Written By Claire Lingley, Erik Coates, Brad Gilmour, Thomas McInerney and David Macaulay
On March 29, 2022, the Government of Canada released the first of a series of emissions reduction plans, entitled "2030 Emissions Reduction Plan – Canada's Next Steps for Clean Air and a Strong Economy" (the ERP) under the Canadian Net-Zero Emissions Accountability Act. The Act, which establishes in law Canada's 2030 emissions reduction target of 40 to 45 percent below 2005 levels and net-zero by 2050, requires Canada to set emissions reduction targets at five-year intervals and to publish credible plans to meet such targets (a more detailed overview of the Act and its requirements can be found in our previous insight, Federal Government Introduces Bill C-12 to Mandate 2050 Net-Zero Emission Requirements). Accordingly, the ERP lays out a high level sector-by-sector approach for Canada to reach its climate targets.
The ERP outlines sector-by-sector how the Government proposes to set and achieve its climate targets. In support of the effort, the ERP announces $9.1 billion in new investments targeting the following sectors: oil and gas, buildings, electricity, heavy industry, transportation, nature-based solutions, waste and agriculture. Key highlights include:
Oil & Gas
Under the ERP, the Government proposes to cap and cut emissions from the oil and gas sector at the "pace and scale needed" to reach net zero by 2050. In order to meet the regulatory requirements aimed at a 40-45 percent reduction in emissions by 2030, the ERP projects the oil and gas sector emissions to be cut by about 42 percent in the next eight years. The details on how best to design and implement these ambitious emission reductions are not disclosed, however the Government states that it will be determined in close collaboration with industry, provinces and Indigenous partners. A discussion paper to initiate formal consultations on the cap will be issued in the spring.
To achieve the target for the sector, the Government plans to rely on a range of methods. It has committed to develop new measures to reduce oil and gas methane emissions by at least 75 percent below 2012 levels by 2030—regulations to meet this target will be introduced in early 2023 (see Environment and Climate Change Canada's Reducing Methane Emissions from Canada's Oil and Gas Sector, Discussion Paper, published March 2022). In addition, the Government plans to shortly release details of the investment tax credit for carbon capture, utilization and storage (CCUS). It has also committed to eliminating "inefficient fossil fuel subsidies" and developing a plan to phase-out public financing for the fossil fuel sector, including by federal Crown corporations.
Clean Technology and Climate Innovation
As part of its commitments at COP26, Canada committed to accelerate clean technology innovation and deployment. The ERP thus includes a strategy aimed at five priority areas; innovation support, investment in deployment, clear regulatory signals, tax incentives and procurement. As part of this approach, the Government has committed to finalizing the extension of the accelerated capital cost allowance to critical clean energy and energy efficient technologies, such as hydrogen production by electrolysis of water and renewable fuel production
CCUS, in particular, is emphasized throughout the ERP, with the Government proposing to develop a comprehensive CCUS Strategy to guide the development and deployment of CCUS technologies to mitigate GHG emissions by heavy industry. This includes working to improve coordination between public and private sectors in order to better facilitate CCUS deployment.
Carbon Pollution Pricing
The ERP puts forth carbon pricing as a cornerstone of Canada's approach to climate action. Under that approach, the Government has committed to ensure that the federal benchmark price will rise by $15 per year, increasing to $170 per tonne by 2030. Such a commitment will require those provinces and territories to update their carbon pollution pricing systems to ensure they remain as stringent as the federal benchmark.
As part of their carbon pollution pricing system, the Government is developing a Federal GHG Offset System under the Greenhouse Gas Pollution Pricing Act. The Federal GHG Offset System aims to encourage voluntary reduction of GHG emissions across projects. It remains to be seen how, if at all, this system will interact with the international carbon offset trading market recently developed at COP26.
Beyond their domestic approach, the Government is exploring border carbon adjustments as a potential policy tool used to boost and encourage more ambitious carbon pollution pricing.
Canada's electricity sector is currently 82 percent non-emitting. However, with the phase-out of coal-fired electricity generation and increased demand for electricity across the economy, large investments will be required in new, non-emitting generation capacity and in transmission infrastructure. In order to meet the target for 2030 and to drive to a net zero economy, the ERP highlights the following:
- the Government's commitment to develop a Clean Electricity Standard (CES) to support a net-zero electricity grid by 2035;
- Canada launched consultations on the CES this month;
- an added $600 million investment in the Smart Renewables and Electrification Pathways Program;
- a new $250 million investment to support predevelopment work for large clean electricity projects; and
- a $2.4 million investment for the creation of the Pan-Canadian Grid Council, designed to provide external advice to the Government to promote clean electricity infrastructure investments.
This past December, the Government, signaling its support for the Task Force on Climate-related Financial Disclosures (TCFD), committed to move toward mandatory disclosures, requiring federally-regulated institutions, including financial institutions, pension funds and government agencies, to issue climate-related financial disclosures and net-zero plans. Under the ERP, the Government is committed to developing a climate data strategy to ensure that private sector and communities have access to such data to inform decision making on planning and infrastructure investments.
Canada's transportations sector is the second-largest contributor to overall GHG emissions, with the majority of emissions from light-duty passenger vehicles (LDVs) and freight transport. In order to support the switch to zero-emission on-road vehicles (ZEVs) and ensure their affordability and accessibility, the ERP outlines the Government's commitment to:
- develop an LDV ZEV sales mandate, which will set annually increasing requirements towards achieving 100 percent LDV ZEV sales by 2035, including mandatory interim targets of at least 20 percent of all new LDVs offered for sale by 2026 and at least 60 percent by 2030;
- launch an integrated strategy to reduce emissions from medium-and heavy-duty vehicles (MHDVs) with the aim of reaching 35 percent of total sales being ZEVs by 2030; and
- develop a MHDV ZEV regulation to require 100 percent MHDV sales to be ZEVs by 2040 for a subset of vehicle types based on feasibility, with interim 2030 regulated sales requirements that would vary for different vehicle categories based on feasibility.
- The ERP contains lofty goals and some plans of action, but it is lacking in detail as to how these goals will be achieved and how the necessary investments will be incented and mobilized. Many of these goals, for example, ZEVs, do not seem to take into consideration the challenges currently facing Canada, such as, delays in supply chain and more than one year waits for ZEVs.
- There are many high targets and few details, as such it is unclear how many of the targets will be met in the timeline set out in the ERP.
- There are many plans for continued consultation, but the timelines for these plans are unclear.
- Questions remain: What has actually changed as a result of this plan? When will we start seeing its effects in provinces? What will be the economic and societal impacts of the measures proposed in the plan? Are emission reduction targets and timelines realistic? What will coordination across provinces and between the provinces and the federal government look like? What legislative authorities will the federal government propose to use to implement many of the plans objectives? How will the necessary collaboration with the private sector be advanced through consultation?
The Bennett Jones team has experience in all aspects of zero-emission vehicle regulation, infrastructure project development including extensive CCUS experience, climate change and emissions trading and developing strategies for industry to capitalize on the impending low-carbon economy. If you have any questions about the potential impact of the 2030 Emissions Reduction Plan on your business, contact one of the authors of this post or a member of the firm's Energy, Environmental or Climate Change groups.