We already know the headline facts. The wars in Ukraine and Iran are producing emissions on the order of a mid-sized industrial economy. The scramble for energy and resources helped set the stage, and the destruction of pipelines, depots and power stations has become a recurring spectacle. Analysts have tallied the greenhouse gases, the poisoned soils, the bombed substations and the forests turned to smoke. Less discussed is what this means for the energy transition itself: every tank, missile and drone is built from metals and fuels we also need for wind turbines, batteries and resilient grids.

Every tonne of copper that ends up in shrapnel rather than in wires, every kilogram of lithium that ends up in loitering munitions rather than stationary storage, slows the transition and deepens climate risk for everyone, including the supposed winners. When we choose war, we are not just adding to the climate problem; we are cannibalizing the solution.

Here we face a fork in the road. One path is to treat transition minerals as the new oil: strategic assets to be hoarded, weaponized and fought over. That path is already visible in export controls, trade extortion and a growing list of violent incidents and community protests around mines in the GlobalSouth. The other path is to treat them as a global lifeline for common security, with shared stockpiles, transparent reporting, producer countries as real partners and apolitical norm that the first call on these minerals is decarbonization, not escalation.

Modern warfare also confirms, in the harshest possible way, the old principle that shows up in all the great religious traditions: what you do unto others, you do unto yourself. In a tightly coupled Earth system, the effects of our actions propagate through food webs, supply chains and the atmosphere. When a refinery or gas pipeline explodes, the carbon doesn’t check passports on the way up. When artillery fires shell after shell into fields, the contaminants do not ask permission before entering rivers and crops. Thermobaric weapons suck oxygen from the air and generate firestorms; forests and towns burn, releasing greenhouse gases and black carbon that darken ice and accelerate melting thousands of kilometres away. High-precision missiles and drones can target power plants and transmission lines with uncanny accuracy; the replacement steel and concrete, when they eventually arrive, carry their own enormous carbon price tag. In Ukraine, war-related emissions are now estimated to exceed the emissions from all of the country’s civilian sectors.

And yet, from a certain narrow corner, war looks like a success story. Defence budgets climb; order books for missiles, shells and air defence systems fill; share prices rise. Headlines announce record revenues for the world’s largest arms makers. If your horizon is the next quarter and your constituency is shareholders, war is indeed “good for business.”

Should governments that proudly report power-sector decarbonization be allowed to keep military emissions off the books?

But that business model is parasitic on the larger economy and on the biosphere. War destroys infrastructure, scares off investment, shreds trade links and forces governments to divert money from health, education and decarbonization into replenishing stockpiles and repairing damage. It also burns through critical minerals that the low-carbon economy will need for generations.

Militarization is itself a threat to our security and that leads to some uncomfortable but necessary questions for business and finance. Should climate-aligned investors treat defence exposure as compatible with net-zero strategies, given what we now know about war’s emissions and mineral demands? Should governments that proudly report power-sector decarbonization be allowed to keep military emissions off the books? Should critical-mineral off take agreements be judged only on price and supply security, or also on whether they prioritize uses that reduce net global risk?

My father’s line about there being no winners in war was, in its way, a statement of planetary accounting. In the 21st century, with the atmosphere full and the mineral supply tight, any war anywhere threatens states and markets everywhere, and the thin atmospheric envelope that makes any kind of economy possible at all.

 Ralph Torrie is director of research at Corporate Knights.

The post When we choose war, we cannibalize the solution appeared first on Corporate Knights.

At almost the same time, thousands of kilometres away, the Fukushima Daiichi nuclear station failed in ways that still reverberate. Safety systems that were supposed to be independent failed together, leading to fuel melting and hydrogen explosions that destroyed four reactor units and released radioactivity to the air and ocean. It took months to stabilize the damaged reactors and bring them to a cold shutdown, and site remediation will continue for decades. The cascading consequences crippled Japan’s nuclear sector and generated economic, social and environmental damage far beyond the plant fence line. The cost of the accident is incalculable but runs into the hundreds of billions of dollars. It ruined the Tokyo Electric Power Company.

The contrast is not just about two technologies; it is about two ways of structuring risk. The Rugby turbine failure remained a localized engineering incident, largely managed internally by the project owner and manufacturer. Fukushima produced losses at least five orders of magnitude larger than a single windturbine crash, and it did so in a way that pushed financial burdens across the Japanese state, its taxpayers and future generations.

Energy systems like the one in Fukushima, built around a small number of very large, colocated units, running near full output with critical safety functions sharing common failure modes, and overseen by a regulatory culture that discounts lowprobability, highimpact events, is not just vulnerable. It is a catastrophe waiting to happen.

Biomimicry – the practice of learning from and emulating nature’s strategies – offers a vocabulary for understanding why. Nature has had billions of years to experiment under uncertainty. Complex living systems endure not because they avoid shocks, but because they are built to absorb them. In healthy ecosystems, risk is not eliminated; it is distributed, diversified, buffered and constantly managed. Redundancy, modularity, diversity, continuous feedback and slack capacity are not poetic metaphors but survival rules. Those same rules can be applied directly to how energy systems are planned, financed and operated.

Nature has had billions of years to experiment under uncertainty. Complex living systems endure not because they avoid shocks, but because they are built to absorb them. 

For a decarbonized power system, this means grids and portfolios that can lose parts without losing the whole; that can reconfigure under stress; that favour many small, distributed investments over a few gigantic, centralized bets; and that can learn and adapt quickly from minor failures rather than waiting for rare, systemwide disasters. It also means staying within biophysical boundaries – emissions budgets, land and water limits, ecological constraints – that make life and prosperity possible in the first place. In that sense, the distinction between nuclear and renewables is not just about carbon intensity or levellized cost; it is about whether a technology encourages risk to be concentrated or distributed.

Nuclear power, by virtue of its scale, complexity, slow learning curves, security requirements and tailrisk profile (or rare disasters), tends naturally to become centralized. It also has a very low tolerance for failure. Wind and solar, with their modular hardware, high unit counts and rapid learning cycles, tend to embed values of decentralization, resilience and acceptance of small, noncatastrophic failures as a price of innovation.

If the goal is resilience and affordability in an era of climate chaos, then energy systems can no longer be imagined as just a string of independent megaprojects. Nature shows us how to structure risk so that failures are local, bounded and recoverable. Yet our most sophisticated infrastructures still concentrate risk in a handful of giant nodes. Energy technologies can be more or less safe, but the deeper question is whether the systems we build behave more like living ecosystems or more like brittle machines.

A living system is diversified, adaptive, repairable and resilient. That is the kind of grid we need now, and it is the one that becomes possible when engineers, planners, regulators and investors start taking their cues from nature.

Ralph Torrie is director of research at Corporate Knights. 

The post Rethinking risk in the age of climate chaos  appeared first on Corporate Knights.

