Minister’s response to the Net-Zero Advisory Body’s 2022 Annual Report Advice

Minister's foreword

As Minister of Environment and Climate Change, I welcome the Net-Zero Advisory Body's (NZAB) 2022 Annual Report under the Canadian Net-Zero Emissions Accountability Act. This report provides recommendations in three areas: Net-Zero Governance, Net-Zero Industrial Policy, and Net-Zero Energy Systems. It outlines strategic advice and provides informed options for developing policies and practices to achieve net-zero emissions. This advice is the result of in-depth collaboration with experts from across Canada, with a range of experience and expertise in business, policymaking, climate science, and other areas.

The science is clear, we need ambitious climate action, and Canada – a wealthy, highly educated, resource-rich and energy exporting trading nation – has all the tools to be a global leader. The Government of Canada recognizes the importance of working closely with partners such as NZAB to address the challenges posed by climate change. I deeply appreciate the expertise from NZAB and this report illustrates how their advice can underpin the Government's policy design and decision making. I look forward to NZAB's continued engagement and would request that, as NZAB's thinking evolves, the recommendations become more granular to help advance Canada's climate ambitions.

NZAB's 2022 Annual Report builds on previous valuable advice about existing domestic and international pathways to net zero. NZAB also provided advice on governance, buildings, transportation, and oil and gas with their input in the development of Canada's 2030 Emissions Reduction Plan (ERP), released in March 2022. Work is already underway incorporating NZAB advice in many ways, including more timely GHG reporting and progress indicators and continuous modelling improvements and standardization of GHG quantification, while Budget 2023 made historical investments toward a net-zero industrial policy.

The advice in the 2022 Annual Report will help the government implement the measures outlined in the ERP, which is key in achieving Canada's climate goals to achieve a 40-45 percent reduction in emissions below 2005 levels by 2030 and advance actions to achieve net-zero emissions by 2050. A more detailed update on the status of the implementation of the ERP will be published later this year in the 2023 Progress Report.

I thank members of NZAB for their dedicated work to provide independent advice on how Canada can achieve net-zero emissions in 2050.

The Government of Canada is committed to achieving its climate change objectives and welcomes this this advice as we continue to work together for greater climate action.

The Honourable Steven Guilbeault,

Minister of Environment and Climate Change

Introduction

To avoid the worst impacts of climate change, there is an imperative to move towards a global net-zero emissions economy. According to the Intergovernmental Panel on Climate Change's (IPCC) Sixth Assessment Report and the Climate Change 2022: Impacts, Adaptation, and Vulnerability, at current rates, global warming of 1.5°C will likely be reached between 2030 and 2052. The Working Group I contribution to the IPCC 6th Assessment Report concluded that it is unequivocal that warming of the climate is due to human influence. The best estimate of human induced global warming is approximately 1.1°C above pre-industrial levels. This warming has spurred changes to the Earth's climate that are unprecedented in recent human history and will continue to persist for centuries to millennia, given the long lifetime of greenhouse gases in the atmosphere.

Achieving deep emissions reductions by 2030 and net-zero emissions by 2050 is key to limiting warming to 1.5°C and averting the most severe climate-related impacts. In response to the scientific evidence on the need to act, as well as the significant economic opportunities a low-carbon economy presents, Canada has joined over 130 countries, including all other G7 and G20 nations, and a host of Canadian provinces, territories, municipalities, Indigenous Peoples, and businesses in committing to achieve net-zero emissions by 2050.

Canada has adopted an enhanced 2030 emissions reduction target of 40-45 percent below 2005 levels as its Nationally Determined Contribution  (NDC) under the Paris Agreement and has announced significant new investments and measures to help achieve this target. The Canadian Net-Zero Emissions Accountability Act(the Act) formalizes Canada's commitment to net-zero emissions by 2050, and received Royal Assent on June 29, 2021. The Act requires the Government of Canada to set national emissions reduction targets at five-year intervals for 2030, 2035, 2040, and 2045, and to develop a Emissions Reduction Plan (ERP) for each target, as well as explain how each plan would contribute to reaching net-zero emissions in 2050.

As one of the first deliverables under the Act, the Government of Canada published its first ERP in March 2022. The 2030 ERP lays out a roadmap for achieving Canada's greenhouse gas (GHG) emissions target of 40 to 45 percent below 2005 levels by 2030 and incorporates input from Canadians, businesses, communities, Indigenous partners, provinces, territories and, the Net-Zero Advisory Body (NZAB).

The NZAB was launched in February 2021 and was formally established through the Act. Comprised of up to 15 experts from across Canada, the NZAB's role is to provide independent advice on how Canada can achieve net-zero emissions in 2050. Consistent with the NZAB's Terms of Reference, its work is structured along specific lines of inquiry, which are set at regular intervals in consultation with the Minister of Environment and Climate Change. Expert advice and the work of the NZAB is essential to chart Canada's path to net-zero emissions by 2050, including recommendations to help meet Canada's 2030 target. The work of the NZAB and other experts will continue to support the development of Canada's plans and policies needed to reach net-zero emissions. The NZAB meets regularly, and has already completed several valuable early deliverables, including the Net-Zero Pathways: Initial Observations report in July 2021, and its 2030 ERP submission in March 2022.

At the end of 2022, the NZAB shared its 2022 Annual Report with the Minister of Environment and Climate Change, who then published the report within 30 days of receipt (by January 29, 2023), as mandated by the Act. In turn, the Minister is also required to publicly respond to the advice within 120 days of receiving the report's advice; a requirement this response fulfils. The NZAB, in its 2022 Annual Report, provided 25 recommendations, referred to as "pieces of advice" to strengthen actions undertaken by the Government of Canada in achieving net-zero emissions by 2050. The 2022 Annual Report is meant to complement the 40 pieces of advice that were shared through the NZAB submission for the 2030 ERP, and contribute to Canada's development and implementation of pathways to achieve net-zero emissions by 2050. The 2022 Annual Report also summarizes engagement activities undertaken throughout their first year of work. Going forward, the NZAB has identified youth and families as the priority target audience for their immediate future engagement.

Aligned with the NZAB's Annual Report, this Minister's Response is organized under three main lines of inquiry which the NZAB has identified as foundational areas of action that need to be undertaken in Canada to achieve widespread emissions reductions. These are: Net-Zero Governance, Net-Zero Industrial Policy and Net-Zero Energy Systems. The areas of advice from the NZAB may also be useful to partners including provincial and territorial governments, Indigenous peoples, industry, and other stakeholders.

The NZAB's advice highlights important considerations to support the Government of Canada's efforts to implement the 2030 Emissions Reduction Plan, and other key measures and approaches. The Government of Canada looks forward to continued engagement with the NZAB as work advances to consider the NZAB's advice on key measures. The Minister of Environment and Climate Change will also be issuing guidance to the NZAB on the focus of their next annual report. In light of the latest science calling for increased and accelerated climate action, the Minister will be asking the NZAB for advice on additional measures the Government of Canada can develop that would result in incremental, modelled reductions by 2030.

1. Line of inquiry: governance

Developing concrete, equitable and achievable pathways to 2030 and 2050 that leave no one behind will require continued engagement and collaboration with provinces, territories, Indigenous Peoples, industry, stakeholders, and civil society – reflecting input from independent experts, the latest science, and Indigenous Knowledge.

The NZAB defines governance as "the network of institutional strategies, capacities, and relationships required – both inside and outside of government – to achieve net-zero emissions by 2050." This advice highlights the need for the federal government to work with partners to implement strong governance structures. For this response, the advice has been categorized into three themes: Net-Zero Leadership, Net-Zero Reporting and Net-Zero Modelling.

1.1 Net-zero leadership

Advice 1

The Government of Canada should direct that all federal agencies, departments and Crown corporations publicly articulate their role in helping Canada achieve net-zero emissions. The Government of Canada should then empower these organizations to play a more ambitious role by formalizing net-zero objectives in their corporate mandates, change mandates if required, ensure that executive compensation is meaningfully and transparently linked to climate mitigation performance. A common framework under the responsibility of the Treasury Board should be applied to ensure minimum standards, transparent reporting, and benchmarking. Opportunities for advancing co-benefits, notably on adaptation, should also be embedded in the mandates of key institutions.

