Net-Zero Advisory Body: Second annual report to the Minister of Environment and Climate Change
Prepared by the Net-Zero Advisory Body
December 2024
Volume 1: Synthesis Report
Message to the Minister of Environment and Climate Change
Dear Minister Guilbeault,
We are pleased to submit the second annual report of the Net-Zero Advisory Body, as required under the Canadian Net-Zero Emissions Accountability Act.
Last year, you wrote to us asking for advice on how to achieve Canada's 2030 target and the setting of Canada's 2035 target. The 2030 and 2035 targets are crucial milestones to ensure Canada is on the right path to achieve net-zero greenhouse gas emissions by 2050. Efforts to mitigate climate action over the next decade will be critical to setting Canada up for success on our pathway to net-zero, including the realization of benefits such as jobs in the growing renewable energy sector, more affordable and reliable electricity, and improved health through cleaner energy.
To inform our advice, we engaged industry experts, academics, labour representatives, Indigenous partners and non-governmental organizations. We worked closely with the Canadian Climate Institute, which provided analytical and modelling support, and held a workshop on carbon budgeting with international and domestic experts.
Our reports on these topics, Climate's Bottom Line: Carbon Budgeting and Canada's 2035 Target and Closing the Gap: Reaching Canada's 2030 Emissions Gap were pre-published on our website during Climate Week in September 2024, and comprise Volumes II and III, respectively, of this annual report. Our second annual report also includes an overview of activities we have undertaken since our last annual report and our strategic priorities over the next 12 months.
We sincerely hope that our advice, which encourages the federal government to redouble its efforts and implement new measures to reach its 2030 climate target, and to adopt a 2035 target and tools, and policy measures comparable to our trading partners, will assist Canada in reaching its climate targets.
Simon Donner and Sarah Houde
Co-chairs of the Net-Zero Advisory Body
About the Net-Zero Advisory Body
Launched in February 2021 and formalized under the Canadian Net-Zero Emissions Accountability Act in June 2021, the Net-Zero Advisory Body's mandate is to provide independent advice to the Minister of Environment and Climate Change with respect to achieving net-zero emissions by 2050, including:
- greenhouse gas (GHG) emissions reduction targets for 2030, 2035, 2040, and 2045
- emission reduction plans from the Government of Canada, including measures and sectoral strategies that the government could implement to achieve a GHG emissions target
- any matter referred to it by the Minister
We also have the mandate to conduct engagement activities related to achieving net-zero emissions. Our advice must consider a range of factors, including environmental, economic, social, and technological, and the best available scientific information and knowledge respecting climate change, including Indigenous knowledge.
NZAB members
- Catherine Abreu
Director
International Climate Politics Hub - Michael Bernstein
President and Chief Executive Officer
Clean Prosperity - Louise Comeau
Iris Communications and Senior Advisor
Re.Climate - Simon Donner, Co-Chair
Climate Scientist and Professor
University of British Colombia - Robert Hornung
Independent Consultant
- Sarah Houde, Co-Chair
Vice-President Sustainability
Intelcom|Dragonfly - Shianne McKay
Senior Project Manager
Centre for Indigenous Environmental Resources - Karen Ross
Executive Director
Farmers for Climate Solutions - Gaëtan Thomas
President and CEO
Conseil Économique du Nouveau-Brunswick
Engagement and collaboration
In March 2024, we were pleased to publish our What We Heard: 2022-2023 Engagement Report to share the findings from our engagement efforts for that period. These engagement activities are fundamental to our work and are critical for cultivating the collective commitment and shared leadership across all orders of government, Indigenous Peoples, the private sector, and civil society, that is required to inform and drive pathways to net-zero.
Since our first annual report, we have continued to work collaboratively with groups and organizations with complementary mandates to ours, both internationally and within Canada, including other entities tasked with providing advice to the Government of Canada. We are a member of the International Climate Councils Network, which fosters collaboration amongst climate councils around the world. We worked closely with the Sustainable Finance Action Council and the Canada Electricity Advisory Council during their mandates to share perspectives and inform our respective work, and we look forward to collaborating with the Sustainable Jobs Partnership Council once established.
We regularly partner with the Canadian Climate Institute on engagement and research focused on putting Canada on a path to achieve net-zero by 2050.
To support our research activities, 16 projects are being undertaken with the financial support of the Government of Canada, through the Environmental Damages Fund's Climate Action and Awareness Fund. To support our engagement mandate, 6 youth-led net-zero engagement projects were identified by NZAB and funded by Environment and Climate Change Canada.
Building Relationships with Indigenous Peoples
Indigenous Peoples and their traditional ways of life are disproportionately impacted by climate change - from extreme weather to coastal erosion to the loss of sea ice to melting permafrost and biodiversity lossFootnote i.1. The decline in the availability of the animals and plants that have provided sustenance since time immemorial has threatened food security and the passage of cultural knowledge. Climate solutions such as electric vehicles and heat pumps are not always suitable for Indigenous Peoples, particularly those living in Northern and remote areas who depend on small aircrafts, boats and winter ice roads for outside goods and essential health services, or on generators and diesel for home heating and power. Indigenous self-determined climate solutions that reflect Indigenous knowledge and regional contexts are essential.
Despite these challenges, First Nations, Inuit, and Métis are leading action to address climate change. With solutions grounded in deep intergenerational knowledge, relationships with the land and waters, and community leadership, we have much to learn from Indigenous Peoples about pathways to net-zero.
NZAB is partnering with Cambium Indigenous Professional Services, a First Nations-owned and operated organization, to deepen our understanding of Indigenous perspectives on net-zero pathways in Canada. Cambium Indigenous Professional Services also provided us with Indigenous awareness training, which has enhanced our understanding of the unique, multifaceted, and difficult realities that many Indigenous Peoples face, and the need for net-zero pathways that understand and respect these realities.
Since our first annual report, we have engaged with Indigenous partners by attending dialogues, seeking written submissions, and participating in Indigenous-led events. We are deeply grateful for this engagement, through which we have learned about the experiences and increasing leadership role of Indigenous People in renewable energy. For example, in 2022, First Nations, Métis, and Inuit groups were partners or beneficiaries in nearly 20% of Canada's existing electricity-generating infrastructureFootnote i.2, with the number significantly increasing in the last two years. We learned about the barriers that Indigenous Peoples continue to face in participating in renewable energy projects and other opportunities associated with the energy transition. We learned about the need for participatory decision making with Indigenous Peoples, including embracing Indigenous ways of knowledge, providing specific Indigenous opportunities (e.g. in procurement), and ensuring sufficient engagement early on and throughout energy projects with Indigenous Peoples and their representative institutions.
The First Nations Major Project Coalition has outlined that project success is “directly related to strong Indigenous partnerships” and “repeatedly highlighted that Indigenous consent—incorporated at all levels of a major project—is a competitive advantage for companies and countries seeking to raise capital, expedite regulatory and permitting processes, and increase market share.”Footnote i.3 The International Energy Agency recognizes that enhancing the implementation of human rights standards, as well as Indigenous rights, can mitigate operational disruptions across several projects, including critical mineral operations. Many provinces, including British Columbia, Alberta, Saskatchewan and Ontario have also acknowledged the value in this approach by making Indigenous equity ownership partnerships a requirement for new power projects.
We also heard examples of how the transition to net-zero is not just about lowering emissions for Indigenous Peoples, but also about economic, environmental and social benefits for their communities. Clean energy benefits include reliable, secure, and affordable energy, cleaner air, as well as economic opportunities that promote sovereignty.
Going forward, we will seek to establish spaces for more meaningful engagement with Indigenous Peoples. We know there are many Indigenous voices to hear and much more work to do to ensure our advice is adequately informed by, and relevant to, the lived experiences of First Nations, Inuit, and Métis in Canada.
Climate's bottom line: carbon budgeting and Canada's 2035 target
The Canadian Net-Zero Emissions Accountability Act requires the Government of Canada to set national GHG emissions reduction targets for milestone years to achieve net-zero by 2050. In setting these targets, the Minister must take into consideration NZAB's advice, as well as the best scientific information available, Canada's international commitments, and Indigenous knowledge.
In October 2023, the Minister requested advice from NZAB to inform development of a 2035 target and ensure it is compatible with net-zero emissions by 2050. Volume 2 of this annual report, Climate's Bottom Line: Carbon Budgeting and Canada's 2035 target, offers 3 pieces of advice in response to this request.
1. Develop a carbon budget
Our first advice is that the government should develop a national carbon budget, reflecting the total greenhouse gas emissions that Canada will emit over time. Carbon budgets are used by other countries to better track the effect of policy decisions on the climate and the consequences of delaying action.
A carbon budget is the most direct way to represent the impact our emissions have on the planet. Annual targets only apply to the amount of emissions in one year. What matters to the climate is the total emissions we put in the air between now and when we stop emitting.
Under the Paris Agreement, countries agreed to keep global warming well below 2°C and to pursue efforts to limit it to 1.5°C. Science can tell us the amount of carbon dioxide left to emit before the world passes these limits. If we "spend" beyond this global carbon budget, we will pass the temperature limits. Adopting a carbon budget for Canada will better acknowledge the reality of climate change and better place our climate action within a global context.
Carbon budgets are already being used by different levels of government around the world with the United Kingdom, France, New Zealand, Finland and Ireland having already adopted different forms of national carbon budgets. In Canada, jurisdictions that use or are considering using some form of a carbon budget include Manitoba, Toronto, Montreal, Edmonton and Vancouver.
Volume 2 provides details on how to develop such a budget and introduces the methods to calculate it. We recommend using Canada's past emissions and existing legislated target of net-zero by 2050 to establish the national budget. As this budget will exceed Canada's fair share of global emissions, we also recommend Canada track and address the excess emissions.
2. Adopt a target of 50% to 55% below 2005
Alongside the carbon budget, we recommend that the government adopt a target of 50% to 55% below 2005 levels for 2035. The proposed target range is consistent with our carbon budget analysis and meets the Paris Agreement requirement to increase ambition. The target will help Canada keep pace with the ambitious climate goals of its G7 partners and other major trading partners. For example, at the time of publication, the United States has not announced its 2035 target, but it already has a target of 50% to 52% below 2005 levels in 2030. Other nations, including the United Kingdom and European Union nations, have announced or are developing much more ambitious targets.
Meeting the target will require greater ambition on decarbonization from the federal government, as well as from provinces, territories, municipalities and the private sector. In choosing a target, we tried to find a balance between being ambitious and technically feasible. We also considered the multiple benefits that climate action can provide to the environment, human health and the economy.
This target, like previous targets, is a “net emissions” target. This means that while direct domestic reductions of emissions should be the primary focus, reaching the target will also require additional actions such as negative emissions and internationally financed emissions reductions.
3. Address Canada's excess emissions
NZAB encourages the government to address Canada's excess emissions through means such as international support for climate action and removal of carbon dioxide from the atmosphere.
Canada is one of the world's top ten emitters, both per capita and in absolute emissions. This means we have already consumed our fair share of the global carbon budget remaining to avoid the 1.5°C limit in the Paris Agreement, and are on pace to consume our fair share of the global carbon budget remaining to avoid the 2°C limit by the end of the decade. In addition to adopting the proposed carbon budget, we recommend that Canada acknowledge that the budget is more than our fair share and develop a plan to address the excess emissions.
There are different ways to address these excess emissions. The government should start now to estimate that amount and design strategies to address them. This will bring clarity and credibility in Canada's domestic and global efforts. Further consultations will be necessary and NZAB will be doing additional work in this area over the coming year.
Closing the gap: reaching Canada's 2030 emissions target
In July 2023, the Minister requested advice from NZAB on additional measures that the Government of Canada could implement to achieve its 2030 emissions reduction target. Our analysis finds that meeting the 2030 target will be a challenge, but it is possible. The latest available data shows the emissions are 8% below 2005 levels. While this represents real progress, there is a long way to go to the 40% to 45% reduction target. More aggressive and sustained action is necessary to reach our 2030 emissions target and to shift to a long-term net-zero pathway.
Our advice, detailed in Volume 3 of this report, Closing the Gap: Reaching Canada's 2030 Emissions Target focuses on how to finish what has been started, improve what exists, and then implement new policies. Meeting that 2030 target will also give us the best chance to achieve the 2035 target and the long-term objective of net-zero emissions.
In general, we believe it is more effective for the government to focus on a small number of the highest- impact actions and to implement them quickly given the short time until 2030 and the length of time it takes to implement new policies.
1. Finalize announced measures
Our first piece of advice is to fully implement all announced measures, such as clean economy investment tax credits, policies to reduce oil and gas sector emissions, the Canada Green Buildings Strategy, the Clean Electricity Regulations, and landfill methane emissions regulations, to name a few.
The federal government's own analysis indicates that even if all the policies and sectoral goals are fully implemented, and work as intended, Canada will at most achieve a 36% reduction.
2. Address negative interactions
We advise the government to address negative interactions. As Canada progresses in responding to climate change, the number of climate policies increase. Some of these policies will interact in beneficial ways, but some have the potential for counter-productive interactions.
For example, as the government finalizes the proposed oil and gas sector emissions cap and Clean Electricity Regulations, special attention will need to be paid to minimizing negative interactions, such as actions that could lead to a surplus of cheap carbon credits for sale in the industrial pricing system, which would decrease the incentive for companies to reduce emissions.
To offer another example, if the light-duty zero-emission vehicle sales mandate, the proposed Clean Electricity Regulations and the proposed oil and gas sector emissions cap drive fuel carbon intensity reductions greater than the Clean Fuel Regulations, the compliance credits created under the Clean Fuel Regulations could weaken the price signal in these adjacent policies, resulting in fewer reductions for each policy than if each policy was implemented in isolation.
Eliminating or minimizing these negative interactions can therefore create more certainty for large emitters and reduce GHG emissions. Modifying existing policies to rectify negative interactions would take less time than introducing new policies and would require fewer public sector resources than creating new emissions mitigation policies.
3. Strengthen industrial carbon pricing
We recommend that the federal government strengthen existing industrial carbon pricing to reduce uncertainty, increase transparency, address potential negative interactions, and ensure compatibility with Canada's 2030 emissions reduction target. Compared to creating new policies, improvements can be made quickly.
The Output-based Pricing System is one half of the federal government's carbon pollution pricing system (the other is the federal fuel charge). The system is designed to ensure there is a price incentive for industrial emitters to reduce their GHG emissions and spur innovation, while maintaining competitiveness and protecting against “carbon leakage”, that is, the risk of industrial facilities moving from one region to another to avoid paying a price on carbon pollution. The federal carbon pricing serves as a backstop for provinces and territories, who can choose to implement their own industrial carbon pricing system which needs to be at least as rigorous as the federal system, or they can implement the Output-based Pricing System.
Accelerating the Output-based Pricing System review process scheduled to begin in 2026 and signaling that strengthening the performance benchmarks can be expected will provide companies and investors with policy certainty. A further set of tools to provide companies with certainty so they can make low carbon investments are carbon contracts for difference, such as those made through the Canada Growth Fund. They guarantee a minimum carbon price so that any associated revenues from low carbon investments are bankable, which lowers the cost of capital and makes it more likely that these emissions reducing projects can proceed. We see potential for even more results. Without strengthening the performance standards and employing carbon contracts for difference, a meaningful share of the emissions reduction that is currently forecasted by the government is unlikely to materialize.
4. Secure additional emissions from the oil and gas sector
The oil and gas sector is Canada's largest emitting sector, responsible for almost one-third of Canada's emissions. It has also seen the biggest increase in emissions since 2005. More can and should be done to address oil and gas sector emissions. Our members presented two options for how to tackle this.
One is to strategically strengthen the planned oil and gas sector emissions cap by expanding its coverage and tightening some features of the design. The proposed changes, while subtle, can reduce the risk of credit oversupply, and provide greater flexibility for operators in the sector. With 31% of emissions coming from this sector, we need more results in terms of reduction, otherwise other sectors will need to compensate.
Another option is to improve the Output-Based Pricing System performance standards in all regulated sectors, including oil and gas, and implement an expanded and broad-based carbon contracts for difference program. This approach avoids the uncertainty inherent in creating new regulations that could face years of legal challenges.
5. Evaluate and pursue additional measures
Even if all these measures are implemented, more needs to be done. To address the remaining gap, the government should consider pursuing one or more of the following policies:
- strengthen oil and gas methane regulations to reduce emissions by 80% from 2012 levels
- finalize and publicly state the post-2030 carbon price schedule and adjust to inflation
- promote policies that encourage shifts to less-emitting transportation modes, for example, rail and public transit
- phase down the sale of new and replacement fossil fuel heating and cooling devices in residential and commercial buildings beginning no later than 2030
- create a building performance standard for new commercial buildings
We also recommend that the federal government further study:
- increasing stringency of the Clean Fuel Regulations
- implementing a stronger medium-and heavy-duty vehicle sales standard
- implementing an efficiency mandate for low-temperature industrial heat
- ambitiously targeting light-duty vehicle emission reductions
Everyone has a role to play
It is important to highlight one of NZAB's foundational values: to recognize and respect regional differences and circumstances.
All major provincial climate legislated policies were considered in the modelling conducted for our analysis. However, the federal government alone will not be able to achieve Canada's climate change targets. All of Canadian society has a role to play. Beyond the federal government, provinces, territories, municipalities, Indigenous governing bodies, the private sector, civil society and experts, including Indigenous knowledge holders and scientists, all have important roles in bringing Canadians along to realize our 2030 and 2050 decarbonization goals. Many opportunities exist to align efforts among these players, leverage existing responsibilities, and grow capacity to achieve our shared objectives.
Lines of inquiry
While our focus since our first annual report has been on developing advice to close the 2030 emissions gap and setting the 2035 emissions reduction target, we continued work on our ongoing lines of inquiry from the first report: net-zero energy systems, net-zero governance and net-zero industrial policy. Building on our advice to address Canada's excess emissions, we have also commenced work on a new line of inquiry on the ways to address those emissions. Work on these lines of inquiry will set the stage for advice in our third annual report.
Net-zero energy systems
NZAB has defined energy systems as the production, conversion, transmission, distribution, storage and consumption of energy required to yield a functional, sustainable, and responsible energy system that meets demand and generates net-zero emissions.
A cornerstone of our net-zero energy systems advice in our first annual report is the need for the government to develop a vision for net-zero energy systems that describes what a net-zero future looks like for Canadians. We followed up on this advice by conducting engagement, including hosting a net-zero energy systems vision workshop with Indigenous and youth climate leadership experts, energy systems modelers, academics and policy analysts with energy systems knowledge. Key messages we heard at this session included how a vision could help drive the necessary demand and investment for the transition, and the importance of acknowledging and respecting Indigenous People's rights and ensuring their perspectives and knowledge are reflected in a vision.
In addition to this engagement, we commissioned the Energy Super Modelers and International Analysts to analyze assumptions in different oil and gas projections to 2050, notably the downward impact that international climate policies are projected to have on oil and gas demand during the energy transition to net-zero and potential areas for future research.
NZAB also co-hosted a COP 28 panel discussion with the Canadian Climate Institute which explored the progress made on energy transition internationally and in Canada, and how to continue the momentum of COP28 discussions to triple renewable energy capacity, double the rate of energy efficiency and transition away from fossil fuels. A summary of the remarks can be found in our What We Heard: 2022-2023 Engagement Report.
Through our engagement, we consistently heard that energy systems transformation must be rooted in systemic change that continues to advance equity participation by Indigenous Nations, communities, and governments to fully realize the benefits and help ensure the transition seizes the opportunities for reconciliation and addresses current inequities. There is much to be learned from the Indigenous Peoples who have been communicating the foundational value in building relationships for some time and that the transition to net-zero needs to be about more than reducing greenhouse gas emissions.