It is a “spend first, ask questions later” approach that does not pretend to be based on any systematic, thoughtful analysis of how to best defend ourselves against the clear and present dangers that are eroding our security.  

Paramount among those dangers are unstable and collapsing global ecosystems. From climate change alone, Canada has sustained tens of billions in economic losses and significant human health impacts and deaths from wildfire, flood and heat-related events. If another country were inflicting this pain and suffering, we would surely be at war with them. But we are doing this to ourselves with our continued and unsustainable dependence on fossil fuels. As cartoonist Walt Kelly wrote in his famous Pogo comic strip for the first Earth Day in 1970, “We have met the enemy, and he is us.” 

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In our Climate Dollars research at Corporate Knights, we have specified a program with $1.5 trillion of capital premiums for transitioning buildings and all road transportation off fossil fuels. Our plan also accommodates an electricity supply system double today’s size, and all based on renewables. That’s an average of $60 billion per year, or a little less than this year’s military spending before the planned increase.  

If another country were inflicting this pain and suffering, we would surely be at war with them. But we are doing this to ourselves with our continued and unsustainable dependence on fossil fuels. 

The Climate Dollars program includes heat pumps, efficiency upgrades and climate adaptation measures for nine million buildings; 29 million electric personal vehicles and 11 million electric trucks; $12 billion for bike lanes and enhanced pedestrian infrastructure; 45,000 wind turbines; a million solar rooftops and hundreds of solar farms; 580,000 public EV chargers with vehicle-to-grid infrastructure; and a high-voltage electricity transmission “superhighway” linking the country from coast to coast to coast. It would revitalize the Canadian economy from the ground up, creating employment everywhere there are buildings, vehicles, wind or sunshine. Such an undertaking would position Canada on the forefront of the sustainability transition that is gathering momentum and that will be the defining feature of the 21st-century economy. 

At the Canadian hearings of the World Commission on Environment and Development in 1986, I argued that environment is a security issue: “We approach the millennium in a world in which global interdependence is the central reality but where absolute poverty and environmental degradation cloud our vision of a common future.” Then as now, increasing militarization saps the idealism of the young and the will to dream in us all. In their final report, the commission recommended that governments should assess the cost effectiveness, in terms of achieving security, of money spent on armaments compared with money spent on reducing poverty or restoring a ravaged environment. “There are no military solutions to environmental insecurity,” the commission concluded.  

Spending on climate mitigation and adaptation should be included in NATO’s 5% target. That would accelerate the energy transition we need while opening a path to a lasting peace, not only with nature, but with each other.  

Ralph Torrie is director of research at Corporate Knights. 

The post Canada should include climate solutions in its defence spending  appeared first on Corporate Knights.

The appeal of the AOTA position to politicians is obvious: it allows them to pander to every constituency and avoid alienating potential supporters. It is not leadership, but as political expediency it is tried and true. 

The AOTA position can also be justified as a legitimate strategy in the early phases of understanding and confronting a challenge like climate change where the path forward is not yet clear. AOTA “keeps all options open” until the choices crystallize. 

But we are no longer just beginning to consider our options for effectively responding to climate change. We know that the response must give priority to electrifying the end uses of energy and building up a supply of renewable, emission-free electricity. And from Tinseltown to Tennessee, the devastating impacts of climate change have come to America, with the global cost of wildfires, floods and killer heat waves now more than $2 trillion and growing exponentially.

We are entering the endgame in our encounter with global warming. Time is short, capital is limited, and the penalties for bad moves at this stage in the game are severe.

Climate denial 2.0 

Climate denial comes in many forms, many of which are disingenuous and driven by self-interest, but some of which are genuinely held by people informed by and with respect for the science. 

Climate denial 1.0 refers to the outright denial that anthropogenic greenhouse gases are causing global warming or, in its more extreme form, that global warming is even happening. When scientific concern about human-caused global warming began to grow, it was based on our understanding of the greenhouse effect and what the climate models of the day predicted would be the deleterious impact of continued reliance on and growth in fossil fuel combustion.

The scientific skepticism melted away in the 1990s as the models improved, rising temperatures rocketed out of the background noise, and the consequences began to multiply. 

But then a new type of climate denial began to take hold; let’s call it climate denial 2.0. This more insidious type of denial does not reject the scientific fact of human-caused climate change, but it does reject the need for or the feasibility of an urgent response. And this in turn leads to the “madly off in all directions” response – more respectfully known as “all of the above” – that characterizes too much of the current policy and business response to the climate emergency. 

Not all winners 

In our Climate Dollars project, we have been quantifying the capital costs of the transition to zero emissions for Canada by 2050, and the results underscore how much more the transition will cost if we do not make smart choices. 

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Among the clear positive choices are heat pumps, electric vehicles, wind turbines, vehicle-to-grid storage infrastructure and continental grid interconnectivity. Working together, these technologies can cut a path to zero emissions that demands about $1.5 trillion in capital investment over the next 25 years. At an average of $60 billion per year, this is well within the capability of Canadian capital spending and tracks below our own and others’ previous estimates of the cost of the transition. The returns are positive, the economic benefits are clear, and Canada would secure its position in the 21st-century global economy. 

This is not an AOTA approach. Several popular climate solutions fail to pass muster when viewed through the twin lenses of urgency and affordability. 

Deep residential retrofits. Viewed strictly as climate mitigation, deep residential retrofits cost more than the capacity investments they avoid. Unless and until the retrofit industry can come up with technological and business practices that cut the cost of deep retrofits by 50% or more, our strategy for new and existing buildings must focus on affordability, electrification and resilience to extreme weather. 

Public transit megaprojects. Public transit is an essential component of a highly functional modern urban community, but it is a slow, expensive and relatively ineffective approach to driving down emissions; it didn’t make the cut in our capital budget for responding to the climate emergency

Nuclear power generation. New nuclear capacity drives up the overall cost of decarbonization, even after allowing for the lower investment in renewables and transmission infrastructure it facilitates, so it did not make the cut either. 

When we include these options, the capital requirements increase to more than $2.3 trillion. And it goes without saying that we should be past the point where investments in the production and use of fossil fuels should still be happening. Such investments are antithetical to an emergency response to climate change. They lock in fossil fuel dependence and draw capital away from urgently needed options that can make a positive difference. They literally add fuel to the fire and when favoured provide a strong indication that climate denial 2.0 is afoot.

It’s choosing time.

Ralph Torrie is director of research at Corporate Knights.

The post Why ‘all of the above’ energy policies won’t work appeared first on Corporate Knights.

Extensive new modelling by Corporate Knights’ Climate Dollars project reveals that the rapid transformation we need is within our grasp. But the buildings and transport sectors each hold an essential piece of the solution.