Advice 2

The Government of Canada should catalyze the development of net-zero champions across Canada and build issue-specific coalitions comprised of federal, provincial, territorial, non-governmental, private and Indigenous entities.

Minister's response

Given the shared responsibility of the environment and climate change in Canada across jurisdictions, all levels of governments in Canada will have an important to role to play in achieving net-zero emissions. However, the challenge extends beyond governments - the transition to a decarbonized economy will require strong leadership and governance from all parts of society and continued collaboration with key partners. The Government of Canada agrees that it has the opportunity to play a leadership role in the transition to net-zero emissions. This will mean not only championing net-zero principles, but doing the hard work to put this into practice.

A key step to demonstrating net-zero leadership with the Government of Canada is building climate change considerations in decision making. The Government of Canada's 2021 mandate letters include commitments for each Minister to "seek opportunities within [your] portfolio to support our whole-of-government effort to reduce emissions, create clean jobs and address the climate-related challenges communities are already facing". The role of each specific Minister in reducing emissions is further detailed in their individual mandate letters. Departments within the Government of Canada also regularly work together through a variety of committees to coordinate the implementation of the measures in Canada's Emissions Reduction Plan.

To inform policy development and government decision-making, the Government of Canada is currently piloting an Integrated Climate Lens that will take into account the climate and economic considerations of policies and programs. To support federal officials to be climate-ready and consider climate ambitions and impacts in their work across the public service, the Integrated Climate Lens is also beginning work to prepare climate literacy courses designed to help public servants across the Government of Canada understand their roles in addressing climate change. The initial solution-oriented courses will focus on climate science, mitigation, and adaptation, respectively.

In addition, through Canada's first National Adaptation Strategy, the Government of Canada is taking action to enhance climate resilience, complementing efforts to reduce greenhouse gas emissions. The Government of Canada's Adaptation Action Plan (GOCAAP) outlines the federal contribution to implementing the National Adaptation Strategy and the federal role in meeting adaptation goals where there is shared jurisdiction. It also identifies the tools the federal government uses to build resilience and address climate impacts. Taken together, the GOCAAP highlights nearly 70 new and ongoing federal actions to help meet Canada's national adaptation priorities. Investments in climate change science and capacity building ensure that Canadians have access to the information, tools and resources needed to understand the risks they are facing, and how to best adapt.

The Government of Canada is also leading by example on the transition to net-zero and climate resilient operations. The Greening Government Strategy, created in 2017 and updated in 2020, commits the Government of Canada to transition to net-zero emissions by 2050. The Strategy applies to all federal agencies and departments, including the approximately 100 organizations subject to the Federal Sustainable Development Strategy (FSDS). Departments are also required to formalize their net-zero objectives by maintaining net-zero climate-resilient real property portfolio plans as well as national safety and security operational fleet decarbonization plans, both of which are specific to each departments' circumstances.

Emissions from federal operations are declining, with total federal GHG emissions from real property and conventional fleet operations 38.6% lower in 2021-22 as compared to 2005-06. The Government of Canada will continue to demonstrate leadership in this area going forward by: ensuring new buildings are net-zero carbon; retrofitting existing buildings to be low-carbon; electrifying the on-road fleet and moving to low carbon fuels for air and marine fleets; greening procurement, including low-carbon construction materials; and strengthening the climate-resiliency of assets and operations.

Most recently, the Government of Canada announced two green procurement programs designed to reduce GHGs in government projects:

• Effective April 1, 2023, the Standard on the Disclosure of Greenhouse Gas Emissions and the Setting of Reduction Targets outlines that federal government procurements over $25M should incent suppliers to disclose their GHG emissions and set reduction targets. Suppliers can fulfill this requirement through participation in Canada's Net-Zero Challenge or another approved internationally recognized and functionally equivalent standard or initiative.
• Embodied carbon forms a significant proportion of the whole life carbon emissions from construction projects. Effective December 31, 2022, the Standard on Embodied Carbon in Construction requires the reporting and reduction of the embodied carbon footprint of new major government construction projects, initially starting with concrete. Specifically, these projects must use lower carbon concrete where available so that the total GHG emissions associated with this project's concrete is a least 10% less that the regional average for concrete. It applies to projects valued at $10 million or more and expected to use more than 100 m³ of concrete. Major construction projects typically include the renovation or new construction of buildings or engineering assets.

Achieving net-zero emissions will require everyone to do their part. The Government of Canada has started to identify ways to empower external partners to take one leadership roles on the road to net-zero emissions. One example of this is the Net-Zero Challenge, which encourages companies to develop and implement credible and effective plans to transition their facilities and operations to net-zero emissions by 2050. Through the Challenge, the Government of Canada is helping to normalize net-zero planning so that it becomes the default business practice, building momentum through guidance and leadership. Going forward, the Challenge will not only be for businesses, as it is committed to expanding to include public entities and local governments to ensure all parts of the economy are moving towards net-zero emissions.

Moving forward, the Government of Canada will continue to strengthen leadership, governance, partnership and collective action to meet Canada's climate objectives, through new and existing actions, as described above, which include:

• The Standard on the Disclosure of Greenhouse Gas Emissions and the Setting of Reduction Targets
• The Standard on Embodied Carbon in Construction
• The development of a climate literacy course through the Integrated Climate Lens; and,
• The expansion of the Net-Zero Challenge.

As this work advances, the Government of Canada will further engage with the NZAB to examine approaches to drive momentum on net-zero governance.

1.2 Net-zero reporting

Advice 3

The Government of Canada should ensure there is a public-facing, easily understood net-zero dashboard, providing Canadians with access to progress indicators, notably quarterly data on GHG emissions trends by sector, and leading indicators of progress. This might be best done in collaboration with external organization(s).

Advice 5

Environment and Climate Change Canada should close the 2-year data lag for reporting more detailed and accessible data on GHG emissions, starting with emission-year 2023. Environment and Climate Change Canada should launch quarterly reporting of GHG emissions, similar to the European Union.

Minister's response

Reporting on emissions allows Canada to track its progress and to make course corrections as required. The Government of Canada is working to continuously improve its monitoring and reporting on GHG emissions and trends to provide the most accurate understanding of progress towards key milestones on the path to a net-zero emissions future.

Canada has a number of reporting mechanisms in place for monitoring and tracking Canada's GHG emissions. Under the United Nations Framework Convention on Climate Change (UNFCCC), Canada reports on its GHG emissions through the National Inventory Report (NIR), which is updated and submitted annually before April 15. Complementary to the National Inventory Report, Canada also collects and publishes yearly facility reported GHG emissions under the Greenhouse Gas Reporting Program (GHGRP). Other reports submitted to the UNFCCC include: Canada's National Communications; Biennial Reports and Biennial Transparency Reports; and the Greenhouse Gas and Air Pollutant Emissions Projections. Under the Canadian Net-Zero Emissions Accountability Act, Canada also publishes Progress Reports on Emissions Reduction Plans. All of these reporting requirements support Canada's assessment of its progress in reducing emissions and combatting climate change.

Complementary to Canada's official GHG reporting under the UNFCCC, Statistics Canada also reports GHGs under a different framework, the United Nations System of Environmental-Economic Accounts (SEEA), known as the Physical Flow Accounts (PFA). Under this complementary reporting framework, some countries have started reporting more frequently as noted by the NZAB.

The development of ground-based and space-based earth GHG atmospheric observations is creating opportunities to complement national inventory reporting, by informing the ongoing improvements in estimating emissions, and providing more information on emissions levels and their sources. Developing these data and tools provides insights on future mitigation opportunities, and helps improve Canada's understanding of progress being made towards emissions reductions targets and net-zero. The Government of Canada is constantly reviewing and revising reporting requirements and accounting methodologies to ensure our emissions inventories reflect the latest science and the most accurate assessment of our emissions. The Government of Canada is also developing a roadmap for designing and launching a dashboard that ensures climate reporting is accessible and transparent. To strengthen the science underpinning GHG emissions reporting, there is an opportunity to align investment and capacity in research and monitoring, to mobilize available information on emission sources, sinks, capture storage, and the pace of reductions in Canada, commensurate with the ambition of the targets. Enhancing the nationally coordinated strategic effort will continue to leverage existing and future science, as well as Indigenous Knowledge, to inform targets and evaluate progress.

