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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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.

Much of the new investment will depend on comparatively small public spending on electric vehicle infrastructure that must increase 23-fold by 2050 to enable the rest, the Corporate Knights research department concludes in a presentation delivered at an electric mobility conference earlier this month.

“To decarbonize road transportation in Canada by 2050, it will take up to $666 billion in capital investments,” states the May 2 presentation by Corporate Knights CEO Toby Heaps and Research Director Ralph Torrie to EV & Charging Expo 2024 in Toronto, hosted by Electric Autonomy Canada. Some 60% of that total will come from households.

But current trends are running far behind the target, Heaps and Torrie warned. Today’s levels of incremental investment—the added dollars Canadians would put into electrifying their vehicles—extrapolate to only $59 billion by mid-century, including $48 billion from households and $8.5 billion from commercial fleets.

The analysis is the latest output from Corporate Knights’ Climate Dollars project, which reported last month that actual federal investment in green technologies and infrastructure has fallen $14 billion behind what the government promised, for a 30% shortfall since 2015. Climate Dollars is now addressing the decarbonization gap sector by sector, beginning with the 18% of greenhouse gas emissions that come from the tailpipes of the country’s 22.5 million personal and 5.9 million commercial vehicles.

“The road transportation system is 10% of GDP and the other 90% depends on it,” the presentation declares. “In the 5% of the year when their cars are not parked, Canadians drive more than 400 billion kilometres—over 2,500 times the distance to the sun.”

Decarbonizing that activity will shift the investments Canadians are already on track to make in the vehicles they buy. In Corporate Knights’ decarbonization scenario, household investments in EVs grow eight-fold by 2050, while electrification extends to 85% of light, 80% of medium, and 70% of heavy trucks.

Despite the added up-front cost, Canadian drivers stand to save more than $1 trillion on the cost of energy, maintenance, and the carbon their vehicles they would otherwise emit—not including the gargantuan health costs of tailpipe emissions.

Those savings are “electrifying,” Torrie told The Energy Mix. “The transportation savings are more than enough to pay for the whole transition in that sector. There are logistical and financing challenges, but the fundamental economics of doing this are sound.”

But all of that depends on the “relatively small contribution” from public charging that only accounts for about 5% of the total spending, but has to increase 23-fold by 2050, producing peak investment of $1.4 billion in 2035 and a total of 563,000 public charges by 2050, one for every 50 EVs.

EV infrastructure investment in Canada is currently on track for 100,000 chargers by 2050 and peak investment of $108 million in 2035.

“The public charging network is a relatively small contribution to the total investment requirements for electrifying the transportation sector,” Torrie said. “The vehicles are a much bigger deal.”

But “the public charging network is critically important for the success of the entire enterprise. It has to stay ahead of the curve so that a lack of confidence in the charging network doesn’t become a barrier to accelerated EV purchases.”

All told, the Corporate Knights calculations have Canadian households and businesses spending an average $26 billion per year on electrification. But “Canadian households and firms already spend more than $225 billion per year for the road transportation system, including the vehicles, the fuel, the insurance, the parking, and the roads and other related infrastructure,” Torrie said. So the “electrification premium” is only about 10% of the total—and that cost comes down as the process of electrification proceeds.

“If we accelerate the pace at which we’re moving, the unit costs will come down for the electric vehicles, for the housing retrofits, for the changes in the electricity grid that we need to support the distributed renewable system that is coming, and so on throughout the system,” he explained. “So to bring down the cost of decarbonizing our economy, we need to speed up the pace at which we do it.”

Torrie added that Canada will see a “very steep acceleration” in EV market share once vehicle prices come down.

“You can sense the pent-up demand for them in the explosion in inexpensive electric bicycles, scooters, and other small conveyances that provide affordable, convenient, electric transportation in our cities,” he said. “Fundamentally, electric vehicles are less complicated, have many fewer parts, and cost less to fuel and maintain than the combustion vehicles they are replacing.”

Today’s EV prices shut out lower- and middle-income households, but “electric vehicles do not have to cost this much, and in fact that they do not cost this much in many parts of the world,” as China in particular has shown.

“When the dam that is holding back these less expensive vehicles finally bursts, it will unleash a flood of affordable EVs in the North American market,” Torrie said.

This article first appeared in The Energy Mix. Read the original story here. 

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In particular, the budget, released Tuesday, failed to clarify how the government plans to make up for its $14-billion climate funding shortfall – the gap that Corporate Knights has identified between federal commitments and funds disbursed as of the end of fiscal year 2024.  

While the federal government didn’t trumpet climate as a priority in its main communications about the budget, new climate funding over the next 10 years was the single largest spending increase in the budget, with a total of $14.2 billion in new climate funding commitments through 2035, according to calculations by Corporate Knights.  Two-thirds of that climate funding is via clean-economy tax credits meant to expire by 2035, while most new spending items are fanned out over the next five years.

The federal government has upped the ante on its running tally of climate funding commitments from 2015 through 2035, from more than $120 billion in Budget 2023 to more than $160 billion in Budget 2024. (While $40 billion in climate spending has been announced this year, only $14.2 billion of that was new in this budget.) But Budget 2024 reissued the same drawn-out timeline for the five climate-investment tax credits that were announced last year. And most of the new spending is backloaded into future years, with less than $1 billion flowing in 2024 to close Canada’s climate funding gap.  

When it released the 2022 budget, the federal government estimated the overall climate funding gap in Canada to be up to $125 billion per year. Over the next 10 years, planned federal climate investment averages $15 billion per year, mostly in the form of investment tax credits. 

This leaves a gaping hole of up to $110 billion a year, which the federal government along with other levels of government and the private sector will need to fill if Canada is going to meet its climate commitments and seize upon clean-economy growth opportunities.  