• Any successful effort to bring Canada’s greenhouse gas emissions to zero by 2050 must shift the entire building stock to use heat pumps for space heating and cooling, while striking the best balance in each province between the cost and benefits of deep energy-efficiency retrofits.
• The Climate Dollars modelling places the batteries in electric vehicles at the centre of the decarbonization effort. Vehicle-to-grid (V2G) systems allow EVs to charge when solar and wind are abundant and cheap, then release part of that charge to the grid when demand is highest, reducing the cost of decarbonizing by $8,000 per vehicle – as long as those millions of EVs are on the road in time to make a difference.

The analysis shows that decarbonizing our energy system by mid-century will be a big, bold nation-building project in which every sector plays an essential part. We can meet that target faster and at less cost by looking at the electricity system, buildings and road transport as an integrated whole, rather than trying to shift each sector on its own.

Climate Dollars modelling points to a realistic path to eliminate Canada’s energy-related greenhouse gas emissions by 2050. It’s achievable and affordable, requiring a manageable share of the capital dollars the country already invests each year. It delivers hundreds of thousands of well-paying jobs in the rapidly emerging new energy economy.

The capital expenditure gap in buildings and transport

Corporate Knights set up the Climate Dollars project to measure the gap between current climate-related capital investments and the funding required to meet the country’s climate goals. Much of that investment will be for the renewable electricity supply and a project we’re calling the Trans-Canada Transmission Link that deliver the renewable energy to power Canada’s buildings, vehicles, industry and agriculture.

The other key pillars of any decarbonization plan are to make each of those sectors as energy-efficient as possible and shift their consumption from fossil fuels to clean electricity. The Climate Dollars modelling shows those changes increasing electricity demand from less than 600 to nearly 1,000 terawatt-hours per year, including 490 TWh in homes and commercial buildings and 150 TWh from road transport.

The other key pillars of any decarbonization plan are to make each of those sectors as energy-efficient as possible and shift their consumption from fossil fuels to clean electricity. The Climate Dollars modelling shows those changes increasing electricity demand from less than 600 to more than 1,000 terawatt-hours per year, including about 335 TWh in homes and commercial buildings and up to 290 TWh from road transport.

Both of these sectors can make it easier and less expensive for the grid to decarbonize. But only if they can clear a large gap between current capital expenditures and the levels that will be needed to get the job done.

For Canada’s nine million residential buildings and one million commercial buildings, the two decarbonization scenarios in the Climate Dollars analysis require additional capital expenditures between $14 billion and $35 billion per year through 2050. The more ambitious scenario, combining heat pump conversions with deep energy retrofits in the residential sector, reduces electricity consumption in all provinces but Alberta, Saskatchewan and Ontario. Heat pump conversions without the efficiency upgrades cost far less but increase the investment needed to ensure a renewable electricity supply through the winter months.

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In response to the affordable housing crisis, Canada will also see construction of hundreds of thousands of new residential buildings by 2030, the majority of them multi-family structures. They’ll all have to be built to the highest possible energy-efficiency standard and equipped with air-source or ground-source heat pumps, not fossil-fuelled heating or cooling.

In transport, additional capital investment of $270 to $300 billion over the next 25 years will be needed to complete the shift to electric vehicles and install 555,000 new public charging stations, with V2G technology turning the batteries in those cars into a valuable grid resource. Annual investment peaks at $17.5 billion in 2032 and then starts falling as the cost premium for personal EVs declines throughout the 2030s.

Decarbonizing buildings means investing in ourselves

Every aspect of the Climate Dollars modelling points to the investments that will make Canadians’ lives safer, healthier and more affordable. The buildings sector is where the response to climate change literally comes home. Our buildings must be electrified and prepared for the extreme weather that is already locked and loaded in the atmosphere as a result of past and present greenhouse gas emissions. Heat pumps and efficiency improvements in our building stock are also essential enabling investments for the electricity supply sector to be able to make the transition to a renewables-based grid. In a cascading, global climate emergency, the simplest, cheapest path to reduce the greenhouse gas emissions from building energy use is to replace fossil-fuelled heating and cooling with heat pumps at a cost of $370 billion through 2050, or about $13.6 billion per year.

More extensive building retrofits deliver benefits far beyond energy savings and emission reductions. They help protect our homes and businesses from storms and flooding, wildfires, heat waves and power outages that will become more severe and frequent as the years go by. A national energy-retrofit mission would create hundreds of thousands of jobs in a thriving, new business sector, helping to build stronger communities and avert the worst impacts of climate change.

Every aspect of the Climate Dollars modelling points to the investments that will make Canadians’ lives safer, healthier and more affordable.

Even assuming that economies of scale bring down the cost of building retrofits by 50% by 2035, it would take an additional $500 billion over the next 25 years, an average of $20 billion per year, to recondition the entire building stock. Canadians actually invest much more than that in existing buildings; in 2024 alone capital expenditures on building renovations totalled $101 billion in the residential sector and $28 billion in the commercial sector.

But while those improvements included some energy-efficiency upgrading, the priorities for building upgrades are generally directed more toward interior redecoration and refitting. This is a recurring theme in the analysis of decarbonization – it is not so much an increase in the total capital that is required but rather shifts in the way capital is allocated, projects are planned and organized, a new work force is trained and deployed, and government incentives are designed for building retrofits.

Road transport is already decarbonizing

In road transport, the shift from internal combustion to electric vehicles is already well under way. Electric vehicle sales in Canada are growing exponentially. And with the price gap expected to narrow through 2035, drivers can look forward to a clean-energy dividend on fuel of up to $1.2 trillion through 2050, after subtracting the cost of the electricity to run the vehicles.

But we’ll have to move quickly to seize the moment. The average car or light truck stays on the road for 15 years, and some commercial trucks even longer, so getting to a zero-emission fleet by 2050 means phasing out new gasoline and diesel vehicles by 2035.

Climate Dollars calculates a capital expenditure gap of $300 billion to fully electrify road transportation, including the cost of a V2G-enabled charging infrastructure. But that’s based on the assumption that the price difference between internal combustion and electric vehicles will gradually decline, reaching parity in the 2030s, with EVs then becoming less expensive than gasoline- and diesel-powered vehicles. If there were no price difference today, the capital cost of electrifying the entire road transport sector would tumble to just $57 billion between 2025 and 2050.

Decarbonizing car culture

Cars and trucks have shaped the urban form of our communities and the supply chains that sustain them for the last century. Canadians travelled an average 12,000 kilometres per person per year in 2022, not counting long-distance trips, and made 82% of those trips in cars and light trucks.

Given this heavy reliance on private vehicles, the Climate Dollars analysis shows only one viable path to decarbonizing transportation by 2050.

The sector can and should achieve some emission reductions by cutting down on the number and distance of car and truck trips, boosting public transit, moving more freight by rail, and over the short term, making internal combustion vehicles more fuel-efficient. Those are all worthy and important steps to take.