Canada is also supporting partners to track and report on progress towards Canada's climate objectives. For example, in 2022, the non-partisan independently governed Canadian Climate Institute launched 440Megatonnes.ca, a new data-driven website that tracks progress towards Canada's 2030 emissions reduction target and net-zero objective. The platform includes a dashboard of downloadable data on a number of key indicators, and provides complex emissions data in a digestible format.

Monitoring and reporting GHG emissions to inform Canadians is a key component of tracking progress towards achieving net-zero emissions. As described above and informed by the NZAB's advice on reporting, the Government of Canada, through Environment and Climate Change Canada, will:

• Continue to regularly explore opportunities to improve reporting and monitoring methodologies to ensure national inventories reflect the latest science and most accurate assessment; and,
• Explore ways to report historical emissions more frequently while still consulting with provinces and territories as required.

1.3 Net-zero modelling

Advice 4

The Government of Canada should establish an independent modelling and data centre of excellence, operational by June 2024. The new centre of excellence would contribute to developing independent modelling, establishing relationships with other orders of government, and encouraging collaboration on net-zero modelling and analysis.

Advice 6

Federal departments, agencies, and Crown corporations should increase their expertise and capacity related to data, analyses, and interpretations of net-zero modelling activities. This would increase their ability to support their organization's net-zero planning efforts, allow more strategic interactions across organizations, and facilitate collaboration with the new centre of excellence.

Advice 7

Environment and Climate Change Canada should do modelling runs on a continuous basis throughout the year, and decouple them from the release of climate plans to increase learning and ensure robust analyses.

Advice 8

The Government of Canada should broaden its approach to Emissions Reduction Plans (ERP) development, while including modelling to net-zero in all future ERPs. Future plans should include, among other elements, a detailed qualitative analysis of the character of the Canadian economy associated with declining GHG emissions, and risk and competitiveness analyses.

Advice 9

The Government of Canada should issue guidance on proper analysis in support of climate policy, similar to the United Kingdom Treasury Aqua Book, to strengthen the use of models in support of decision-making.

Minister's Response

Robust emissions modelling can support the development of effective federal climate policies, and, as such, the Government of Canada is committed to improving its modelling. Models are essential to assess progress, support analysis, and evaluate options, but at the same time it is important to recognize the strengths and limitations of modelling. The accuracy of the projections relies on the availability and accuracy of the data and the structure of the model, and the Government of Canada is continually improving its models and analysis. To assess the emissions and economic impact of its policies and plans, Environment and Climate Change Canada uses a suite of models that support the Government's policy development process in the areas of air quality and climate change mitigation. These models support evidence-based analysis and policy decisions regarding the energy sector and its impact on the economy and the environment.

Each year, Environment and Climate Change Canada updates its projections using the most recent historical data available from Statistics Canada's Report on Energy Supply and Demand in Canada and Environment and Climate Change Canada's National Inventory Report on Greenhouse Gas Sources and Sinks in Canada. While every effort is made for the modelled projections to be as comprehensive as possible, uncertainty is an inherent and unavoidable aspect of any model that is generating long-term projections.

To maximize transparency and address the uncertainties inherent to all modelling processes, Environment and Climate Change Canada has committed in the 2030 ERP to convene an expert-led process to provide independent advice in time for the 2023 Progress Report, enhancing the current robust and reliable modelling regime to inform the basis of future ERPs. Key efforts include:

• Increasing transparency: Environment and Climate Change Canada will continue publishing assumptions and analysis supporting its projections, including descriptions of which models and methodologies were used and will continue to explore opportunities to publish further information.
• Improved engagement: Following the ERP commitment to an expert-led process to provide independent advice in time for the 2023 Progress Report, Environment and Climate Change Canada will host a workshop to engage with modelling experts on modelling techniques, assumptions and data. Environment and Climate Change Canada will also convene a net-zero workshop to review and discuss the department's current suite of models for net-zero modelling and facilitate discussions around modelling approaches to achieve net-zero emissions. Additionally, the department will continue to explore opportunities to collaborate and engage on modelling through the Energy Modelling Hub or other means.
• Improved modelling: Environment and Climate Change Canada is committed to continuous enhancements to its suite of models and to continuing to subject models to formal and informal peer review and to engaging with provinces and territories as well as international counterparts on best practices.
• Greater standardization: The Integrated Climate Lens Centre of Expertise is working with relevant departments to ensure greater standardization in the approach to GHG quantification of policies and programs. This work aligns with advice to increase federal expertise and capacity related to data, analyses, and interpretations of net-zero modelling activities. The Government of Canada is also currently assessing the United Kingdom Treasury Aqua Book for its value as a model to support decision making.

Looking beyond 2030, modelling the various pathways to achieve net-zero emission by 2050 can also support policy development. The Government of Canada has modeled several net-zero emissions scenarios, such as those in Canada's Long-Term Strategy Submission to the United Nations Framework Convention on Climate Change. Additionally, in December 2021, the Minister of Natural Resources instructed the Canada Energy Regulator to undertake scenario analysis consistent with Canada achieving net-zero emissions by 2050. This includes fully modelled scenarios of supply and demand of all energy commodities in Canada, including clean fuels, electricity, and oil and gas. The modelling, which will be published in June 2023 as part of the Canada Energy Regulator's Energy Futures long-term energy supply and demand outlook, will reflect a global context in which the world achieves its Paris Accord goal of limiting warming to 1.5°C, and will reflect key uncertainties.

Modelling expertise can be leveraged by the Government of Canada and this is why the government has made recent investments to strengthen connections among energy modelers in Canada. This includes a $5 million investment in the Energy Modelling Hub to support the development of a national network of energy and electricity modelers, policymakers, and other experts. Several organizations have also been set up in recent years notionally targeting similar goals. Any actions in the net-zero modelling space would leverage or complement existing initiatives, including:

• The Canadian Centre for Energy Information
• The Canadian Climate Institute (440 Megatonnes)
• The Energy Modelling Initiative / The Energy Modelling Hub at the Trottier Energy Institute.

The Energy Modelling Hub has recently ramped up operations and is playing an important role leading the development and use of energy and electricity models in Canada. For example, the Hub recently launched its first call for expressions of interest to support energy models. The Hub has objectives that are important to all energy models, and its scope is largely aligned with the NZAB advice.

Models are only as good as the data used to support them, which is why Budget 2019 provided $15.2 million over five years plus $3.4 million per year ongoing to establish the Canadian Centre for Energy Information (CCEI). The CCEI is mandated to compile data from several sources into a single, easy-to-use website and to improve the overall quality of energy information available to Canadians. The CCEI engages with stakeholders (including energy modelers), and brings together energy data experts from across federal, provincial, and territorial governments to reconcile and harmonize Canada's energy data. This helps to ensure high quality and consistent data for a variety of research and analytical purposes.

Furthermore, Environment and Climate Change Canada is leading the development of Canada's first National Priorities for Climate Change Science and Knowledge Report, set for publication in the coming months. The Report will identify priority science research and knowledge synthesis activities for development, including advancements in Canada's climate modelling capabilities that will deliver results over the next five to ten years.

The NZAB's recommendations to improve modelling are well thought out and reflect best practices. As detailed above, the Government of Canada, through Environment and Climate Change Canada is committed to:

• Advancing Canada's climate modelling capabilities through measures such as the development of the National Priorities for Climate Change Science and Knowledge Report; and,
• Advancing key new actions to strengthen its modelling, including convening an expert-led modelling workshop to inform the 2023 Progress Report, improving standardization of GHG quantification through the Integrated Climate Lens Centre of Expertise, and continuing to enhance its suite of models.

The Government of Canada looks forward to discussing these recommendations further with the NZAB to inform ongoing modelling improvements.

2. Line of inquiry: net-zero industrial policy

As international momentum and support for decarbonization accelerates, countries are recognizing the need to secure a foothold in emerging clean technology supply and value chains, and ensure that they are positioned to thrive in a global net-zero emissions economy. Canada will continue to do the same and draw upon its unique advantages to remain competitive in a low-carbon economy.

