IF WE HAVE ANY CHANCE OF AVOIDING THE WORST EFFECTS OF CLIMATE CHANGE, WE NEED TO TAKE DRASTIC MEASURES TO EMBRACE CLEAN ENERGY NOW. BUT RATHER THAN SEEING IT AS A BURDEN, CONSIDER IT A MASSIVE OPPORTUNITY

This article was written by Jeffrey Jones and was published in the Report on Business by the Globe & Mail on April 29, 2023.

Canada has made lots of promising-sounding climate commitments since signing onto the Kyoto Protocol in 1997, then fallen short. We’re getting very close to a tipping point, but there are still plenty of ways to catch up—and lots of opportunities, too. /By Jeffrey Jones

PLUS We asked 13 experts, entrepreneurs and activists how we can hit our net zero targets before it’s too late

It’s getting increasingly difficult to keep track of the catastrophic weather events that have hit Canada over the past couple of years. In 2021, there was the heat dome in British Columbia, which killed well over 600 people and sparked a wildfire that destroyed the town of Lytton; the so-called atmospheric river that unleashed mass flooding in the province’s interior; and a freak hailstorm in Calgary. Last May, a wall of heavy rain and high winds—an event known as a derecho— ravaged large swaths of Ontario and Quebec, generating four tornados and killing at least 11 people. Four months later, Hurricane Fiona slammed into Atlantic Canada, knocking out power to hundreds of thousands of customers and leaving more than 30 dead. Countrywide, total insured weatherrelated losses for both years totalled more than $5 billion.

And that’s just in Canada. In 2022, damage from extreme weather events cost the United States US$165 billion—and that doesn’t take into account the human toll. By 2100, the UN’s Intergovernmental Panel on Climate Change (IPCC) estimates damage related to climate warming of 1.5°C above pre-industrial levels—the goal we’re all supposedly aiming for—will hit US$54 trillion. If we reach 2°C in warming, the cost rises to US$69 trillion. Again, that doesn’t account for the inevitable loss of human and animal life due to intense storms, fires, flooding and famine.

Yet Canada—and, it must be said, the vast majority of developed nations—have spent much of the past three decades spinning their wheels in the global race to slash carbon emissions. According to Canada’s Sustainable Finance Action Council, or SFAC—a group of finance professionals appointed by Ottawa— we need to spend $115 billion more a year than we are today to have any hope of hitting net zero by 2050.

And even that goal now seems naive.

In March, the IPCC released its most recent assessment of the climate crisis and what must be done to slow the impact. The report is scathing. The world, it says, is on track to blow past the 1.5°C goal sometime in the mid-2030s, which means the next decade is critical. “We are at the tip of a tipping point,” UN Secretary-General António Guterres told the IPCC when it released the report. But he also said it’s not too late to act, and he urged developed countries like Canada to move faster, aiming to hit net zero by 2040, not 2050.

We all know what the fixes are: shift away from fossil fuels, invest heavily in renewable energy, electrify the economy, construct buildings using the most efficient technology, and protect and build back ecosystems. But the job is made harder when long-term solutions are undercut by short-term crises. Russia’s invasion of Ukraine showed how reliant the world still is on fossil fuels. Europeans struggled to heat their homes and run their factories when President Vladimir Putin shut off the gas to the continent. The rest of us suffered through energy price spikes.

Even so, climate change remains a problem to be solved collectively. The fight will be costly and force changes to lifestyles and livelihoods, not least in an economy like Canada’s, which is highly reliant on natural resource extraction and exports of highcarbon commodities, including oil and gas. Those industries have provided decades of prosperity, and that makes a shift away from them hard for some of us to contemplate.

Legions of engineers and entrepreneurs, however, see it as the largest economic opportunity since the computing revolution. Canadians are working to position the country as a leader in carbon capture, utilization and storage; critical-mineral extraction for electrification; renewable energy and power storage; alternative fuels; and all the software and artificial intelligence needed to run those systems.

