A focused national strategy is required to ensure that Canada achieves its potential as an energy and environmental powerhouse.
As the worst of the global financial crisis recedes, attention is turning to Canada’s triple challenge of shaping a more sustainable way of life, building a more competitive economy and ensuring adequate public finances that are essential to maintaining Canada’s high quality of life. Our country is blessed with a wealth of natural resources, which are responsible for, and will continue to power, a great deal of Canada’s prosperity. Canada is home to the world’s second-largest reserves of oil (see figure 1). Of the top 10 of these 16 countries, Canada is the only one where market rather than the state governs oil supply. Canada is number two in uranium output and number three in natural gas production globally, and it possesses coal reserves that at current production rates will last 100 years.
Of course, Canada’s energy story goes beyond conventional fossil fuels. We are among the world’s leaders in hydroelectric power as a percentage of our overall electricity production (figure 2), although our hydroelectric power capacity is spread unevenly across the country. Canada produced more than 2 billion litres of ethanol in 2009, and investment in wind and solar energy is expanding rapidly, albeit from a relatively small base. A recent survey ranked Canada ninth in the world in terms of its attractiveness as a place for renewable energy investment. Various regions of the country offer significant potential as sources of additional hydroelectricity as well as next-generation biofuels, wind and tidal power.
At a time when the United States is increasingly focused on energy security, Canada gains tremendous advantage from our position as the largest foreign supplier of energy to our southern neighbour (709 million barrels annually, compared with 399 for the second-largest supplier, Mexico, and 358 for the third-largest, Saudi Arabia). Canada supplies nearly as much oil to the US as the next two largest sources combined. There also are significant potential markets elsewhere in the world, particularly in emerging economies such as China, which recently surpassed the United States as the world’s largest energy consumer. It is clear that global energy use, and the resulting greenhouse gas (GHG) emissions, will continue to increase for some time as developing countries are eager to improve their standard of living and to supply modern energy services to those citizens who do not have access to them.
With the decline of conventional oil production in the Western Sedimentary Basin, the oil sands represent a huge proportion of Canada’s oil reserves and a strategic asset of considerable importance to the entire country. Over the next 20 years, oil sands development will contribute an estimated $123 billion of revenue to various levels of governments, the largest share of which goes to the federal government. Energy and resource development benefits the region where those resources are located, but it also generates demand for construction materials, machinery and services — including engineering, technical and financial services — in other regions. Similarly, the government revenues raised through taxes and royalties enhance prosperity for all Canadians. In that sense, energy is a linchpin of our economic progress, as well as a regular aspect of daily life for every Canadian.
Still, it is by no means a foregone conclusion that Canada’s energy resources can and will be developed in a timely and cost-effective manner that maximizes our economic potential. Much of our traditional stock of fossil fuels is located in remote parts of the country and is therefore difficult and costly to extract and process. Renewable and alternative fuels hold considerable promise but are typically even more expensive, and for the most part lack the infrastructure that is required to deliver significant quantities of energy to markets at a competitive price.
We believe Canada has the potential to become an energy and resource powerhouse, developing the technologies and systems that will generate high-paying jobs while at the same time contributing to improved environmental performance around the world. But to achieve that potential it is essential that government, industry and key stakeholders all pull in the same direction, with smart public policy that will attract the necessary investments and ensure Canada can successfully compete with other locations around the world.
As business leaders, we are convinced that Canadian industry is ready and willing to do its part in contributing to Canada’s energy and environmental leadership. To do so, however, companies need a policy road map that provides clarity and predictability, anchored in a sound economic competitiveness framework. Only then will they be able to contribute innovative and lasting solutions.
For Canada to realize its significant potential in this area, five policy priorities stand out. First, the country needs a coherent national energy framework that positions Canada for leadership internationally and makes the most of our opportunities to develop clean energy solutions. The Prime Minister should convene a meeting of first ministers that would provide direction to begin preparation of a national energy strategy. Such a strategy must not be developed by the federal government in isolation; rather, it should be crafted in partnership with the provinces and territories, and in a manner that builds on each region’s strengths and opportunities.
Canada gains tremendous advantage from our position as the largest foreign supplier of energy to our southern neighbour (709 million barrels annually, compared with 399 for the second-largest supplier, Mexico, and 358 for the third-largest, Saudi Arabia). Canada supplies nearly as much oil to the US as the next two largest sources combined.
Second, Canada needs to get its act together as a country by committing to a national approach to climate policy and carbon pricing. The current patchwork of federal and provincial GHG reduction targets and action plans (table 1) is a recipe for confusion and inertia.
