Key highlights from Canada’s Emissions Reduction Plan

April 08, 2022

Elliott Cappell, Partner, National Climate Change Leader
Shelley Gilberg, Partner, ESG Markets Leader
Daniel O’Brien, Partner, Sustainability and Climate Change

The Government of Canada has released its first Emissions Reduction Plan (ERP) under the Canadian Net-Zero Emissions Accountability Act. A comprehensive roadmap for Canada’s greenhouse gas emissions reduction efforts, the ERP covers a wide breadth of activities and includes more than $9 billion of additional investment. While important questions remain, the plan is a significant milestone in outlining how the government intends to meet its 2030 target of reducing emissions by up to 45% compared to 2005 levels as it progresses towards Canada’s 2050 net-zero ambition.

The plan is broad, addressing economy-wide measures like carbon pricing as well as household-level issues like electric passenger vehicles. Although it lacks specific detail on some of the critical issues on Canada’s climate change agenda, it should still serve as a guide for organizations plotting their next steps in the net-zero journey, particularly as the government looks to advance progress on emissions targets in key Canadian sectors like the oil and gas industry. For those considering the implications for their organization, here are some of the top highlights of the ERP as well as related details on some of the key issues addressed in the recent federal budget

A significant focus on building retrofits

A substantial focus of the ERP is on buildings, whose operations are responsible for 12% of greenhouse gas emissions nationally and the largest source in most cities. This is also one of the most challenging areas to decarbonize. There are several reasons for this, including the lack of building code harmonization across Canada, the high costs of retrofits and shortages of skilled tradespeople to perform the work required.

To address some of the challenges, Canada has announced a new, $150-million initiative called the Canada Green Buildings Strategy, with a goal of building on existing programs and introducing new measures to spark a massive retrofit of the existing building stock and spur construction to the highest emission standards. Initiatives at the household level include putting an additional $458.5 million into the Canada Greener Homes Loan Program.

Accelerating uptake of zero-emission vehicles

Transportation accounts for approximately 25% of emissions nationally. This plan aims to accelerate the uptake of zero-emission vehicles, with a focus on efforts to encourage adoption at the household level. The government says it will introduce a mandate to ensure zero-emission vehicles account for at least 20% of new light-duty vehicle sales by 2026, with the requirement rising to a minimum of 60% by 2030 and 100% by 2035.

These targets should represent opportunities for Canadian auto sector and parts manufacturers, as well as providers of raw materials for those vehicle components. They’ll also require massive investment in charging infrastructure and other supports for vehicle purchases.

Details yet to come on critical issues for key sectors

The ERP sets out an ambitious agenda for change, with promises to address a number of important issues in the next 18 months: critical minerals; aviation; agriculture and fertilizer; carbon capture, utilization and storage; small modular nuclear reactors; and the role of nature as a climate solution. This means Canadian organizations in key sectors of our economy can expect significant activity on matters they’ve been paying close attention to as they plot their net-zero strategies. While we watch for further details, here’s what we do know from both the ERP and the recent federal budget about what’s to come on some of the most significant issues in the net-zero journey:

  • Emissions cap for oil and gas: The government promises to publish its oil and gas emissions cap this spring, which will be a major milestone. The ERP has committed to a 42% reduction in absolute emissions from this sector compared to 2019 levels.
  • Clean electricity standard: The government is committing to requiring net-zero electricity by 2035 through a clean electricity standard and associated support for renewable power generation and small modular reactors. The plan is light on details and doesn’t address key matters for the provinces.
  • Critical minerals: Mining companies have been carefully watching out for information on the role of critical minerals in the energy transition and the path to lower emissions. While the plan didn’t have a lot of detail on this, the government announced the new critical mineral exploration tax credit in its recent budget as it looks to advance its strategy around this key opportunity for Canada.
  • Carbon capture, utilization and storage: In the budget, the government also released long-awaited details on the carbon capture, utilization and storage tax credit, which it expects to play a key role in helping oil and gas companies meet industry targets to reduce emissions.
  • The net-zero transition for large emitters: The government is looking to release more details this spring on the Net Zero Challenge for large emitters. This may be of interest to organizations in the oil and gas, mining, transportation, real estate, industrial and manufacturing sectors.

Charting an orderly and inclusive transition for Canada and our key sectors

While the ERP is ambitious, it falls short on outlining the specific actions and details many Canadian organizations have been watching for. It’s more a snapshot of what’s happening now and what the government is planning than a policy position or a comprehensive program announcement. For example, it doesn’t address the harmonization required across sectors, regions and levels of government to achieve our targets. Instead, it focuses more on consumer matters like zero-emission vehicles rather than the harder issues related to oil and gas emissions intensity.

This suggests the government is weighing climate change ambition with questions about the continued contribution of key sectors of our economy and growing concerns about energy security.

Besides addressing some of the critical issues those sectors are facing, we also believe that achieving our targets requires a broader approach that looks beyond an energy or emissions lens.

What Canada needs to see now is a detailed path to transition that’s both orderly and inclusive.

An orderly transition means predictability that encourages private sector investment and clear communication to citizens, consumers and ratepayers. It also means making sure the infrastructure keeps pace with the increase in demand for cleaner energy and electrification and that there’s an economic, labour and skills strategy that supports regions and individuals impacted by structural changes. All of this will require significant harmonization and coordination with the provinces.

An inclusive transition is equally important. For Canada, this means the transition and planning need to be inclusive of gender, community, Indigenous, regional and global impacts.

A call to action for Canadian organizations

While all of this suggests that there’s much more to come, the ERP should still serve as a call to action for Canadian organizations planning their paths forward. Our recent CEO Survey showed Canadian organizations are behind their global counterparts in committing to net-zero emissions, and the ERP offers further evidence of the need to act quickly. To learn more about how you can advance your net-zero transformation or to discuss what the ERP means for your organization as well as some of the key implications for your strategy, capital projects, supply chain and climate risk scenario modelling activities, please contact us.

Follow PwC Canada