But bringing every part of the transportation system to zero emissions by 2050 must begin with rapid electrification for a fleet of cars, pickups, SUVs and commercial trucks. Along the way, vehicle-to-grid technology will dramatically reduce the cost of delivering a decarbonized electricity grid.

* * *

Corporate Knights will soon be releasing the full Climate Dollars analysis to drive discussion on the opportunities ahead, and how Canada can align with the investment strategies that allies in the European Union and elsewhere are already pursuing.

Corporate Knights is able to carry out this research thanks to support from the McConnell Foundation, the Trottier Family Foundation, the Chisholm Thomson Family Foundation and the Graham Boeckh Foundation.

The post Canada won’t meet its climate targets without heat pumps and EVs appeared first on Corporate Knights.

The vision of a decarbonized, interconnected, resilient national power grid is at the heart of recent analysis by Corporate Knights’ Climate Dollars project that sets out an ambitious plan for a zero-emission economy by 2050, all while securing and revitalizing the local economies that are the cornerstone of our national sovereignty.

It is a grid that we have only recently imagined, one based on millions of distributed, renewable generators rather than dozens of central power plants. It requires capital investments in solar, wind and storage technologies that total $700 billion over the next 25 years, in addition to the roughly equal amount of capital needed to electrify the buildings and vehicles. The capital cost for the grid investments averages $28 billion per year from now until 2050 and is below current investment level in the electric power sector in Canada, which totalled $32 billion in 2024 and is projected to reach $34.5 billion this year.

But while this total investment is well within the capacity of Canadian capital spending, realizing such a sustainable outcome requires that government make the right choices now, that both new and existing buildings are fossil fuel–free, that we develop vehicle-to-grid infrastructure that feeds the energy of EV batteries back into our grid, and that we stop building new fossil and nuclear plants.

The renewable grid builds on our current hydroelectric base and leans into the wind and solar resources that Canada has in abundance, and that are leading global growth in electricity generation investment.

• Sized to provide for the growth in electrification of buildings and vehicles, the scenario includes up to 100,000 wind turbines and 100 million solar panels to be built across Canada over the next 25 years.
• The batteries in tens of millions of interconnected electric vehicles will provide the energy storage to ensure a reliable grid, 24 hours a day, 365 days per year. By 2050, vehicle-to-grid technology cuts the cost of the national grid by half – even after putting money in vehicle owners’ pockets by compensating them for access to their batteries.

Every part of the Climate Dollars scenario is built on technologies that are proven, affordable and beginning to scale up. Getting it done will depend on government leadership in clearing regulatory and other barriers to rapid action, and an accelerated response from businesses and investors who see opportunities to prosper generated by a positive, pragmatic response to the climate emergency.

The Trans-Canada Transmission Link

At the heart of the transition scenario is what we are calling the Trans-Canada Transmission Link, a bold nation-building project as central to our future as the Trans-Canada Railway and Highway were to our past. It’s a coast-to-coast, high-voltage DC transmission line that will foster interprovincial trade in electricity to bring down the cost of decarbonization while supporting broad distribution of the benefits of the hundreds of billions of dollars of investment in renewable electricity through the coming transition.

A Trans-Canada Transmission Link will also be a more efficient means of transporting energy across the country than a new pipeline. As the energy transition unfolds, the link could transport gas-powered electricity generated in Alberta to Eastern Canada faster than pushing the gas across the country in a pipeline, with an important added benefit: the Trans-Canada Transmission Link will not be obsolete after the transition to zero-carbon sources is complete. The link will give each province access to electricity-generating capacity in any of the others, with different parts of the country using and consuming power at different times of day. With the grid itself as a coordinating point, Manitoba sunshine will be able to power the dinner-hour peak in Halifax, while Quebec’s summer winds supply morning electricity for office towers in Calgary and Edmonton.

The Trans-Canada Transmission Link is a bold nation-building project as central to our future as the Trans-Canada Railway and Highway were to our past.

A Canada-wide link also cuts the total amount of renewable generation the country will need. Rather than every province building its own carbon-free grid independently, a national link is stronger, and smarter, together. It will cost $30 to $40 billion to build, including the converter stations in each province, and deliver two to three times that much in cost savings.

The interprovincial transactions along the Trans-Canada Transmission Link will be a win for all provinces, whether they’re buying or selling electricity. The prospect of stable, new domestic markets will increase the incentive for hydropower-rich Newfoundland and Labrador, Quebec, Manitoba and British Columbia to develop their wind resources. And the easy availability of electrons through an east–west grid will help out provinces like Alberta, Saskatchewan and Ontario that will be hard pressed to independently develop all the renewable generation they need to decarbonize their economies by 2050.

The battery under your hood

Short-term energy storage, operating every hour of every day of the year, is the key to the renewable grid, delivering the flexibility to match the peaks and valleys of intermittent electricity supply with constantly fluctuating demand. In the Climate Dollars scenario, the battery under the hood of your electric vehicle is the most affordable way to deliver that reliability.

In the short to medium term, large, utility-scale batteries that can store 240,000 kilowatt-hours or more will support the transition to renewable electricity, and there will likely be a longer-term role for some of these large, more expensive batteries. In the longer run, however, the key to bringing down the cost of emissions-free electricity is to bring down the cost of storage.

In the Climate Dollars scenario, we tap into the millions of much smaller EV batteries that will be available from the electrification of road transport. The cars are generally parked 95% of the time and on any given day use only 10 to 20% of their battery capacity. With relatively inexpensive vehicle-to-grid (V2G) infrastructure that enables the cars to charge at times of day when solar electricity is abundant and partially discharge in the evening and overnight, the otherwise idle batteries become a key enabling technology for the transition to renewable electricity.

Utility and fleet managers in Canada and around the world are beginning to adopt V2G technology for load management and cost savings. In the Climate Dollars scenario, vehicle owners decide , but V2G becomes the universal way in which personal electric vehicles connect to the grid. With utility batteries costing more than $1,000 per kilowatt, access to EV batteries could be worth $10,000 to $20,000 per vehicle battery. In the Climate Dollars scenario, V2G cuts the cost of grid decarbonization in half, saving hundreds of billions of dollars – not because the car batteries are that much cheaper, but because they’re already embedded in the cost of the cars. Those vehicles, in turn, become more affordable to buy if their owners can count on revenue from a V2G contract.

Heat pumps and winter peak electricity consumption

In the Climate Dollars scenario, air-source and ground-source heat pumps are the key to eliminating fossil fuel consumption in residential and commercial buildings.

In most provinces, fossil fuels – mainly natural gas – provide most building space and water heating, and the conversion of millions of gas-heated buildings to heat pumps will result in strong growth in winter peak consumption of electricity. Fortunately, because the heat pumps are so efficient – providing anywhere from two to four units of heat for every kilowatt-hour of electricity they consume – it will require that much less energy to heat the buildings with heat pumps than it currently takes to heat them with gas.