In some areas, it makes sense to move in tandem with the United States. For example, harmonized Canada-US standards offer the best approach to regulating passenger vehicles, light and heavy trucks and other goods where the market is highly integrated on a North American basis. But in other policy areas, Canada need not wait for the Americans. The federal government already has moved ahead with a regulatory scheme for GHG emissions from the electricity sector, an approach that recognizes the significant differences between the mixes of electricity sources in each country.
For the upstream oil and gas sector, the approach should be built on the Alberta model of emissions pricing. The federal government should work with relevant provinces to develop a national regulatory model that will yield continual progress on emissions management while preserving the international competitiveness of the upstream sector. In other emissions-intensive and trade-exposed sectors, it will be important not to put Canada’s manufacturing industries " still in fragile recovery mode " at a competitive disadvantage compared with their US counterparts. For that reason, governments should postpone any further regulation until the United States determines its course of action.
Carbon pricing policy should be developed with the following principles in mind:
- It should be broadly applied across the economy so as to cover consumer end-use as well as industrial emissions.
- It should be phased in gradually, starting at relatively low levels, allowing businesses and consumers time to adjust and avoiding unnecessary impacts on competitiveness.
- The revenue raised should be deployed to fund reductions in other taxes and to support the development of new technologies;
- Revenue distribution should be designed to avoid imposing undue costs on any particular region or sector.
- Carbon pricing should not merely penalize high-carbon industries but should provide an incentive for companies and individuals to adopt cleaner technologies, products and services. The objective over time would be to encourage shifts in consumption away from highly energy-intensive products toward more environmentally sustainable goods and services.
Third, Canada needs a coherent technology and innovation strategy. Achieving energy and environmental goals both here in Canada and abroad will require the development and widespread adoption of new generations of technology. The federal, provincial and territorial governments should engage critical business sectors in a national technology enhancement policy. Better policy coordination can assist Canadian businesses in securing a larger share of the burgeoning global market in clean-energy technologies.
At the same time, Canadian firms need to increase their commitment to, and spending on, energy research and development. Among other things, this will require closer collaboration with leading-edge researchers at Canada’s universities. This is an area in which strategic public sector investments can make a significant difference. For that reason, a portion of the funds raised through carbon pricing schemes should be devoted to the development and commercialization of promising new technologies.
Canadian firms need to increase their commitment to, and spending on, energy research and development. Among other things, this will require closer collaboration with leading-edge researchers at Canada’s universities.
Fourth, the federal government should signal to the United States its desire to negotiate a bilateral accord on energy and environmental policy. As with the Canada-US Free Trade Agreement and then the North American Free Trade Agreement, this will require a senior Canadian negotiator and a dedicated team with broad policy experience in trade negotiations, finance, energy and environmental policy. To be sure, Congress and the US administration are focused on other issues at the moment, but that gives Canadians time to develop a more coherent view of our national interests, agree on our key demands and make the case to Americans as to why greater cross-border collaboration on energy policy, regulatory standards and technology development will benefit both countries. In the case of GHG regulation for emissions-intensive and trade-exposed sectors, the goal should be to ensure comparable regulatory cost impact so as to eliminate any justification for US border charges.
Fifth, Canadians need to be meaningfully engaged. The time has come to move beyond debates about the environmental impact of specific energy choices to a balanced and informed discussion of Canada’s energy future and the role that individual Canadians can play. Canada will need to harness all forms of energy in order to meet our country’s current and future needs. All have some environmental impact and the costs of each are sure to increase. As a country, we need to decide how best to make use of these energy sources and how to do so in ways that will generate highquality jobs, affordable energy and economic opportunity in all regions of the country.
Above all, we need a renewed emphasis on building a strong energy conservation ethic in Canada. Few people appreciate just how much waste occurs during the production, transmission and use of energy, regardless of its source. For example, whether energy is produced by burning coal or natural gas, more of it is lost in today’s thermal electricity systems than is made available to consumers in the form of usable electricity. This is exacerbated by line losses in transmission and inefficiencies in appliances, lighting and other end-use applications in homes, offices and factories.
In his book The End of Energy Obesity, economist Peter Tertzakian has called this the “Asymmetry Principle of Energy Consumption.” In his words, “a unit of energy saved at the consumer level cascades into multiple units of energy saved at the source.” You can see this clearly in figure 3: for every unit of energy saved at the household level, 50 times that much energy is conserved at the source. This is a powerful argument for reducing the amount of energy consumed in the first place.
Even with growing awareness of climate change and other environmental risks, in recent years Canada’s track record in conserving energy has not been particularly encouraging. Nationally, residential energy demand increased 13 percent between 1990 and 2007. This reflects in part a growing population and a larger number of households. Although the efficiency of heating equipment and new buildings improved over this time, these gains were more than offset by increases in the number of dwellings, the amount of living space per dwelling and Canadians’ use of all kinds of appliances, including air conditioning. Similarly, while motor vehicles have tended to become more fuel-efficient, the number of registered passenger vehicles in Canada increased from 14.1 million to 16.7 million between 1990 and 2007, and overall passenger-kilometres travelled grew by 42 percent.
