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A Triumph of the Incumbents? Assessing the federal government’s choices on the road to decarbonization.

Published in Policy Options, January 25, 2023

Canada’s nuclear industry got an important pre-Christmas gift from the federal government in the form of the announcement of its decision not to conduct an impact assessment of a proposed small modular nuclear reactor (SMR) for the Point Lepreau site in New Brunswick.

The Lepreau SMR proposal has been highly controversial, given its reliance on technologies whose performance, costs and risks are essentially unknown. Moreover, serious questions have even been raised about whether the project, intended to reprocess fuel from the Lepreau CANDU reactors, would violate the Nuclear Weapons Non-Proliferation Treaty. It would have seemed precisely the kind of situation where a very thorough, public review is needed before a project can proceed. The federal government has chosen otherwise.

The Lepreau decision capped a string of federal decisions and multi-billion dollar announcements around technologies claimed to be essential to decarbonizing Canada’s economy. There has been a $970 million investment through the Federal Infrastructure Bank in another SMR project at Ontario Power Generation’s Darlington facility. A Critical Minerals Strategy, also released in December, reads like a mining industry wish list. Billions had already been committed to ‘critical minerals’ projects and infrastructures. A tax credit for carbon, capture, utilization and storage (CCUS), with a value in the range of $1.5 billion/yr was introduced through the March 2022 budget. Hundreds of millions more have gone into fossil-fuel based ‘blue’ hydrogen-related technologies.

Many of the technologies being emphasized through these decisions are far from mature. Their potential contributions to achieving significant reductions in GHG emissions within the timeframes required under the Paris climate agreement and the federal government’s own climate change commitments, is open to serious question. Many also carry very substantial environmental, social, cultural, economic, legacy and technological lock-in risks of their own.

Decarbonization can be seen as an essential component of advancing sustainability, but does not constitute a sustainability transition on its own.  “Clean and Affordable Energy” and “Climate Action” are only two of the United Nations’ seventeen Sustainable Development Goals (SDGs), with the implication that decarbonization strategies need to avoid negative trade-offs with the other SDGs as much as possible.

The situation begs questions about how the federal government is making decisions about where and how to make investments in decarbonizing technologies and pathways.  There appears to be no consistent framework for evaluating or making choices towards that end, other than to pursue “every tool in the toolbox.” The resulting situation is, among other things, extremely vulnerable to the influence well-established incumbent sectors and actors, who are able to re-frame long-standing agendas through a climate change lens.

Elements federal climate strategy, which remains grounded in the December 2020 Healthy Environment, Health Economy paper, show strong potential to advance decarbonization and energy sustainability with relatively low risks of adverse impacts or negative trade offs. Carbon pricing; building energy efficiency improvements; nature-based responses; initiatives around waste management and agricultural supply chains, and the electrification of transportation might all fall into this category. Even there, careful attention needs to be paid to program design to ensure effectiveness, efficiency, and avoid or avoid deepening adverse impacts on marginalized communities. The decarbonization of important but difficult-to-decarbonize sectors, like heavy, long-distance transportation, and steel and cement may also qualify, but is more dependant on technological choices, such as the sources of hydrogen used for these purposes.

Other elements of the federal strategy present more complex challenges and trade-off risks. Assessments of hydrogen-based strategies depend greatly on how the hydrogen they rely on is generated (e.g. grey vs. blue vs. green vs. red). Serious concerns are also emerging regarding the economic viability of the rapid widespread adoption of hydrogen-based technologies, given the current non-existence of the necessary infrastructures, and their economic and energy efficiency. As the federal environmental commissioner has noted, hydrogen’s role in a net-zero transition may be being seriously overstated.  It may well emerge as something of a ‘dead-end’ outside of certain relatively-specific applications.

The SMR component of the federal government’s approach ‘clean’ electricity, for its part, carries very high trade-off risks, ranging from direct impacts and to questions of geopolitical security. At the same time, the technology remains immature and unlikely to make any contribution to the achievement of Canadian or global emission reduction targets for 2030 or even by mid-century. Rather, it may represent another ‘dead-end’ pathway – albeit one with very significant risks of major legacy costs and impacts.

Very significant energy sustainability trade-offs emerge within the federal government’s strategies around the roles of CCUS and ‘critical’ minerals. The federal focus on CCUS has been seen as politically essential in dealing with fossil fuel export dependant provinces around climate change issues. However, in addition to the issues related to its effectiveness, cost and the appropriateness of public subsidization of a highly profitable sector, CCUS raises larger, and politically difficult, questions about the long-term role of the upstream fossil fuel sector in a decarbonizing world.

The development of ‘critical’ mineral resources, although potentially important to energy storage technologies like EV batteries, also carries risks of very significant environmental, social, and cultural trade-offs, particularly in relation to Indigenous communities in regions where these minerals might be found. So far, these issues have been largely ignored in new strategies for the sector.

On the whole the federal government’s approach to a net zero energy transition contains elements with a strong potential to advance energy sustainability, but its overall effectiveness in achieving the government’s stated climate change goals remains an open question. At the same time, the power of incumbents, in the form traditionally dominant actors in the fossil fuel, nuclear, mining and industrial agriculture sectors, backed by sympathetic provincial governments, is strongly apparent in the federal government’s plans. The results give rise to a range of critical trade-off risks in relation to a sustainable, net-zero energy transition.

A clearer and more transparent and evidence-based approach to decision-making is needed - one which recognizes and acknowledges these trade-off risks - and provides a framework for dealing with them. The 2019 Impact Assessment Act was specifically intended to establish such a framework, making the decision not to employ it around the Lepreau SMR project deeply troubling, and invites deeper questions about what is guiding the government’s decision-making.