Our research and engagement activities confirmed the value of developing a vision, which will be the future focus of the energy systems line of inquiry. Our view is that the transition to a net-zero future is about much more than emissions reductions, with the unparalleled opportunity to provide a range of benefits to individuals in all communities. We see an energy systems vision as a means to provide greater clarity, understanding and optimism on the future of energy. It can highlight the benefits that the energy transition can bring to all in our daily lives, over and above the benefits of emissions reductions, including:
- greater autonomy through more choice in energy systems
- jobs in the growing energy sector
- improved health through cleaner energy while preserving ecosystems
- more affordable and reliable electricity
Net-zero governance
NZAB has defined net-zero governance as the network of institutional strategies, capacities and relationships required - both inside and outside of government - to achieve net-zero emissions by 2050. We have prioritized governance in recognition that, for Canada to meet its net-zero emissions goal by 2050, all parties of society have a role to play, including all levels and departments of government.
In our first annual report, we advised that the Government of Canada should direct all federal agencies, departments and Crown corporations to publicly articulate their role in helping Canada achieve net-zero emissions and empower them to play a more ambitious role by formalizing net-zero objectives in mandates and changing mandates if required. Following our first annual report, we identified the need for a clearer picture of the current and potential contributions to Canada's net-zero commitment by various federal entities. To this end, we commissioned PricewaterhouseCoopers LLP to interview a subset of federal entities to learn about their respective efforts, progress, and challenges in advancing net-zero governance, as well as to host a roundtable with interviewees to foster a collaborative discussion aimed at strengthening our understanding of net-zero governance strategies and how best to overcome common obstacles. We anticipate this research will allow NZAB to provide additional insights on how federal entities can more effectively help Canada achieve its net-zero commitment.
We have also begun a longer-term project exploring the impact of current and potential provincial and territorial contributions to realizing Canada's climate objectives in collaboration with the Canadian Climate Institute. We recognize that the federal government cannot, and should not, achieve these objectives through its action alone. Provinces and territories are essential partners in developing and implementing regionally appropriate approaches to decarbonization. Indeed, they have jurisdiction over many key facets of the energy transition, from electricity generation to natural resource development. However, not every province and territory has the same needs or capacities, hence the need for flexibility. Ultimately, this work will inform future advice to the Minister on how to collaborate more effectively with provinces and territories on climate mitigation policy to achieve Canada's net-zero goal.
Finally, under this line of inquiry, we have commissioned research to better understand the emissions reductions potential from the agriculture sector. Our goal is to analyze the long-term emissions profile and the social acceptance dimensions of a more sustainable agriculture sector.
Net-zero industrial policy
NZAB has defined industrial policy as any set of deliberate measures to redirect economic activity to solve problems that, left to itself, the market will not address. A modern industrial policy is an institutionalized process for strategic collaboration between industry and government and for learning in the face of uncertainty.
Building from initial advice in our first annual report, the Minister has requested that we provide advice on concrete steps the Government of Canada can undertake to advance net-zero industrial policy. In response, NZAB undertook two research projects to illuminate international best practices and domestic views on pathways forward for a Canadian net-zero industrial policy. This work focused on two of the four priority sectors previously identified by NZAB: electric vehicles and batteries, and hydrogen.
The international best practices project surveyed the approaches of the United States, Japan, and Germany and found that all three coordinated whole-of-government policy mixes to bolster technological capabilities of domestic firms in targeted low-carbon supply chains over time. Supply-side tools bolstered firms' innovation inputs via research and development grants, tax credits, loans, equity, skills investments, joint venture requirements for foreign direct investment supports, and supporting and connecting upstream suppliers. Demand-side tools shaped market demand for domestic firms' innovative products via consumer incentives, procurement, regulations, standards, carbon pricing, or matchmaking producers and end users. Lastly, coordinating these instruments via regularized information flows with the private sector and across government departments harnessed institutional capacities and cultures of cooperation built up from decades of industrial policy practice.
The domestic scan project examined how the organizational culture and policy capacity of federal departments shape Canadian net-zero industrial policy to identify potential pathways to advance a more coherent and strategically targeted industrial policy. We interviewed senior federal and provincial officials, industry actors, and Indigenous partners. They indicated a common desire for the federal government to focus priorities on technology-specific goals and a shared preference for more structured coordination mechanisms across government departments, and with provinces, territories, Indigenous governing bodies, and industry, for demand-side and supply-side instruments. There was also widespread agreement on the need to advance inclusive growth that better coordinates with Indigenous priorities and serves disadvantaged communities.
In undertaking these two research projects, we were struck by the keen level of interest by all those whom we interviewed in creating a more coherent and inclusive net-zero industrial policy. NZAB is distilling the findings of these two projects to generate insights and advice for our next annual report.
Excess and negative emissions
Our advice on the 2035 target included a recommendation to address Canada's excess emissions. Our work in this new line of inquiry will aim to develop a framework that can guide the assessment of options to address those emissions, including carbon dioxide removal, for example, via a diverse set of solutions ranging from afforestation to direct air capture. We are collaborating with the Canadian Climate Institute to advance this work in order to provide advice to the Minister.
Conclusion
Our planned work described above builds on our previous advice and reflects the role that all of Canadian society must play for Canada to achieve its climate change commitments, including all levels of government and all sectors. It also reflects both the value in—and opportunity for—partnerships with mutual goals that meet climate objectives, including industry and government partnering on industrial policy, and facilitating collaboration on energy projects by describing the net-zero energy systems future and its many benefits beyond emissions reductions.
NZAB will continue to fulfill our legislated mandate to provide our best advice to the Minister on how to achieve net-zero emissions by 2050 or on any additional matters that the Minister may refer to us. To do this, our work will be informed by what we hear in our engagement activities and grounded in our ongoing research to ensure we have the best available scientific information and knowledge, including Indigenous knowledge.
Glossary
Carbon budgets specify the cumulative amount of GHG emissions permitted over a period of time to limit a specific temperature increase. Carbon budgets differ from point-in-time targets in that emissions not only have to fall to a certain level by a particular year, but the overall emissions allowed in a given period are also limited.
Carbon contracts for difference provide a guaranteed minimum price for carbon credits sold by a company on the carbon market. When the market price is lower than this minimum, the entity offering the contract compensates the company for the difference, reducing its investment risk. Conversely, if the market price exceeds the guaranteed minimum, the company reimburses the difference to the entity offering the contract, enabling both parties to share in the profits.
Emissions gap is the disparity between an emissions reduction target by a certain deadline and the estimated emission reductions that are achievable within the same timeframe.
Excess emissions are the remaining emissions when comparing a fairness-based carbon budget with a target-based carbon budget.
Fairness-based carbon budgets draw directly from scientific analyses of the remaining global carbon emissions for a specified chance to avoid a given level of warming. Under this approach, Canada is allocated a fair share of the remaining global carbon budget based on historical contribution to global emissions and capacity to act.
Investment tax credits incentivize private sector investment in specific sectors by offering tax breaks, in terms of less delayed payments, on a portion of investments.
Negative emissionsFootnote i.4 are the removal of GHGs from the atmosphere by deliberate human activities, which is in addition to the removal that would occur via natural carbon cycle processes.
Oil and gas sector emissions cap focuses on reducing emissions by setting a maximum allowable emission limit on the oil and gas operations.
Output-based pricing system establishes emissions limits for regulated facilities based on their emissions-intensity performance standards. Facilities emitting below their limit earn credits they can sell or save. Those exceeding their limit must compensate for excess emissions. This system ensures all industrial emissions are incentivized under the carbon price, while limiting costs to maintain competitiveness and prevent carbon leakage.
Point-in-time targets are emission targets for a given year (2030, 2035, etc.).
Zero-emission vehicles are vehicles that have the potential to produce no tailpipe emissions such as battery-electric and hydrogen fuel cell powered vehicles. They may still have a conventional internal combustion engine but must be able to operate without using it. Emissions may still be generated during the life cycle of the vehicle, for example during production of the vehicle and their components.
Zero-emission vehicle sales mandate is a regulatory policy that mandates automakers and importers to sell a certain percentage of vehicles with zero emissions within a specified timeframe.
Volume 2: Climate's Bottom Line: Carbon Budgeting and Canada’s 2035 Target
Overview
Canada’s 2035 greenhouse gas (GHG) emissions reduction target will be set in the context of the Paris Agreement which requires increasing global ambition, as well as following the requirements set out in the Canadian Net-Zero Emissions Accountability Act.
The 2035 target is a crucial milestone on Canada’s pathway to reaching net-zero emissions by 2050. Our efforts to mitigate climate change over the next decade will be critical to setting Canada up for success on our pathway to net-zero, including realization of benefits such as jobs in the growing renewable energy sector, more affordable and reliable electricity, and improved health through cleaner energy.
Canada’s 2035 target will be compared to other countries and large emitters. At the same time, consideration must also be given to the issue of affordability and the time needed to implement policies to reach targets.
Setting a national GHG emissions target is as much about vision as it is about science and economics. That is why, building on important progress in reducing Canada’s emissions, the Government of Canada must signal continued ambition to accelerate towards net-zero. Governance, accountability, and transparency mechanisms are also key to success, and Canada should adopt additional tools to improve tracking of Canada’s decarbonization progress.
In developing a 2035 target for Canada, the Net-Zero Advisory Body (NZAB) advises the Government of Canada to:
- develop a Canadian carbon budget
- adopt an emissions reduction target of 50% to 55% below 2005 levels for 2035
- address Canada’s excess emissions
Introduction: Considerations on setting a 2035 target for Canada
Under the Paris Agreement, countries are required to submit national GHG emissions reduction targets and nationally determined contributions every five years. Each successive nationally determined contribution is required to be more ambitious than the previous. Canada’s next nationally determined contribution, outlining a 2035 target, is due in 2025.
The Canadian Net-Zero Emissions Accountability Act requires the Government of Canada to set national GHG emissions targets at five-year intervals for 2030, 2035, 2040, and 2045, to develop emissions reduction plans for each target, and to explain how each plan will contribute to reaching net-zero by 2050. The Act further requires that Canada’s 2035 target be established no later than December 1, 2024.
In October 2023, the Minister of Environment and Climate Change requested advice from NZAB to inform development of a 2035 target and ensure it is compatible with net-zero emissions by 2050. The Minister encouraged us to provide qualitative advice, such as key considerations the Government of Canada could consider when setting the target. The Minister further requested that, if NZAB chose to provide a target or range, it be supported by its rationale or key assumptions, and an indication of the relative effort required across key sectors.
We utilized several methods to inform our advice, including analyzing a carbon budget approach informed by an expert workshop, conducting modelling in collaboration with the Canadian Climate Institute, and looking at Canada’s past targets and other countries’ approaches to setting targets. While we had limited time for engagement, we sought written submissions from 62 experts and partners and summarized the feedback in our 2022-2023 What We Heard Report.
Canada has a key role in the global effort to prevent the worst impacts of climate change
At the current pace of global GHG emissions and warming, the world will soon begin to pass the temperature limits set in the Paris Agreement. The Intergovernmental Panel on Climate Change (IPCC) projected that the world will pass a 1.5°C warming threshold as early as the 2030sFootnote ii.1. Indeed, nine of the warmest recorded years globally occurred in the past decadeFootnote ii.2, and a recent 12-month period was the first to exceed +1.5°C above pre-industrial global temperatures according to some datasetsFootnote ii.3. Evidence suggests these are the warmest global average temperatures since before the last ice age.
The impacts of this warming are clear, both in Canada and in the world. Globally, climate change is contributing to an increased frequency and intensity of extreme weather events such as flooding, heat waves, and forest firesFootnote ii.4. Canada’s Changing Climate Report estimates that the past and future warming in Northern Canada is, on average, double the magnitude of global warmingFootnote ii.5, with Indigenous Peoples being disproportionately affected.
Canada plays an important role in global efforts to avoid the worst impacts of climate change as a member of the “Group of 20” emitters (along with Argentina, Australia, Brazil, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union) that are responsible for about 76% of global GHG emissionsFootnote ii.6. As reported in the European Union EDGAR (Emissions Database for Global Atmospheric Research) database, in 2022, Canada was the 12th largest GHG emitter globally in both absolute and per capita termsFootnote ii.7. By contrast, Canada ranks 37th in population size, contributing disproportionately to global emissionsFootnote ii.8.
Climate change is a global challenge where all countries need to act together. As noted in the United Nations Environment Programme Emissions Gap Report 2023Footnote ii.9, current actions will not allow the world to reach the Paris Agreement goals of keeping warming well below 2°C while pursuing efforts to limit warming to 1.5°C. The United Nations Environment Programme estimates that achieving the targets set in all unconditional nationally determined contributions, including Canada’s 2030 target, puts us on a path to 2.5°C or more warming. The recent global stocktake found that while countries have taken widespread actions to address climate change and its impacts, ambition and implementation must be urgently acceleratedFootnote ii.10.
There are important benefits to global collective climate action such as the ability to scale up and to lower the cost of key decarbonizing technologies like solar and wind. Countries can cooperate to take advantage of different and cheaper emissions reduction opportunities. Climate policy is also a competitiveness issue and challenge. As decarbonizing technologies become increasingly cost competitive and widespread, Canada cannot afford to be left behind. It is critical that we develop the skills and technologies to succeed in a low-carbon economy. Having ambitious targets and policies and increasing investment in those technologies are key steps in that direction.
Canada is not alone in taking action, with 140 countriesFootnote ii.11, representing 88% of emissions, having committed to some form of reaching net-zero. Every country will have a unique path to net-zero. At the time of this report’s publication, relatively few countries had yet committed to 2035 targets, although several key trading partners and similarly high emitters are expected to set targets with greater ambition in the coming months (see Table 1 for a summary). Those GHG targets are reflective of different economic structures and national circumstances and can help to drive the overall ambition to tackle climate change.
Based on a recommendation of the European Scientific Advisory Board on Climate ChangeFootnote ii.12, a fellow member of the International Climate Councils Network, the European Union Commission is currently considering a potential emissions reduction target of 90% below 1990 levels for 2040 (equivalent to 89% below 2005 levels), following its 55% target for 2030. The United Kingdom has already adopted its sixth carbon budgetFootnote ii.13 and has a target of 78% below 1990 levels for 2035 (equivalent to 74% below 2005 levels). The United States has not yet officially established a target for 2035 but has a target of 50% to 52% below 2005 levels for 2030Footnote ii.14.
Country or region | 2030 Target | 2035 Target |
---|---|---|
Canada | 40% to 45% below 2005 levels | Under development |
European Union | Net domesticFootnote ii.15 reduction by at least 55% compared to 1990 levelsFootnote ii.16 | Under development. Reduction of net GHG by 90% by 2040 relative to 1990 under considerationFootnote ii.17 |
United Kingdom | Reducing emissions by 68% relative to 1990 levelsFootnote ii.18 | 78% reduction in emissionsFootnote ii.19 below 1990 levels |
United States | 50% to 52% below 2005 levelsFootnote ii.20 | Under development |
Canada can build on a foundation of success
According to the 2024 National Inventory ReportFootnote ii.21, territorial emissions in Canada climbed steadily between 1990 and 2005. The report indicates that direct emissions due to Canada’s economic production went from 608 Mt CO2e in 1990 to 761 Mt CO2e in 2005, an increase of 25%.
During that period, the GHG intensityFootnote ii.22 decreased by 17%, partially due to phenomena also observed in other countries of the Organisation for Economic Co-operation and Development (OECD)Footnote ii.23, such as structural changes in the economy towards less carbon-intensive tertiary activities and energy conservation measures.
Since 2005, there has been important progress. Despite a continued rise in Canada’s population, territorial emissions stopped increasing and generally stabilized, with some annual variability, then began to fall during the COVID-19 pandemic. The initial pandemic-related decline has largely persisted such that emissions in 2022 were 7.1% lower than in 2005Footnote ii.24.
The adoption of the Paris Agreement in December 2015 was a crucial milestone, requiring each country to set a 2030 target and explain the path to the target in its nationally determined contribution. Based on Canadian Climate InstituteFootnote ii.25 and Environment and Climate Change Canada (ECCC)Footnote ii.26 analysis, and with full implementation of measures, Canada has a chance to reach the lower end of its 2030 target of 40% to 45% below 2005 levels. Key climate policies have been implemented or are being implemented, laying the foundation for long-term reductions in emissions.
As emissions have shown a modest decline since 2005, the pace of reduction needs to sharply accelerate to reach 2030 and 2050 net-zero targets.
Advice 1: Develop a Canadian carbon budget
The Government of Canada should develop a national carbon budget that clarifies the total GHG emissions that Canada should not exceed until it reaches its domestic net-zero state by 2050. We recommend the domestic carbon budget to be set between 10,198 to 11,034 Mt CO2e. The total domestic carbon budget should then be broken down into five-year interim milestones starting with the cumulative emissions that Canada intends to permit between 2031-2035.
The Government of Canada should also develop, alongside this domestic budget, an accounting of Canada’s excess emissionsFootnote ii.27 to keep long-term temperature increases to no more than 1.5°C.
Our analysis shows that even very conservative estimates indicate excess emissions through 2050 of more than 8,400 Mt CO2e.
NZAB’s Net-Zero Pathways - Initial Observations report noted that the most likely pathways to net-zero use carbon budgets as a basic tool.
Carbon budgets specify the cumulative amount of GHG emissions permitted over a period of time to limit a specific temperature increase. Carbon budgets differ from point-in-time targets in that emissions not only have to fall to a certain level by a particular year, but the overall emissions allowed leading up to that period is also limited.
Like a household budget, a carbon budget can help ensure we “only spend what we can afford” by tracking our emissions “expenses” and allocating them based on the remaining GHG emissions in the budget. By tracking emissions over time, a carbon budget also provides a better indication of whether we are on track to meet our climate objectives and the consequences of delaying action.
From a scientific perspective, the use of carbon budgets is more instructive than point-in-time targets because cumulative emissions have a more direct relationship with warming than emissions in individual target years.
Unlike point-in-time targets, carbon budgets can also help to smooth our trajectories as emissions in a single year can be significantly impacted by external factors and unforeseen events such as pandemics, anthropogenic forest fires, and geopolitical events.
Defining a national carbon budget must take multiple elements into account. The remaining global carbon emissions to avoid specified levels of global warming (including the 1.5°C and 2°C thresholds in the Paris Agreement) are estimated based on climate science and GHG accounting methods. A national carbon budget can then be determined based on the remaining global carbon emissions, the consideration of fairness, equity, national circumstances, and methodological choicesFootnote ii.28.
National-scale carbon budgets are currently used with different approaches by several countries, including the United Kingdom, France, and New Zealand. To inform the potential development of a carbon-budget approach for Canada, NZAB hosted a workshop with domestic and international scientific experts on carbon budgets in November 2023. This discussion highlighted key considerations for the Canadian context (see Textbox 1).
Textbox 1: Workshop considerations for developing a carbon budget approach for Canada
- Carbon budgets have been used by several countries and can provide clear trajectories to get to net-zero with accountability and transparency.
- There is scientific dissensus linked to the application of carbon budgets such as the size of the remaining global budget to avoid a given warming level. Using a carbon budget approach can offer different insights than emissions trajectories.
- Defining a fair share of the remaining global carbon budget for Canada should include key ethical principles such as capability, equality, and responsibility. In all credible scenarios, the remaining share of emissions for Canada would be very small or negative.
- Most international approaches do not explicitly consider non-CO2 gases. There is no agreement on the best way to consider these gases and possible options include separate or similar targets and timelines for CO2 and non-CO2 gases.
- It is critical to ensure environmental integrity and clear guidelines for negative emissions and international mitigation transfers if they are to be employed to keep Canada within the determined carbon budget.
- There are different ways of defining the rate of emissions reduction towards net-zero. A straight line is most practical but early reductions would also provide the greater climate benefit.