The NZAB defines a net-zero industrial policy as "a set of deliberate measures to redirect economic activity to solve problems that, left to itself, the market will not address." According to the NZAB, a net-zero industrial policy would complement the ERP, allow Canada to be more proactive in meeting its climate objectives, and respond to the urgent pressures of global competition in the emerging net-zero economy. For this response the advice has been categorized into three themes: Setting Priorities and Planning for a Net-Zero Industrial Policy, Implementing a Net-Zero Industrial Policy, and a Net-Zero Industrial Policy Enabling Policy Environment. Some of the advice has been rearranged from the order presented in the report to align with this response.

2.1 Setting priorities and planning for a net-zero industrial policy

Advice 10

The Government of Canada should urgently drive the development and implementation of a Canadian net-zero industrial policy to complement the 2030 Emissions Reduction Plan, consistent with the process outlined in section 2.2.

Advice 11

The Government of Canada should initially focus its Canadian net-zero industrial policy on a limited number of priority sectors that have significant economic opportunities for growth and benefits across all regions of Canada. Identification of priority sectors could build on our analysis in section 2.4.

Advice 15

The Government of Canada should refocus existing funds, such as the Strategic Innovation Fund and the Canada Growth Fund, on portfolios of projects and investments aligned with its net-zero industrial policy.

Minister's response

There is a growing interest in Canada for the development of a net-zero industrial policy, which has been shown by many research organizations to be critical for industrial decarbonization and international competitiveness. The NZAB raised important considerations on net-zero industrial policy approaches, showing the potential to enhance implementation of climate measures and bolster the path to meeting Canada's climate targets, while at the same time effectively responding to international competition in securing opportunities in a net-zero economy. Aligned with the NZAB's advice, Budget 2023 highlights the importance of ensuring that Canada remains the location of choice for new investment in the sectors that will be key in the transition to a net-zero economy and sets a framework through tax incentives and other supports to enhance investment while still allowing the market to direct it. Budget 2023 also acknowledges the essential role of the Government of Canada in ensuring that investments occur in areas where Canada has a comparative advantage, including the greatest long-term impact for Canadians' standard of living and emissions reductions.

Since 2015, Canada has put in place a number of measures to reduce industrial emissions and support the emergence of new markets, which provide a foundation for the consideration of the NZAB's advice on next steps in the development of a net-zero industrial policy. For example, the Canadian Critical Minerals Strategy, the Hydrogen Strategy, and the Roadmap to Net-Zero Carbon Concrete by 2050 were launched to position Canada as a global leader in these areas. The Government is also working to finalize the Carbon Management Strategy for Canada in early 2023. This Strategy, which includes focus on carbon capture, utilization and storage (CCUS) and Carbon Dioxide Removal (CDR), will outline key areas of Government of Canada action. There has also been work to tackle emissions through the Strategic Innovation Fund's Net Zero Accelerator, which notably launched a Call to Action for Large Emitters.

An area in which Canada is poised to position itself globally as a reliable and stable supplier, is in the critical minerals sector by building the resilient critical minerals supply chains that will be required in a net-zero emissions future. The Canadian Critical Minerals Strategy's main objective is to increase the supply of responsibly sourced critical minerals and support the development of domestic and global value chains for the green and digital economy. The Strategy seeks to lay the foundation for Canada's industrial transformation towards a greener, more secure, and more competitive economy. Budget 2022 allocated up to $3.8 billion to support the implementation of the Strategy. The funding covers a range of industrial activities, from geoscience and exploration to mineral processing, manufacturing and recycling applications. To further encourage the growth of this important sector, a 30% Critical Minerals Exploration Tax Credit was also introduced in Budget 2022 for specified mineral exploration expenses incurred in Canada. The tax credit applies to critical minerals that are used in the production of batteries for electric vehicles, and in the production of processing of advanced materials, clean technology, or semi-conductors.

Hydrogen will be one of the key fuels in a net-zero emissions future, and as the NZAB has noted, an area where Canada has a comparative advantage. The Hydrogen Strategy was launched in December 2020 with the objective of building new hydrogen supply and distribution infrastructure, and fostering uptake in various end-uses that will underpin a low-carbon energy ecosystem in the near and long term. In 2022, Canada joined G7 partners in launching the G7 Hydrogen Action Pact. This group is focused on the decarbonization of G7 economies by building a central role for clean hydrogen and its derivatives such as ammonia to achieve net-zero emissions and an energy secure future. To support the development of the hydrogen industry in Canada, Budget 2023 introduced the Clean Hydrogen Investment Tax Credits. The tax credit covers between 15 and 40% of eligible project costs, with the projects that produce the cleanest hydrogen receiving the highest levels of support. Labour requirements will need to be met to receive the maximum tax credit rates, demonstrating Canada's commitment to decarbonize its industries while supporting fair labour practices.

Decarbonizing Canada's cement and concrete industry is also an important part of a net-zero industrial policy, and could bring significant opportunities for the Canadian industry. As such, the Roadmap to Net-Zero Carbon Concrete by 2050 was released in November 2022 and is reflective of a strong government-industry partnership. This Roadmap aims to be evergreen and reflect the levels of ambition necessary to guide emissions reduction efforts in each sector, including the buildings and construction sectors. To leverage the power of procurement, the Government of Canada also introduced the Standard on Embodied Carbon in Construction to establish requirements to disclose and reduce the embodied carbon footprint of construction projects, including concrete, in accordance with the commitments in the Greening Government Strategy.

The Government of Canada is providing financial support to other key sectors to facilitate the transition to net-zero emissions, and is investing in sectors aligned with the priority sectors identified by the NZAB. Some of these investments include:

• $1.7 billion to extend the Incentives for Zero-Emissions Vehicles (ZEV) Program.
• Over $1 billion of investments in different agricultural programs and transitioning the sector to net-zero emissions, including through the Agricultural Climate Solutions: On-Farm Climate Action Fund, the Agricultural Clean Technology Program.
• $8 billion through the Strategic Investment Fund – Net-Zero Accelerator to support large-scale investments in key industrial sectors to ensure that Canada remains competitive in a net-zero emissions economy and reduces GHG emissions.
  • The Strategic Innovation Fund (SIF), including, but not limited to the Net-Zero Accelerator (NZA), is helping decarbonize current industries, and transforming Canadian industry for the future net-zero economy by helping them adopt or commercialize new low- or zero-carbon-intensity products, processes or methods of production. SIF is also leading on the creation of a domestic supply chain for batteries and electric vehicles which will support decarbonization of the transportation sector. It has already attracted billions of dollars of investments from the electric vehicle assemblers and battery manufacturers.
  • Budget 2023 provided an additional $500 million to the SIF and also stated that the SIF will direct up to $1.5 billion of its existing resources towards projects in sectors including clean technologies, critical minerals, and industrial transformation.
• A Carbon Capture, Utilization and Storage (CCUS) Investment Tax Credit for businesses of:
  • 60% for investment in equipment to capture CO2 in direct air capture projects;
  • 50% for investment in equipment to capture CO2 in all other CCUS projects; and
  • 37.5% for investment in equipment for transportation, storage and use
  • Budget 2023 enhanced the CCUS Investment Tax Credit by expanding the scope of equipment covered, including dual use heat and/or power equipment and water use equipment, with tax support prorated in proportion to the use of energy or material in the carbon capture, utilization, and storage process, subject to certain conditions. Labour requirements will need to be met to receive the maximum tax credit rates.
• Cutting tax rates in half for businesses that manufacture zero-emission technologies.
• A Clean Technology Investment Tax Credit for up to 30% of the capital cost of business investments in certain clean technologies, including clean electricity generation, stationary electricity storage, low-carbon heating, and non-road zero-emission vehicles and related recharging and refueling infrastructure. Budget 2023 expanded these tax credits to include geothermal energy systems and increases the credit rate over its phase out. Labour requirements would need to be met to receive the maximum tax credit rate.
• Budget 2023 introduced a new investment tax credit of 30% for new machinery and equipment used to manufacture or process key clean technologies, and extract, process, or recycle key critical minerals, including:
  • Extraction, processing, or recycling of critical minerals essential to clean technology supply chains, specifically lithium, nickel, cobalt, graphite, copper, and rare earth elements;
  • Manufacturing of renewable or nuclear energy equipment;
  • Processing or recycling of nuclear fuels and heavy water;
  • Manufacturing of grid-scale electrical energy storage equipment;
  • Manufacturing of zero-emission vehicles; and,
  • Manufacturing or processing of certain upstream components and materials.
• Through the renewed Energy Innovation Program, Canada is supporting mission-driven clean energy research, development, and demonstration projects across sectors, including priority areas such as electric vehicles, buildings, clean fuels, and the decarbonization of industrial processes, including carbon management technologies. This includes $319 million to support research, development and demonstration of CCUS technologies.