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Nevertheless, there are millions of buildings to be converted, and the resulting growth in winter peak consumption of electricity is the defining factor in the capital investment required to establish and maintain a renewable, emission-free electricity supply.

Ensuring that all new buildings are built to high efficiency standards and retrofitting existing buildings for higher levels of efficiency can make a big difference in their peak consumption – more than $100 billion in capital savings if the retrofits are deep enough. There is also a large amount of industrial electricity consumption that occurs during the winter peak, and which could be responsive to seasonal load management and “time of year” pricing – for example, a manufacturing plant could scale back production from Christmas to the middle of February, and make it up in the spring. Here, again, the capital savings to the electricity system could add up to tens of billions of dollars.

Inevitably, though, any future grid that supplies an electrified building sector in a temperate climate will have a winter peak – in the Climate Dollars scenario, electricity consumption is higher in winter in every province. This will result in idle solar and wind capacity in the spring and the fall, idle capacity that will be available at very low cost to innovators who can devise applications for it.

Canada’s energy-supply mix in 2050

In the Climate Dollars scenario, oil and gas demand falls to nearly zero by 2050. The fuels we use for heating and cooling, vehicles, industry and agriculture are replaced by electricity, and that electricity is generated predominantly from wind, hydropower and solar.

• Wind turbines total 178 gigawatts of installed capacity with a national grid in place to balance demand, 235 GW without.
• With no new large hydropower dams in the scenario beyond projects that are already committed, installed hydro capacity remains steady at about 80 GW.
• Solar panels come in at just over 50 GW, 36.4 from utility-scale solar farms and 14 from rooftops in every part of the country.
• Total electricity end use increases from less than 600 to more than 1,000 terawatt-hours per year, including about 550 TWh in homes and commercial buildings, 150 TWh from road transport and nearly 330 TWh from industry and agriculture.

To chart a course to this renewable, decarbonized future, Climate Dollars modelled each of the separate, provincial grids that Canadians have relied on for nearly a century. The scenario includes detailed electricity supply and demand projections for most individual provinces, with an integrated analysis of the electricity supply for New Brunswick, Nova Scotia and Prince Edward Island. Highlights include:

• modest overall growth in energy and peak electricity demand in British Columbia and Quebec, with hydropower readily available and today’s heavy use of electric resistance heating creating opportunities to boost efficiency through heat pump conversions;
• increased reliance on wind resources in Alberta and Saskatchewan that are close to population centres and play a central role in decarbonizing the grid;
• more than a doubling of electricity consumption in Alberta and Ontario, with rising peak consumption in Ontario underscoring the opportunity to boost efficiency with cold-climate heat pumps and building retrofits;
• greater reliance on ground-source heat pumps in the three Prairie provinces;
• low overall energy consumption in Newfoundland and Labrador as the fossil fuel industry winds down, creating an opportunity for the province’s abundant hydropower resources to attract energy-intensive industries; and
• modest electricity demand growth in the Maritime provinces, where electric heating is already quite prevalent and the rise in peak demand is not as sharp as elsewhere.

Building new nuclear capacity increases the overall cost of decarbonization. A high-nuclear future in Ontario that includes proposed new plants at Bruce and Wesleyville costs $55 billion more than Climate Dollars’ lower-cost reference scenario, which includes only the spending already committed to rebuild old reactors.

Corporate Knights will release the full Climate Dollars analysis April 24, during Earth Week.

Corporate Knights is able to carry out this research thanks to support from the McConnell Foundation, the Trottier Family Foundation, the Chisholm Thomson Family Foundation and the Graham Boeckh Foundation.

The post How transforming Canada’s electricity grid could drive decarbonization, save billions appeared first on Corporate Knights.

The analysis identifies the investments in our buildings, vehicles and power grids that are needed to shift our energy use to electricity and set a path to a zero-emission economy by 2050.

Climate Dollars charts a practical path over the next 25 years that builds on Canada’s unique strengths and reinforces our sovereignty in a time of deep national anxiety.

Climate Dollars shows how Canada can embrace and succeed at an ambitious, achievable national building project that dramatically accelerates the shift to heat pumps for space heating and cooling and heralds a massive buildout of new renewable energy and energy storage. With rapid, widespread electrification at the heart of the plan, the modelling calls for a fundamental shift from the balkanized provincial electricity systems that grew up around the hydropower dams and enormous but inefficient fossil and nuclear plants – the last century’s glorified steam engines – that distribute centralized power via brittle, hub-and-spoke grids.

The grid of the future is something we’ve never imagined before, and we have to build it at a speed that we never imagined possible – until now. Across much of the world, the rising efficiency and plummeting cost of renewable energy and energy storage is driving investment and national strategy toward an energy future that boosts local economies and increases our resilience in the face of climate disruption, while accelerating emission reductions that can still avert the worst of the global climate emergency.

Canada’s next energy system will be built on tens of thousands of wind turbines and millions of solar panels on rooftops and in solar farms, all interconnected to a grid that enables multi-directional flows of energy and information – a Trans-Canada Transmission Link as central to our future as the Trans-Canada Railway and Highway were to our past.

This economic, technological and cultural transformation is about opportunity and gain, not loss and pain.

This economic, technological and cultural transformation is about opportunity and gain, not loss and pain, a chance to build the Canada we want while leaving no one behind. Ending the emissions that are warming and disrupting our planet can be an essential side benefit of building a future where life is more comfortable and affordable, our communities are more livable and welcoming, and our jobs and businesses contribute to building the future we want.

But we know that this shift will take place against a backdrop of deep urgency – because the climate crisis is gaining momentum. Every new building or renovation that includes fossil fuels commits us to years of additional climate pollution. The average car or light truck stays on the road for 15 years or more, and the majority of today’s new-vehicle purchases are still fossil-fuelled. So while it will take 25 years to complete this work, we won’t get it done without a massive response over the next decade.

The in-depth modelling presents an emergency plan that can renew local and provincial economies and strengthen the Canadian federation while delivering reliable, affordable energy, every hour of every day of the year. Climate Dollars shows that the cost of an effective, comprehensive energy transition is far less than what we stand to pay (in fact, what we’re already beginning to pay) for the impacts of climate change, across Canada and around the world. And there’s every reason to believe that taking action at the pace and scale we need will drive down the cost of the energy transition itself, in some cases very dramatically, as solutions scale up, efficiencies accumulate and unit costs are reduced.

Three cornerstones of the Climate Dollars energy transition

• Shifting Canada’s economy almost completely from fuels to electricity, except for a small volume of petrochemicals produced from fossil fuels, by electrifying buildings, transport, and industry and leaning heavily on heat pumps to drastically reduce the energy consumption of buildings
• Relying on the batteries in many millions of electric vehicles across the country to store renewable electricity when it’s least expensive and release it for distribution during times of day when demand is highest, while positioning Canada to become a world leader in emerging vehicle-to-grid (V2G) technology
• Saving $100 billion on the overall plan by completing the Trans-Canada Transmission Link, a strategy that makes it easier for provinces to share electricity, builds a new sense of connection and shared purpose between west and east and asserts strong, confident Canadian leadership in areas of business, technology and trade that are already seen as essential in most of the world

At a time when Canada’s prosperity is threatened by volatile oil and gas markets, and its very existence is being questioned by an even more volatile trading partner, Climate Dollars envisions a more hopeful future.