Building on the key elements of the expert workshop, NZAB sought to assess the merit of carbon budget approaches for determining interim emissions reduction targets and defining pathways to net-zero by analyzing two approaches for developing a budget for Canada (see Technical Annex for more in-depth analysis):
- The fairness-based approach, which draws directly from scientific analyses of the remaining global carbon emissions for a specified chance to avoid a given level of warming. Under this approach, Canada is allocated a fair share of the remaining global carbon budget based on historical contribution to global emissions and capacity to act.
- The target-based approach, which draws from national emissions targets rather than directly from the remaining global carbon budget as above. The budget can be computed directly from a trajectory between historical emissions and a net-zero target.
A fairness-based carbon budget approach
In line with the findings of the workshop, our analysis concludes that the fairness-based approach, relying on the scientific relationship between cumulative emissions and warming, and on the Paris Agreement’s temperature thresholds, implies a zero or negative budget for Canada. This approach is based on: (1) Responsibility for climate change through calculation of cumulative GHG emissions, and (2) Capacity to take action.
Organizations like the Climate Equity Reference project provide examples of this type of equity-based approachFootnote ii.29. As we look to identify an appropriate share of remaining emissions for Canada, we note the importance of considering Canada’s fair share of the global effort to confront the climate crisis, given its contribution to climate change as one of the world’s top net and per capita emitters of GHGs, and its capacity to take and support action on the crisis as a wealthy Group of Seven (G7) nation.
All this being said, our analysis also shows that employing a science-driven budget approach to set interim emissions reduction targets is not possible for the 1.5°C or the 2°C warming limits without extremely steep near-term emissions reduction and substantial negative emissionsFootnote ii.30 or international transfers.
Furthermore, a fairness-based approach that follows United Nations Framework Convention on Climate Change (UNFCCC) principles is not feasible with domestic emissions reductions alone and would require other efforts like carbon removal and/or financing international emissions reduction. Our analysis also indicates that less stringent, and hence more achievable, interim targets embed a structural unfairness in that they imply Canada can claim a disproportionate share of the remaining global carbon emissions to respect the warming limits in the Paris Agreement. To comply with principles of the UNFCCC, additional means like international climate finance would then be necessary to address the structural unfairness.
A target-based carbon budget approach
Our analysis shows Canada could establish a budget based directly on emissions targets set per the requirements of the Canadian Net-Zero Emissions Accountability Act, Canada’s net-zero legislation.
Such a target-based budget would be determined using a trajectory between the emission level when the legislation passed (2021) or the 2030 target, and the established goal of net-zero emissions in the year 2050. This approach maintains the concept of tracking cumulative emissions without adhering to the limits imposed by remaining carbon emissions under a fairness-based approach (we discuss below how to reconcile these two approaches).
Using a target-based carbon budget approach would allow a balance between feasibility and the geophysical reality by considering emission limits that align with Canada’s net-zero legislation and allows the calculation of international excess emissions. As Canada cannot achieve a fairness-based budget with domestic emission reductions alone, the part that cannot be achieved (our "excess emissions") could be addressed by methods that act on the international mitigation (see Advice 3).
How to best define an emissions trajectory to net-zero, either with a straight line or with varying levels of ambition over time, is a complex question. While the simplest way to distribute the remaining emissions over time would be through a straight line, achieving steeper reductions in earlier budgets with readjustment over time would ensure the greatest climate benefit as this allows for less cumulative emissions into the atmosphere. As a first step, we suggest that the total budget be established using a straight-line trajectory from 2021 to zero in 2050, divided into five-year segments. This can be aligned with interim emissions reduction targets. The carbon budget periods should start as early as possible (see Figure 1 for an example under a linear reduction).
Figure 1: Emissions trajectory and budget for a linear pathway
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Long description
Canada’s greenhouse gas emissions trajectory from 1990 to 2021 and budget for a linear pathway from the year 2021 to 2050 broken into five-year segments, showing a steady decrease in emissions from 2021 to 2050.
Whichever approach is chosen, our analysis points to the following:
- Carbon budgets are better measurement and accountability tools than point-in-time targets: Developing a carbon budget for Canada would bring federal climate policy more in line with climate science by shifting policy from focusing solely on single-year targets to considering the cumulative emissions over time. In principle, a carbon budgeting approach offers a transparent accounting tool.
- Canada should develop a carbon budget including tracking of excess emissions: A domestic carbon budget compatible with Article 2 of the Paris Agreement and the principles of the UNFCCC is not achievable in the short term for Canada as the value would be near-zero or negative. Alternatively, Canada could develop a domestic budget based on an achievable emissions trajectory from the time when Canada’s net-zero legislation was passed to net-zero in 2050 and use the excess emissions to frame its international responsibilities, which could include climate finance, mitigation transfers and/or negative emissions, as well as the development of clear guidelines for ensuring social and environmental integrity of those activities.
- Carbon budgets can avoid some of the pitfalls of point-in-time targets: Assessing emissions reduction action over five-year periods, as well as for individual target years, would mitigate against the inter-annual variability in emissions inventories, particularly for land use, land-use change, and forestry emissions. The range in values for these emissions from one year to the next is as high as 38 Mt in the 2024 National Inventory ReportFootnote ii.31, which is equivalent to a 5% difference in emissions relative to the 2005 baseline. Assessing progress over five-year periods would avoid the problem of a target being missed or surpassed because of non-predictable events influencing carbon exchange with the atmosphere (for example, individual severe fire years) or economic activity (for example, temporary lockdowns due to a pandemic, or shortages and supply-chain bottlenecks).
- Interim point-in-time targets and carbon budgets are complementary and can be linked: The development of an overall budget and interim five-year budget segments can be done in concert with the setting of interim emissions targets under Canada’s net-zero legislation. The same emissions modelling exercises used to inform target setting could be used to define the trajectory for establishing the total budget and/or the interim budgets. For example, the trajectories employed in this analysis suggest the range of 2035 targets consistent with a net-zero trajectory is small (that is, 50% to 55% below the 2050 baseline).
- The process of setting carbon budgets must be transparent: Establishing and operationalizing carbon budgets requires nuance. Although carbon budgets are more scientifically grounded than point-in-time targets, setting a national-scale budget still requires normative choices and consideration of international relationships, public acceptance, and other factors. One partial solution could be to set a carbon budget range similar to the use of a range for the 2030 emissions target. Carbon budgets will appear imprecise and be subject to scrutiny if not supported by a clear and transparent process.
Textbox 2: How could a national carbon budget work in Canada?
A national carbon budget would be based on the remaining global carbon budget (the total global amount of carbon left to “spend”) to keep the global average temperature increase well below 2°C and to pursue efforts to limit it to 1.5°C above pre-industrial levels per the Paris Agreement. Canada would determine its respective national carbon budget based on considerations of fairness, equity, and method choices.
The image below depicts a national carbon budget broken down into five-year interim milestones based on what Canada has already “spent” prior to 2030 and what is left in the national budget (that is, the cumulative emissions that Canada intends to permit). Each interim milestone is progressively smaller as Canada moves closer to its net-zero target in 2050.
Figure 2: Illustrative budget for Canada
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Long description
Illustrative budget for Canada showing a circle with Canada’s emissions already spent and four segments left to spend: 2031-2035, 2036-2040, 2041-2045, 2046-2050.
Overall, carbon budgets have clear advantages. They more directly represent the country’s contribution to climate change than point-in-time targets. While developing a carbon budget would provide many benefits, it would be important to have an ongoing dialogue on the best ways to operationalize and consider policy implications, such as the ability to carry over budget surplus and its status in the current accounting and reporting architecture (for example, Canada’s net-zero legislation).
In providing this advice, NZAB notes that carbon budgets are a tool already utilized by some of Canada’s key trading partners that have also been piloted at the provincial and municipal level in Canada. We also note significant momentum and action by cities like Edmonton, Montreal, Toronto, and Vancouver, as well as the province of Manitoba, which has adopted the concept of cumulative emissions reductions in five-year periods with its Second Carbon Savings AccountFootnote ii.32.
Advice 2: Adopt an emissions reduction target of 50% to 55% below 2005 levels for 2035
The Government of Canada should adopt a 2035 target of 50% to 55% below 2005 levels. The proposed target meets the Paris Agreement requirement to increase ambition and it puts Canada on track to meet its 2050 target. Meeting the target will require greater ambition on decarbonization from not just the federal government, but also provinces, territories, municipalities, and the private sector.
This target, like previous targets, is a “net emissions” target. This means that while direct domestic reductions of emissions should be the primary focus, reaching the target will also require additional actions such as negative emissions and internationally financed emissions reductions.
NZAB’s recommended range of 50% to 55% below 2005 levels for the 2035 target is informed by its own carbon budget analysis (see Technical Annex) and analysis by the Canadian Climate Institute of various 2035 emissions target scenarios. It is also informed by the ambition of key international partners, the feasibility of achieving the target, and implications at the regional and national level for affordability, Indigenous reconciliation, competitiveness, jobs, and environmental health.
We have decided to recommend a range due to advantages over a single number target, such as better reflecting uncertainties about future economic growth and technological progress, as well as striking a balance between different objectives.
In our assessment, we considered targets ranging between 46% to 61% below 2005 levels, whereby 46% represents the minimum ambition over the high-end of the 2030 target (45% below 2005 levels) and 59% represents the year 2035 on a straight-line emissions reduction trajectory from the high-end of the 2030 target to net-zero in 2050.
In establishing the low end of our recommended range, we noted that targets between 46% to 50% below 2005 levels, while more feasible to achieve given existing technologies and the current economic context in Canada, are also very close to Canada’s 2030 target. This would risk putting Canada too far behind its net-zero goal and would likely represent insufficient ambition in contrast to Canada’s key international partners, including other G7 countries like the United States.
In establishing the high end of our recommended range, we noted concerns about the social and economic consequences for targets above 55% despite the climate benefits of greater early reductions given the cumulative impact of emissions.
For our recommended target, the high-end of the range (55%) is intended to drive overall ambition to keep Canada on track to achieve net-zero by 2050 and is aligned with international obligations and consistent with a target-based carbon budget approach. The low end of the range (50%) is consistent with Canada’s international obligations and economic feasibility. It also ensures that Canada’s target for 2035 considers the implications of the target established by the United States for 2030 (50% to 52% below 2005 levels). With 2035 being roughly the midpoint year between 2021 and 2050, a minimum target of 50% signals Canada’s intention to pass the midpoint of ambition on its long-term pathway to net-zero. It is important to note our recommended 2035 target is for “net” emissions. While we recommend that the target be met primarily via domestic emissions reduction, there is a case for considering additional negative emissions measures and/or international transfers, such as internationally transferred mitigation outcomes, provided that environmentally sound rules are followed. We will analyze the potential for these measures more closely in the coming year.
The recommended target range applies at the national level. Achieving the target range will require effort from all actors, including provinces, territories, municipalities, and the private sector. While we are not proposing regional or sectoral targets, we emphasize that all sectors must contribute a fair share of emissions reductions, and regional differences must be recognized.
Textbox 3: Target analysis
Our recommended target range is informed by the target-based carbon budget approach previously described. The middle of the target range (53% below 2005 levels) emerges from a target-based approach (that is, a straight-line emissions reduction trajectory) from 2021 (the passing of Canada’s net-zero legislation) to zero in 2050, while the upper bound of the range (55% below 2005 levels) represents a straight-line emissions reduction trajectory from the lower bound of the 2030 target (40%) to zero in 2050 (see Table 2). The 50% was not directly derived from carbon budget analysis but indicates a lower bound corresponding to halfway to net-zero.
Year | GHG Emissions (Mt) | % reduction over 2005 | Data source |
---|---|---|---|
2005 (reference year) | 761 |
N/A | National Inventory Report 2024 |
2021 (Canada’s net-zero legislation passed) | 698 |
8% | National Inventory Report |
2035 (recommended target - low) | 381 |
50% | Halfway to net-zero |
2035 (recommended target - middle) | 358 |
53% | Straight line from 2021 to 0 in 2050 |
2035 (recommended target - high) | 342 |
55% | Straight line from the target in 2030 (40%) to 0 in 2050. |
2050 (Net-zero goal) | 0 |
100% | Net-zero goal |
Textbox 4: Canadian Climate Institute analysis
NZAB partnered with the Canadian Climate Institute to evaluate credible options for a 2035 emissions reduction target for Canada. The Institute, in partnership with Navius Research, modelled emissions reductions of 46%, 49%, 52%, 55%, 58%, and 61% below 2005 levels. These were assessed relative to an Emissions Reduction Plan baseline scenario on different criteria such as emissions, affordability (the consumption portion of GDP), competitiveness (the investment portion of GDP), economic growth (GDP), benefits-costs (based on the social cost of carbon), and ease of policy implementation (see Figure 3 for details). First, the analysis concluded that delaying action would be costly. Second, it showed that an overly aggressive target might erode affordability for some consumers, but that this conclusion should be monitored regularly since the future price of decarbonization technologies are uncertain but expected to decline. Finally, the Institute suggested an optimal target in the range of 47% to 50% to balance those two considerations, but noted that at NZAB’s request, its analysis excludes potential emissions reductions from nature-based solutions and agriculture measures, which could increase the target range up to 49% to 52%.
Figure 3: Impacts on indicators, relative to the Emissions Reduction Plan by 2035 target scenario
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Long description
This table shows the impacts on six vertical indicators (cumulative emissions, affordability, competitiveness, economic growth, benefit-cost ratio, and ease of policy implementation) for six horizontal 2035 target scenarios of emissions reductions (46%, 49%, 52%, 55%, 58%, and 61% below 2005 levels). Indicators are assessed relative to the Emissions Reduction Plan baseline on a graded scale from challenge (-5) to minimal impact (0) to improvement (+5). As targets go from 46% to 61%, the table shows a gradual improvement for cumulative emissions (from around +1 to +5), a gradual challenge for affordability (from -1 to -5), a gradual improvement for competitiveness (from -3 to +3), a gradual challenge for economic growth (from -2 to -5), a gradual improvement for benefit cost-ratio (from -1 to +3) and a gradual challenge for ease of policy implementation (from +3 to -3).
Advice 3: Address Canada’s excess emissions
Due to the 2035 target and a carbon budget exceeding a fair share of global emissions, we encourage the Government of Canada to develop an approach to identify and pursue near- and long-term additional measures that can address Canada’s excess emissions, including enhancing international climate financing (for mitigation, adaptation, and loss and damage), negative emissions (that is, carbon dioxide removal, including natural processes and other biological or chemical processes that can accelerate the removal of carbon from the atmosphere) and internationally financed emissions reductions.
As part of this approach, the Government of Canada should ultimately set numerical targets to track progress in taking additional measures to address its excess emissions.
As part of our carbon budget analysis, we have advised that a target-based carbon budget would not be compatible with a fair share of the global mitigation burden under Article 2 of the Paris Agreement, which Canada has committed to meeting. Canada should therefore estimate and address its excess emissions (that is, the difference between the national carbon budget and a fairness-based budget that is compatible with the Paris goals).
The Ireland Climate Change Advisory Council undertook a comparative study to assess how the European Union and seven countries (France, United Kingdom, the Netherlands, Finland, Denmark, New Zealand, and Ireland) define their share of the global carbon budget as their national carbon budgetFootnote ii.33. All use different methods and rely on different assumptions about negative emissions or temperature goals. For example, while Finland integrates a fair share in its national budget, most countries do not explicitly consider fair share or include it outside of their carbon budget. We believe that recognizing and quantifying explicitly the difference between Canada’s fair-share obligations and Canada’s actual national carbon budget as excess emissions is both transparent, responsible, courageous, and necessary to address climate mitigation ethically.
The excess emissions, which can be calculated from the difference between target-based and fairness-based carbon budgets, is an estimate of the emissions that will need to be accounted for to ensure Canada is fairly contributing to global efforts to respect the Paris Agreement. Even with conservative estimates, Canada’s estimated excess emissions through 2050 is more than 8,400 Mt CO2e.
While the estimated excess emissions may seem daunting (representing approximately 12 times Canada’s annual emissions as of 2022), tracking and addressing Canada’s excess emissions would bring clarity and credibility to the country’s role in global efforts on climate change. It would position Canada as a leader in the ethical thinking and action to tackle climate change and could open the way for fairer contributions to emissions reduction between developed and developing countries.
Determining the quantity and relative importance of the different options to account for the excess emissions will require broad consultation. For example, a strict emissions accounting approach would imply that Canada accounts for the excess emissions via investment in negative emissions, domestically or internationally, and/or international emissions reductions efforts. This would align directly with the Paris Agreement goal. An alternative approach would use excess emissions to inform the scale of international climate action supported by Canada, including financing for adaptation in the developing world, compensation for loss and damage, as well as investment in negative emissions and international mitigation efforts.
This approach would consider the broader international obligations under the Paris Agreement and the United Nations Framework Convention on Climate Change given the increasing magnitude of international climate impacts, but it also could leave more carbon in the atmosphere relative to the first approach. In either case, the mix of methods used to account for excess emissions will depend on both domestic considerations, including relative capacity and equity, as well as international considerations, including the needs and values of developing nations impacted by Canada's and other more developed countries’ disproportionate contribution to warming to date.
A focus on Canada’s excess emissions brings to the fore the role of negative emissions or activities that remove carbon dioxide from the atmosphere. Carbon dioxide removal options include nature-based solutions such as afforestation and the restoration of forests, soils, and coastal ecosystems, as well as more early-stage technology-based solutions like bioenergy with carbon capture, direct air capture, enhanced rock weathering, carbon mineralization, and ocean-based removal.
Some carbon dioxide removal will inevitably be necessary to achieve net-zero due to emissions sources which cannot be abated (for example, emissions from agricultural soils). In addition, reliance on carbon dioxide removal is found in all pathways employed by the IPCC which avoid 1.5°C or 2°C warmingFootnote ii.34. While Canada, like any other country or entity, must focus primarily on reducing or eliminating emissions, the effort to address Canada’s excess emissions must be pursued in tandem and requires analyses of negative emissions options.
We recognize that the concept of excess emissions is new for the federal government and many Canadians. As part of our forward workplan, we will undertake more analysis and provide further guidance on options Canada could pursue to frame and address its excess emissions.
Conclusion: Mobilize all efforts to achieve Canada’s climate bottom line
This report has presented three pieces of advice which are to develop a carbon budget, establish an emissions target range of 50% to 55% below 2005 levels, and address Canada’s excess emissions. Building on important progress in reducing Canada’s emissions, the Government of Canada must signal continued ambition to accelerate towards net-zero.
Governance, accountability, and transparency mechanisms are also key to success, which is why Canada should also adopt additional tools to improve tracking of Canada’s decarbonization progress, including a carbon budget.
Putting all the policies in place to achieve the 2035 target is critical and will require action by all actors and not just the federal government. Purposeful action, including on negative emissions, is essential given the recommended target range. The choice of a target must also consider other societal benefits and objectives, especially reconciliation with Indigenous Peoples. We encourage increased ambition and leadership from all actors in the country and will continue to monitor goals over time as circumstances and technological costs change.
We emphasize the importance of thinking about climate objectives in the larger environmental context of biodiversity and human health preservation, and especially to prevent damaging impact transfers that could occur along our race to net-zero. We also note a growing discussion and consideration of net-negativeFootnote ii.35 targets globally. We will take some time over the next year to reflect on the potential relevance of such targets for Canada.
Over the next year, we will also work to better understand key emissions sources and sinks that are particularly uncertain, such as emissions and removals from agriculture and land use, land-use change and forestry, and negative emissions. We will also aim to better understand some international mechanisms that can potentially support our achievement of domestic targets (for example, Internationally Transferred Mitigation Outcomes) and reflect further on the appropriate use of such tools as part of our future work.