The Government of Canada recognizes the importance of a net-zero industrial policy and its potential to enhance the way the Canadian economy transforms to net-zero. Going forward, the Government of Canada will:

• As described above, continue to support the transition to a net-zero emission economy through ongoing actions, and new Budget 2023 measures and investments, such as $500 million in additional funding to the SIF-NZA; and new investment tax credits for Clean Hydrogen Investment, CCUS Investment, Clean Technology Investment, clean technologies, and critical minerals; and,
• Engage with the NZAB on how to support new policies in key sectors and how best to tap into net-zero aligned industrial development opportunities that can create long-term prosperity for Canadian workers, communities, and business.

2.2 Implementing a net-zero industrial policy

Advice 12

The Government of Canada should establish time limited strategy tables to develop net-zero competitiveness goals for priority sectors and create roadmaps, bringing together relevant federal departments with industry, independent experts, labour, provincial and territorial representatives, and Indigenous interests. The competitiveness goals would align with the ERP sectoral emissions targets, support regulatory mechanisms, and achieve economic growth objectives.

Advice 13

The Government of Canada should use independent intermediaries to support these tables by providing and engaging expertise in key sectors and developing and deepening sectoral buy-in. Strategy tables should support experimentation, learning, and evaluation.

Advice 14

Central agencies should be responsible for leading, coordinating, and monitoring the implementation of net-zero industrial policies based on a system level strategy to ensure coherence and timely progress.

Minister's response

Given that a net-zero industrial policy would significantly transform many sectors of the economy across the country to achieve decarbonization, close collaboration between different orders of government, industries and Indigenous partners is required. There are a number of new and ongoing federal initiatives that seek to strengthen collaboration with provinces and territories, industry and other stakeholders to develop sector- and place-based-sensitive strategies to drive shared climate and economic priorities. For example, in 2022, the Government of Canada established Regional Energy and Resource Tables (Regional Tables) to serve as a platform where the federal government works with each province, territory, Indigenous Peoples, and other regional partners to advance energy and resource-based economic growth and energy transformation opportunities, and support sustainable job creation, for each region to realize its comparative advantage on the path to net-zero. As part of this initiative, a small number of priority areas in the energy and resource sector are identified with provinces/territories and with the views of Indigenous groups, and efforts to advance these opportunities are then identified and acted upon. This collaborative process has the potential to help set the foundations of a net-zero industrial policy for energy and resources sectors by building consensus around economic objectives with provinces and territories and regional partners, identifying actions to better align federal-provincial/territorial levers, and fostering strategic partnerships between groups. This initiative takes both sectoral and regional lenses to leverage domestic advantages, enhancing Canadian competitiveness and providing a forum to consider desired economic growth objectives by leveraging regional and national expertise.

Since its establishment, Natural Resources Canada has launched Regional Tables with British Columbia, Manitoba, Ontario, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories and Yukon. Work Plans with provinces will contain priority sectors for each province that will encourage the transition to net-zero.

The NZAB's advice provides novel ideas on how the Government of Canada can work with partners to implement an industrial policy approach to the transition to net-zero. The Government of Canada will engage with the NZAB to discuss:

• Alignment between their recommendations and existing mechanisms such as the Regional Energy and Resource Tables, and the Economic Strategy Tables; and,
• How to improve net-zero industrial policy engagement, while continuing its existing collaboration with stakeholders.

2.3 Net-zero industrial policy enabling policy environment

Advice 16

The Government of Canada should use international trade policy to support its industrial policy goals and to build secure supply chains for the inputs and technologies required to reach net-zero.

Advice 17

The Government of Canada should ensure regulatory approval processes accelerate the objectives of the net-zero industrial policy.

Advice 18

The Government of Canada should align its skills and jobs agenda with industrial policy competitiveness goals.         

Minister's response

The Government of Canada recognizes the important role that supportive regulatory conditions, trade policies and international cooperation, and active labour market policies have in creating an enabling environment for a net-zero emissions economy.

The Government of Canada has a number of agreements in place to secure Canada's competitiveness and leadership in the transition to a low-carbon economy at the international level. For example, in August 2022, the Government of Canada signed an agreement with Germany to enhance German energy security with clean Canadian hydrogen. The Government of Canada is also actively engaging with strategic partners and through global initiatives, such as the Glasgow Breakthrough on Cement and Concrete which Canada is co-leading, and the First Movers Coalition.

At the North American Leaders Summit 2023, Canada, the United States, and Mexico agreed to develop a North America Critical Minerals Resource Map. In addition, they committed to organize a trilateral workshop to share data and facilitate cooperation; to promote sustainable and inclusive jobs and develop the workforce to meet climate commitments; and to continue discussions on the potential to develop a North American hydrogen market, including potential cooperation on research and development, safety codes and standards.

To enhance supply chain security and resilience in the North American region, Canada and the U.S. have established a "US-Canada/Canada-US Supply Chain Working Group" that aims to reinforce the interconnected and mutually beneficial economic relationship between the two countries. In its latest progress report, the Working Group established key collaboration in priority sectors, including electric vehicles and batteries, and critical minerals. Additionally, Prime Minister Justin Trudeau welcomed President Joe Biden in March 2023 to discuss shared interests and priorities for decarbonization and securing North American supply chains. Both leaders announced the launch of an Energy Transformation Task Force to accelerate forthcoming collaboration across the spectrum of the clean economy, including working together to create a strong, environmentally responsible, and resilient North American critical minerals supply chain.

Canada's international trade policy is an important tool in achieving Canada's goal of net-zero emissions by 2050 and securing Canada's global economic competitiveness. In its trade negotiations, Canada seeks to promote mutually supportive trade and environmental policies through ambitious environmental provisions. In fiscal year 2022-23, Canada held discussions with the Association of Southeast Asian Nations (ASEAN), India, Indonesia, the United Kingdom, and Ukraine to include environment provisions in bilateral and regional trade agreements. Moreover, Canada is actively engaged in the World Trade Organization (WTO) on trade and environment issues. Canada is also considering border carbon adjustments as a tool to help maintain domestic competitiveness and mitigate carbon leakage risks for carbon-intensive and trade-exposed industries.

The Government of Canada recognizes that the transition of Canada's industrial sector to net-zero emissions will bring new, dynamic opportunities across our labour force, but also some challenges for those that will need to pivot to new jobs. To seize opportunities and mitigate challenges, the Government of Canada is making historic investments in skills and training to build on the agility and resilience of Canada's workforce and ensure that is equipped with the range of skills required to transition to a net-zero emissions economy.

As announced in the recent Interim Sustainable Jobs Plan, the Government of Canada is establishing a governance, accountability, and engagement framework to support the creation of sustainable jobs in the shift to a low-carbon economy and ensuring that Canadian workers are equipped with the skills required to seize these new opportunities. This framework will be established through legislation in 2023. This proposed legislation will include different measures and mechanisms, including guiding principles, the creation of a governance structures (e.g. a Sustainable Jobs Partnership Council), and accountability requirements (e.g. requirement to publish Sustainable Jobs Action Plans, every five years, beginning in 2025). A Sustainable Jobs Secretariat will also be created to coordinate efforts across departments and to serve as one-stop shop for information on federal programs, funding, and services. These core elements may be adjusted as the legislation is discussed and debated in Parliament.

