Carbon tax or no, major investment and regulatory shift needed for Canada to meet Paris targets: report

The Business Council of Canada study offers a sobering account of just how much more will be needed if Canada is to meet its climate goals

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OTTAWA — The federal government is on pace to fall well short of its target to reach net-zero emissions by 2050, and will need to dramatically scale up efforts to curb greenhouse gas emissions in order to correct course, a new report says.

A study by the Business Council of Canada laid out a 12-point plan for how the federal government can meet its climate targets, most notably a more streamlined approach in how Ottawa funnels money into various technologies and industries, from clean electricity to zero-emissions cars to household retrofits.

The report comes as Conservative leader Erin O’Toole released his long-awaited environmental policy on Thursday, which included a carbon charge similar to the one introduced by the Liberals, but at a lower price per tonne. The Conservative plan would also effectively leave in place a separate Liberal carbon tax that targets heavy industrial emitters.

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But the study on Thursday offered a sobering account of just how much more will be needed in addition to carbon taxes — including everything from massive private investment to widespread regulatory changes — if Canada is to meet its climate goals. It said there is “urgent need” for bold and clearly articulated climate policies, amounting to a “substantive reworking” of the way Canada finances projects, allocates capital to industry, and incentivizes people to change their lifestyles.

“Few Canadians understand the scale of change that will be required,” the report said. “Energy is a fundamental part of our everyday lives. Transforming the energy system will affect everything we do and everything around us: our homes, offices and vehicles, how we travel locally and beyond, and the kinds of jobs that will be available in the future.”

Canada is currently committed to reducing greenhouse gas emissions 30 per cent below 2005 levels by 2030, first agreed to by the Harper government. The government under Prime Minister Justin Trudeau has promised to exceed those targets, and has further pledged to reach “net-zero” emissions by 2050.

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The 12-point plan on Thursday provided high-level recommendations for how government could attack the program, not least of which is a reorientation within the federal government to simplify the way it doles out money to industry. No fewer than 16 federal departments and agencies currently offer funding for clean technology, delivered in a range of forms from tax write-offs to interest-free loans.

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“Each of these organizations allocates funding to clean technology opportunities in its specific area – agriculture, fisheries, forestry and mining, and so on,” the report said. “The result is an often-confusing patchwork of programs and subsidies that in theory supports innovation across the economy.”

A more streamlined approach to innovation, guided by a narrow mandate to shift toward a low-carbon economy, would more efficiently allow for private sector investments in the technologies needed to make the shift.

The Business Council has been calling for the introduction of something similar to America’s Defense Advanced Research Projects Agency (DARPA), which has led to countless real-life technological breakthroughs including the development of COVID-19 vaccines. More targeted federal spending through such a body could also help innovative companies scale into large-scale international firms — an area where Canada has long fallen short.

“Our country is known for its robust R&D policies and impressive levels of capability within the private sector, government agencies and research laboratories, at least at the beginning of the innovation chain,” the Business Council said. “However, we rank poorly relative to most OECD countries when it comes to scaling up innovative companies and developing globally competitive firms.”

The 12-point plan included a number of specific areas where federal spending ought to be streamlined or expanded. There is “considerable new capital” needed to broaden the use of very small nuclear reactors (SNRs), for example, which have been deployed already in small numbers but could be more widely used to generate oilsands facilities or other industrial installations.

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A lack of charging stations for electric vehicles has been a “barrier to the wide adoption of EVs,” and significant new sums of federal spending and private investment will be needed to fill the gap, it said. There are currently more than 12,000 gas stations in Canada, the report said, compared to just 980 DC fast-charging stations that can charge a vehicle in an hour or less.

Spending and investment in other technologies like carbon capture, utilization and storage (CCUS) will be necessary to reach net-zero, the report said.

Training efforts for workers in traditional industries like oil and gas will also be required as their proportion of GDP contribution tapers off, the report said.

At the same time, those industries will remain in place for many years and will be needed to fund the shift toward cleaner energy. Despite a collapse in oil prices in recent years, oil still generated $62 billion in export revenues in 2019, or well more than any other product, the report said.

Meanwhile, the federal government’s capacity to fund an energy transition has been badly restricted due to the COVID-19 pandemic, putting more emphasis on the need for traditional industries to fill the gap.

“Canada’s ability to invest heavily in clean technology and innovation is constrained,” the Business Council said. “The pandemic ignited an explosion in government spending and debt that will impose serious constraints on public finances in the years to come. Meanwhile, our economy is forecast to grow by a tepid 1.4 per cent annually between now and 2025.”

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