It presents a set of realistic scenarios to phase the country’s precarious fossil fuel economy down and out and replace it with a far more efficient, electrified system. The scenarios require no new commitments to large hydropower installations. And the analysis shows conclusively that by adding more nuclear generation to our future electricity mix, beyond refits of existing reactors that are already under way, ratepayers would shell out $55 billion more than necessary to decarbonize the Ontario economy.

But the promising future that Climate Dollars envisions depends on fast, strategic decisions in these key sectors:

• In the power sector, Corporate Knights modelled the transition that each provincial grid will have to go through to accommodate the electrification of buildings, transportation and industry by 2050. Our Canadian-owned electricity system will be transformed by average investments of $34 billion per year. For each province, the modelling looked at the unique factors that will shape electricity supply and demand, including climatic conditions, current and future sources of renewable electricity supply, and available electricity savings. The Trans-Canada Transmission Link reduces the cost of decarbonizing the grid by about $100 billion and emerges as the key ingredient that balances the costs, benefits, jobs and business-development opportunities across provinces and regions. Clean energy already employs more Canadians than fossil fuels, and in contrast to the flat job creation projected for oil and gas, clean energy employment is set to soar for both domestic and export markets.
• In buildings, the shift to heat pumps will unlock the affordable, reliable heating and cooling Canadians need while helping to limit the remaining demand to be met by an expanding electricity grid. National homebuilding strategies can also boost affordability and limit new energy demand by factoring in demographic trends that strongly favour apartments and condominiums, not single-family homes, for new dwelling units. While heat pumps will do the heavy lifting in decarbonizing the buildings sector, energy retrofits could save additional tens of billions in investment in the electricity supply system – and the cost of an accelerated national retrofit program could be cut by as much as 50% with a more systematic, integrated approach to the work. Capital investments in the transition to carbon-free energy stimulate local economies and job creation, and nowhere is this more true than in the buildings sector, where the jobs are created everywhere there are buildings.
• In transportation, for Canada’s growing fleet of 23 million personal vehicles and seven million commercial trucks, electrification is the key to decarbonization, given that a typical gas-powered internal combustion engine emits more than twice the weight of the vehicle in annual greenhouse gas emissions. Measures to reduce the number and length of vehicle trips will help moderate the growth in demand for carbon-free electricity, but the Climate Dollars scenario focuses primarily on electric vehicles and the charging infrastructure they will need. With the price premium on EVs set to fall sharply through 2035, Canadian drivers are on track to reap a $1.2-trillion clean energy dividend on fuel through 2050, after subtracting the cost of the electricity to run the vehicles. But fulfilling that potential will mean quadrupling capital investment over the next crucial decade.

The Climate Dollars analysis lays out an ambitious path to decarbonization at a moment when Canadians are being encouraged to think big about the future we want to build. The cost of reconfiguring the country’s electricity systems over the next quarter-century is consistent with other projections of the cost of a national energy and climate transition that is already under way. The capital expenditures this transformation will require are just a small percentage of what Canadians and their governments invest in buildings, vehicles and equipment each year. And they’re far less than the annual spending that built out our present-day hydropower dams, electricity grids and early nuclear power stations in the 1950s, ’60s and early ’70s.

Corporate Knights will release the full Climate Dollars analysis April 24, two days after Earth Day 2025.

ABOUT CLIMATE DOLLARS

The Corporate Knights Climate Dollars project views the zero-emissions challenge through the lens of capital investment. With the goal of measuring the deficit between current climate-related investments and the funding required to meet the country’s climate goals, it’s an important step in showing how Canada can meet its 2030 and 2050 greenhouse gas emissions-reduction targets.

In 2020, Corporate Knights estimated that putting Canada on a path to zero carbon would require capital expenditures of $150 billion per year throughout the 2020s and beyond – a fraction of that year’s gross domestic product of $2.6 trillion (in today’s dollars). Subsequent estimates by a variety of institutions and organizations echoed our finding that capital investments in the range of 5% to 8% of GDP would be sufficient to meet net-zero targets by 2050.

But five years later, the momentum we need is still severely lacking. And bringing Canada’s emissions to anything approaching zero, net or otherwise, by mid-century will require a radical departure from the trend over the past 30 years. Corporate Knights launched Climate Dollars in November 2023 by measuring the capital expenditures needed for decarbonization, the current levels of investment, and the business and policy strategies that will be needed to close the gap.

Corporate Knights is able to carry out this research thanks to support from the McConnell Foundation, the Trottier Family Foundation, the Chisholm Thomson Family Foundation and the Graham Boeckh Foundation.

The post Three big shifts that can transform and modernize Canada’s economy appeared first on Corporate Knights.

At the heart of the climate change challenge is the dependence on fossil fuels that is built into every sector, from buildings and vehicles to power plants and farm equipment, steel mills and breweries. With that built-in fossil fuel dependence comes locked-in greenhouse gas emissions. Sure, policies and behaviour change can reduce fossil fuel use, buy time and facilitate growth of zero-emission solutions, but eliminating fossil fuel dependence requires a transformation of that capital stock. 

The capital investment needed to decarbonize the Canadian economy was first estimated by Corporate Knights at about $150 billion per year, and the federal government and others have since corroborated that finding. For context, this amounts to the annual total raised by sales taxes in Canada. Total capital spending in Canada runs around $650 billion per year, most of which is making the problem worse and some of which, perhaps 10%, is providing some incremental moderation of emissions. Unless and until the majority of capital spending is aligned with our climate change commitments, we will not get at the root cause of the heat waves, droughts, floods and wildfires that are eating away at our prosperity.

Such an alignment is possible. Scores of innovations in recent years have opened up pathways to zero emissions. Super-efficient and fossil-free buildings, electric vehicles, cold-climate heat pumps, smart building design and operation, electrification of industrial processes, energy storage, regenerative agriculture, circular industrial production systems, wind and solar electricity, battery storage – climate solutions are growing at unprecedented rates. 

Globally, a post-fossil-fuel energy system is emerging, centred on efficiency, electrification and renewable energy. The carbon-free solutions often bring highly valued collateral benefits – better vehicle performance, healthier and more productive built environments, enhanced productivity and cost savings – that act as accelerants in the market uptake of the new technologies.