The Interim Sustainable Jobs Plan also details several concrete federal actions to that align with a net-zero industrial policy and advance economic prosperity and sustainable jobs in every region of the country. This includes various investments and incentives announced through the 2030 ERP, Budget 2022 and the 2022 Fall Economic Statement, such as, the creation of a new sustainable jobs stream under the Union Training and Innovation Program to support union-based apprenticeship training in the skilled trades, and the Community Workforce Development Program to support communities to develop local plans that identify high potential growth organizations and connect these employers with training providers to develop and deliver training and work placements to upskill and re-skill jobseekers to fill jobs in demand.

As part of its clean growth strategy, the Government of Canada is making it a priority to expedite major project reviews, while maintaining strong regulatory standards. The 2022 Fall Economic Statement announced $1.3 billion over six years, starting in 2022-23, and $55.4 million ongoing, to the Impact Assessment Agency of Canada, the Canada Energy Regulator, the Canadian Nuclear Safety Commission, and ten other federal departments, to continue to improve the efficiency of assessments for major projects. Furthermore, Budget 2023 announced that, by the end of 2023, the government will outline a concrete plan to improve the efficiency of the impact assessment and permitting processes for major projects, which will include clarifying and reducing timelines, mitigating inefficiencies, and improving engagement and partnerships.

For major development projects where both federal and provincial impact or environmental assessments are required, the Government of Canada is committed to meeting the objective of "one project, one assessment" in its review of projects by working with other jurisdictions to reduce duplication and increase efficiency and certainty in the regulatory process. The Government of Canada also recognizes that efficient, effective, and inclusive northern co-management regulatory regimes are important to advance critical mineral projects in the distinct regulatory environment of northern Canada.

The Government of Canada is working closely with provinces and Indigenous Peoples through the Regional Energy and Resource Tables to support collaboration on aligning regulatory approaches for major green infrastructure projects. Improving regulatory processes for major projects related to specific sectors of the economy doesn't preclude the government to also improve regulatory measures for clean electricity and energy projects specifically. This will be discussed further in the net-zero energy systems section.

The Government of Canada recognizes the essential role enabling policies, such as international trade, skills and regulatory permitting will have in facilitating the transition to net-zero. As indicated above, the Government of Canada is committed to:

• Advancing several key new actions such as co-leading the First Movers Coalition, developing a North America Critical Minerals Resource Map in collaboration with the United States and Mexico, and launching an Energy Transformation Task Force in partnership with the United States;
• Bringing forward legislation that enables ongoing engagement and accountability on sustainable jobs; and,
• Outlining a plan to improve the efficiency of the impact assessment and permitting processes for major projects, as committed through Budget 2023.

3. Line of inquiry: net-zero energy systems

A clean, affordable, and reliable electricity system will be essential for Canada to build a prosperous low-carbon future. Electrification will be a key component of achieving net-zero emissions across the economy. As a result, electricity demand will increase as Canada's economy decarbonizes. To meet this growth in demand, it will be important to increase non-emitting electricity generation, improve and modernize the grid, and increase energy efficiency.

The NZAB defines net-zero energy systems as "the production, conversion, transmission, distribution, storage, and consumption of energy required to yield a functional energy system that meets demand and generates net-zero emissions." The advice highlights the importance of achieving net-zero emissions from our energy systems, continuing to provide reliable and affordable energy to Canadians, and the need to expand and make the systems more efficient to meet increased demand. For this response, the advice has been categorized into three themes: Importance of Net-Zero Energy Systems, Grid Decarbonization and Interties, and Regulatory Environment and Project Approvals.

3.1 Importance of net-zero energy systems

Advice 19

The Government of Canada should facilitate the development of a vision for net-zero energy systems, akin to a nation-building project of the 21st century, based on a set of principles. This vision should be widely communicated to the Canadian public, industry and organizations in a way that resonates for all. The following principles should serve as building blocks to a Canadian net-zero energy vision:

• Provide Canadians and industries with reliable, secure, and affordable energy.
• Be built from predominantly clean, non-emitting energy sources.
• Be established in partnership with Indigenous Peoples and involve shared decision-making.
• Accommodate regional economic differences and allow for diverse technological solutions
• Leverage domestic advantages and new supply chains.
• Be supported by a flourishing clean technology industry.
• Be operated by Canadian workers equipped with the skills and training to succeed.
• Be resilient to the impacts of climate change.
• Enhance Canada's economic competitiveness while improving energy efficiency and security.
• Result in environmental and social co-benefits, such as reduced energy poverty and improved air quality.

Minister's response

Responsibility for energy systems in Canada largely fall under provincial jurisdiction, and vary greatly by region. Given these complexities, collaboration across the country will be critical to achieving net-zero emissions from the different ways we produce, use and transport energy.

The Government of Canada recognizes the importance of clean, reliable and affordable energy systems - in particular electricity - to achieve our net-zero emissions goals, drive economic growth and create sustainable jobs. Energy systems require large investments, and careful planning across various levels of government and in consultation with many different stakeholders.

Canada has committed to achieving a net-zero electricity system by 2035. To support that goal, among other actions, the Government of Canada is developing Clean Electricity Regulations (CER). The CER are being developed around three core principles - emissions reduction, electricity reliability, and affordability – in close consultation with provinces and territories, Indigenous Peoples, and a wide range of stakeholders, including utilities, electricity experts and environmental organizations.

Developing the CER now sends a signal to investors, provinces and territories, and industry to accelerate the transition away from unabated fossil fuel-based electricity generation in order to enable the decarbonization of much of the rest of our economy through clean electrification. The proposed CER, informed by engagement with stakeholders in 2022, are expected to be published in the Canada Gazette, Part I, by the end of Spring 2023, followed by a 75-day formal public comment period over Summer 2023. The Government of Canada is committed to consultations and stakeholder interactions on the CER and engagement with interested parties will continue beyond the formal comment period.

As noted above, the Government of Canada's Regional Energy and Resource Tables aim to address each region's mix of energy systems and clean technology strengths. The initiative provides a forum to discuss regional electrical systems to meet the requirements of decarbonization and the increased demand associated with broad electrification, enhancing Canada's competitiveness in a global net-zero economy.

To ensure that all regions of Canada are able to take advantage of the transition to net-zero energy systems, the Government of Canada is making resources available to address gaps and misalignment in codes, standards and regulations related to the production, distribution and end-use of clean fuels. The 2030 ERP also includes additional measures to support clean energy across the economy, including the $2.2B recapitalization of the Low-Carbon Economy Fund. The LCEF supports projects that reduce Canada's GHG emissions, generate clean growth, and create good jobs for Canadians. The Indigenous Leadership Fund, part of the LCEF, will support climate action through clean energy and energy efficiency projects led by First Nations, Inuit, and Métis communities and organizations.

The Government of Canada has also announced a number of tax measures that will play a key part in supporting the clean energy transition, such as: introducing tax reductions for businesses that manufacture zero-emission technologies; adjusting existing tax incentives to further support clean energy technologies; and announcing additional tax incentives to support capital investment in clean technologies and hydrogen to speed up their deployment in step with climate commitments. To support and accelerate clean energy electricity investment in Canada, Budget 2023 announced the extension of reduced tax rates and a new Clean Technology Manufacturing Investment Tax Credit for, among other things, the manufacturing of nuclear energy equipment and the processing and recycling of nuclear fuels. Budget 2023 also announced a 15% refundable Clean Electricity Investment Tax Credit for eligible investments by both taxable and certain non-taxable entities (e.g. Crown corporations and publicly owned utilities, corporations owned by Indigenous communities, and pension funds) in:

• Non-emitting electricity generation systems; wind, concentrated solar, solar photovoltaic, hydro (including large-scale), wave, tidal, nuclear (including large-scale and small modular reactors);
• Abated natural gas-fired electricity generation (which would be subject to an emissions intensity threshold compatible with a net-zero grid by 2035);
• Stationary electricity storage systems that do not use fossil fuels in operation, such as batteries, pumped hydroelectric storage, and compressed air storage; and
• Equipment for the transmission of electricity between provinces and territories.

Both new projects and the refurbishment of existing facilities will be eligible. Labour requirements would need to be met to receive the maximum tax credit rate under the Clean Electricity Investment Tax Credit.

