero. ZEV mandates are not always popular with vehicle manufacturers. They are, however, good policy — both for achieving Canada’s emissions targets and protecting Canadians’ pocketbooks.

The principle is simple: vehicle manufacturers must sell a minimum share of zero emissions vehicles. That share will increase over time, creating stronger incentives for manufacturers to sell more zero-emissions vehicles and fewer internal combustion vehicles. An increasingly stringent ZEV mandate would allow Canada to achieve its goal of 60 per cent sale of light duty vehicles being zero emissions by 2030.

One of the biggest reasons for growing EV demand is the fact that EVs can save Canadians money. The costs of batteries continues to decline as manufacturers get better at making better EVs with longer range. And as gasoline prices skyrocket, the lower operating costs of electric vehicles and the much less volatile prices of electricity look increasingly appealing.

But Canadians can only realize those savings if there are EVs available for purchase. In some cases, waiting lists are three years long. Demand is outstripping supply. That’s partly a function of supply chain issues, but it also shows that vehicle sellers have badly misread the market, producing too many planet-harming gas guzzlers and too few EVs.

This is where ZEV mandates come in. Data from the International Council of Clean Transportation shows that jurisdictions with ZEV mandates have both deeper penetration of EV market share and more EV models available. The top five cities for ZEV penetration in the United States are all in California, home of the United States first ZEV mandate since 1990. British Columbia and Quebec have had ZEV mandates since 2019 and 2016 respectively, and lead Canada in ZEV sales.

ZEV mandates will also make EVs more affordable. To comply with the mandate and sell more EVs, vehicle sellers must lower the price of EVs or pay large penalties for each gasoline vehicle sold in excess of their mandated target. They would do so by increasing markups on expensive internal combustion vehicles, cross-subsidizing EVs. Dealers selling only ZEV vehicles — such as Tesla — will exceed their ZEV target, earning valuable credits to sell to less ambitious sellers.

A ZEV mandate has benefits for automotive manufacturers, too, because it will make the transition easier and more predictable. If the mandate has strong penalties to ensure full compliance, then manufacturers can be confident there will be demand as they rapidly shift production to EVs. Instead of worrying if the current high oil price will collapse, and with it the demand for EVs, they can be confident that EV sales will keep climbing on a trajectory that at least matches the ZEV mandated sales in 2025, 2030 and 2035.

All of this adds up to net benefits. Overall, the California Air Resources Board estimates its ZEV mandate generates net savings of $49 billion for the policy over its lifetime. They estimated buyers of a 2026 EV would save $3,200 over 10 years; buyers of a 2035 EV would save $7,600 over 10 years.

ZEV mandates will work to drive the shift away from gas-powered vehicles, while protecting affordability for Canadians. Government policy on EVs don’t need to reinvent the wheel.

How better electricity policy can keep Ontario open for business

Abundant, clean, and affordable electricity is increasingly a must-have for local economic development. Unfortunately, Ontario is learning this lesson the hard way. 

The province has already lost out on economic growth and job opportunities thanks, in part, to insufficient electricity supply. But capacity isn’t the province’s only problem. Although Ontario’s electricity grid is touted as one of the world’s cleanest, greenhouse gas emissions from power generation are set to rise as nuclear plants come offline for refurbishment or retirement and natural gas plants ramp up in their place.

If the government of Ontario is committed to making the province “open for business”, it needs to get serious about building out and cleaning up its electricity system in a cost-effective way. 

There’s reason to be optimistic

While electricity system modernization is no small feat, a first—and relatively simple—place to start is reforming the province’s long-term energy planning framework.  

The good news on this front is that Ontario isn’t starting from scratch. In fact, the province has a long (albeit complicated) history of developing long-term energy plans, starting with the requirement under the 1998 Electricity Act to release an Integrated Power System Plan—the predecessor to the current Long-Term Energy Plan.