And yet, a yawning gap remains between current levels of investment in climate solutions and what it would take to get the job done. This “decarbonization capex (capital expenditure) gap” is the focus of the Climate Dollars research project at Corporate Knights. For each of the three most important sectors – buildings, transportation and power – there is an annual decarbonization capex gap of $30 to $40 billion, and the longer it takes to close it the more Canada will fall behind in the global energy transition that is underway, and the more disruptive will be the changes to our climate, our economy and our communities. 

The decarbonization gap is made up of stranded opportunities – investments needed to decarbonize that are technologically and economically feasible but that are left unrealized for a host of reasons. For many opportunities, the payback is too long for private investors or is out of scope for the traditional portfolio of the public investor. Other opportunities are stranded by perceived risk, incorrect or lack of information, lack of access to capital, regulatory roadblocks, and ineffective or conflicting public policies. Cementing the problem are underdeveloped supply chains, labour shortages, the inertia and entrenched advantages of the incumbent fossil fuel industry, as well as lacklustre rates of innovation in business models and a lack of public policies for clearing the financing and logistical barriers that are holding back progress. 

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Climate dollars: A roadmap to a post-fossil fuel future

The federal government is more than $14 billion behind on climate funding

Private investors account for 83% of all capital expenditures in Canada, and the private sector has the expertise for mobilizing capital on the scale needed to respond to the climate crisis. But timely decarbonization will require increased public investment in opportunities that are currently stranded in the gap. Corporate Knights has partnered with York University’s Schulich School of Business to develop a Canadian climate-finance index that tracks and measures private-sector climate-finance flows. 

Beyond the widely acknowledged need for more blended finance, closing the gap will require revising century-old utility mandates and regulatory frameworks, capturing inter-sector opportunities that are currently falling through the cracks, financing innovations to eliminate first-cost barriers, incentives and business models that avoid the half-measures that drive up costs in the long run, and a level of determination and cooperation across all sectors of society that has yet to materialize in Canada.

This is a big transition.  It is disruptive, messy and full of wicked complications and pleasant surprises. But the map to a low-carbon future is taking shape, the climate imperative provides a compelling destination, and pioneering explorers and innovators are finding pathways through the decarbonization capex gap.

Ralph Torrie is the research director at Corporate Knights.

The post Closing the climate funding gap is key to Canada’s prosperity appeared first on Corporate Knights.

Affordable electric vehicles that are made in China could open up the Canadian EV market to millions of middle-class families.

But the news comes at a fraught time. Following a similar move by the United States, the Canadian government is considering punitive tariffs on Chinese EVs, with the consultation period August 1.

Such tariffs would be a mistake. Chinese EVs should be accepted for sale in Canada without the tariffs, as long as they meet Canadian standards and are made by companies that do not employ forced labour in their supply chains.

Every year, Canadians buy more than 1.5 million new cars, most of them from foreign countries, and some of them made in China.

Canadian households want and need affordable electric vehicles, sooner rather than later. And reasonably affordable Chinese electric sedans and mid-sized crossovers are available for export to Canada now.

The charged debate over whether to deny Canadians access to affordable Chinese EVs is triggering claims that without a high tariff, China would flood the market and put Canadian auto workers out of work.

But those risks are being exaggerated. Nearly 90 per cent of the cars assembled by Canadian auto workers are exported, and that’s still going to be the case for EVs.

While it’s realistic to expect some job losses among Canadian auto workers from more imports of affordable Chinese EVs, they would be minimal, on the order of 2 per cent. And more importantly, there would also be jobs created.

If Chinese EVs grew to 20 per cent of new car sales over the next five years, by 2030 it would save the families that bought the vehicles $9-billion in fuel and maintenance costs. The money would recirculate in local economies, generate more than $1.5-billion in revenue for Canadian utilities and eliminate 12 million tonnes of greenhouse gas emissions. Even under a wide range of assumptions, the net effect would be more wealth circulating in the Canadian economy.

There is not much risk that Chinese EVs will “flood the market,” as tariff proponents claim. Chinese automakers are more interested in margin than market share. In Australia, Europe and other markets, they’re pricing their products competitively.

The arrival of Chinese EVs into Canada would make it an affordable option for families looking for a new car for $35,000 to $45,000. Otherwise, they will have to turn to a combustion vehicle that would lock in poorer performance, higher fuel and maintenance costs, air pollution and greenhouse gas emissions that would persist well into the 2030s.

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The risk of opening a back door to the U.S. market by allowing cars made in China to be sold in Canada is a red herring. It would be easy for the United States to apply its tariffs on any Chinese-made vehicles (using the vehicle identification number) trying to cross the border for sale.

And with regard to any Chinese-made batteries or parts short of a fully assembled vehicle, it would be relatively straightforward for Canada to apply surgical tariffs on these parts to stay onside with the United States-Mexico-Canada Agreement, without preventing Canadian consumers from purchasing affordable EVs.

It’s true that China’s electricity supply used to make EVs is dirtier than North America’s, but the pollution the EVs save during their lifetime far outweighs that disadvantage.

The charge that Chinese cars are made with forced labour must be taken seriously. It is already illegal to import products tainted with forced labour, although Canada has yet to stop any Chinese products from entering the country under this law. In any case, this law should be enforced at the individual company level, rather than by a tariff that would shut out any Chinese-made EV, including those made in China by Western carmakers like Tesla, Honda and General Motors.

The switch to electric cars and trucks is accelerating exponentially around the world, and EV supply chains are routinely subsidized by governments, nowhere with greater vigour than in Canada. Allowing Chinese-made EVs into Canada will broaden the market for EVs, help bring the country to the forefront of an economic megatrend, and spur competition.

The electricity needed to charge those cars will generate cash flow for Canadian utilities, helping them prepare for the growing role of electricity in our energy system. More EVs will also increase the pressure on apartment building owners, condominium corporations and municipalities to build out the charging infrastructure that we need.

From time to time, an issue comes along where Canada’s interests do not align with those of the United States,’ and where asserting an independent Canadian policy is warranted. This is one of those times. Let them in.

This piece was first published in The Globe and Mail. 

Toby A.A. Heaps is CEO of Corporate Knights and Ralph Torrie is the Director of Research at Corporate Knights.

The post Canadians want EVs they can afford – China has them. Let them in. appeared first on Corporate Knights.

As for the Conservatives, they see a wedge issue they can stir up to their political benefit, and their “Axe the tax” slogan is tailor-made for riling up their base: it rhymes, it fits on a baseball cap, and it supports their “divide and conquer” strategy for electoral victory. Combined with the Liberals’ intransigence on the issue, the stage is set for a shouting match over the carbon tax at a time when we urgently need a grown-up conversation about how to address the climate emergency while securing Canada’s place in the emerging new-energy economy.

Canada is one of the most decentralized federations in the world, and achieving consensus on national policy is difficult at the best of times. In addition, unlike most of its OECD (Organisation for Economic Co-operation and Development) trading partners, revenue from oil and gas exports is important to the national economy and the economic lifeblood of the producing provinces. While the Supreme Court of Canada has ruled that the federal government has the constitutional right to put a price on carbon, it has proven a formidable political challenge to find a solution that responds to the climate emergency while reconciling the interests of producing and consuming provinces as well as the competing imperatives of short-term gain and long-term prosperity.