It is our sincere hope that our advice will provide a meaningful contribution to the Government of Canada’s consideration of Canada’s 2035 emissions reduction target. Whatever target is established by the government, it should be explicit about the underlying rationale and the factors that were considered, including social, environment, economic, technology, scientific, Indigenous, risks, and geopolitical considerations.
Glossary
Carbon budgets specify the cumulative amount of GHG emissions permitted over a period of time to limit a specific temperature increase. Carbon budgets differ from point-in-time targets in that emissions not only have to fall to a certain level by a particular year, but the overall emissions allowed in a given period is also limited.
Excess emissions are the remaining emissions when comparing a fairness-based carbon budget with a target-based carbon budget.
Fairness-based carbon budgets draw directly from scientific analyses of the remaining global carbon emissions for a specified chance to avoid a given level of warming. Under this approach, Canada is allocated a fair share of the remaining global carbon budget based on historical contribution to global emissions and capacity to act.
Negative emissionsFootnote ii.36 are the removal of GHGs from the atmosphere by deliberate human activities, which is in addition to the removal that would occur via natural carbon cycle processes.
Net negative emissionsFootnote ii.37 occur when, as a result of human activities, more GHGs are removed from the atmosphere than are emitted into it.
Point-in-time targets are emissions targets for a given year (2030, 2035, etc.).
Target-based carbon budgets draw from national emissions targets rather than directly from the remaining global carbon budget as with fairness-based carbon budgets. A target-based carbon budget can be computed directly from a trajectory between historical emissions and a net-zero target.
Technical Annex: Carbon budgeting for Canada
The Net-Zero Advisory Body (NZAB) undertook analysis to evaluate the scientific basis for, and key considerations in, the development of a national carbon budget to inform its advice in setting a 2035 GHG emissions reduction target for Canada. NZAB proposes a carbon budgeting approach to calculate Canada’s excess emissions and determine Canada’s domestic emission reduction obligations.
A fairness-based approach allocates a fair share of the remaining global carbon budget to Canada based on historical contribution to global emissions and capacity to act.
A target-based approach is based on national emissions targets and calculates the carbon budget directly from a trajectory between Canada’s historical emissions and a net-zero target.
Our analysis concludes that:
- carbon budgets are better measurement and accountability tools than point-in-time targets
- Canada should develop a carbon budget which tracks excess emissions
- carbon budgets can avoid some of the pitfalls of point-in-time targets
- interim point-in-time targets and carbon budgets are complementary and can be linked
- the process of setting carbon budgets must be transparent
1. Introduction
At the current pace of global GHG emissions and warming, the world will soon begin to pass the temperature limits set in the Paris Agreement and which are supported by Canada. The Intergovernmental Panel on Climate Change (IPCC) projects that the world will pass the 1.5°C warming threshold, defined as the average year surpassing that global mean temperature, in the early 2030s, and the 2°C threshold as early as the 2040sFootnote ii.38. Nine of the ten warmest years globally since records began occurred in the past decadeFootnote ii.39, and a recent 12-month period was the first to exceed 1.5°C above the baseline commonly used to define the global temperature limitsFootnote ii.40. Paleoclimate evidence suggests these are the warmest global average temperatures since the development of agriculture and human civilization at the end of the last ice age, roughly 10,000 years ago, and possibly in the past 120,000 years, since before the last ice age.
The collective emissions reduction efforts necessary to avoid these and other global warming levels is often characterized by the climate science community in terms of the total amount of carbon or carbon dioxide that can be emitted over time. This is possible due to a near-linear relationship between the cumulative human-derived CO2 emissions and the mean global warmingFootnote ii.41.
This relationship allows scientists to estimate a remaining carbon budget, which is the net amount of CO2 that human activities can emit while keeping the planet below a specified global warming level, such as 1.5°C, and taking into account the effect of non-CO2 gases. For example, the recent IPCC Sixth Assessment Report (AR6) computed that as of January 2020, the global remaining carbon budget for a 67% chance of avoiding 1.5°C warming level was 400 Gt CO2Footnote ii.42. This is equivalent to less than 10 years at the current rate of global emissions (see Section 2.1), and hence consistent with the conclusion that, at the recent rate of global emissions, the world will surpass 1.5°C warming in the early 2030s.
The NZAB’s Net-Zero Pathways - Initial Observations report noted that the most likely pathways to net-zero use carbon budgets as a basic tool. Carbon budgets are also valuable tools for tracking and communicating the pathway to net-zero with accountability and transparency. Defining a remaining carbon budget is, from a scientific perspective, more instructive than defining emissions targets for individual years because cumulative emissions, or the pathway between target years, has a more direct relationship with warming than the emissions in individual target yearsFootnote ii.43.
Unlike emissions targets for individual years, the budget clearly defines how much CO2 is left to emit in the effort to avoid dangerous levels of climatic change and/or achieve a long-term net-zero goal. National-scale carbon budgets are currently used by several countries including the United KingdomFootnote ii.44, FranceFootnote ii.45, New ZealandFootnote ii.46, and Germany (at the sectoral level)Footnote ii.47.
The application of carbon budgets requires nuanceFootnote ii.48. The global remaining carbon budget to avoid a specified level of warming itself depends on the selected temperature limit, the historical emissions, the warming to date, and the relationship between cumulative emissions and warming. Due to fundamental scientific uncertainty (see Textbox 5), remaining carbon budgets are expressed probabilistically as values that provide a given percent chance of avoiding the specified warming level.
Nevertheless, carbon budgets remain the best tool available for relating a country’s GHS emissions over time to the impact on the climate and placing national decarbonization efforts in a global context. The inherent uncertainties are motivation to take a precautionary approach to setting a carbon budget in case the remaining budget to avoid a desired level of warming is overestimated.
In order to assess the merit of carbon budget approaches for determining interim emissions reduction targets and defining pathways to net-zero, this report analyzes two contrasting approaches for developing a carbon budget for Canada:
- The fairness-based approach draws directly from scientific analyses of the remaining global carbon budget for a specified chance to avoid a given level of warming. Canada is allocated a fair share of the remaining global carbon budget based on historical contribution to global emissions and capacity to act.
- The target-based approach draws from national emissions targets rather than directly from the remaining global carbon budget as above. The budget can be computed directly from a trajectory between historical emissions and a net-zero target.
Textbox 5: Carbon budget uncertainty
Scientific estimates of remaining global carbon budgets are frequently updated based on model developments and new data on temperature and historical emissions of CO2, non-CO2 gases and aerosols. Non-CO2 gases are not explicitly modelled in global carbon budgets because warming from non-CO2 GHGs like methane and nitrous oxide scales with the rate of emissions over time, rather than their cumulative emissions, due to their short lifetime in the atmosphere.
However, scientists must estimate the contribution of those other gases to future warming to calculate the remaining carbon budget. These estimates are sensitive to the assumptions like the rate of decline in aerosol pollutants over time and contribute to carbon budget uncertainty. The modelling approach also influences budget estimates and was the primary driver of differences in budget estimates between the Working Group I and III contributions to the IPCC AR6Footnote ii.49.
2. Fairness-based carbon budget for Canada
Establishing a fairness-based national carbon budget requires determining Canada’s share of the remaining global carbon budget. Among the many different considerations in the national allocation may be international and intergenerational equity, the human right to development, and the capability to decarbonizeFootnote ii.50.
The concept of a fair national share of global emissions can be rooted in international climate governance. Under the United Nations Framework Convention on Climate Change (UNFCCC), countries committed to “taking into account their common but differentiated responsibilities and their specific respective national and regional development priorities, objectives and circumstancesFootnote ii.51.” In other words, climate change is a collective action problem in which different members of the collective are responsible for different levels of action. As one of the historically highest per capita emitters and wealthiest countries, Canada has a disproportionate responsibility for climate action under UNFCCC.
The principles of equity, capability, and responsibility, derived from the UNFCCC, have been proposed to guide fair national allocations of the remaining global carbon budgetFootnote ii.52.
- Equity refers to the sharing of the right to development and to the production of GHG (allocated via population).
- Capability refers to the means to mitigate GHG and can be allocated by gross domestic product (GDP).
- Responsibility refers to countries having contributed differently to emissions over history and having different understanding of the impact on the climateFootnote ii.53 (allocated via historic contribution to emissions).
Following these principles, the expertsFootnote ii.54 and literatureFootnote ii.55 suggest that the equitable remaining carbon budget aligned with Article 2 of the Paris Agreement (“limiting global temperature increase to well below 2 degrees Celsius, while pursuing efforts to limit the increase to 1.5 degrees”) for high per capita emitters like Canada is near-zero or negative.
2.1 Illustrative fairness-based budget
Here we provide an illustrative analysis of the remaining fairness-based carbon budget for Canada, following from IPCC AR6 Physical Science Basis Working Group (WGI) estimatesFootnote ii.56 of the global remaining carbon budget and the principles of equity, capability, and responsibility (see Appendix). Given the uncertainty around the global carbon budget estimates (see Textbox 5) the analysis was repeated using global budget estimates from IPCC’s Mitigation Working Group (WGIII)Footnote ii.57 and a 2023 analysis by Lamboll et al.Footnote ii.58 which included data and methods developed since the publication of the IPCC report.
Results are presented for a 50% and 67% chance of avoiding 1.5°C of warming, and a 67% chance of avoiding 2°C of warmingFootnote ii.59. The presented budgets are scaled to reflect all greenhouse gases, based on the fraction of national emissions (in CO2e) in the form of CO2Footnote ii.60, to be comparable to the emissions inventory data. The full methods are provided at the end of the report.
Following on the principles of equity and capability, the WG1 remaining carbon budget for Canada from January 1, 2023, onwards is very small (see Table 3). The budget for a 50% or 67% chance of avoiding 1.5°C warming is equivalent to roughly two years or less at the current emissions rateFootnote ii.61, implying that the budget could be consumed by the end of 2024. The budget for a 67% chance of avoiding 2°C of warming is equivalent to 7 to 8 years at the current emissions rate, implying that without a reduction in emissions, the budget would be consumed around the end of this decade. These budgets based on equity and capability are small because of Canada’s disproportionate share of global emissions relative to the country’s population, and because of the limited mitigation action to date relative to the country’s GDP.
Remaining Budget (Mt CO2e) | >67%, 1.5°C | >50%, 1.5°C | >67%, 2°C | ||||
---|---|---|---|---|---|---|---|
IPCC WGI | IPCC WGI | IPCC WGIII | Lamboll et al. | IPCC WG1 | IPCC WGIII | Lamboll et al. | |
Equity (population) | 901 | 1,539 | 1,603 | 685 | 5,687 | 4,028 | 5,133 |
Equity - years remaining | 1.3 | 2.2 | 2.3 | 1.0 | 8.0 | 5.7 | 7.3 |
Capability (GDP) | 680 | 1,257 | 1,315 | 485 | 5,009 | 3,508 | 4,508 |
Capability - years remaining | 1.0 | 1.8 | 1.9 | 0.7 | 7.1 | 5.0 | 6.4 |
Responsibility (past emissions) | -14,292 | -13,654 | -13,590 | -14,508 | -9,506 | -11,165 | -10,060 |
Responsibility - years remaining | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Following the principle of responsibility, the remaining carbon budgets are negative for all warming levels due to amassed emissions in excess of an equitable-based share of the global emissions since the creation of the UNFCCC in 1992 (see Table 3). The responsibility-based remaining carbon budget became negative by the year 2005 for a 67% chance of avoiding 1.5°C warming, and the year 2011 for a 67% chance of avoiding 2°C warming.
The results using global budget estimates from IPCC’s Mitigation Working Group (WGIII) and the recent budget update by Lamboll et al. are similar, with the remaining budgets for a 50% chance of avoiding 1.5°C warming equivalent to 0 to 2 years of current emissions using the equity and capability principles, and negative using the responsibility principle (see Table 3).
These illustrative remaining carbon budgets confirm that a fairness-based carbon budget for Canada that aligns with climate science, strictly follows the principles in the UNFCCC, and adheres to the warming limits in the Paris Agreement would be near-zero or negative. The small or negative budget arises because Canada has been a disproportionate source of GHG emissions relative to its population and its broad economic capability to decarbonize, as roughly represented by GDP, and because the world is nearing the temperature limits in the Paris Agreement.
Employing a science-driven budget approach for setting interim emissions reduction targets is not possible for the 1.5°C warming and/or for the responsibility cases without assuming substantial negative emissions or international transfers.
In the 2°C warming case, keeping within the equity and capability budgets would involve extremely steep near-term emissions reductions. That is, a linear rate of reduction implies a 2035 target of 82% to >100% below 2005 levels using the IPCC WG1 or Lamboll et al. budgets, which could also only realistically be achieved via substantial negative emissions or international transfers.
A strict science- and fairness-based approach that follows UNFCCC principles is therefore not advisable for establishing carbon budgets or interim targets for Canada that are to be achievable via domestic emissions reductions.
The analysis also indicates that less stringent, and hence more realistic and achievable, interim targets embed a structural injustice in that they imply Canada is claiming a disproportionate share of the remaining global carbon budget to avoid the warming limits in the Paris Agreement. To comply with UNFCCC principles, other means like international climate finance would then be necessary to address the structural injustice, as described in the next section.
3. Target-based carbon budget approach for Canada
An alternative approach for Canada is to establish a budget based directly on emissions targets set by the Canadian Net-Zero Emissions Accountability Act, Canada’s net-zero legislation. The budget would be determined based on a trajectory between the emissions level when the legislation passed and the established goal of net-zero emissions in the year 2050. This approach maintains the concept of tracking cumulative emissions without adhering to the limits imposed by Paris- and UNFCCC-compatible remaining carbon budgets described above.
A domestic budget determined in this manner would not be compatible with a fair share of the global mitigation burden under Article 2 of Paris Agreement without extensive development and deployment of negative emissions technologies. However, the difference between the target-based and fairness-based budgets should be used to estimate a quantity of “excess emissions”Footnote ii.62. These excess emissions would then be used to inform the scale of international climate finance, international mitigation effort, and negative emissions investment spearheaded by Canada.
This approach lends well to developing interim budgets, for example, five-year budget periods, within the overall remaining emissions budget as done in the United Kingdom and France. The budget for a subsequent interim period would be adjusted based on any surplus or deficit during the previous period, while still maintaining the long-term total budget.
3.1 Illustrative target-based budget
Here we provide examples of target-based budgets for Canada developed directly from Canada’s net-zero legislation. In each case, the budget is determined as the total cumulative emissions (all gases, in Mt CO2e) along a trajectory between the starting point in 2021Footnote ii.63, when the legislation was passed, and the legislated goal of net-zero emissions by 2050. Assigning an initial emissions reduction trajectory or a pathway is necessary in this approach to determine the budget.
The five different emissions reduction trajectories and associated budgets draw from different common representations of deep decarbonization pathways. These are theoretical examples presented for illustrative purposes, and are not based on modelling the effect of current or announced policies on emissions:
- Linear: linear decline, the simplest approach for determining a budgetFootnote ii.64
- Sigmoid: two different inverse logistic- or sigmoid-shaped trajectories, commonly assumed to represent realistic decarbonization pathways involving rapid progress in the middle of the time period and slower progress at the beginning and the endFootnote ii.65
- Hybrid: a sigmoid trajectory to the lower end of the 2030 target range (40% below 2005 levels) followed by a linear decline
- Decay with negative emissions: exponential decayFootnote ii.66 to 50 Mt CO2e in 2050
In the first four examples, any negative emissions measures would be incorporated within the budget. For comparison, the fifth example presumes negative emissions are represented separately from the positive emissions budget and reach a level of 50 Mt CO2e by 2050. This 50 Mt is simply illustrative and should not be seen as any attempt by NZAB to forecast the appropriate and realistic amount of carbon removal for 2050.
Although the trajectories were arbitrarily determined using mathematical functions, the budgets based on these trajectories fall within a relatively narrow range (see Table 4; Figure 4). The mean value across the five examples of 10,591 Mt CO2e is roughly 12 to 15 times larger than that of the equity and capability carbon-based budgets for a 67% chance of avoiding 1.5°C, and twice that of the budgets for 67% chance of avoiding 2°C. The results show that the pathway to net-zero matters. The budget, and hence the implied global warming effect, is larger in a trajectory assuming slow initial progress, even when followed by sharp declines (for example, Sigmoid Case 2), because it locks in more early years at high emissions levels. The budget is also higher if negative emissions, such as the decay example, are accounted for separately.
Key features | Linear (from 2021) | Sigmoid | Hybrid | Decay (+ negative emissions) | |
---|---|---|---|---|---|
Case 1 | Case 2 | ||||
Amount (Mt CO2e) | 10,477 | 10,198 | 10,852 | 10,397 | 11,034 |
2035 emissions, relative to 2005 | -53% | -52% | -46% | -55% | -51% |
Implied global warming (°C) | |||||
Equity principles | 2.45 | 2.42 | 2.49 | 2.44 | 2.51 |
Capability principles | 2.56 | 2.52 | 2.60 | 2.55 | 2.62 |
Emissions Debt (Mt CO2e), for a 67% chance of avoiding 1.5°C | |||||
Equity | -8,692 | -8,413 | -9,067 | -8,612 | -9,249 |
Capability | -8,863 | -8,584 | -9,238 | -8,783 | -9,420 |
Responsibility | -20,445 | -20,166 | -20,820 | -20,366 | -21,003 |
The emissions in the year 2035 along these trajectories range from 46% below 2005 levels in the sigmoid case with slow initial progress to 55% below 2005 levels in the hybrid trajectory designed to meet the lower end of the 2030 target range. The range of values is relatively small, in part because 2035 is the midpoint between the passage of Canada’s net-zero legislation and the 2050 net-zero goal. Because emissions in 2021 were lower than in the baseline year of 2005, a linear trajectory implies 2035 emissions should be 53% below the baseline. A 2035 interim target of less than 53% equates to leaving more emissions reduction burden to the latter half of the time period covered by the legislation. The trajectory designed to meet the lower end of the 2030 target range (40% below 2005 levels) achieves a 55% reduction below 2005 levels in the year 2035Footnote ii.67.
Figure 4: Emission trajectories and budgets, a) linear, b) sigmoid #2, c) hybrid, d) decay with negative emissions
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Long description
Canada’s greenhouse gas emissions trajectories and budgets for four scenarios (graphs with lines and bar charts). The blackline from 1990 to 2021 represents real emissions (from around 600 Mt CO2e to around 700). The blue line represents projected emissions from 2021 to 2050. The blue line is descending to 0 in four different shapes; a) linear, b) sigmoid, c) hybrid (sigmoid and linear) and d) decay with negative emissions (smoother sigmoid). Along the blue line, the budgets from the years 2021 to 2050 are broken down into five-year segments (bar charts).
The excess emissions associated with a 67% chance of avoiding 1.5°C of warming are equivalent to 12 to 13 years of emissions at current (2022) levels using the equity or capability approach, and 28 to 31 years using the responsibility approach. Another way to conceptualize the excess is via the warming implied by the selected budgets. If the global remaining carbon budget from Section 1.1 were inverted, and the Canadian emissions budgets were translated back into implied global temperature change, these budgets would be the equivalent of a fair share based on equity or the capability of a 67% chance of avoiding 2.42°C to 2.62°C warmingFootnote ii.68. Accounting for the emissions debt via international action or negative emissions would be necessary to lower the implied global warming down to 1.5°C.
As mentioned, choosing an emissions trajectory is necessary for establishing a total budget amount. The analysis presented here involves arbitrary emissions reduction pathways not based on projected policy or innovation. Notably, the range value of the budgets is nevertheless similar across the different pathways, that is, less than 8%.