Yet, given the state of the province’s electricity system, Ontario’s long-term planning framework clearly needs a re-think. 

Fortunately, the government is on the same page. In early 2021, the province paused the Long-Term Energy Plan process and launched consultations to refocus it with an eye to increased predictability, transparency, and reliability of decision making. How exactly these reforms play out matters a lot for the future of the electricity system. 

Four ways to improve Ontario’s energy planning process

The Canadian Climate Institute has done a lot of thinking about how to improve governance structures and processes to set up electricity systems for success. Here, we outline four ways the government of Ontario can upgrade its energy planning framework and, in doing so, support economic development.  

  1. Clarify long-term emissions targets

While Ontario has a 2030 emissions target, it doesn’t have any longer-term milestones. Long-term targets provide clarity to investors and system actors about the future direction of climate policy and the electricity system. Clarifying the province’s climate targets is an important first step to laying a strong foundation for electricity system planning.

  1. Broaden the core mandates of the energy board and system operator to include delivery on climate goals

Currently the Ontario Energy Board (OEB) and Independent Electricity System Operator (IESO) do not have clear mandates to consider climate change in their decision-making processes. In practice, this means that their core objectives of reliability and economic efficiency can be interpreted as being at odds with net zero-consistent investments—like expanding clean electricity generation or building new transmission infrastructure—as they may raise short-term costs to consumers. 

To reduce uncertainty, the government should clarify the mandates of the OEB and IESO to include climate objectives—both emissions reductions and resilience to climate impacts—while maintaining their core mandates of reliable and cost effective service. 

  1. Resume and revamp long-term planning to guide the work of system actors 

In theory, Ontario’s energy planning process is governed by the Long-Term Energy Plan, which outlines the government’s priorities and objectives for the sector. The government may issue directives to the IESO and OEB to implement components of the Long-Term Energy Plan, and those implementation plans are subsequently reviewed and approved by the government. In practice, however, the government has adopted a more ad hoc approach, issuing over a hundred directives to the IESO and OEB. This unpredictable process hinders system planning, increases the risk of political intervention, and hurts economic development, since the private sector lacks certainty about decision making. 

The government should continue to provide a high-level vision of the sector through a comprehensive energy plan—whether under the Long-Term Energy Plan moniker or otherwise. The plan should clarify things like targets for electrification, the role of the gas network, and forecasted electricity demand. It should provide quantitative specifics while also acknowledging uncertainty, using ranges and scenarios. And it should include implementation timelines, roles and accountabilities, and metrics of success. At the same time, the plan should not be overly prescriptive, providing the IESO and OEB with the mandate and flexibility to implement the government’s vision in a way that maintains reliability and affordability. 

Finally, the current planning and decision-making processes surrounding the Long-Term Energy Plan lack transparency and accountability. One solution is to give the OEB a greater oversight function, including reviewing IESO plans or other parts of the planning process.  

  1. Commission periodic technical pathway reports 

Earlier this year, the Ontario government announced plans to commission an independent pathway study to understand how to prepare the energy system for electrification. While this study appears to be a one-time thing, the government should consider commissioning periodic assessments to ensure information remains relevant and useful to decision makers and system planners. With technology options and costs ever-changing, these assessments should be revisited every three to five years. To enhance credibility and independence, the studies should also be developed by arms-length government agencies, academic researchers, or trusted research institutes. 

A place to grow

Clean electricity is essential for maintaining Ontario’s status as a place for business to grow. But transforming a provincial electricity system won’t happen overnight. Amendments to the province’s energy planning framework can help bring long-term goals—economic, environmental, social, or otherwise—into focus, and ensure all system actors are pulling in the same direction. If Ontario misses the mark on this governance reform, the electricity system could face growing challenges, with serious implications for economic development, climate progress, and the well-being of Ontarians.

Rough waters ahead. Is Newfoundland and Labrador’s economy ready?