The result is the revenue-neutral, two-part federal carbon-pricing policy we have today: a carbon tax on fuel rebated to households and most of the economy, and an output-based regulatory pricing and trading system for emissions-intensive industries (the big polluters). Both systems share a common carbon price that increases to $170 per tonne by 2030 from its current level of $80 per tonne. Provinces and territories may opt in or out of either or both parts by substituting their own approach as long as they are consistent with the federal government’s carbon-pricing schedule. The result is a patchwork with four tax regimes and nine separate industrial pricing systems that could all come apart at the seams if national and provincial leaders keep turning up the heat.

The Canada Carbon Rebate — now you see it, now you don’t

The first part of our carbon-pricing system is the one most familiar to Canadians: a “tax and dividend” approach in which fuel distributors pay the carbon levy and pass it on to consumers. The revenue – about $8.3 billion in 2022/2023 – is returned to the provinces in which it is raised, mostly in the form of quarterly rebates that are based on the total carbon emissions of the province but not on the emissions of individual households. For most households, the rebate is larger than the tax paid, and the idea is to provide an incentive for them to reduce their carbon emissions so that they can continue to come out ahead as the carbon levy increases year by year.

Polling from Nanos indicates that nearly half of Canadians don’t believe that the carbon tax is effective, and as the people whose behaviour it is designed to influence, they should know. The impact that the tax has at the gas pump is less than the routine variation in gas prices to which Canadians have become accustomed. The impact on heating bills is more noticeable but not by itself sufficient to cover the capital costs of the deep retrofits and heat pump conversions needed to get the buildings off fossil fuels. Meanwhile, the government is faltering on public relations; indeed, a large portion of the population does not realize that the quarterly rebates are related to the carbon tax, and many do not even know they are receiving the rebates, which are mostly delivered via direct bank deposits. The government’s recent rebranding of what was previously called the “Climate Action Incentive Payment” as the “Canada Carbon Rebate” signals a renewed commitment to shoring up sagging support for carbon pricing.

Economists have oversold the effectiveness of carbon pricing in the real world.

Skepticism about the impact of the carbon tax is fuelled by assertions that it is the most efficient and effective way to reduce emissions, which fly in the face of common sense. Economists have oversold the effectiveness of carbon pricing in the real world, where fuel prices are a relatively small portion of the cost of services and amenities. Lower-income households feel its pinch more than others, but they are also in a weaker position to make the investments needed to reduce their energy use.

From building codes to vehicle fuel-efficiency standards, examples abound where rules and regulations win hands down over carbon or energy pricing in bringing about efficiency and emission reductions. In 1987, U.S. president Ronald Reagan was able to trigger a dramatic increase in refrigerator efficiency with a new set of appliance rules for the manufacturers. It boggles the mind to imagine just how much fuel tax it would have taken to raise the price of electricity high enough to achieve the same results.

Carbon pricing has been on the policy agenda since the 1980s, but in the last few years the technological pathway for decarbonizing buildings, transportation and electricity has come into sharper focus, and the urgency of addressing the climate emergency has increased. At worst, the Canada Carbon Rebate is an innocuous, zero-sum shell game. At best, a continuously rising carbon price will have a marginal direct effect on emissions while increasing the receptivity and success of the quicker, targeted and more direct measures that are needed now to address the climate emergency.

The biggest polluters pay the least

If you think the Canada Carbon Rebate is complicated, buckle up: there are hundreds of pages of rules and regulations governing the various federal and provincial systems for industrial carbon pricing.

In a nutshell, the second part of Canada’s “carbon tax” system works like this: Each facility covered by the federal output-based pricing system (OBPS) is permitted to freely emit greenhouse gases up to an annual limit. That limit depends on the facility’s emissions output and an emissions-intensity standard specific to the product being made in the facility, be that cement or steel, et cetera. If the facility’s emissions exceed this cap, then the company must either pay the carbon price on the additional emissions or submit what are called surplus allowances – effectively, credits it has banked from previous years when it didn’t exceed the cap or bought on the secondary market from other companies.

Still with me?

Those free emission allowances are adjusted to protect the viability and competitiveness of Canadian producers in global markets, so that, say, a steel company in Northern Ontario doesn’t drown in carbon taxes trying to compete with cheaper steel from abroad. It’s a system built for gaming, and a small army of consultants and lobbyists work hard at minimizing the costs that companies are paying for their emissions. Large emitters pay the carbon charge on only a portion of their actual emissions and so end up paying less for carbon than the average Canadian family. Suncor Energy, for instance, one of the largest oil companies in Canada, paid just $1.67 per tonne of greenhouse gases in 2020 when Canadian families were paying $30 per tonne. (Suncor estimates it will pay $8.97 per tonne between 2021 and 2030, less than a 10th of the $103 average price of carbon during this period.)

Large emitters end up paying less for carbon than the average Canadian family. Suncor Energy paid only $1.67 per tonne in 2020, when families paid $30.

Although transparency was a stated design objective of the OBPS, the carbon market that it spawned is a muddy swamp, causing headaches for regulators and uncertainty for investors. As Dave Sawyer, the Canada Climate Institute’s chief economist, notes, “It’s astounding that systems are not in place to track how these markets function and whether the market price holds.”

The rationale for granting these emission allowances to large emitters like pulp and paper mills is that they’re considered “trade exposed,” or at an unfair disadvantage in global markets against competitors that aren’t similarly taxed. This argument is stronger from some industries than others: in the case of steel or cement, paying a carbon tax of $50 per tonne doubles the costs of production, while in the case of oil extraction, it adds only a few dollars per barrel – enough to incentivize pollution reduction but not a competitiveness deal-breaker.

But the tide is turning now as the green transition moves forward, industrial processes evolve, and the European Union and the United States move to impose tariffs on carbon-intensive imports (so-called carbon border adjustment mechanisms). In other words, carbon pricing is coming for these industries, one way or another, and these industries need to decarbonize to survive. To be effective, the current output-based pricing system must be evenly applied across the country, driven by a carbon price aligned with international best practice, and integrated with other government initiatives for industrial decarbonization.

Ultimately, carbon pricing is a small component of the full suite of government spending, lending, and regulatory and tax instruments that are needed to effectively respond to the climate emergency while securing a place in the global low-carbon economy. The last thing the country needs is a “take no prisoners” battle to the death over the carbon tax that could set back what climate progress has been made. If the Liberals did an about-face on the retail portion of the tax while doubling down on the industrial pricing, it would lower the temperature on the climate conversation at a time when the world can’t afford any further warming.

Ralph Torrie is director of research at Corporate Knights.

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