As noted in the previous section, the Interim Sustainable Jobs Plan, and forthcoming sustainable jobs legislation will support workers and their communities in the transition to a low-carbon global economy.

The Government of Canada acknowledges the importance of a net-zero energy vision that reflects the principles outlined by the NZAB to support the achievement of Canada's climate objectives and enable access to clean affordable energy for all Canadians. Moving forward, the Government of Canada through Environment and Climate Change Canada, and in collaboration with Natural Resources Canada, will engage with the NZAB to better understand the principles outlined in their advice and how they could shape a net-zero energy vision for Canada.

3.2 Grid decarbonization and interties

Advice 20

The Government of Canada should ensure pathways to a net-zero grid by 2035 are consistent with pathways to a right-sized, net-zero grid by 2050.

Advice 21

The Government of Canada should support independent research and modelling activities to understand the costs-benefits of net-zero pathways that use more interties compared to those that rely on other strategies, such as increasing local generation.

Advice 22

The Government of Canada should launch the Pan-Canadian Grid Council as soon as possible to facilitate cross-sectoral, pan-Canadian dialogue on the topic of net-zero interties and grid.

Minister's response

Canada's electricity sector is already 83% non-emitting, making Canada a world leader in clean electricity production. This leadership is evident as emissions in the electricity sector have declined more than any other sector since 2005. However, the projected increase in energy demand required to decarbonize our economy will require large investments in grid modernization, non-emitting generating capacity, and regional interties to allow clean power to be shared between jurisdictions based on demand.

The above section details the Government of Canada's efforts to achieve a net-zero electricity grid by 2035. Considering provinces and territories have jurisdiction over the electricity file, the federal government will continue to play a role in coordination, investments, regulation, and providing strategic policy.

To further support the expansion of non-emitting energy deployment and development, the Government of Canada is making investments through the Smart Renewables and Electrification Pathways Program (SREPs) which provides up to $1.6 billion over eight years for smart renewable energy and electrical grid modernization projects. This program will significantly reduce greenhouse gas emissions by encouraging the replacement of fossil-fuel generated electricity with renewables that can provide essential grid services while supporting Canada's equitable transition to an electrified economy. Budget 2023 recently announced $3.0 billion funding that will:

• Recapitalize funding for the Smart Renewables and Electrification Pathways Program to support critical regional priorities and Indigenous-led projects, and add transmission projects to the program's eligibility;
• Renew the Smart Grid program to continue to support electricity grid innovation; and,
• Create new investments in science-based activities to help capitalize on Canada's offshore wind potential.

Large electricity infrastructure projects require substantial time and resources to plan and build. This is why the Government of Canada is investing $250 million to support pre-development work for large clean electricity projects, in collaboration with provinces and territories, through the Electricity Pre-Development Program. This includes support for clean electricity projects of national significance, such as inter-provincial electricity transmission projects and small modular reactors.

Many steps are being taken to address the need for improved inter-provincial electricity transmission projects. To help support the Atlantic region's unique situation, the Government of Canada is leading engagement across Atlantic Canada to shape a clear path forward for the Atlantic Loop initiative. The Government is also providing support to de-risk and accelerate the development of transformational, nation-building inter-provincial transmission lines that connect supplies of clean power to locations to places that need it. The Strategic Interties Pre-development Program (SIPP) will help provincial electric utilities conduct necessary pre-development work to clarify project costs, offer insight on system reliability and benefits, develop the knowledge base to support respective provincial regulatory processes, and identify relevant environmental and community engagement issues on potential intertie projects. This includes $25 million to support pre-development activities associated with the Atlantic Loop.

Announced in Budget 2023, the Canada Infrastructure Bank will invest at least $20 billion to support the building of major clean electricity and clean growth infrastructure projects. This investment will be supported by the allocation from the Canada Infrastructure Bank of at least $10 billion through its Clean Power priority area, and at least $10 billion through its Green Infrastructure priority area. These investments will position the Canada Infrastructure Bank as the government's primary financing tool for supporting clean electricity generation, transmission, and storage projects, including for major projects such as the Atlantic Loop.

Budget 2023 also announced that, by the end of 2023, the Government of Canada will outline a concrete plan to improve the efficiency of the impact assessment and permitting processes for major projects, which will include clarifying and reducing timelines, mitigating inefficiencies, and improving engagement and partnerships.

Meeting the energy needs of the future is not just about expanding energy capacity, it is also about using energy more efficiently in buildings and homes. The Government of Canada is taking action to support energy efficiency and fuel switching, which is identified as one of the principles necessary to achieving a "right-sized, net-zero grid." Several actions are currently underway or under development, including:

• The Canada Greener Homes Initiative, which helps homeowners save money and reduce GHG emissions by providing grants and loans towards eligible energy-efficient home retrofits, including home insulation, windows and doors, heat pumps, solar panels and resiliency measures. This also includes the recently launched Oil to Heat Pump Affordability Program, which helps low-to-median income homeowners switch from oil heating to highly efficient heat pumps.
• The Canada Green Buildings Strategy, which aims to achieve a net-zero emissions buildings sector by 2050. The strategy will build off existing initiatives and set out new policy, programs, incentives and standards needed to drive a massive retrofit of the existing building stock, and to enable construction to the highest net-zero emissions standards.
• The Green Industrial Facilities Manufacturing Program (GIFMP), which provides financial assistance to support the implementation of energy efficiency and energy management solutions designed to maximize energy performance, GHG emissions reductions, and competitiveness for industry in Canada.
• The Toward Net-Zero Homes and Communities Program, which provides funding to projects that help households and communities increase residential energy efficiency, transition away from fossil fuels, push Canada's efforts to reduce residential GHG emissions, and support sustainable jobs.
• The Codes Acceleration Fund, which will accelerate the adoption and implementation of the highest performance tiers of the national model energy codes, while addressing persistent challenges in Canada's codes system and paving the way to a code for greater energy efficiency in existing buildings.
• The Deep Retrofit Accelerator Initiative, which will reduce barriers to more involved 'deep' buildings retrofits by supporting accelerators that will help building owners navigate the retrofit process, build capacity for retrofit project development and implementation, and identify available funding and financing.

The Government is also taking meaningful action on its Greening Government Strategy commitment to power federal buildings with 100% renewable electricity by 2025 to help fight climate change and support local renewable electricity projects. Through the Clean Electricity Initiative, the Government is working with provinces and territories to ensure that clean and renewable electricity is available to power federal operations.

Achieving a net-zero grid will require ongoing efforts from the Government of Canada and its partners. Going forward, the Government of Canada will be:

• Launching the Canada Electricity Advisory Council; and,
• Advancing Budget 2023 investments and commitments to accelerate the supply and transmission of clean electricity, such as the $3 billion to recapitalize the Smart Renewables and Electrification Pathways and Smart Grid programs.

3.3 Regulatory environment and project approval

Advice 23

The Government of Canada should reduce the length of approval processes for projects that are compatible with net-zero to ensure they are working towards, not against, its emissions targets and net-zero competitiveness goals. Canada is unlikely to achieve a decarbonized grid by 2035 or net zero by 2050 unless large infrastructure projects can move through the regulatory process quicker than the current pace. Project proponents must also do their part to speed approvals by recognizing and planning projects accordingly, including by building relationships with affected stakeholders and Indigenous rights holders.

Advice 24

The Government of Canada in cooperation with the provinces and territories should compile, share and promote best practices in regulatory processes across the federation and from other jurisdictions outside of Canada.

Advice 25

The Government of Canada should embed principles in the United Nations Declaration for the Rights of Indigenous Peoples when it makes decisions pertaining to energy sector transformation, setting an example for other orders of government.

Minister's response

To support the achievement of net-zero energy systems in Canada, it will be important to bring together partners and stakeholders, and promote best practices in regulations and project approvals across jurisdictions. The Government of Canada recognizes the need to collaborate on best practices and pursue efficiencies in the regulatory process to achieve our net-zero emissions goal, while respecting Indigenous rights holders and upholding the principles of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). The Government is coordinating with federal departments, agencies, and regulators to identify areas for collaboration to support clean growth projects that fall under federal jurisdiction. For example, the Government of Canada is supporting regulatory coordination efforts with provinces on individual transformational provincial projects such as the Atlantic Loop to streamline overall regulatory approvals. Where provinces have indicated openness, bilateral discussions on federal-provincial regulatory efficiencies for clean growth projects, including through permitting, are taking place through the Regional Energy and Resource Tables.