Along with investors both inside and outside Canada, they’re looking to fill that $115-billion gap in annual spending needed for us to achieve our stated climate ambitions. SFAC, the group of finance professionals who calculated the shortfall, has authored the country’s green taxonomy—a catalogue of green investments and technologies that fit within the energy transition category. It’s meant to be a made-in-Canada approach for giving investors comfort that any money they direct at solving climate-related problems will be spent effectively, and not squandered on greenwashing schemes or projects that will lock them into years of carbon emissions.

If the blueprint works, it would go a long way toward making up for Canada’s long and sorry record dealing with the carbon conundrum.

Ah, the memories. In 1992, then prime minister Brian Mulroney’s Progressive Conservatives set a goal to stabilize CO2 emissions at 1990 levels by 2000. They rose. Jean Chrétien’s Liberals signed the Kyoto Protocol in 1997, and Parliament ratified it five years later, showing how serious the country was this time about helping solve a growing problem. Under Kyoto, Ottawa committed to cutting emissions by 6% from 1990 levels between 2008 and 2012. There was back-patting galore.

What the program lacked was any real action plan. Over that period, the Alberta oil sands underwent an unprecedented development boom, and Canadian emissions increased by 30%. Before the deadline arrived, then prime minister Stephen Harper pulled us out of the agreement in 2011. The Harper government had set a new bar: Under the 2009 Copenhagen Accord, the country pledged to reduce emissions by 17% from 2005 levels by 2020. But that, too, soon proved overly ambitious.

Again, it was reset time. Call it “Canada Gets Serious About Climate Change 4.0.” Prime Minister Justin Trudeau signed onto the Paris Agreement in 2015, along with 194 other countries. That accord commits us to hitting the net zero finish line in 2050. For good measure, Trudeau set an interim target to reduce emissions by 40% to 45% below 2005 levels by 2030.

But Canada is off to a late, and slow, start. From 2015, the year the Trudeau Liberals took office, emissions were down 4% in 2021, according to the EU Emissions Database for Global Atmospheric Research. But they rose 2.7% from 2020 as the economy began to recover from the pandemic.

A 2021 report by federal environment commissioner Jerry DeMarco lamented Canada’s poor record on emissions reduction, noting it was the worst in the Group of Seven. That club, of course, includes the U.S., and former President Donald Trump bid adieu to the Paris Agreement. Under current commander-in-chief Joe Biden, America is not only back in the fight, but Biden has kicked it up several notches with his Inflation Reduction Act. That legislation is Washington’s largest-ever climate change–fighting campaign, committing US$369 billion over 10 years to renewable energy, electric vehicles, carbon capture and other green tech. Canadian cleantech executives also see it as a clear competitive threat.

It doesn’t spell hopelessness for Canada, though. Critics who deride any action on climate often quote our smallish 1.5% contribution to global emissions. They say it’s really up to major economies like China and the U.S. to make major reductions. But that argument is defeatist. After all, on a per-capita basis, we’re the highest emitters in the world, according to the federal government. Herein lies another big opportunity: Technology invented here to improve that record can be exported, giving Canada an outsized impact on reducing emissions worldwide.

SFAC’s taxonomy is among the developments that bode well for Canada’s efforts to retool for net zero. So is carbon pricing. Although late to the game, Canada’s system aims to send the pricing signals necessary for companies and investors to direct capital to emissions-cutting projects. Under the schedule, the price is slated to rise to $170 per tonne by 2030 from $65 today. (Alberta was actually a leader on pricing, establishing a carbon tax on large emitters a decade and a half ago.)

Would-be investors want assurances that future governments won’t enact policies that threaten carbon price certainty for their projects, especially carbon capture initiatives, a technology seen by some as a bridge to a low-carbon economy. In the 2023 federal budget, the government announced such guarantees.