Since the starting point of 698 Mt in 2021 and the ending point of 0 Mt in 2050 are the same in each pathway, the total budget values will be similar unless an unusual pathway is chosen (for example, very steep initial reductions or limited action followed by very steep reductions late in the time period). Given that the total budget value is not highly sensitive to the choice of the pathway, a simple linear decline pathway or a hybrid that incorporates the 2030 target range may be most suitable for establishing the budget.
This initial assumed trajectory is only necessary to establish the budget. Once an emissions budget has been established, the emissions pathway used to set interim targets and interim budget segments becomes flexible provided the segments remain consistent with the total allotted budget. However, as noted above, because 2035 is the midpoint between the passage of Canada’s net-zero legislation and the 2050 net-zero goal, the range of interim targets for 2035 that put Canada on a realistic trajectory to net-zero is small.
For Canada, the pathway to 2050 could be divided into five-year segmentsFootnote ii.69 covering the 30-year period between the passage of the legislation and the net-zero-by-2050 objective (for example, 2021 to 2025, 2026 to 2030 through to 2046 to 2050). Figure 4 on the previous page provides an illustration of the sample budgets divided into five-year segments (linear at top, followed by sigmoid and exponential decay). The trajectories line (green) extends from the 2021 historical emissions from the National Inventory ReportFootnote ii.70 (dark blue line) to the 2050 target, and the five-year budgets are computed based directly on the trajectory used to estimate the total budget. Note that the exponential decay budget is intended as an example of negative emissions being represented separately from the budget, hence the trajectory reaching the assumed negative emissions total (50 Mt CO2e) rather than zero by the end of 2050.
Using this approach, the five-year budget segments could be set and adjusted over time, based on the projected emissions impact of enacted policy and debt or surplus, accrued from exceeding or not exceeding, previous five-year budget segments. This could directly inform the setting of interim emission reductions targets. Employing budget segments could necessitate holding regular reviews of interim emissions targets based on implications of debt or carryover from previous budget segments on future budget segments. For example, if Canada was to exceed the 2026 to 2030 budget, the 2031 to 2035 budget would need to be smaller than previously expected, which could imply also revising a previously established 2035 target. Decisions would also need to be made about whether surplus from previous budget segments, as has occurred in the United Kingdom, could be used to increase future budget segmentsFootnote ii.71, or to reduce the overall budget and the associated excess emissions.
4. Key findings
This analysis of two approaches to develop and employ national carbon budgets for Canada points to the following key findings:
- Carbon budgets are better measurement and accountability tools than point-in-time targets: Developing a carbon budget for Canada would bring federal climate policy more in line with climate science by shifting policy from focusing solely on single-year targets to considering the cumulative emissions over time. In principle, a carbon budgeting approach offers a transparent accounting tool.
- Canada should develop a carbon budget including tracking of excess emissions: A domestic carbon budget compatible with Article 2 of the Paris Agreement and the principles of the UNFCCC is not achievable in the short term for Canada as the value would be near-zero or negative. Alternatively, Canada could develop a domestic budget based on a realistic emission trajectory from the time its net-zero legislation was passed to net-zero in 2050 and use the excess emissions to frame its international responsibilities in terms of climate finance, mitigation transfers and/or negative emissions, as well as the development of clear guidelines for ensuring social and environmental integrity of those activities.
- Carbon budgets can avoid some of the pitfalls of point-in-time targets: Assessing emissions reductions action over five-year periods, as well as for individual target years, would mitigate against the inter-annual variability in emissions inventories, particularly for land use, land use change, and forestry emissions (LULUCF). The range in values in these latter emissions from one year to the next is as high as 38 Mt in the 2024 National Inventory ReportFootnote ii.72, which is equivalent to a 5% difference in emissions relative to the 2005 baseline. Assessing progress over five-year periods would avoid the problem of a target being missed, or surpassed, because of stochastic events influencing carbon exchange with the atmosphere (for example, individual severe fire years) or economic activity (for example, temporary lockdowns due to a pandemic, or shortages and supply-chain bottlenecks).
- Interim point-in-time targets and carbon budgets are complementary and can be linked: The development of an overall budget and interim five-year budget segments can be done in concert with the setting of interim emissions targets under Canada’s net-zero legislation. The same emissions modelling exercises used to inform target-setting could be used to define the trajectory for establishing the total budget and/or the interim budgets. For example, the trajectories employed in this analysis suggest the range of 2035 targets consistent with a net-zero trajectory is small (that is, 50% to 55% below the 2050 baseline).
- The process of setting carbon budgets must be transparent: Establishing and operationalizing carbon budgets requires nuance. Although carbon budgets are more scientifically grounded than point-in-time targets, setting a national-scale budget still requires normative choices and consideration of international relationships, public acceptance, and other factors. One partial solution could be to set a carbon budget range similar to the use of a range for the 2030 emissions target. Carbon budgets will nevertheless appear imprecise and be subject to scrutiny if not supported by a clear and transparent process.
Appendix: Fairness-based budget methods
The remaining carbon budgets for Canada for a specific chance of avoiding 1.5°C and 2°C of global average surface warming were estimated using available national and international emissions and economic data. First, the global remaining carbon budgets from IPCC WG1, IPCC WGIII, and Lamboll et al. were adjusted to start in 2021 to align with Canada’s net-zero legislation using historical global CO2-only emissions data (fossil fuels, bunker fuels, and LULUCF) from the Global Carbon ProjectFootnote ii.73. Canada’s share of the global remaining carbon budget, referred to below as RCB, using the principles of equity, capability, and responsibility were then calculated using historical population and GDP data from the World BankFootnote ii.74 as well as the Global Carbon Project and 2024 National Inventory ReportFootnote ii.75 historic emissions data, as follows.
The equity-based RCB is allocated based on Canada's mean share of global population from 1992 to 2021. The time frame spans from the creation of the UNFCCC, when the principle of common but differentiated responsibility was enshrined in international climate governance, and the passage of Canada’s net-zero legislationFootnote ii.76:
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Long description
RCB underscore equity equals RCB underscore world times Population underscore Canada over Population underscore World
The capability-based RCB is based on the means to reduce emissions and is allocated based on Canada’s share of cumulative CO2-only emissions from 1992 through 2021, corrected for Canada’s per capita GDP relative to that of the world in 2021, when Canada’s net-zero legislation was passed:
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Long description
RCB underscore Capability equals RCB underscore world times Emissions underscore Canada over Emissions underscore World over per capita GDP underscore Canada over per capita GDP underscore World
The responsibility-based RCB is based on historical contribution to emissions and is allocated based on equitable share of the global RCB over time. It is calculated as the equity-based RCB minus historical excess emissions, that is, cumulative CO2 emissions in excess of fair population share since 1992Footnote ii.77:
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Long description
Carbon debt equals sum from 1992 to 2022 bracket Canada emissions minus parenthesis Global emissions times parenthesis Canada population over Global population parenthesis parenthesis bracket
Since Canada’s national GHG reporting and emissions target includes all GHGs, the RCBs (units of Mt CO2) for 2021 onwards were then scaled to all GHGs (Mt CO2e) by dividing the total by the percent of 2021 national GHG emissions in the form of CO2 (77%) according to the 2024 National Inventory ReportFootnote ii.78.
The scaling was only for the purposes of comparison with commonly used emissions values in Canada. The years remaining in each RCB at the current emissions rate are the same regardless of the scaling.
Each RCB was then updated to January 1, 2023, and onwards by subtracting the reported 2021 and 2022 emissions from the 2024 National Inventory Report. The number of years remaining in each RCB was computed based on that early estimate of 2022 emissions.
Volume 3: Closing the Gap: Reaching Canada’s 2030 Emissions Target
Overview
In July 2023, the Minister of Environment and Climate Change requested advice from the Net-Zero Advisory Body (NZAB) on new incremental measures that the Government of Canada could implement to achieve its 2030 emissions reduction target of 40% to 45% below 2005 levels.
We do that, and we also offer advice on other ways to close the gap that does not solely rely on new measures. Over the past decade, the federal government has created an increasingly complex suite of climate policies that together form a federal net-zero policy framework. This framework, built out of existing, developing, and announced climate policies is indicative of the evolving and consultative approach to governing through the climate crisis. Like any policy framework, it is not perfect, but it can be improved. Our advice focuses on how to do just that: finish what has been started, improve what exists, and then implement new policies.
The Government of Canada has made significant progress on climate action to reduce emissions over the past eight years since signing the Paris Agreement in 2016. However, more aggressive and sustained action is necessary to reach our 2030 emissions target and to shift to a long-term net-zero pathway. Even with ideal implementation of announced policies and meeting of sectoral goals, Canada will fall short of its 2030 target. The first Progress Report on the 2030 Emission Reduction Plan from the Government of Canada estimated that even with full implementation and success of existing plans Canada could miss its 2030 target of reducing emissions by 40% to 45% below 2005 levels by approximately 29 Mt CO2e, which would result in a 36% reduction in emissions from 2005 levels. A failure to achieve the 2030 target would mean that even greater and potentially more costly efforts will be required in the future.
Our report identifies significant opportunities to close the 2030 emissions gap. In short, we believe it is more effective for the Government to focus on a small number of the highest-impact actions and to implement them quickly given the short time until 2030 and the length of time it takes to implement new policies. Through our analysis and consultations, we reached consensus on the opportunities most likely to close the gap:
- finalize announced measures
- address negative interactions
- strengthen industrial carbon pricing
- secure additional emissions reductions from the oil and gas sector
- evaluate and pursue additional action
Introduction: Reaching the 2030 target for Canada
In July 2021, Canada submitted its enhanced Nationally Determined Contribution under the Paris agreement, committing to reduce emissions by 40% to 45% below 2005 levels by 2030Footnote iii.1. This target, along with the commitment to net-zero emissions by 2050, is enshrined in legislation through the Canadian Net-Zero Emissions Accountability Act. Per the requirements of the Act, the Government of Canada released the 2030 Emission Reduction Plan in March 2022 providing details of how Canada intends to reach the 2030 target.
The 2030 target, like all interim targets, helps ensure Canada is on the right path to achieving net zero by 2050, to course correct if needed, and to hold all orders of Government accountable to Canadians for delivering on commitments. The Canadian Net-Zero Emissions Accountability Act sets out a clear process for the federal government to set national emissions reduction targets and develop emissions reduction plans every five years to help achieve these targets with input from provinces and territories, Indigenous Peoples, NZAB, and interested Canadians. The Act also requires that the government explain why it did not meet a target if that occurs.
In July 2023, the Minister of Environment and Climate Change requested advice from the NZAB on additional incremental measures the Government of Canada could implement to achieve its 2030 emissions reduction target and are aligned with net-zero emissions by 2050.
Canada has made clear progress towards its 2030 emissions reduction goal. While emissions have rebounded post-pandemic in most sectors, climate policies and clean technology deployment are contributing to long-term reductions. Since 2005, emissions have decreased in heavy industry, waste, and notably in electricity, where emissions have dropped 59%Footnote iii.2.
For Canada to get closer to achieving its 2030 goal, more must be done.
The Government of Canada’s own estimates indicate that it will miss the 2030 target by around 29 Mt CO2e or only achieve 36% reduction from 2005 levels even with full implementation of existing plansFootnote iii.3. Canadian Climate Institute modelling indicates 2030 emissions could reach 34% to 36% below 2005 levelsFootnote iii.4. While each of these projections use slightly different assumptions, both unequivocally indicate that swift implementation of planned policies that are not yet implemented is necessary to come close to the 2030 emissions reduction goal.
In Fall 2023, the Commissioner on Environment and Sustainable Development (CESD) examined the 2030 Emissions Reduction Plan, focusing on transparency and accountabilityFootnote iii.5. The CESD found that only 45% of the measures in the Emissions Reduction Plan had an implementation deadline and that 95% of the measures noted in the plan lacked a target or expected emission reductions. Consistent with NZAB’s advice in its first Annual Report, the CESD identified the need to improve Environment and Climate Change Canada modelling to address overly optimistic assumptions, limited analysis of uncertainties, and lack of peer review.
The Green Future Index, which ranks 76 nations and territories on their progress and commitment to a sustainable, low-carbon future, ranked Canada 6th in terms of climate policy commitments, but 45th for energy transition progress, 51st for clean innovation, and 57th for its track record at reducing greenhouse gas (GHG) emissionsFootnote iii.6. Similarly, the 2024 Climate Change Performance Index ranked Canada 59th out of a total of 63 countries and the EU, factoring in GHG emissions, renewable energy, energy use and climate policyFootnote iii.7.
Taken together, these analyses indicate a gap in achieving the 2030 target. To reach the target, we need to do more, and we need to do it now.
Advice grounded in values and principles
Early in our mandate, NZAB developed a series of 10 values and principles which we use to frame our work and our advice to the Government. While all are important, three guide us from incremental action to the transformative change necessary to reach Canada’s 2030 and net-zero by 2050 goals:
- Act early and urgently. We must move now and keep innovating to effect necessary, system-level changes.
- Be bold and proactive. We need to be strategic and ambitious and understand the magnitude of changes required.
- Beware of dead-ends. It is important to avoid locking-in systems and technologies that will become emissions liabilities before 2050.
The third principle is of particular relevance to our advice on closing the 2030 emissions gap. Taking a narrow focus on incremental emissions reductions or near-term goals, rather than considering the transformational actions and long-term goals, could result in taking the wrong path. There are actions that could reduce emissions incrementally (by 10% or less in the near term) but are incompatible with eliminating emissions in the long term. Those actions risk locking us into technological systems that will eventually need to be replaced, often at great cost to taxpayers, and to workers.
Achieving the 2030 target will undoubtedly require a society-wide effort. While our advice is focused on the federal government, all Canadian society has a role to play in helping Canada to reduce its GHG emissions. Provinces, territories, municipalities, Indigenous governing bodies, experts, including Indigenous Knowledge Holders and scientists, the private sector, and civil society can all make crucial contributions towards this important goal. Many unrealized opportunities exist to align efforts among these players, leverage existing responsibilities, and grow capacity to achieve climate targets and provide a clean environment, human health, and economic prosperity.
Approach
To respond to the Minister’s request to identify opportunities to close the emissions gap to 2030, NZAB solicited written submissions from 62 experts and partners. NZAB’s engagement mandate is set out in the Canadian Net-Zero Emissions Accountability Act, and includes conducting engagement activities related to achieving net-zero emissions. We work closely with other advisory bodies, both in Canada and internationally, engage with all orders of government, Indigenous governments and organizations, youth, civil society, industry, experts, including scientists and Indigenous Knowledge Holders, and international bodies.
Specifically, we sought suggestions on new emission reduction measures that the Government of Canada should implement in the next two to three years, on the identification of any major outstanding gaps in design or implementation of current or proposed federal climate policies, and on how these measures could be designed and implemented to advance reconciliation with Indigenous Peoples as well as a process towards an equitable net-zero future. This stakeholder input was published in our 2022-2023 What We Heard Report. In short, respondents shared the need to fully implement all proposed climate policies, to focus new measures on public transport and buildings, to strengthen existing measures, and to create new measures that lay the groundwork for additional emission reductions.
Supporting self-determined Indigenous climate action
Climate change directly threatens Indigenous ways of life with its impact on plant and animal harvesting, winter road “lifelines” and frequent, widespread wildfire evacuations. The impact of climate change on Indigenous Peoples is disproportionate and requires a correspondingly focused and self-determined response strategy. Enabling meaningful partnership with Indigenous Nations, governments, and communities is an important step to advance reconciliation with Indigenous Peoples, respecting their inherent, constitutional, and international rights, and increasing the likelihood that Canada can meet its 2030 emission reduction objectives through projects on or impacting Indigenous lands.
Two areas where we received clear input on is the implementation of the United Nations Declaration on the Rights of Indigenous Peoples Act and the National Indigenous Loan Guarantee Program.
In June 2023, the Government of Canada released the Action Plan to support the United Nations Declaration on the Rights of Indigenous Peoples Act. Measures 46 to 50 of this plan aim to support self-determined climate action for Indigenous Peoples. Implementation of the United Nations Declaration on the Rights of Indigenous Peoples Act and ensuring acceptable consent is a long-standing concern of First Nations, Inuit, and the Métis. To achieve net-zero objectives, net-zero projects will need to continue to be implemented across Canada in and/or through Indigenous territories (for example, build access roads). All governments must consistently and meaningfully implement the United Nations Declaration on the Rights of Indigenous Peoples Act, particularly as it relates to free, prior, and informed consent.
The Government of Canada’s Budget 2024 proposed up to $5 billion towards the creation of a National Indigenous Loan Guarantee Program to reduce the barriers to Indigenous participation in energy projects, including co-ownership. In part due to the colonial legacy of the Indian Act, many Indigenous Peoples face challenges to access the level of at-risk capital needed to engage capital markets on reasonably priced loans. Expanding access to financial services is crucial for increasing Indigenous participation in equity investment in projects.
Beyond advancing economic reconciliation, Indigenous ownership of net-zero projects can accelerate the achievement of Canada’s net-zero goals in a socially just manner. It opens new sources of net-zero project capital, speeds up impact assessments, and positions Canada’s economy to succeed in a decarbonized future. Ultimately, expanding access to capital can increase the share of Indigenous-owned clean energy projects that respect and recognize the unique perspectives, rights, responsibilities and needs of Indigenous Peoples.
As the federal government implements this new program, we encourage the federal government to strategically work with First Nations, Inuit and Métis partners on how the National Indigenous Loan Guarantee Program could support Indigenous participation or ownership of net-zero aligned projects.
In addition to seeking written input from experts and partners, NZAB partnered with the Canadian Climate Institute to evaluate potential policies that could help close the 2030 emissions gap. This evaluation used existing and new modelling to explore the potential opportunities for additional emission reductions in Canada. The Canadian Climate Institute provided us with a series of policy measures for how to close the 2030 gap based on its modelling and qualitative analysis of the policy measures’ strengths and weaknesses. With the Institute’s analysis in hand, we deliberated on which measures could form part of our advice, taking into account the range of stakeholder input received along with our own expert knowledge.
Our 2030 modelling, analysis, and advice is restricted to the existing climate policy framework and did not consider alternative pathways, based upon substantially different policy frameworks. We assumed that policies which have already been announced will be implemented. In the future, as we examine long-term pathways to net-zero, we will further evaluate the existing policy framework.
Methods
A phased approach was taken to this collaboration with Canadian Climate Institute. The first phase was conducted before the release of the 2023 Progress Report on the 2030 Emissions Reduction Plan to provide preliminary advice to the Minister in advance of COP28 in December 2023. Working with Navius Research Inc. (Navius), the Canadian Climate Institute modelled a backcasting scenario that identified the sectors and end-uses with economically-efficient reductions to meet the 2030 target. They then leveraged existing data (440 Megatonnes Emissions Pathway Tracker Database and Navius Research’s Emissions Reduction Plan scenarios) to identify sectors where existing policies could be strengthened, and new policies could be applied.
Following the initial modelling and stakeholder feedback, we shared our preliminary advice on closing the 2030 emissions gap with the Minister in November 2023. Our advice focused on a) ensuring developing policies are fully finalized (that is, investment tax credits, Clean Electricity Regulations, light-duty zero-emission vehicle sales mandate), b) developing and executing announced policies (that is, oil and gas sector emissions cap, post-2026 light-duty vehicle GHG standards, Green Buildings Strategy, medium- and heavy-duty vehicle emissions and sales mandates, landfill methane emissions regulations, United Nations Declaration on the Rights of Indigenous Peoples Act), and c) strengthening existing and implementing additional measures (that is, strengthen federal carbon pollution pricing through carbon contracts for difference, tighten output-based pricing systems, finalize post-2030 carbon price schedule; strengthen oil and gas sector methane reduction mandate; develop a National Indigenous Loan Guarantee Program).