Additional efforts to examine efficiencies in project approval approvals include the annual Energy and Mines Ministers Conference (EMMC), which provides a forum for exchanging best practices in regulatory processes among provincial and territorial ministers. At EMMC 2022, provinces and territories shared success stories and recommendations for improving the regulatory environment. The Natural Resources Canada-led Innovation and Electricity Regulation Initiative (IERI), which is part of the Federal Government's Clean Technology Regulatory Review Roadmap, is designed to better understand Canada's energy regulatory landscape related to grid modernization, energy system innovation and net zero pathways. Further Government of Canada actions and the Budget 2023 commitment to improve the efficiency of the impact in assessment and permitting processes are outlined above under the Net-Zero Industrial Policy Enabling Environment theme above.

The Government of Canada will also continue to work with First Nations, Inuit and Métis representatives and rights holders to develop and implement a model of partnership for climate action that leverages the transition to a net-zero emissions economy to support overarching efforts towards self-determination, the alleviation of socio-economic inequities, the renewal of relationships based on the affirmation of rights, respect, cooperation, and partnership, and implementation of UNDRIP, including Free, Prior and Informed Consent.

The Government of Canada adopted the United Nations Declaration on the Rights of Indigenous Peoples Act in June 2021 and is focused on embedding UNDRIP into its environmental and climate undertakings. For example, the Canadian Net-Zero Emissions Accountability Act stipulates that the Minister of Environment and Climate Change must take Indigenous Knowledge into account when advancing measures for mitigating climate change, such as setting or amending a national greenhouse gas emissions target or an emissions reduction plan. Doing so will require some time to collectively explore new ways to meaningfully develop national regulations consistent with the principles of UNDRIP. Leveraging existing efforts will be key in making this happen. For example, Environment and Climate Change Canada established an Oil Sand Mining Effluent Regulations Crown-Indigenous Working Group (CIWG) in 2021 with nine Indigenous communities in the Athabasca Oil Sands Region. CIWG is an innovative process to collaboratively develop materials, options and recommendations for managing the accumulation of oil sands process-affected water in tailings ponds. This co-development approach is based on a participatory, cooperative and consensus-based approach that fosters trusting relationships and recognizes Canada's commitment to Reconciliation and upholding UNDRIP. Further efforts are underway to embed guidance and best practices with respect to the co-development and implementation of climate policies and programs with Indigenous Peoples in a way that supports implementation of UNDRIP.

To enable a more substantive transformation of Crown-Indigenous partnerships on climate change, Budget 2022 announced the Government is investing $29.6 million to support the co-development of an Indigenous Climate Leadership Agenda to advance self-determined action in addressing Indigenous Peoples' climate priorities. Recognizing Indigenous climate leadership means investing in the agency of Indigenous Peoples and communities and supporting Indigenous-led and delivered solutions. Through this work, Canada and Indigenous Peoples will co-develop a new, long-term approach to partnership on climate change that embeds Indigenous climate action as a cornerstone to our collective response. The Indigenous Climate Leadership Agenda will help to implement Canada's commitment to UNDRIP by equipping Indigenous Peoples to lead on climate change in self-determined ways, through their own institutions and governments, and have a meaningful and clear role in climate-related decision-making. As an example of federal programming to support Indigenous-led projects aimed at reducing emissions, Wah-ila-toos – the Clean Energy in Indigenous, Remote and Rural Communities Initiative – provides funding for renewable energy and capacity-building projects, to reduce reliance on diesel and fossil fuels for electricity and heat in Indigenous, rural and remote communities across Canada. The initiative is guided and directed by an Indigenous Council that seeks to support Indigenous Climate Leadership and facilitate greater energy sovereignty and self-determination, and will provide an opportunity to consider alternative models of programming. Two of Natural Resources Canada's programs are delivered under Wah-ila-toos – Clean Energy for Rural and Remote Communities and the Indigenous Off-Diesel Initiative. Both programs are underpinned by UNDRIP and support clean energy projects that promote Indigenous energy sovereignty while upholding Indigenous rights and self-determination. This work will help to inform broader efforts to co-develop and implement an Indigenous Climate Leadership Agenda.

The Government of Canada is investing in partnerships with Indigenous communities early in the development of resource projects, enabling meaningful opportunities for Indigenous participation. This includes $103.4 million over five years to develop a National Benefit-Sharing Framework, and the expansion of both the Indigenous Partnership Office and the Indigenous Natural Resource Partnerships program. Budget 2023 provided an additional $8.7 million to support deeper engagements towards the development of the National Benefits-Sharing Framework. The Government will continue to explore through this engagement additional federal supports to increase access to capital for Indigenous groups to invest in major resource projects.

Budget 2023 also includes a number of measures to ensure greater Indigenous involvement in decision-making in the energy and natural resource sectors. This includes:

• $19.4 million for the Northern Participant Funding Program to increase the participation of Indigenous Peoples and other Northerners in environmental and regulatory assessments of major projects.  
• $1.6 million to increase capacity for federal participation in environmental assessments and consultation with Indigenous communities on major projects in the territories. 
• Announcing the Canada Infrastructure Bank will provide loans to Indigenous communities to support them in purchasing equity stakes in infrastructure projects in which the Bank is also investing.
• $11.4 million to engage with Indigenous communities and to update the federal guidelines for federal officials to fulfil the Crown's duty to consult Indigenous Peoples and accommodate impacts on their rights. This will support the implementation of the United Nations Declaration on the Rights of Indigenous Peoples Act and provide more clarity on how the government will proceed to ensure an effective and efficient whole-of-government approach to consultation and accommodation.

Finally, the Government of Canada will continue to work with First Nations, Inuit and Métis partners to advance their climate priorities through the distinction-based, Senior Bilateral Tables on Clean Growth and Climate Change, which were established in 2016. While there is more work to be done to build healthy partnerships with Indigenous Peoples to facilitate the transition to net-zero energy systems, these tables are an important mechanism for working together effectively. The Government of Canada looks forward to continued discussions with the NZAB and Indigenous partners how to better embed UNDRIP principles in energy sector decisions.

Conclusion

Decarbonizing the economy and achieving net-zero emissions will be one of the most important undertakings in Canada's history. While the costs of climate change are increasingly being felt by Canadians, the Government of Canada is committed to transparently implementing the measures in the ERP, improving competitiveness, improving quality of life for Canadians, and seizing the emerging economic opportunities presented by the transition.

To achieve net-zero emissions by 2050, deep transformation of all sectors of the Canadian economy will be required and all jurisdictions across Canada must continue to enhance their ambition. The Government of Canada will need to do more to meet its climate objectives and to this end, will continue to provide transparent and consistent updates on progress to implement the measures outlined in the 2030 ERP through the 2023, 2025, and 2027 progress reports, as well as for future emissions reductions plans.

There is no one-size-fits-all approach for achieving net-zero emissions and as Canada continues to implement measures and commitments set out in accordance with the Canadian Net-Zero Emissions Accountability Act, the Government will continue to regularly review and update its path forward to consider changing circumstances and the best available science, supported by ongoing collaboration with communities, provinces and territories and Indigenous Peoples and the Net-Zero Advisory Body.

The work of the Net-Zero Advisory Body (NZAB) will continue to support the development of Canada's plans and policies needed to reach net-zero emissions. The Government of Canada looks forward to continued engagement with the NZAB on how to implement the advice in this report and how to build from it to inform the future NZAB reports and advice. In particular, the Minister of Environment and Climate Change will be providing additional direction to the NZAB in the development of advice to support Canada's transition to net-zero emissions. This direction will include focus on additional measures the Government of Canada can develop to drive projected emissions reductions by 2030, next steps on developing a net-zero industrial policy by focusing on addressing gaps, strengthened engagement with Canadians on the vision of a net-zero emissions future, and setting the stage for the NZAB's submission on establishing Canada's 2035 national greenhouse gas emissions target.