The federal government expects investments and tax credits for carbon capture, utilization and storage and clean technology to receive royal assent by June (six months after they were introduced in Parliament). It also plans to introduce legislation for the other previously announced tax credits for clean hydrogen, clean technology manufacturing and clean electricity this fall. The government plans to introduce a sixth climate-investment tax credit announced in this budget, called the Electric Vehicle Supply Chain Investment Tax Credit, in 2025. 

The government now estimates that its suite of climate-investment tax credits is worth up to $93 billion, up from $80 billion in Budget 2023. Normalized to gross domestic product, this would translate to about $1 trillion in the U.S., on par with the higher end of clean-economy funding the U.S. Inflation Reduction Act will provide.  

Considering that the lion’s share of the federal government’s planned climate funding over the next decade is via tax credits, it is concerning that none of the government’s six clean-economy tax credits worth $93 billion has yet been passed into law. 

But the government’s current timeline indicates that the most recently announced tax credit for EV supply chains may not be passed into law until after the next federal election. As the United States showed with the Inflation Reduction Act (with total climate spending ranging from $369 billion to $1.2 trillion), targeting clean-economy growth through more straightforward tax rebates tied to actual clean-economy outputs (such as kilograms produced of clean hydrogen), it is possible to move much faster with larger sums of money.  

 The federal budget’s running tally of climate funding commitments through 2035 leapt by almost $40 billion over the past year to $160 billion.

The post Climate was biggest winner in 2024 budget, but climate funding gap persists appeared first on Corporate Knights.

In a pitch to convince foreign investors to put their money in Canadian industries, Freeland said the federal government has “a suite of policies for the industrial transformation” worth around $120 billion. She pointed to federal climate initiatives such as the $15-billion Canada Growth Fund and more than $80 billion being rolled out in clean investment tax credits.

But there’s a major caveat to all of this: no one is tracking actual investments in the green technologies and infrastructure we need.

At least no one was tracking them until now.

Analysis from a new report from Corporate Knights’ Climate Dollars initiative shows that the federal government is at least $14 billion behind on rolling out the climate funding it had committed to spending by now. And since 2015, there has been a 30% shortfall between what the government has committed to spending on climate and what it has actually invested. It’s critical to close this climate-investment gap in order to close the emission-reduction gap.

By properly tallying up climate investments, starting with the federal government and large corporations, Climate Dollars aims to establish an accurate baseline of where we are at now versus what is required to ensure that Canada meets its 2030 emission-reduction commitments.

“With this report, Corporate Knights has given us a valuable and readable scorecard that highlights federal government initiatives to address climate change across departments and policy instruments. What was promised? What has been delivered?” writes Kevin Page, the president of the Institute of Fiscal Studies and Democracy and former parliamentary budget officer, in the inaugural Climate Dollars report, Committed and Actual Federal Government Climate Spending. “We need this information to assess, debate and adjust our collective plans to reduce carbon emissions.”

Not all countries making significant climate transition investments have had this lack of public accounting on their progress. To document the impact of the Inflation Reduction Act (IRA) – the single largest investment in climate and energy in U.S. history – the White House has published an interactive map that illustrates the levels of investment in the climate transition across the country. In addition, a research team from Rhodium Group and the Massachusetts Institute of Technology has created the Clean Investment Monitor, which provides real-time tracking of all public and private investments in emission-reducing technologies in the United States.

Without this same level of public reporting and research, the knowledge gap in Canada looms large.

The Corporate Knights research team accepts this challenge. Our Climate Dollars initiative is tracking investments in climate solutions year-over-year and compares them against what needs to be spent to reach the country’s climate goals.

Our past research has shown that it will require about $126 billion per year in Canada, including public and private investment, to meet the country’s 2030 greenhouse gas emission target.

While Freeland’s $120-billion tally is a useful starting point, quantifying how much the Canadian government has already spent, going back to 2015, on climate solutions is a harder nut to crack. It requires reviewing budget documents, fiscal updates, economic statements, departmental reports and emission-reduction plans to create an inventory. The Climate Dollars inventory looks across departments, agencies, sectors and types of investments to track the climate-investment announcements, re-announcements and actual expenditures the federal government has made since 2015.

The inaugural report tells a story of the Canadian government’s efforts to both lead the economy through the green transition and position itself as a supplier to the global market. Our research shows that direct federal spending has thus far been the largest source of the government’s funding for climate solutions, followed by loans and equity investments, and then tax expenditures and refundable tax credits.

Going forward, tax expenditures and credits are set to become the largest form of public climate spending. Budget 2023 took an approach geared to compete with the IRA’s investment package and outlined five major investment tax credits: hydrogen; carbon capture, utilization and storage; clean technology; clean technology manufacturing; and clean electricity.

There are risks to climate policy initiatives that rely on the private sector, namely that public–private partnerships tend to be slow or continue to benefit the fossil fuel industry. However, as most capital expenditures in Canada are borne by the private sector, we need Canadian business leaders to rise to the challenge.

To confront the climate threat, we will require a mobilization of capital the likes of which has not been seen since the Second World War.

Tracking climate investments is key to understanding what we should be asking for, and where more funding is needed. It also bolsters accountability by measuring how much progress is made or not made, and why.

An economy in which investment is driven toward the right mix of climate solutions will help achieve an equitable transition to a net-zero economy. Climate Dollars takes the first step toward closing the “say–do” gap for climate investments in Canada, democratizing access to information on the severity of this complex issue and driving changes in policy and behaviour.

Jessica Carradine is project lead on Corporate Knights’ Climate Dollars initiative. 

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