Subsequent to submission of NZAB’s preliminary advice and publication of the 2023 Progress Report on the 2030 Emissions Reduction Plan, the Canadian Climate Institute and Navius updated the Emissions Reduction Plan policies in the model and revised the backcasting scenario, resulting in minor changes to the size, by sector and end-use, of the economically-efficient emission reductions to meet the 2030 target.
Next, the Canadian Climate Institute undertook two rounds of bottom-up modelling, simulating several policy packages that could potentially achieve the 2030 target. We worked closely with the Canadian Climate Institute to develop these policy packages, which simulated different approaches to reducing emissions (for example, heightened focus on subsidies or stronger methane regulations for the oil and gas sector). The Canadian Climate Institute first modelled two policy scenarios that tested NZAB’s preliminary advice and the impact of increased subsidies and regulations. These scenarios did not meet the emissions target, so the Institute tested three additional scenarios that increased stringency and included additional policies. These three scenarios were each able to close the gap. The Canadian Climate Institute then qualitatively assessed policies considering six dimensions: GHG reduction effectiveness, cost-effectiveness, implementation risk/doability, technological feasibility, competitiveness, and affordability. Lastly, the Institute provided us with a series of options for how to close the 2030 gap based on its modelling and qualitative analysis.
A summary of the Canadian Climate Institute’s methodology, scenario assumptions, results, and analysis are published in this report’s annex. The Institute has published a separate technical annex with additional details on the modelling.
Advice 1: Finalize announced measures
The Government of Canada should complete the GHG emission reduction policies that have already been announced or are partially developed:
- Clean economy investment tax credits
- Oil and gas sector emissions cap
- Clean Electricity Regulations
- Canada Green Buildings Strategy
- Landfill methane regulations
- Medium- and heavy-duty zero-emission vehicle sales standard
- Post-2026 light- and heavy-duty vehicle GHG emissions standards
While the Government of Canada has already implemented many measures to help meet the 2030 climate target, several key policies that can further close the emissions gap are in earlier stages of development having been announced or are under development but not yet finalized. Given the existing policy architecture and the short window for additional action to meet the 2030 target, NZAB recommends the federal government complete policies that have already been announced or are partially developed to close the gap. These announced and partially developed policies represent an expedient route to securing significant additional emissions reductions, even though NZAB has some concerns about the design features of certain policies.
Our advice to implement announced policies does not constitute an endorsement of those policies in every case nor does it necessarily represent how we would advise the government to proceed if we were designing the climate policy approach from scratch. That said, adjusting current policies based on the best information available is good practice in terms of adaptive management, and can help secure emissions reductions in the near-term.
Clean economy investment tax credits
Advice 1A: The Government of Canada should finalize all clean economy investment tax credits. Many of the projects that these investment tax credits intend to unlock will take five years or more to build. Immediate action is required to have an impact on 2030 emissions.
Governments frequently use tax measures (or tax incentives/supports), such as tax credits for a percentage of investment in targeted sectors, to achieve policy objectives by encouraging private sector investment. Investment tax credits permit companies to reduce or postpone tax liabilities, shrinking public sector tax revenue. Canada has a long history of using tax measures as an effective industrial policy tool. We see investment tax credits as a necessary complementary measure to carbon pricing and a key measure to promote net-zero capital investment in the country, meet more ambitious decarbonization goals, and grow important private sector coalitions supportive of net-zero goals.
Since 2021, the federal government has announced a series of clean economy investment tax credits to support Canada’s emission reduction and economic competitiveness goals. These tax credits will spur clean energy deployment, new jobs and technological innovations through investment, while the labour requirements associated with these investment tax credits (for example, higher tax credits provided to companies paying prevailing wages) will help ensure well-paid jobs. Investment tax credits for carbon capture, utilization and storage, and clean technology were finalized with the passing of the 2024 Budget Implementation Act. However, several investment tax credits have yet to be finalized: clean hydrogen, clean technology manufacturing, clean electricity, biomass, and electric vehicle supply chain.
Innovative companies are constantly creating new technologies that can reduce costs and GHG. The federal government should establish a standard and regular process to evaluate new technologies and if these technologies should be added to the list of eligible technologies under the clean economy investment tax credits.
Case study 1: Growing renewable and non-emitting energy production and investment
The clean technology investment tax credit will rapidly accelerate the deployment of renewable energy and energy storage—technologies that are experiencing rapid growth in Canada. The installed capacity of wind, solar and energy storage grew by 11.2% in 2023, reaching a new total of 21.9 GWFootnote iii.8. Alberta captured 92% of the growth, despite the provincial moratorium on new projects proceeding in the latter part of 2023, and some growth was also seen in parts of Atlantic Canada and the Territories.
While Canada’s renewables growth is not on par with global growth, more capacity is under development or expected, particularly with many provinces announcing net-zero pathways and green procurement plansFootnote iii.9. The number of major clean technology projects currently under construction or planned continued to grow with a total investment of $159 billion in projects in 2023Footnote iii.10. The new clean technology investment tax credit will help Canada attract further investment and more swiftly deploy technologies that can help close the 2030 emissions gap.
Oil and gas sector emissions cap
Advice 1B: The Government of Canada should finalize the oil and gas sector emissions cap regulations no later than 2025 or ensure stringency of other policies applied to the oil and gas sector. Oil and gas sector emissions reduction targets should be coherent with national targets and represent a fair share of emission reductions relative to other sectors.
Oil and gas emissions increased 11% from 2005 to 2022, more than any other economic sector, and represent 31% of national emissions. NZAB's previous advice on the Emissions Reductions Plan noted that the 2030 target will not be achieved without a substantial reduction of oil and gas emissions.
To ensure the necessary emission reductions from this sector occur, the federal government has proposed a new national GHG emissions cap and trade system for the oil and gas sector that would complement existing climate policies such as industrial carbon pricing and policies that cover the refining and combustion of oil and gas (for example, Clean Fuel Regulations, vehicle GHG emissions standards, federal fuel charge). The implementation of an ambitious emissions cap for Canada’s largest source of energy-related emissions would be one of the principal drivers of additional 2030 emissions reduction beyond existing measures. Recent analysis from the Canadian Climate Institute estimates that the proposed oil and gas emissions cap could be responsible for 7% to 34% of total incremental emissions reductions between the baseline and full Emissions Reduction Plan Progress Report policy scenarios in 2030Footnote iii.11. Cap and trade systems are a proven and widespread economically efficient policy to limit pollution by providing companies a financial incentive to find cheaper, less polluting alternatives.
In Fall 2021, the Minister of Environment and Climate Change and the Minister of Natural Resources asked the NZAB to provide key guiding principles to inform the development of an oil and gas sector emissions cap. In our advice on the 2030 Emissions Reduction Plan, we indicated that Canada needs an oil and gas emissions cap and detailed 13 principles that can shape its development. Crucially, the cap must be set in the context of broader efforts to reduce emissions from the Canadian economy by 40% to 45% below 2005 levels by 2030. Should the oil and gas sector not proportionally meet Canada’s 2030 target or meet its own sectoral cap, other sectors would be required to do even more for Canada to achieve its target, or other approaches like carbon removal would need to be deployed at a wider scale.
Members agree that oil and gas sector emissions reduction targets should be coherent with national targets and should be made legally binding, though have a range of views on how to address emissions from the sector. Additional advice on how to strengthen the oil and gas emissions sector cap or other mechanisms to achieve emissions reduction from the sector can be found in Advice 4A in this report.
As indicated in Advice 2, the oil and gas emission cap must be designed to mitigate potential negative interactions with other policies. Otherwise, there is risk that the cap will reduce the effectiveness of other policies like the industrial pricing system and not lead to the desired whole economy emissions reductions.
Clean Electricity Regulations
Advice 1C: The Government of Canada should finalize the Clean Electricity Regulations in 2024. Swift implementation sends a clear signal that will encourage and enable the investment needed now to meet the 2035 regulatory objective while making a significant contribution to Canada’s 2030 emissions reduction target.
To meet Canada’s net-zero goals, we need to electrify transportation, home heating, and many other industries. This increased energy demand, alongside many energy efficiency measures, means that electricity generation capacity will need to increase 2.2 to 3.4 times by 2050 compared to todayFootnote iii.12.
In August 2023, the federal government published the draft Clean Electricity Regulations. They send a regulatory signal to provinces, territories, and power producers to discourage further investment in emissions-generating assets without carbon capture and storage. The intent is to drive the emissions intensity of existing assets towards net-zero, while maintaining electricity affordability and grid reliability.
In February 2024, the federal government published an update on the Clean Electricity Regulations for consultation on additional flexibility measures under consideration based on the comments received on the first draft, including concerns about the impact on affordability and reliability. We underscore the importance of providing flexibility within the Clean Electricity Regulations to ensure system reliability and affordability; we believe this can still be prioritized if the Regulations are structured in a way that ensures that all non-emitting options are fully considered prior to allowing the use of emitting generation to support peaking and emergency needs.
This advice reaffirms our views in our first Annual Report, Compete and Succeed in a Net-Zero Future (PDF), that the regulations must:
- Prevent new unabated gas plants from being built per NZAB’s principle to “be aware of dead-ends” (that is, by avoiding locking-in systems and technologies that will become emissions liabilities before 2050). To avoid dead end pathways, “abated” systems must ultimately achieve a 90% or more capture rate to operate in 2050 and support Canada’s net-zero commitment.
- Encourage early emissions reductions and strictly limit the use of offsets and compliance flexibilities that only operate as time-limited support where absolutely needed to help transition.
The federal government anticipates finalizing the Clean Electricity Regulations by the end of 2024. This timing was also recommended by the Canadian Electricity Advisory Council in their final report Powering Canada: A blueprint for success, provided the federal government undertakes the necessary consultations and incorporates greater flexibility to covered entities than in the draft regulationsFootnote iii.13.
Canada Green Buildings Strategy
Advice 1D: The Government of Canada should implement the Canada Green Buildings Strategy. Accelerate implementation of the Canada Greener Homes Affordability Program by letting provinces and territories determine regionally appropriate eligibility and operational requirements.
The buildings sector—both residential and commercial—remains a particularly difficult decarbonization challenge given the long-lived nature of energy infrastructure for buildings and the distributed nature of the problem. It also is a sector where significant additional emission reductions are possible. For example, recent analysis by the Canadian Climate Institute found that a system-wide shift from gas to electric heat is the lowest cost path to decarbonize the building sectorFootnote iii.14.
In July 2024, the federal government published the Canada Green Buildings Strategy; however, a comprehensive set of policies to achieve the vision has not yet been implementedFootnote iii.15. Building on our previous advice, we recommend full implementation of the Canada Green Buildings Strategy, as well as pursuing additional measures related to phasing down fossil fuel heating and cooling and creating a building performance standard for new commercial buildings (Advice 5).
The federal government, along with provinces and territories, has an important role in providing funding to low-to-moderate income homeowners and renters to ensure affordable access to energy for basic residential needs. The right to adequate housing is a right in the Universal Declaration of Human Rights.
Budget 2024 proposed $800 million over five years, starting in 2025-2026, to launch the Canada Greener Homes Affordability Program which will support the direct installation of energy efficiency retrofits for Canadian households with low- to median-incomes. This program is urgently needed to improve energy affordability for lower-income households. Unlike the previous Canada Greener Homes Grant, the new targeted program will not require any upfront payment from households.
However, we are concerned about potential job losses for energy auditors arising from the year lag between the end of the Canada Greener Homes Grant program and the new program. This loss can be somewhat mitigated by requiring energy audits for new federal affordable housing funding.
The new Canada Greener Homes Affordability Program will be delivered by an expansion of existing provincial and territorial programs. We strongly encourage the federal government to empower provinces and territories to develop exact eligibility criteria. Motivated by our foundational value of recognizing and respecting regional differences and circumstances, provinces and territories should determine the exact income cutoff, design components, and delivery or outreach requirements. Otherwise, more federal restrictions will likely result in implementation delays. As provinces and territories seek to expand their low-income energy efficiency programs with this new funding, they could consider how energy affordability is highly influenced by other social factors. For example, gender, Indigeneity, and other identity factors could be considered in the administration of this program. California’s Weatherization Assistance Program provides preference to low-income households with people over 60 years of age, families with one or more members with a disability, or families with children that could serve as a model for an expanded program in CanadaFootnote iii.16.
Landfill methane emissions regulations
Advice 1E: The Government of Canada should finalize the landfill methane emissions regulations as soon as possible to increase the likelihood of emission reductions being achieved by 2030
Regulating methane emissions from landfills is a cost-effective way to limit near-term global warming and Canada can do more to reduce this significant pollution source. In 2022, methane emissions from Canada's municipal solid waste landfills represented 19 Mt CO2e or 2.8% of total emissions, with a 4.4% decrease since 2005Footnote iii.17. Currently, 58% of landfill methane emissions directly vent to the atmosphereFootnote iii.18,Footnote iii.19.
Prioritizing benefits beyond emissions reductions
Beyond the climate impacts, landfills can also cause negative impacts for neighbouring communities through water pollution. Indigenous, Black, and other underprivileged communities in Canada are disproportionately affected by landfills in terms of proximity, exposure, and lack of representation in related decision-making bodies. Enhanced management of landfills can purposively improve the day-to-day lives of local communities.
Canada’s 2022 Methane Strategy committed to developing new regulations to increase the recovery and destruction of methane from large municipal solid waste landfills by about 50% by 2030 from 2019 levelsFootnote iii.20. The federal government released a proposed regulatory framework in April 2023 and draft regulations in June 2024. We advise the federal government to finalize these regulations as soon as possible.
Medium- and heavy-duty zero emission vehicle sales mandate
Advice 1F: We recommend that the Government of Canada implement a medium- and heavy-duty zero-emission vehicles sales mandate by 2025. This mandate should reflect, at minimum, the federal government’s goal that 35% of medium- and heavy-duty vehicles sold in 2030 be zero-emission vehicles, increasing to 100% by 2040, where feasible.
Medium- and heavy-duty vehicles emissions are growing steadily and now account for 34% of all road transportation emissions. Emissions from these vehicles have increased 8% since 2005 and are on track to surpass those of passenger vehicles by 2030, becoming the largest emissions source in the transportation sectorFootnote iii.21. While existing climate policies such as carbon pricing and the Clean Fuel Regulations will reduce these emissions, strengthened or additional policies will be needed to meet 2030 emission reduction targets.
The federal government's goal is that 35% of medium- and heavy-duty vehicles sold in 2030 be zero-emission vehicles, increasing to 100% by 2040, where feasible. Modelling by the Pembina Institute indicates that a sales standard could successfully encourage higher adoption levelsFootnote iii.22. This sales mandate would help to realize the federal goal by requiring manufacturers to increase the supply of zero-emission vehicles. The 2023 Progress Report of the 2030 Emissions Reduction Plan notes that a draft medium- and heavy-duty zero emissions vehicle sales mandate will be published in 2024 with final regulations published in 2025. We urge the federal government to meet these targets. We support the development of this mandate but do note that any mandate must carefully consider the technology availability and the cost impacts on consumers.
Case study 2: Canada’s rapid increase in zero emission buses
Between 2022 and 2023, the number of zero emission buses in Canada increased 346% from 1,214 to 5,426Footnote iii.23. This rapid adoption enabled the federal government to surpass its goal of introducing 5,000 zero emission buses by 2026 two years ahead of schedule. This rapid adoption has enabled fuel savings for bus operators and economic growth for bus manufacturers.
Road transportation is the most common mode of freight transport in Canada, both for internal trade and with the United States. The federal government should ensure that any potential barriers to efficient supply chains within Canada and with the United States be removed. Now that a major block of U.S. states (that is, California, Massachusetts, New Jersey, New York, Oregon and Washington) have adopted a medium- and heavy-duty zero emission vehicle sales mandate, adoption of a similar mandate in Canada would encourage not only the reduction of emissions but also the build out of charging, refuelling and maintenance infrastructure necessary to service the growing number of zero emission medium- and heavy-duty vehicles.
Implementing a sales mandate for medium- and heavy-duty zero emission vehicles would result in incremental emission reductions but requires careful attention to potential policy interactions (for example, with the Clean Fuel Regulations and the fuel charge) and to supplementary policies that will aid manufacturers to achieve the sales targets. Since high-up front costs and access to charging stations remain key barriers to update of medium and heavy-duty zero-emission vehicles, the federal government should continue purchase incentives and support for public and private charging infrastructure for these vehicles.
Light- and heavy-duty vehicle GHG emissions standards
Advice 1G: We recommend that Canada match the United States’ post-2026 light-duty vehicle GHG emissions standards and the new U.S. Heavy-Duty Phase 3 CO2 Emissions Standards as soon as possible.
Since 2010, Canada has regulated the amount of GHG emissions that light-duty vehicles (that is, passenger automobiles and light trucks) can emit. Canada’s current light-duty vehicle GHG standards, which apply to all new cars sold in Canada and are aligned with the United States, are set to stop increasing following the 2026 model year. Unlike the Electric Vehicle Availability Standard which mandates the percentage of new vehicles for sale which must be electric vehicles to ensure availability, GHG standards help reduce the emissions from all new fossil-fueled vehicles, which currently make up most light-duty vehicle sales in Canada. Given the deep integration of the North American automobile industry, Canada has historically had similar emissions standards as the United States, since most vehicles produced in Canada are sold into the U.S. market.
Canada’s standards have not been finalized although the 2023 Progress Report on the 2030 Emissions Reduction Plan relied on modelling of post-2026 light-duty vehicle GHG standards that aligned with the U.S. Environmental Protection Agency’s proposed standards. The 2023 Progress Report also noted that draft Canadian regulations are expected in 2024, following the U.S. Final Rule publication. The U.S. Final Rule was published in March 2024, and will result in nearly a 50% drop in tailpipe CO2 emissions from model year 2027 (170 g CO2/mile) to model year 2032 (85 g CO2/mile). The federal government should follow through on its stated commitment to share its draft regulations in 2024 and those regulations should match the US standard.
Canada’s Heavy-duty Vehicle and Engine Greenhouse Gas Emissions Regulations increase stringency between model years 2021 and 2027 and are aligned with existing U.S. Heavy-Duty Phase 2 CO2 Emission Standards. In March 2024, the U.S. Environmental Protection Agency finalized more stringent U.S. Heavy-Duty Phase 3 CO2 Emission Standards (model year 2027-2032)Footnote iii.24. These new standards will be up to 60% stronger for heavy-duty vocational (or job-specific) vehicles such as delivery trucks, school buses, or refuse haulers, depending on vehicle type, compared to the previous Phase 2 standards for model year 2032. Emission standards for tractor-trailer trucks will be up to 40% stronger, depending on the vehicle type, compared to the previous Phase 2 standards for model year 2032. The 2023 Progress Report of the 2030 Emissions Reduction Plan indicates that heavy-duty vehicle emission regulations will align with the U.S. regulations and will be finalized after the medium- and heavy-duty sales mandate. Given its deep trade integration with the United States, Canada should not wait until a sales mandate is finalized to harmonize its GHG emissions standards with the United States.
Case study 3: Accelerating adoption of electric vehicles
The market share of electric vehicles in 2023 was 11.7%, up from 8.9% in 2022 with electric vehicles accounting for 1 in 9 new vehicles registered in CanadaFootnote iii.25. In line with the global trend for electric vehicles, the Canadian Climate Institute reported that gas-powered vehicle sales have peaked in Canada, as their sales have been declining at an average annual rate of 6.3% since 2017, as zero emission and hybrid vehicle sales have continued to growFootnote iii.26.
Advice 2: Address negative interactions
Advice 2: The government should proactively address the negative interactions between some federal climate policies and output-based pricing systems.
As part of an effort to decarbonize all sectors, addressing these interactions can result in additional emission reductions from oil and gas, electricity, and heavy industry beyond those currently contemplated and further close the 2030 emissions gap.
