Good start, but more to be done: the International Energy Agency's "Canada 2022: Energy Policy Review"

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On January 13, 2022, the International Energy Agency (IEA) released a detailed 261-page report on Canada's energy resources and climate policies, entitled Canada 2022 Energy Policy Review (the 2022 Canada Report). The 2022 Canada Report provides a status report on Canada's path to energy system transformation and journey to net-zero by 2050. Since the last in-depth IEA review in 2015, Canada has made a series of international and domestic commitments that position Canada towards an ambitious energy system transformation, while remaining a stable and reliable supplier of energy to the world. Most recently at the April 2021 Leaders' Summit on Climate, the Canadian Government announced a target to cut greenhouse gas (GHG) emissions 40%-45% by 2030 from previous 2005 levels, in addition to their commitment of reaching net-zero emissions by 2050.

The overall assessment is an optimistic outlook to the clean energy transition taking place in Canada as a result of the policies, legislation, programs and regulatory reform that Canada has initiated. Canada is demonstrating increasing strength with its environmental, social and governance (ESG) performance, compared to its global competitors. But there is still more work to be done.

Among Canada's current energy profile, the Canadian Government has enacted legislative and regulatory initiatives as well as programs and policy measures to support its national and international targets of reducing emissions. An immediate result of these efforts has shown Canada scoring well on overall ESG indicators, relative to many other oil and gas producing nations. Specifically, the 2022 Canada Report notes that,

Canada is leveraging strong ESG performance to position itself to become a global leader in the production and export of clean liquefied natural gas (LNG) to help countries transition away from higher emitting fuels, such as coal.

For example, the new LNG Canada plant is designed to be one of the lowest CO2 intensity LNG facilities currently operating in the world, with a 60% lower emissions rate than the global average. On the horizon, other Canadian LNG projects are planning to use clean, renewable hydroelectricity to power operations that provide emissions profiles up to 90% lower than their international competitors.

The 2022 Canada Report notes that "clean fuels are expected to play an essential role in reaching the net-zero goals in areas where electrification will be more challenging," adding that "clean fuels offer a crucial low-carbon pathway for Canada's conventional energy sector." This is in line with the Canadian Government's expectations that clean fuels could generate 10%-51% of Canada's national energy supply by 2050 and will drive Canada's transition to a low-carbon economy.

[Clean fuels] include hydrogen, advanced biofuels, renewable natural gas, sustainable aviation fuel and synthetic fuels. Today, these fuels make up less than 6% of Canada’s total energy supply, but in 2050, between 10% and 51% (or up to 60% according to some projections) of Canada’s national energy demand is expected to be met with clean fuels to reach its net zero goal. In particular, clean fuels can be an effective way to decarbonize hard-to-abate industries such as cement, steel, heavy-duty transport, and oil and gas, which represent nearly two-thirds of Canada’s emissions.

In line with these statements, Canada's energy profile includes a commitment by the Canadian Government to provide support for domestic procurement of Canadian clean technology, as Canada sees technology and innovation as an integral component to reduce emissions. As outlined in the Pan Canadian Framework on Clean Growth and Climate Change (PCF), Canada has committed $2.3 billion toward a clean growth policy agenda. This investment resulted in the creation of new research, development and demonstration (RD&D) programs that incorporate novel approaches to design and implementation, including cohort-based capacity building, milestone-based prize challenges, and partnerships with the private sector and foreign governments.

The 2022 Canada Report notes that Canada's oil and gas sector has shown a strong track record to improving its emissions intensity, due in part to its large investments in environmental protection and clean technology, highlighting that Canadian policies have already made a positive impact to reducing emissions intensity of operations, to date. Since 1990, oil sands emissions intensity has fallen 32% and an additional 17%-27% reduction in emissions intensity is expected from operations over the timeline of 2018-2030.

Credit is also given to the continued commitment shown by the oil and gas sector towards the protection of the environment. In 2018, the oil and gas sector spent $3.6 billion on environmental expenditures – making this the largest environmental protection expenditure of any sector in Canada and representing 37% of total environmental spending by Canadian businesses.

Canada also gets good marks for its public and private investments in clean technology and innovation. The oil and gas sector leads in this area, providing over 64% of all energy RD&D investments in Canada, averaging $1 billion annually over the decade to 2017. In 2021, the Canadian Government agreed to invest $1 billion over five years to leverage private investments toward large transformative clean technology projects. These investments are intended to eliminate risk from decarbonization projects for traditional lenders, bringing down the cost of capital and making many of these large-scale projects more economically feasible.

The 2022 Canada Report notes that Canada has made notable gains in improving efficiency and lowering emissions from its upstream oil and gas sector. However, "the latest GHG projections indicate that Canada is on track to reduce emissions by 36% below 2005 levels by 2030; Canada's new nationally determined contribution commits to a 40%-45% reduction below 2005 levels by 2030. Since Canada's emissions in 2019 were roughly the same as in 2005, Canada has considerable work ahead to meet its target." To achieve its targets, the IEA stresses that Canada will need to "focus on significantly decarbonizing its oil and gas sector while at the same time ensuring competitiveness in increasingly well-supplied world markets."

The IEA makes numerous recommendations to Canada for each of its energy sectors. However, on an overall energy policy basis, Canada is facing "significant policy, resource, regulatory, shared governance and innovation challenges that will require close collaboration and sustained commitment and direction in the years to come." The IEA recommends that Canada should:

  1. develop national emissions reduction strategies in consultation with the provinces, territories and other stakeholders for key sectors such as transport, buildings and industry to meet the goals of a strengthened nationally determined contribution target by 2030 and net-zero by 2050;
  2. based on technology progress, regularly update support for RD&D and innovation of clean energy technologies to achieve 2050 targets, with an eye to also advancing future export opportunities for clean fuels and other clean technologies;
  3. ensure the timely development and deployment of technologies that can decarbonize fossil fuel production, to help achieve climate targets and safeguard hydrocarbon production and export goals to 2050 and beyond; and
  4. based on significant anticipated growth in the electrification of key sectors and a doubling in electricity demand by 2050 to meet net-zero goals, develop a comprehensive strategy to substantially increase zero-emissions generation and interconnection capacity to provide guidance to provinces and territories for their planning.

If you have any questions about the IEA's 2022 Canada Report, get in touch with any member of our Energy Group.

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