The future of Newfoundland and Labrador won’t look like its past. The province is competing in a global economy that is transforming rapidly as countries and industries work to cut carbon emissions. Demand for clean fuels and low-carbon technology is booming. Over the coming decades, markets for carbon-intensive goods are projected to shrink dramatically.

Recent high oil prices and renewed interest in the province’s offshore reserves can make this future harder to see right now. But long-term trends put Newfoundland and Labrador’s economy—including jobs and livelihoods—in jeopardy if the province continues to rely heavily on fossil fuels and carbon-intensive industry. Creating a diversified, low-carbon economy is the only way forward for the province.

Fortunately, Newfoundland and Labrador is well positioned to succeed in the global transition.   

New analysis from the Canadian Climate Institute compares how different provinces are succeeding in capturing new, low-carbon economic opportunities. Clean growth momentum is evident in every part of Canada, including in Newfoundland and Labrador.

The province comes to the net zero transition with its own advantages. It has mining expertise and reserves of minerals that will be needed to meet burgeoning global demand for clean technologies like batteries. Abundant hydroelectricity and potential new onshore and offshore wind development gives the province a low-carbon head start. Newfoundland and Labrador can run with these advantages to speed up electrification, export clean energy, and attract companies that are looking for ways to meet their own low-carbon goals.

New economic activity is starting to pick up in areas where we expect to see growing opportunities. Newfoundland and Labrador is home to at least six companies that are focused on growing markets like industrial decarbonization and low-carbon building technologies, all actively attracting investment. Mysa, for example, is a smart thermostat company based in St. John’s that was able to raise $20 million in later-stage venture capital in 2021.

Alongside these entrepreneurial ventures, existing companies and industries are also finding opportunities to pivot into new, low-carbon markets. A plan to refit the Come-by-Chance refinery to make sustainable aviation fuels and renewable diesel is one example of how Newfoundland and Labrador’s existing assets and expertise could find new niches and opportunities in a net zero future. 

It’s a promising start, but the province needs to accelerate its efforts. After adjusting for the relative sizes of provincial economies, Newfoundland and Labrador trails all of the other Canadian provinces in generating new companies in areas of low-carbon growth, attracting capital, and scaling up.

Admittedly, Newfoundland and Labrador faces unique challenges in shifting away from fossil fuels and translating opportunity into real economic growth. It’s a small economy, which for some innovations can mean a smaller local market and limited opportunities to demonstrate and deploy new technologies.

For the past 20 years, oil and gas has been a dominant component of Newfoundland’s economy. Even now, oil and gas makes up 11 per cent of the province’s goods exports and one sixth of provincial revenues. But oil and gas is unlikely to be the future engine of good jobs and royalties it has been. In the coming decades, global ambition to reach net zero will drive steep demand decline in sectors like oil and gas, and increase competitive pressure in heavy industry to rapidly decarbonize to meet net zero goals. Reliance on carbon-intensive economic activity is increasingly economically risky.

A sizable portion of Newfoundland and Labrador’s workforce is vulnerable to job losses due to falling demand for oil and gas, with 5.8 per cent working in vulnerable sectors—the fourth highest share of the workforce in Canada. In Atlantic Canada as a whole, there’s a mismatch between where new companies are starting up in urban centres, and where persistent high unemployment and vulnerable workforces are located in rural and remote areas. As new opportunities materialize, Newfoundland and Labrador will need to plan ahead to prepare its risk-exposed communities and workforces, and ensure that rural, remote, and Indigenous communities can benefit.

Newfoundland and Labrador can succeed in the new net zero economy. But that requires provincial action to kickstart the sectors that will drive future prosperity. Clear and ambitious climate policies including a predictable carbon price and targeted sector strategies can help build investor confidence and bolster local demand for low-carbon technologies. The province could also shift public investments toward the creation of companies in growing markets (for example, through targeted research and development) and away from declining sectors, like oil and gas.