As Canada's climate policy architecture responds to the deepening climate crisis, the volume and ambition of policies that help Canadians to reduce emissions will correspondingly increase. There is potential for positive, mutually reinforcing interactions among these policies (for example, clean economy investment tax credits and Clean Fuel Regulations both provide incentives for the installation of zero-emission vehicle charging or refueling infrastructure) or a range of co-benefits (for example, improving affordability and human health outcomes).
Conversely, there is also a risk for negative policy interactions, where one policy can weaken the effectiveness of other policies or create unnecessary and cumbersome policy overlap. Our analysis indicates that the suite of climate policies included in the 2030 Emissions Reduction Plan has negative interactions that should be addressed. In particular, the proposed oil and gas sector emissions cap and the Clean Electricity Regulations could vastly increase the number of credits available in large emitter trading systems, which could reduce the effectiveness of these trading systems. Another example is that, if the light-duty zero-emission vehicle sales mandate, the proposed Clean Electricity Regulations and the oil and gas sector emissions cap drive fuel carbon intensity reductions greater than the Clean Fuel Regulations, the compliance credits created under the Clean Fuel Regulations could weaken the price signal in these adjacent policies, resulting in fewer reductions for each policy than if each policy was implemented in isolation.
Large-emitter trading systems are a form of industrial carbon pricing that uses emissions credit trading to lower the cost of reducing emissions while achieving emission reduction goals. In Canada, provinces and territories have the choice between using the federal output-based industrial carbon pricing system, explained in Advice 3, or their own output-based systems that meet or exceed the federal standard.
Well-designed policy should minimize the risk of negative interactions and maximize the likelihood of positive interactions and co-benefits. Negative interactions introduce unnecessary uncertainty and diminish the incentives in some of the federal government's flagship emission reduction policies. As a result, industrial emitters may have reason to discount the anticipated price signals created by these policies and reduce decarbonization investments. Eliminating or minimizing these negative interactions can therefore create more certainty for large emitters and reduce GHG emissions. Similar to finalizing announced policies, modifying existing policies to rectify negative interactions would take less time than introducing new policies and would require fewer public sector resources than creating new emission mitigation policies.
The Canadian Climate Institute's analysis shows that addressing credit oversupply in Canadian large-emitter trading systems, including by setting stricter performance standards, can reduce economy-wide emissions by an additional 15 Mt CO2e in 2030, equivalent to the annual energy use of 3,512,881 homes.
Advice 3: Strengthen industrial carbon pricing
The Government of Canada should take actions to strengthen industrial carbon pricing:
- confirm the 2026 assessment of the Output-based pricing system will be part of a systematic, transparent, and regularized process that monitors credit creation and adjusts benchmarks to guard against credit oversupply and negative policy interactions
- begin consultations on options for tightening the Output-based pricing system before the end of 2024
- signal that further strengthening of performance benchmarks can be expected and will tighten the credit market
- base the 2026 federal assessment of provincial and territorial large emitter trading systems upon compatibility with the 2030 emissions reduction target
- implement a broad-based carbon contract for difference program as soon as possible to achieve emissions reductions prior to 2030 and counter concerns about policy uncertainty that risks undermining investment decisions in decarbonization
While the already announced policies are important, they will be insufficient to close the gap to meet the 2030 target. Some policies, like industrial carbon pricing, will have to be strengthened in implementation.
Output-based pricing system
Established under the Greenhouse Gas Pollution Pricing Act, the federal output-based pricing system provides a price incentive to large industrial emitters to reduce their GHG emissions and promote innovation while ensuring these companies remain internationally competitive and dissuading companies from moving to jurisdictions to avoid paying for carbon pollution.
The Output-based pricing system applies to industrial operators of facilities that emit 50 kt CO2e or more per year—equivalent to the annual energy use of 11,710 homes—in provinces or territories that do not have their own equivalent carbon pricing system. Regulated facilities are exempt from the federal fuel charge. They must report stationary fuel combustion emissions, industrial process emissions, industrial product use emissions, venting emissions, flaring emissions, leakage emissions, on-site transportation emissions, waste emissions and wastewater emissions. Those facilities whose emissions fall below their emissions allowance can generate a credit that can be sold or saved to meet future obligations. Facilities that exceed their own annual emissions allowance are required to either pay an excess emissions charge payment or remit compliance units, namely surplus credits, federal offset credits, or other recognized units.
The Canadian Climate Institute identifies industrial carbon pricing as the single biggest contributor to Canada's 2030 target in its analysis of Canadian climate policy effectiveness to date and projected impacts on emissions out to 2030Footnote iii.27. However, credit oversupply and weak performance benchmarks threaten to undermine this contribution. Thankfully, there are steps the federal government can take to shore up this important climate policy. As the federal carbon pollution pricing system matures, it is incumbent upon policymakers to evaluate progress and, if necessary, offer course corrections.
Recent analysis by Canadian Climate Institute indicates future large emitter trading system market prices do not always hold at the national carbon price, notably in Alberta, due to an oversupply of creditsFootnote iii.28. Credit oversupply can happen for a variety of reasons, including when firms are granted more credits than needed for compliance, technology investments spurred by subsidies generate large volumes of credits, and overlapping policies double count reductions. As mentioned earlier, the Canadian Climate Institute's analysis shows that addressing credit oversupply in Canadian large emitter trading systems, including by setting stricter performance standards, can reduce economy-wide emissions by an additional 15 Mt in 2030.
Improvements can be implemented quickly because the industrial carbon pricing system is already in place and a commitment exists to revisit it in 2026. The federal government plans to conduct an interim assessment in 2026 of provincial and territorial systems to confirm that systems continue to meet the benchmark criteria for the 2027-2030 period, taking stringency into account as the primary factor.
Advice 3A: Confirm the 2026 assessment of Output-based pricing system will be part of a systematic, transparent, and regularized process that monitors credit creation and adjusts benchmarks to guard against credit oversupply and negative policy interactions
Advice 3B: Begin consultations on options for tightening the Output-based pricing system before the end of 2024
Advice 3C: Signal that further strengthening of performance benchmarks can be expected and will tighten the credit market
The policy fix is straightforward. Regulators of large emitter trading systems need to routinely monitor and update GHG performance standards to make them stricter by increasing the tightening rate. Further, to prepare for the 2026 assessment, the federal government should begin consultations on options for tightening the Output-based pricing system before the end of 2024. These consultations would also signal to large emitters that further strengthening of performance benchmarks can be expected and will tighten the emission reduction credit market. We strongly recommend prioritizing Output-based pricing system consultation with the electricity sector given the interactions between the pricing system and the Clean Electricity Regulations, which in turn would allow investors to have increased policy certainty to inform the significant new investment decisions that will need to be taken between now and 2035.
Advice 3D: Base the 2026 federal assessment of provincial and territorial large emitter trading systems upon compatibility with the 2030 emissions reduction target.
Benchmarks ensure fairness and guard against a race to the bottom by regulating a minimum performance standard. The federal output-based pricing system is intended to do just that across the thirteen provinces and territories. However, the Commissioner of the Environment and Sustainable Development has noted the uneven coverage of emissions across provinces (for example, 54% in Prince Edward Island to 87% in Nova Scotia) and weak federal benchmark criteria and guidance for provincial and territorial large emittersFootnote iii.29. Further, the share of emissions facing a compliance obligation under the series of provincial industrial pricing systems in Canada is not consistent with the magnitude of emissions reduction required by the Emissions Reduction PlanFootnote iii.30.
To ensure that provincial and territorial large emitter trading systems are adequately meeting the benchmark federal output-based pricing system and aligned with the national 2030 emissions reduction target, the 2026 federal assessment of these subnational systems should examine their ability to contribute to the 2030 target of 40% to 45% below 2005 levels. As noted in the Commissioner of Environment and Sustainable Development's report, the federal government has a role in ensuring alignment between national and subnational performance standards, in addition to broad alignment with 2030 goals.
Advice 3E: Implement a broad-based carbon contracts for difference program as soon as possible to achieve emissions reductions prior to 2030 and counter concerns about policy uncertainty that risks undermining investment decisions in decarbonization
Industrial carbon pricing as currently designed has not provided sufficient certainty for heavy emitters and their investors that the system will function as intended, both because the schedule of pricing increases might be amended by current or future governments and because industrial emitters lack confidence in the future value of carbon credits. For industrial emitters to move forward with investments in the hundreds of millions, if not billions, of dollars, they require more long-term certainty in the economic incentives that carbon pricing should provide.
Implementing a broad-based program of carbon contracts for difference can provide investors with stable and predictable revenue from reducing carbon emissions and lower the cost of capital. Carbon contracts for difference should provide certainty on both the headline price trajectory, as well as the carbon credits generated through output-based pricing systems. To date, two out of four carbon contracts for difference projects via the Canada Growth Fund have focussed on carbon capture in the oil and gas industry. A broad-based carbon contracts for difference program would ensure that multiple technologies and industries will be able to access the program.
Carbon contracts for difference
Carbon contracts for difference are a tool to improve investor certainty when making large decarbonization investments. For systems like the federal output-based pricing system, where the future price of performance credits and the carbon price beyond 2030 are both uncertain, carbon contracts for difference can reduce that uncertainty. They can offer a guaranteed price for investors for performance credits generated by a project. As a result, future revenue from credits becomes bankable, meaning sufficiently reliable to be included in companies' financial projections when considering projects. This lowers the cost of capital and increases the likelihood that these emission-reducing projects will be built.
Without a carbon contracts for difference program, a meaningful share of the emissions reduction that is currently forecasted within the Government of Canada's climate models are unlikely to materialize if the pricing signal is weakened or eliminated, exacerbating the already significant gap to the 2030 emissions reduction goal . Carbon contracts for difference are a tool to set strong expectations. Further, these contracts can help to lower mitigation costsFootnote iii.31, to incentivize net-zero infrastructure, as seen with the Netherlands' Sustainable Energy Transition SchemeFootnote iii.32, and to compete with the US Inflation Reduction ActFootnote iii.33.
The risk of an oversupply of carbon credits crashing the credit price and requiring the federal government to pay out is not insignificant. One way to manage this risk, as recommended above, is to regularly monitor credit creation and adjusting benchmarks. Another way is to increase the amount of contingent liabilities for carbon contracts for difference on the federal government's books to create additional pressure for the federal government to raise the stringency of industrial carbon pricing. That said, if carbon pricing systems are maintained and strengthened so that the carbon price is binding, they could come at little to no cost to the federal government.
In the 2023 Fall Economic Statement, the Government of Canada took an initial step and announced that the Canada Growth Fund will be the principle federal entity issuing carbon contracts for difference. The Canada Growth Fund will allocate, on a priority basis, up to $7 billion of its existing capital to issue all forms of contracts for difference and offtake agreements. Some projects that have received carbon contracts for difference include a natural gas plant using carbon capture and storage, a waste-to-energy facility using carbon capture and storage, an oil sands project with carbon capture and storage, and a waste heat-powered district energy system. Budget 2024 announced that the Canada Growth Fund would develop an expanded range of carbon contracts for difference offerings tailored to different markets. We would like to see this expanded program be sufficiently broad to support contracts with a wide range of technologies, such as renewables and green hydrogen.
A broad-based carbon contracts for difference program would maximize the potential emissions reductions from industrial carbon pricing. Modelling from Clean Prosperity and Navius Research found that carbon contracts for difference could accelerate up to 33 Mt of new low-carbon projects by 2030iii.34,Footnote iii.35. Such a program would enable most, if not all, emitting facilities regulated by industrial carbon pricing to gain access to a contract for difference, in contrast to the current program from the Canada Growth Fund which is expected to be much more limited.
Advice 4: Secure additional emission reductions from the oil and gas sector
The oil and gas sector is Canada's largest emitting sector, representing 31% of national emissions. Of all the economic sectors, oil and gas has seen the biggest increase in emissions: between 2005 and 2022 emissions increased from 195 Mt to 217 Mt. According to the Canadian Climate Institute, there is potential for additional cost-effective emissions reduction in this sector beyond those already contemplated.
More needs to be done to secure emissions reductions from the oil and gas sector. NZAB members have a range of views on the most effective policy options the Government of Canada should pursue to secure additional emission reductions and have developed two distinct approaches reflecting the different views.
Option A) Strengthen the oil and gas emissions cap:
- exclude methane emissions reductions from credit creation
- pilot, on a limited basis, the proposed flexibility mechanisms under the oil and gas sector emission cap
- evaluate expanding the oil and gas cap to include mid/downstream emissions and pursue the policy design if warranted
The federal government has committed to, and is actively implementing, a new national GHG emissions cap and trade system for the oil and gas sector. The new policy is meant to complement existing climate policies that cover the refining and combustion of oil and gas (for example, industrial carbon pricing, Clean Fuel Regulations, vehicle GHG emissions standards, federal fuel charge). Unlike these other policies, some of which rely on emissions intensity performance benchmarks, the cap sets a specific emissions outcome for the sector. In Advice 1, we recommended that the federal government implement the cap as proposed. In this advice, we recommend going even further with the cap to further reduce oil and gas sector emissions.
Further strengthening the oil and gas emissions cap beyond what has been proposed by the federal government can further close the 2030 emissions gap. Excluding methane emissions reductions from credit creation helps avoid the credit oversupply, mitigates the negative interactions identified in Advice 2, and recognizes key distinctions between carbon dioxide and methane. Regulating methane and carbon dioxide differently is appropriate because of important differences in the sources of the two gases, their warming effect, and their lifetimes in the atmosphere. Moreover, excluding methane also helps manage the uncertainty created by the current inaccurate methane emission estimates. As discussed further in Advice 5, atmospheric measurements of methane from oil and gas operations are significantly larger than land-based estimates provided by oil and gas operators.
The proposed design of the oil and gas emissions cap includes flexibility mechanisms to allow facilities to compensate for a limited quantity of emissions. We support the piloting of international credit creation, on a limited basis, to provide additional flexibility for emitters. However, any flexibility mechanism should be designed to minimize bad faith behaviour from companies to manipulate credit or offset markets.
The Canadian Climate Institute's modelling indicates the potential for additional cost-effective emissions reductions from the oil and gas sector by expanding the coverage of the policy to include midstream and downstream emissions and by tightening the stringency of the cap. In 2022, midstream and downstream emissions in the oil and gas sector amounted to 32 Mt CO2e or 15% of total oil and gas sector emissionsFootnote iii.36. To drive additional emission reductions from the oil and gas sector, the federal government could expand the coverage of the oil and gas sector emissions cap beyond upstream emissions (for example, oil and gas production) and liquefied natural gas (LNG) facilities to include midstream and downstream emissions (for example, refineries, natural gas distribution, and oil, natural gas, and CO2 transmission). This scope expansion, which covers a broader range of sources, would drive more emissions reductions and enable various companies access to more flexible and cost-effective options for meeting their reduction targets.
Option B) Strengthen the OPBS performance standards in all sectors and expand the carbon contracts for difference program
In lieu of the oil and gas cap, the federal government could strengthen performance standards in the output-based pricing systems for all regulated sectors including oil and gas in tandem with an expanded and broad-based contract for difference program, as described in Advice 3. This policy option could be implemented relatively quickly, compared to the development of the oil and gas emissions cap. Further, this approach avoids the uncertainty inherent in creating new regulations that could face years of legal challenges. It also avoids overlapping systems while generating cost-effective emissions reductions through the flexibility to trade with other regulated sectors.
Advice 5: Evaluate and pursue additional action
To address the remaining 2030 emissions gap, the Government of Canada should consider pursuing one or more of the following policies:
- strengthen oil and gas methane regulation to an 80% reduction
- finalize and publicly state the post-2030 carbon price schedule, and ensure it is inflation-adjusted
- promote policies that encourage shift to less-emitting transportation modes
- phase down the sale of new and replacement fossil fuel heating and cooling devices in residential and commercial buildings, beginning no later than 2030
- create a building performance standard for new commercial buildings
Implementation of the measures already identified in this report will still leave a gap to the 2030 emissions reduction target. To further close the gap, the NZAB recommends the federal government focus on a small number of highest-impact additional actions for quick implementation, rather than seek to implement a long list of difficult-to-achieve new policies.
We believe the Government of Canada should consider pursuing one of more of the following policies, which were selected because they have high emissions reduction potential, are cost-effective, and are implementable in the near-term.
Advice 5A: Strengthen oil and gas methane regulations to an 80% reduction
According to the 2024 National Inventory Report, between 2005 and 2022, fugitive methane emissions from the oil and gas sector decreased 25% to 56 Mt CO2e. Despite this decrease, the sector remains the largest contributor to national methane emissions. Most atmospheric measurement studies indicate that methane emissions from Western Canadian oil and gas operations could be 1.5 to 3 times that reported using official inventory methodsFootnote iii.37,Footnote iii.38. New satellite-based measurements (for example, MethaneSat) may bring further attention to likely underestimates of methane emissions from the sector.
Sharply reducing oil and gas sector methane emissions is a high priority and a strategic opportunity for near-term emission reductions. Methane's oversized near-term climate impact (over a 20-year period, methane is 81-83 times more potent than carbon dioxideFootnote iii.39), the significant uncertainty over existing methane emission estimates and the availability of cost-effective, off-the-shelf abatement technologies makes enhanced mitigation of oil and gas sector methane emissions a prudent choice. Beyond its climate impact, reducing methane emissions improves the health of communities adjacent to polluting oil and gas infrastructure.
To achieve the 2030 emissions target, Canada must become a leader in reducing emissions from the oil and gas sector. Canada was one of the first countries to regulate this emissions source and the first country to commit to develop a plan to regulate a reduction of at least 75% by 2030 from 2012 levels. In December 2023, the federal government published draft enhanced regulations for the upstream oil and gas sector requiring at least a 75% reduction in methane emissions from 2012 levels by 2030. Final regulations are targeted for publication in 2024.
Achieving a 75% reduction in methane by 2030 is increasingly seen as a floor, not a ceiling, of what's possible. The federal government can continue its leadership role by further strengthening these regulations. Many oil and gas firms (for example, Oil and Gas Climate Initiative's Aiming for Zero initiative, Chevron, ExxonMobil, Shell, United Arab Emirates' Abu Dhabi National Oil Company) have already pledged to achieve near-zero methane emissions by 2030. The Alberta Energy Regulator's methane emission regulations for the Peace River region resulted in near-zero methane emissions in 2016. British Columbia plans to achieve near-zero methane emissions from all industrial sources by 2035Footnote iii.40.
The federal government should strengthen its proposed regulations to require at least an 80% reduction in methane emissions from the oil and gas sector by 2030, and it should improve measurement, reporting, and verification to properly benchmark, track, and reduce methane emissions from the oil and gas sector. This advice is drawn from expert knowledge on the emissions reduction potential from the sector, the modelled results and consultations with the Canadian Climate Institute and Navius on the modelling and assumptions (see Annex).
Advice 5B: Finalize and publicly state the post-2030 carbon price schedule, and ensure it is inflation-adjusted
The effectiveness and fairness of Canada's GHG pollution pricing system is based upon a transparent and predictably increasing price on carbon. This carbon price—reflected in both the consumer fuel charge and the output-based pricing system for large industry—represents a minimum national standard, which provinces and territories must demonstrate they can achieve. In 2016, Canada proposed an initial price schedule starting at $20 per tonne CO2e in 2019 rising to $50 per tonne CO2e in 2022. In 2021, the federal government published a strengthened federal benchmark for carbon pricing from 2023 ($65 per tonne CO2e) to 2030 ($170 per tonne CO2e).
