Canada’s first “credible” climate plan requires rapid policy implementation and massive investment, independent experts say

The federal government’s new climate plan is the most credible and substantial ever produced and has the policies needed to meet the nation’s goals, according to two of Canada’s independent think tanks.

But it will take accelerated implementation of current policies, enormous private and public investment, and unprecedented technology deployment to actually achieve carbon emissions-reduction targets in 2030 and net-zero emissions in 2050, senior members of the think tanks said in separate interviews.

The government released its “2030 Emissions Reduction Plan” at the end of March. The plan includes $9.1 billion in new spending, mostly to expand existing climate action grants and loan programs.

“The plan has the policy architecture, assuming it’s implemented as envisioned, and the potential to bend emissions down really deeply,” Dave Sawyer, principal economist with the Canadian Climate Institute (CCI), told Research Money.

Related story: “Alberta has largest and fastest-growing GHG emissions in Canada, new national report shows.”

According to the CCI’s modelling and assessment report, the federal plan’s success relies on five critical policies, which together account for nearly two-thirds of the emissions reductions needed to meet the 2030 goal of cutting emissions by 40 to 45 per cent from 2005 levels. These policies are:

• establish Canada’s carbon price schedule to 2030 and legislate the pricing regime;
• put an emissions cap on the oil and gas industry;
• update and strengthen the Clean Fuel Standard and enact it as quickly as possible;
• develop and implement a Clean Electricity Standard; and
• implement policies for land-use emissions reductions (for example, sequestering carbon in agricultural soils, accelerated tree planting, and other nature-based solutions).

The biggest challenge in driving the plan forward is the scale of the spending and technology that will be required across all sectors to deeply cut carbon emissions, Sawyer said.

“We’re talking about a more than doubling of current levels of investment in energy efficiency and clean tech in less than a decade,” he said.

“With industry, it’s eight to 10 times the current levels of low-carbon spending,” he added.

The amount of electricity generation required across all sectors will need to double, Sawyer said. Expenditures on electric vehicles will require a five-fold increase above current levels between now and 2030, and the level of necessary retrofitting for buildings is significant, he added.

The Green Budget Coalition has called for a federal investment of $10 billion per year to improve energy efficiency in buildings and $4.8 billion per year in clean transportation.

“Right across the board, it’s financing and technology shifts from where we’ve been historically,” Sawyer said.

Key to plan’s success is cutting oil and gas industry’s emissions

Despite the challenges, “for the first time, there’s a credible plan to meet our obligations to reduce emissions by 40 to 45 per cent [by 2030],” Simon Dyer, deputy executive director with the Pembina Institute, a clean energy think tank, said in an interview.

The oil and gas industry accounts for the largest share of Canada’s emissions – 26 percent in 2019. The industry also is the fastest-growing source of emissions.

The federal plan projects the oil and gas industry will need to cut emissions by 42 percent by 2030, or a reduction about 80 million tonnes from the 191 Mt in 2019.

However, this is an expected contribution only and not yet a legislated cap on emissions from the oil and gas sector. Ottawa and the industry plan to hold discussions on how to establish this cap.

Dyer said a report in March by the Pembina Institute showed it is “absolutely possible” for the oil and gas industry to reduce GHG emissions by 40 to 45 per cent by 2030 using existing technologies.

“If this industry is serious about decarbonizing its production, we could see those kinds of investments now that would drive [the industry] on a trajectory to reducing emissions by 40 to 45 percent below 2005 levels, ” he said. “We’re not seeing it yet.”

Even without a cap in place, there are policies and regulations – such as the federal output-based pricing system (which provides a price incentive for industrial emitters to reduce GHG emissions) and the Clean Fuel Standard – to drive greater emissions reductions from the oil and gas industry, Dyer said.

Reducing emissions must be balanced with energy security, industry argues

Research Money asked the Canadian Association of Petroleum Producers (CAPP) if the technologies exist now to achieve a 42-percent emissions reduction in the industry by 2030.

Jay Averill, CAPP’s spokesperson, didn’t answer that specific question. However, he said in an emailed response that Russia’s invasion of Ukraine “has brought the energy security and affordability crisis to the doorsteps of Canadians.”

One of the largest contributions Canada can make to lowering GHG emissions is by exporting Canadian liquefied natural gas to displace the use of coal in the world’s energy mix, Averill said, pointing to a CAPP report on establishing an LNG industry in Canada.

“To ensure more Canadian natural gas can make it to market in the short- and medium-term, industry needs strong signals from the federal government it will support Canada’s global role, including by supporting the advancement of key energy and infrastructure projects in Canada,” Averill said.

In a submission in March to Environment Minister Steven Guilbeault and Natural Resources Minister Jonathan Wilkinson, CAPP recommended that the federal government establish a policy target for emissions reductions – “not regulated emissions caps.”

Feds offer tax credit for investing in carbon capture, storage and utilization

To help the oil and gas industry and other industrial sectors reduce carbon emissions, the federal budget released April 7 included a tax credit for carbon capture, utilization and storage (CCUS) projects. From 2022 to 2030, the tax credit is:

• 60 percent for capture equipment used in projects that capture GHG emissions directly from ambient air;
• 50 percent for other eligible capture equipment; and
• 5 percent for transportation, storage and use equipment.

The CCUS tax credit is expected to cost the government $2.6 billion in the first five years and potentially up to $8.6 billion by 2030. To incentivize companies to act quickly, the tax credit will be reduced by 50 percent in all categories from 2031 to 2040.

The tax credit requires all captured emissions to be permanently stored in geological reservoirs or in concrete. Use of carbon dioxide in enhanced oil recovery operations is not eligible for the credit, which “puts Canada at a competitive disadvantage with the United States (which permits a tax credit called 45Q for CO₂ used in enhanced oil recovery),” according to a briefing note from law firm Bennett Jones.

The Oil Sands Pathways to Net Zero Alliance, a group of six major oil sands companies,  proposes to build a carbon capture network to gather captured CO₂ from more than 20 oil sands facilities and pipeline it to the Cold Lake area in northeastern Alberta for safe underground storage.

The estimated cost of the first phase of the three-phase project is $12 billion, according to the oil sands alliance, which has committed to achieving net-zero emissions by 2050. The first phase would reduce GHG emissions by 22 million tonnes by 2030

However, the federal tax credit by itself “is not enough to proceed to a final investment decision [on the project],” Kendall Dilling interim director of the alliance, said in an email to Research Money.

The alliance will need “continued collaboration with governments on a nimble fiscal and policy framework that enables us to compete for international capital and build out our CCS network and capture project,” he said.

There are some possibilities for further investment in CCUS through the Canada Infrastructure Bank and the Emissions Reduction Alberta agency, Dilling noted.

In its budget, the federal government said it expects relevant provinces – like Alberta – “will further strengthen financial incentives to accelerate the adoption of CCUS technologies by industry.”

Finance Minister Chrystia Freeland, who visited the Alberta Carbon Conversion Technology Centre in Calgary last week on a post-budget tour, told a news conference that it would be helpful for Alberta “to make provincial support stackable with federal support.”

However, Premier Jason Kenney told reporters that Alberta already has invested $1.8 billion in carbon capture technology during the last 10 years. The province will offer oil sands companies lower royalty rates over a certain period to offset their capital costs associated with CCUS investments, he said.

As for the federal climate plan expecting a 42-percent cut in GHG emissions from the oil and gas industry by 2030, Kenney earlier this month called the plan “nuts” and said the province would fight it.

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