Newfoundland and Labrador enters the net zero transition with a lot of potential. But it’s a sink-or-swim moment: the province needs to act now or risk falling further behind. 

The Maritimes could be a net zero success story – but only if governments make big, bold moves

This blog post was initially published in Saltwire

To meet global net zero commitments, Canada’s biggest economies are racing to compete in markets where demand is booming. New battery facilities are being built in Quebec. British Columbia is expanding biofuel production. In Ontario’s rust belt, car factories are retooling to make electric vehicles and steel mills are electrifying to dramatically cut greenhouse gas emissions.

The Maritimes have, by comparison, seen smaller, fewer, and less splashy low-carbon investments. Yet the region also shows strong signs of progress. Building on this early success is critical for scaling up new opportunities and securing the region’s future.

New analysis from the Canadian Climate Institute compares how different provinces are faring in capturing new, low-carbon economic opportunities. Clean growth momentum is evident in every part of Canada, including in the Maritimes.

The net zero transition will cause profound shifts to global markets. Some sectors, such as oil and gas, will see major drops in demand. Others, such as heavy industry and manufacturing, may benefit from buoyant demand but see intensifying global competition to minimize and eliminate carbon emissions.

The net zero transition is also creating new markets with significant growth potential. Demand in areas like low-carbon electricity, batteries and energy storage, industrial decarbonization, and low-carbon agricultural technologies is expected to skyrocket in the coming years. Each region in Canada, including the Maritimes, must find ways to capture these opportunities to future-proof their economies—protecting jobs and livelihoods in the global transition to net zero. 

The Maritimes already have a running start. There are currently at least 50 companies dedicated to markets where global demand is expected to grow. Over three-quarters are headquartered in Nova Scotia.

Some of these newer companies are attracting significant private investment and successfully making deals with large incumbent businesses. New-Brunswick-based Resson and Nova-Scotia-based TruLeaf, for example, are working with McCain Foods to deploy their low-carbon agricultural technologies. Overall, Maritime companies dedicated to net zero opportunities have raised $225 million over the past 10 years, and that trend is accelerating.

The Maritimes are also developing areas of specialization through expertise in smart grids, batteries and storage, wind power, marine transport, small modular reactors, ocean technologies, and agricultural technologies.

Despite the region’s success to date, there’s lots of room to grow. In general, companies dedicated to net zero opportunities in the Maritimes are smaller, less profitable, and attract lower levels of investment than elsewhere in the country.

Nova Scotia leads the other Maritime provinces in attracting investment for companies dedicated to net zero opportunities, ranking third in the country. But even after adjusting for the size of each provincial economy, the two leading provinces of Quebec and British Columbia have raised more than three times the investment dollars that Nova Scotia has. Currently, the Maritimes have only one company (ARC Clean Energy) that has raised over $50 million in investments and only one publicly listed company (Meta Materials).

So, how can the Maritimes scale up new opportunities? Looking across the country, we can learn from other provinces that are de-risking innovation and attracting more investment to local net zero economic opportunities.

Clear, ambitious climate policy, including a predictable and long-term carbon price, can help to build investor confidence and investment attractiveness. Targeted policies like low-carbon building requirements and low-carbon rules for government procurement can help bolster local demand for Maritime companies.

Governments and economic development organizations can also help to connect Maritime companies with large buyers across Canada for their mutual benefit. The Maritimes is a small market, with a limited industrial base to host demonstration projects. Some Maritime companies are already seeing success through deployments elsewhere in Canada, like CarbonCure’s recent carbon-capture cement project at the Calgary International Airport.

For several years now, the Maritime provinces have led the country in decoupling GDP and jobs growth from carbon emissions. It is home to excellent academic research institutions and a small but growing cluster of companies that are ready to meet growing global demand for goods and services that will help meet net zero goals. The future for low-carbon jobs, companies, and innovations in the Maritimes is bright. But with larger provinces already staking their place in these new and growing markets, the Maritimes need to step up to secure their future economic success.