To reach net-zero emissions by 2050, the federal government will need to consider whether to increase the federal carbon price beyond 2030 within the fuel levy system and the output-based pricing systems as this is the most cost-effective tool to achieve deeper emissions reductions. An extended pricing schedule will help provide additional certainty to businesses, households and investors when they make important decisions. An increase in the Canada Carbon Rebate would need to accompany any increase in the carbon price for households, such that most households continue to receive more money back than what is paid. In combination with carbon contracts for difference, clarity on the post-2030 pricing schedule for large emitter trading systems will induce further emissions reductions prior to 2030, reducing the need for additional, potentially more costly, emission reduction policies, and importantly, reducing the government's risk exposure from the contracts for difference program.
As discussed earlier, the 2023 Progress Report on the 2030 Emissions Reduction Plan notes that the federal government has launched an interim review of carbon pricing in Canada and the federal benchmark for completion by 2026 . This interim review and its associated consultation provide an opportunity for the federal government to advance a post-2030 carbon pricing schedule.
To prepare for the 2026 assessment, the federal government should begin consultations on options for tightening the output-based pricing system before the end of 2024. These consultations would also signal to large emitters that further strengthening of performance benchmarks can be expected and will tighten the emission reduction credit market.
Indexing the carbon price to inflation can enhance the carbon price signal for large emitters as well as those covered by the fuel charge, notably consumers, large institutional emitters and small- and medium-sized enterprises. Indexing the carbon price to inflation ensures that as the prices of goods and services increase in the economy, so too does the carbon price.
Advice 5C: Promote policies that encourage a shift to less-emitting transportation modes
Canada's vast size, low population density and weather extremes have shaped and will continue to shape how we move people and goods across our country. Our increasing reliance on large personal vehicles and freight trucks, along with population and economic growth and urban sprawl, has caused transportation to be one of the largest and fastest-growing sources of GHG emissions in Canada. Indeed, transportation is Canada's second largest source of GHG emissions and remains persistently high: 156 Mt CO2e in 2022—the same level as in 2005.
Beyond the policies already mentioned (that is, post-2026 light-, medium- and heavy-duty vehicle GHG emission standards and the medium- and heavy duty zero emission vehicle sales standard), more policies are needed to help shift the country towards less-emitting transportation options. This includes policies that encourage the use of less polluting alternatives to heavy-duty diesel trucks, such as rail (electric if possible), and for passenger transportation, the use of public and active transportation where available. Switching how we move ourselves and our goods can also have the added benefit of making our streets and highways safer, reducing traffic congestion, and improving our health through reduced air pollution and increased physical activity.
As with all our recommendations, the federal government should be sensitive to important differences across Canada (including geographic, climatic, urban v. rural, and income group disparities) with respect to the suitability and affordability of less-emitting transportation modes.
Advice 5D: Phase down the sale of new and replacement fossil fuel heating and cooling devices in residential and commercial buildings, beginning no later than 2030
In 2022, the buildings sector contributed 13% to Canada's total emissions and have increased 5% between 2005 and 2022. Phasing down the sale of new and replacement fossil fuel heating and cooling devices in residential and commercial buildings is a crucial regulatory change that would start to align this sector with a net-zero pathway. By design, a sales target or economy-wide standard could accommodate regional differences in the cost, performance, and availability of heat pumps throughout Canada while still ensuring significant emission reductions. A phase down should begin as soon as possible, no later than 2030, given the important role of building decarbonization to achieve a 2035 emission reduction goal and the time it takes for stock turnover. Such a phase down would also encourage pre-2030 investment and result in near-term emission reductions. This policy would have high upfront costs that impact households, particularly low-income ones, and should be paired with the enhanced funding for low-to-moderate income homeowners and renters, as detailed above. It should also factor in the existing diversity in geography and climate across Canada and the suitability, reliability, availability, and affordability of non-emitting heating and cooling technologies.
Case study 4: Increase adoption of residential heat pumps
Heat pumps were reported as being used in 7% of Canadian homes in 2023, continuing their steady rise in useFootnote iii.41. Heat pumps were the number one retrofit requested by Canadians through the federal government Greener Homes Grant program over the past three years, with uptake surpassing expectationsFootnote iii.42, given they are the lowest-cost option for heating and cooling most homes in CanadaFootnote iii.43.
Advice 5E: Create a building performance standard for new commercial buildings
Building performance standards are outcome-based policies that require buildings to meet energy or GHG emissions-based performance targets. When combined with enhanced building codes, performance standards can significantly improve the energy and climate goals of the buildings sector.
Budget 2024 committed $73.5 million over five years for the development of more ambitious building codes and to improve existing energy efficiency programs such as the Energy Star Portfolio Manager Program and ISO 50001 Energy Management Systems that help building owners benchmark, track, and improve energy use. Over a third of commercial and institutional building floor space in Canada—over 42,000 buildings—already use the Energy Star Portfolio Manager Program. Energy management systems are crucial precursors to the successful implementation of building performance standards.
These five policies above were selected because both the modelling and our own analysis confirmed that they could be key sources of additional emission reductions. Beyond these measures, other opportunities exist but require further scrutiny to evaluate their suitability and feasibility. NZAB recommends the federal government study the following actions, the first three of which Canadian Climate Institute has also indicated could help close the 2030 emissions gap:
- increase stringency of the Clean Fuel Regulations
- implement a stronger medium- and heavy-duty vehicle sales mandate than is currently proposed
- implement efficiency mandate for low-temperature industrial heat
- further ambitiously target light-duty vehicle emission reductions
Conclusion
On the path to net-zero, 2030 represents a crucial milestone from which to take stock of Canada's progress, and ensure we remain on track to meet our climate goals. We can do it, but we need to move now.
To give itself the best chance of meeting the 2030 emissions goal, the federal government should finalize the suite of policies needed to close the 2030 emissions gap as soon as possible. The federal government has produced a credible plan that modelling suggests can come close to achieving the 2030 emissions reduction target if fully implemented and successful, but significant work remains.
To that end, and working within the existing policy framework, this report presents five core pieces of advice for the Government of Canada to close the gap and achieve the 2030 target: 1) finalize announced measures, 2) address negative interactions, 3) strengthen industrial carbon pricing, 4) secure additional reductions from the oil and gas sector, and 5) evaluate and pursue additional action.
Working within the existing climate policy architecture can help decrease the time it takes to reduce emissions by not starting a lengthy policy process from scratch. These policies can be fully implemented and, in certain instances, strengthened.
In assessing these and other future policies, the federal government can improve how it manages uncertainties in modelling assumptions, such as publishing sensitivity analyses on innovation penetration rates, critical metal availability, and renewable energy costs, or improving how land use, land use-change, and forestry-related emissions are estimated.
Our advice demonstrates the importance of adopting policies that will address major sources of emission and help shift Canada on to a net-zero pathway. Specifically, we recommend implementing and strengthening actions to address emissions from the oil and gas and transportation sectors—Canada's largest emitting sectors and sectors where emissions have shown little past decline—as well as heavy industry.
Beyond simply reducing emissions, the federal government must also consider how it develops, implements, and communicates policy. Holistic sustainability needs should be considered in decarbonization decision-making, such as the impact on natural ecosystems and human health.
Incorporating Indigenous knowledge and partnerships to advance net-zero pathways should be standard practice. To inform net-zero pathways, Indigenous knowledge must be deeply integrated, and partnerships must be sought. This involves supporting self-determined Indigenous climate action and the full implementation of the United Nations Declaration on the Rights of Indigenous Peoples Act.
The government should also hold the affordability concerns of Canadians paramount, ensuring the final design and execution of these policies does not undermine vitally important public perceptions of fairness. These actions, which uphold our foundational value of putting people first, will reduce uncertainty and stimulate the additional private sector and household investments needed to attain Canada's 2030 goal.
Investing in Canadians' understanding of climate change and climate solutions will help create the support needed for these policies to be successful. In addition to raising public awareness about specific policies, the federal government should support communication initiatives undertaken by multiple stakeholders that communicates why we are pursuing these policies, that industrial polluters are being held accountable and doing their fair share, the co-benefits to Canadians in terms of health and environmental protection, and that Canada is not acting alone but with the rest of the world as it seeks to cut GHG emissions.
Society-wide effort required to close 2030 emissions gap
The federal government alone will not be able to achieve Canada's climate change targets. All of Canadian society has a role to play in helping Canada to reduce its GHG emissions. Beyond the federal government, provinces, territories, municipalities, Indigenous governing bodies, experts, including Indigenous Knowledge Holders and scientists, the private sector, and civil society all have important roles in bringing Canadians along to realize our 2030 and 2050 decarbonization goals. Many opportunities exist to align efforts among these players, leverage existing responsibilities, grow capacity to achieve climate targets, and provide a clean environment, human health and economic prosperity.
Glossary
Carbon contracts for difference provide a guaranteed minimum price for carbon credits sold by a company on the carbon market. When the market price is lower than this minimum, the entity offering the contract compensates the company for the difference, reducing its investment risk. Conversely, if the market price exceeds the guaranteed minimum, the company reimburses the difference to the entity offering the contract, enabling both parties to share in the profits.
Emissions gap is the disparity between an emissions reduction target by a certain deadline and the estimated emission reductions that are achievable within the same timeframe.
Investment tax credits incentivize private sector investment in specific sectors by offering tax breaks, in terms of less of delayed payments, on a portion of investments.
Oil and gas sector emissions cap focuses on reducing emissions by setting a maximum allowable emission limit on the oil and gas operations.
Output-based pricing system establishes emissions limits for regulated facilities based on their emissions-intensity performance standards. Facilities emitting below their limit earn credits they can sell or save. Those exceeding their limit must compensate for excess emissions. This system ensures all industrial emissions are incentivized under the carbon price, while limiting costs to maintain competitiveness and prevent carbon leakage.
Vehicle GHG emissions standard sets limits on the emissions of different vehicle classes and engines.
Zero-emission vehicles are vehicles that have the potential to produce no tailpipe emissions such as battery-electric and hydrogen fuel cell powered vehicles. They may still have a conventional internal combustion engine but must be able to operate without using it. Emissions may still be generated during the life cycle of the vehicle, for example during production of the vehicle and their components.
Zero-emission vehicle sales mandate is a regulatory policy that mandates automakers and importers to sell a certain percentage of vehicles with zero emissions within a specified timeframe.
Annex: Modelling caveats, scenarios, and results
Modelling caveats and scenarios
The modelling conducted for NZAB's advice comes with some important caveats. As stated in our first annual report, decision makers must use caution in assessing emissions model outputs since all modelling is necessarily a simplification.
Our 2030 modelling, analysis, and advice is restricted to the existing climate policy framework and did not consider alternative pathways, based upon substantially different policy frameworks. We assumed that policies which have already been announced will be implemented. In the future, as we examine long-term pathways to net-zero, we will further evaluate the existing policy framework.
A description of the key modelling assumptions and limitations is summarized below:
- To mitigate the risk of overestimating the impact of policies on near-term emission reductions, we excluded the use of nature-based climate solutions and emissions from agricultural soils (-13 Mt CO2e), which was included in the federal government's 2030 Emissions Reduction Plan, as well as oil and gas emissions cap compliance flexibilities (-25 Mt CO2e that could be obtained through the federal offset system or through internationally transferred mitigation outcomes), from our modelling.
- Similar to the Emissions Reduction Plan Progress Report, we included a land use, land use-change, and forestry accounting contribution of -32 Mt CO2e.
- Global warming potential of methane – Navius' model was calibrated to the latest National Inventory Report (2023) at the time of modelling, which assumed a global warming potential of 25 over 100 years.
- Federal fuel charge and industrial carbon pricing – Foresight over how the carbon price will change in future years is represented over a five-year period but not longer. Decisions from 2026 to 2030 mostly use the 2030 carbon price ($170/t) even when equipment will last longer than 5 years. However, the carbon price is currently not scheduled to increase above $170/t after 2030.
- Industrial carbon pricing – The model parameters for industry benchmarks (free allocations) were revised for the policy scenarios with the goal of keeping the carbon price binding. The modelling for the 2030 Emissions Reduction Plan policies uses the provinces' industry-specific benchmarks, including distinction for trade exposure variance. Under the policy scenarios, benchmarks by industry were adjusted to ensure the binding carbon price in each province. Due to time constraints, for each province the same factor for adjusting benchmarks was used across all industries This means that the tightening of industry benchmarks used to close the gap may differ slightly from stated provincial objectives.
- Representation of methane reduction technologies and the 75% methane regulation – While Navius regularly updates its database of technologies, the technologies and processes for detection and capturing methane are also rapidly changing. In our policy scenarios, the model hit a maximum of 78% reduction of methane below 2012 levels by 2030 due to the model's current technology specification. Achieving an 85% reduction below 2012 levels by 2030 therefore required the maximum uptake of methane abatement technologies and management actions represented in the model as well as forced production declines. However, we expect that, in practice, deeper reductions could be achieved by additional emerging technology uptake (for example, use of satellite images to detect methane leaks).
- Clean Fuel Regulations – Given the uncertainty regarding certain compliance pathways for the regulations, the modelling assumed a) 10% of light-duty vehicle home charging will be adequately sub-metered to generate credits under the regulations, based on the Regulatory Impact Analysis Statement for the Clean Fuel Regulations published in the Canada Gazette, Part IIFootnote iii.44 and b) generic quantification credits (for example, methane conservation and refinery process improvements) are non-incremental due to policy overlap and capital stock turn over.
- While the Western Climate Initiative (California and Quebec's cap and trade system) is explicitly represented in the model, the notional impact of net traded emissions credits was excluded from this analysis (that is, Quebec's “real” GHG emissions are used not accounting for “imported” reductions from California or “exported” reductions to California). In the 2023 Progress Report on the 2030 Emissions Reduction Plan, the federal government assumed less than 1 Mt of additional reductions through net imported credits from this program in 2030iii.45.
- For this modelling, policy packages rather than individual policies were simulated. Subsequently, emission reductions cannot be attributed to individual policies in this analysis. Instead, post-modelling analysis indicated which sectors faced the greatest implementation risks from developing and announced policies and which sectors have the greatest potential for cost-effective emission reductions to inform policy options.
- The Institute's modelling did not quantify distributional and other justice-related policy impacts and did not include a sensitivity analysis on input assumptions.
Policy | Previous ERP -PR modelling | First iteration modelling Policy package 1 | First iteration modelling Policy package 2 | Second iteration modelling Policy package 3 | Second iteration modelling Policy package 4 | Second iteration modelling Policy package 5 |
---|---|---|---|---|---|---|
Federal fuel charge | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR |
Large emitter trading systems | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | aim for binding price by tighter benchmarks | increasing carbon price and aim for binding price | |||
Oil and gas emissions cap | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR |
Clean Fuel Regulations | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied with greater stringency than the ERP-PR | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied with much greater stringency than the ERP-PR | The policy is applied with much greater stringency than the ERP-PR | The policy is applied with much greater stringency than the ERP-PR |
Investment tax credits | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR |
Medium and heavy vehicle emissions standard | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency |
Efficiency mandate for low temperature industrial heat | The policy is not applied | The policy is not applied | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is not applied |
Regulated reduction in oil and gas methane emissions | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied with much greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR | The policy is applied with greater stringency than the ERP-PR |
Renewable natural gas and hydrogen blending mandate | The policy is not applied | The policy is not applied | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied with greater stringency than the ERP-PR | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency |
Net Zero Accelerator and Clean Fuels Fund | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied with greater stringency than the ERP-PR | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency |
Light vehicle GHG standard | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency |
National net-zero building strategy | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency |
Waste methane capture | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency |
Canada Infrastructure Bank spending | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency |
Clean Electricity Regulations | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency | The policy is applied using the ERP-PR (2023 Progress Report on the 2030 Emissions Reductions Plan) policy design and stringency |
Notes:
Previous ERP-PR modelling refers to the Announced Less Stringent scenario from the Canadian Climate Institute’s previous analysis. The backcasting scenario is designed to be policy agnostic and not included in this table.
Source: Canadian Climate Institute
Modelling results
Of the five policy packages modelled, three were able to reach the 2030 target (see Table 2). Each of the five policy packages modelled stricter performance standards in the large emitter trading systems to address credit oversupply and ensure a binding carbon price in each province. Canadian Climate Institute analysis shows that this policy change can reduce economy-wide emissions from Canada's existing suite of policies by an additional 15 Mt CO2e in 2030. Additional modelling results are available in a separate technical annex published by Canadian Climate Institute.
Canada’s 2030 target is within reach but requires significant action.
After finding that the first two policy packages we modelled were unable to reach the 2030 target, we developed three additional policy scenarios with increased policy stringency. All three additional policy scenarios were able to achieve the 2030 target. The modelling indicated large emission reduction potential from policy changes in the oil and gas and transportation sectors—Canada’s largest emitting sectors and sectors where emissions have shown little past decline—as well as heavy industry. More detailed descriptions of these scenarios can be found in a separate technical annex published by the Canadian Climate Institute.
Oil and gas |
8 |
---|---|
Electricity |
17-19 |
Transportation |
1-22 |
Passenger transport subsector |
0-3 |
Freight transport subsector |
0-19 |
Other transport subsectors: recreational, commercial and residential |
0-1 |
Heavy industry |
2-14 |
Buildings |
0-7 |
Agriculture |
0-6 |
Waste |
1-5 |
Coal production |
0 |
Light manufacturing, construction and forest resources |
-1 to 11 |
Note: These ranges included our two policy scenarios that did not achieve the 2030 target. Total emissions differ across all policy scenarios.
Source: Canadian Climate Institute
Previous ERP-PR modelling | Backcasting to meet 2030 target* | First modelling iteration Policy package 1 | First modelling iteration Policy package 2 | Second modelling iteration Policy package 3 | Second modelling iteration Policy package 4 | Second modelling iteration Policy package 5 | |
---|---|---|---|---|---|---|---|
Modelled GHG emissions | |||||||
Oil and gas | 152 | 144 | 144 | 144 | 144 | 144 | 144 |
Electricity | 26 | 4 | 9 | 9 | 7 | 7 | 7 |
Transportation | 132 | 104 | 130 | 131 | 110 | 110 | 111 |
Passenger transport subsector | 80 | 76 | 79 | 80 | 77 | 77 | 77 |
Freight transport subsector | 41 | 17 | 41 | 41 | 22 | 23 | 23 |
Other transport subsectors: recreational, commercial and residential | 11 | 10 | 10 | 11 | 10 | 10 | 10 |
Heavy industry | 73 | 55 | 71 | 66 | 59 | 61 | 62 |
Buildings | 68 | 76 | 68 | 66 | 61 | 64 | 64 |
Agriculture | 63 | 73 | 63 | 60 | 57 | 57 | 58 |
Waste | 10 | 15 | 9 | 5 | 5 | 5 | 5 |
Coal production | 2 | 1 | 2 | 2 | 2 | 2 | 2 |
Light manufacturing, construction and forest resources | 26 | 15 | 27 | 23 | 15 | 16 | 18 |
Sub-total, modelled GHG emissions | 552 | 472 | 522 | 506 | 459 | 466 | 470 |
Non-modelled GHG emissions | |||||||
Accounting contribution by land use, land use-change, and forestry | -32 | -32 | -32 | -32 | -32 | -32 | -32 |
Nature-based climate solutions and agricultural soils | -13 | n/a | n/a | n/a | n/a | n/a | n/a |
Oil and gas cap flexibilities | -25 | n/a | n/a | n/a | n/a | n/a | n/a |
Net GHG emissions, total | 482 | 440 | 490 | 474 | 427 | 434 | 438 |
*Note: The backcasting scenario is designed to meet the emissions target in 2030 through economically-efficient reductions and does not represent policies.
Previous ERP-PR modelling refers to the Announced Less Stringent scenario from the Canadian Climate Institute's previous analysis on the 2023 Progress Report of the 2030 Emissions Reduction Plan.
Source: Canadian Climate Institute
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