Another step in the right direction is the move to regulatory requirements for companies to disclose their emissions, now being designed by such bodies as the International Sustainability Standards Board, which will inform Canadian policies, and the Office of the Superintendent of Financial Institutions. With the latter, Canada’s banks and insurers will have to start disclosing all three scopes of emissions starting in 2024, and provide details of how they’re accounting for climate risk. (Scope 1 emissions are those from their own operations, Scope 2 are from the energy they purchase, and Scope 3 are from companies and projects they finance, and from end use of the goods produced.)

What the rules don’t require are specific targets for phasing out investments and lending to high-carbon sectors, and that’s to the chagrin of environmental activists. They say financial institutions can’t be serious about the energy transition while still financing the fossil fuel sector to the tune of tens of billions of dollars. The Big Five Canadian banks are among the top 20 financiers to the global oil and gas industry, according to the Rainforest Action Network. The banks contend they serve a better purpose by keeping energy companies as clients and helping them in their decarbonization efforts. The jury is out on that contention.

Perhaps the biggest dislocation caused by any shift to net zero will be in the labour force, and that’s something all governments have to grapple with. According to the Canadian Climate Institute, as many as 800,000 jobs in sectors such as oil and gas, mining, heavy industry and auto manufacturing will be vulnerable to disruption if Canada can’t attract the capital needed to transform its industries. Those sectors account for almost 70% of exports, and generate more than $300 billion in export revenue and investment annually.

The institute conducted that research before Biden’s Inflation Reduction Act. Canadian cleantech execs and investors worry the range of incentives in that legislation could divert capital to the U.S. Canada must pick its strengths and develop policies to show how we’ll thrive as energy and industrial systems evolve.

The Trudeau Liberals’ March budget took a shot at battling the competitive threat, with $20.9 billion in tax credits aimed at clean electricity, hydrogen and cleantech manufacturing. It also expanded eligibility for tax credits for cleantech adoption and carbon capture.

Ottawa isn’t short on advice on what to do. It has formed many panels of experts—including executives, academics and environmentalists—to provide recommendations on industrial strategy, cleantech competitiveness and net zero policy. The trick now is putting the advice into action, while keeping the peace with the provinces and high-emitting sectors that are demanding taxpayers foot much of the bill for carbon capture and other technologies. The Pathways Alliance, the coalition of major oil sands producers that has pledged to get to net zero with their Scope 1 and 2 emissions, is among the most vocal calling for public funding, saying it will support a workforce needed to mobilize to build

a massive carbon network. The industry says Canada’s barrels should be the last ones on the market in a decarbonizing world, but its critics argue that’s a refusal to envision a wind-down of the fossil fuel era.

Meanwhile, despite frequent demands from investors and regulators to improve disclosure, Canadian companies have the worst record on disclosing targets among G7 countries when it comes to emissions reductions (according to CDP, formerly the Carbon Disclosure Project). Those countries collectively are on a path for a global temperature rise of 2.7°C, based on targets disclosed by their companies. Taken alone, Canada’s corporations are on a trajectory to a rise of 3.1°C, CDP said.

Still, there’s reason for optimism. It’s clear Canada has done more to wrench the economy to at least point itself in the direction of net zero than it did in past failed attempts. Alberta, for instance, is undergoing a multibillion-dollar boom in wind and solar power development, funded almost entirely by corporate and private investors. Mining and manufacturing companies are laying the groundwork for a Canadian EV supply chain, including battery components and auto parts. But there are still numerous tough choices to make on how to get to net zero without sending the economy into a tailspin, and not wasting time and money on ineffective projects and policies, or leaving Indigenous communities out of the equation.

The risk with the energy transition is that it gets bogged down by the belief it can be all things to all people. Activists see the shift as a necessity that must be accomplished in under a decade. Pro-oil types would prefer the shift be open-ended, with a way to maintain production of fossil fuels.

What’s needed now is a combination of expertise, political will and buy-in from players in the game—scientists, companies, various levels of government and the public. Each now has a different idea of how to get to net zero, so there’s plenty of debate to come. But it took Canada 31 years to get to a starting point. Now it has even less time to reach the destination.