All of this speaks to the need for greater efforts by governments and industry to improve Canadians’ literacy on energy and the environment, to bring them into the debate on Canada’s national energy strategy and provide better information on the costs and benefits of energy choices.
For Canada to become a leader in energy and environmental innovation will require action in several other important areas. Canada must make a responsible global contribution. It goes without saying that our country must improve its environmental performance so that we can credibly champion an innovative, long-term and effective global approach to the challenge of climate change. At the same time, it is important to recognize that Canada represents only 2 percent of global emissions, and that energy demand around the world is likely to continue growing to satisfy the legitimate desire for higher living standards, particularly in emerging economies. To have any significant impact, many other countries, both developed and developing, will have to step up their games as well (table 2).
The accord signed in Copenhagen in late 2009 is an important building block in this multi-year global endeavour. It brings all major emitting countries into the effort to slowly and gradually reverse the rising trend of GHG emissions, while giving each country some flexibility to define commitments in a way that meets the needs and aspirations of its citizens. Meaningful progress will not be possible without an overall framework that encourages and enables the development and use of new generations of low-carbon technology across the globe. Canada should work constructively with the United States and other like-minded nations to fashion a sustainable and effective long-term approach, demonstrating that it is possible to combine superior economic and environmental performance.
Governments must create a positive climate for investment in energy, infrastructure and advanced technologies. The broader economic policy framework is critical to ensuring the capacity of Canadian industry to respond and innovate. Smart public policy can help to ensure that companies stay healthy and profitable, thereby encouraging and enabling increased investment in new energy and energy-related technologies. In addition, the federal government should clarify the rules with respect to investment in the resource sector by foreign state-owned enterprises. Of equal importance are policies that stimulate greater domestic processing and upgrading of energy and other resources and that strengthen the Canadian base for related industries, such as petrochemicals, energy services and financing.
It goes without saying that our country must improve its environmental performance so that we can credibly champion an innovative, long-term and effective global approach to the challenge of climate change.
Policy-makers must ensure there are effective and efficient regulatory regimes. Businesses do not object to efficient regulatory oversight. But if they are to get on with the job of investing in advanced energy solutions, they need assurance that regulations will be cost-effective; that the regulatory processes will be clear, fair and efficient; that the different levels of governments will cooperate in “one-window” assessment processes; and that decisions will be reached in a timely manner.
Canadian companies must strengthen their commitment to smart energy use. Businesses across the country already have done a great deal to make their operations and products more energy-efficient, to develop new technologies that reduce both emissions and costs, and to create more sustainable business models. However, we can and must do more. Individual company commitments and sector goals, as well as benchmarking against competitors in other countries, can be powerful motivators to change.
We must enhance Canada’s international brand as both a supplier of energy and an environmental leader. The global market for cleaner energy is growing rapidly, and Canada has the opportunity to become a valued and competitive supplier of such energy, along with advanced technologies and related services. At the same time, we have to recognize that the competition to capture a share of this burgeoning market is fierce. Among other priorities, governments and industry must be more active in educating our partners around the world both about our vast array of energy resources and about our responsible approach to environmental management.
Canada must modernize its energy infrastructure. Much of the infrastructure that carries our energy supply is aging and in need of significant refurbishment or replacement. Also, additional capacity will be needed if we are to realize the opportunity to supply cleaner energy to existing and new markets. Improvements need to be made to electricity transmission, including expanding networks of connections between regions and smart electricity grids within regions. Also, we need to establish the refuelling infrastructure that will be necessary to encourage widespread use of alternative transportation fuels.
We must make the most of our country’s human resources. Beyond the valuable energy resources with which Canada is blessed, our society boasts tremendous assets in the form of scientific and technical talent as well as financial and entrepreneurial skills. We need to fully mobilize those resources so that we can be a leader in the development of next-generation technologies that will provide cleaner energy and environmentally preferable products and services that can be put to use here and abroad. This will require a significant investment in education and training by both the public and private sectors. We believe Canada should maximize the potential of its resource, technical, financial and human assets to position our country as an energy and environmental powerhouse. Many of the elements of a winning strategy are already in place, but success will require a compelling vision and far-sighted leadership, particularly in the business community. It will require cooperation among all levels of government; a sound strategy with complementary elements that are national, continental and global in scope; and the engagement and support of Canadians. Around the world, developed and developing nations are preoccupied with the challenge of meeting an ambitious set of economic, energy and environmental objectives. Canada is well positioned to make a substantive and sustainable contribution to this global effort.