Version published in Policy Options, April 23, 2023.
By Mark Winfield and Johanne Whitmore
The federal government’s 2023 Budget has drawn considerable praise for its $80 billion in federal investments in a ‘clean industrial’ strategy aimed at meeting Canada’s climate change goals and enhancing its competitiveness.
In some ways the Budget represents a culmination of the implementation of federal climate change strategy set out in the government’s December 2020 Healthy Environment Health Economy paper. Although some key elements of the plan, includes a cap on oil and gas sector emissions, and a clean electricity standard, remain incomplete, the Trudeau government has shown a remarkable degree of consistency and unity of purpose in following through on the directions outlined in that paper.
At the same time, as the process of implementation has unfolded, indications of the need for some mid-course corrections have emerged. This is particularly the case around how the government has defined technologies and projects as ‘clean’ for the purposes of giving them support, and the government’s focus on increasing energy production versus improving Canada’s energy productivity.
The budget moves the subsidization of the development and deployment of technologies that the government sees as ‘clean’ to the centre of the government’s strategy. Much of this is seen to be driven by necessity – particularly the need to respond to nearly $400 billion in similar types of subsidies contained in the US Biden Administration’s 2022 Inflation Reduction Act.
In assessing these subsidy-focussed approaches, it is important to recall that the US administration’s focus on expenditures was a product of political necessity. It was not an optimal policy design for decarbonization and a post-carbon economy in the United States. Key tools for such a strategy, including a system for pricing carbon and additional regulatory measures, where ruled out due to a lack of Congressional support, leaving spending as the major tool available in the US federal toolbox.
In Canada’s case, the 2023 budget does leave the distinct feeling that it pours federal taxpayers’ dollars in the direction anything claiming to be to be ‘clean.’ Potentially difficult questions about what should be considered ‘clean,’ or whether some of the investments will actually deliver significant greenhouse gas emission reductions within the required timeframes, seem to have been pointedly avoided.
This reality has been particularly stark in areas like the government’s support for small modular nuclear reactor (SMR) projects. The federal infrastructure bank is putting nearly $1 billion into an SMR project in Ontario, and federal support is flowing to another, highly controversial project in New Brunswick. Both projects are very high-risk, involving immature technologies that are unlikely to deliver significant results within the required timeframes. They also run significant risks of major legacy impacts and costs extending of millennia and costing taxpayers billions in clean-up costs. The New Brunswick project at the Point Lepreau site has been excluded from review under the federal Impact Assessment Act. The Darlington SMR project in Ontario is proceeding under pro forma review dating from more than a decade earlier that didn’t look at the specific technologies now being proposed for the site.
The subsidization of the hydrogen economy, another major feature of the budget, falls into a similar category. Hydrogen may well play a significant role in the decarbonization of difficult-to-decarbonize sectors, like steel-making. But the federal environmental commissioner and others have noted that hydrogen’s role in the decarbonization of the economy is being greatly exaggerated, with the implication that it may not warrant the levels of federal support it is receiving.
All of this implies the need for stronger filtering to assess what really are ‘clean’ and rational investments of federal taxpayers’ money. High-risk projects need to be subject to meaningful and substantive independent public review before they proceed. Evaluation and accountability mechanisms are needed to ensure that resources are reallocated towards measures that will deliver real reductions if CCUS, hydrogen and other high-risk ‘clean’ investments fail to show significant results.
The federal government’s budget and investment strategy raises some deeper questions as well. The focus of the federal government’s efforts so far has very much been on increasing ‘clean’ energy production. That theme underwrites the government’s investments in ‘clean’ electricity, potentially including such high-cost, high-negative impact, high-risk options as new nuclear and large hydro projects. The government’s investments in CCUS and fossil fuel-based ‘blue’ hydrogen are intended, in many ways, to facilitate and even expand, fossil fuel production and use.
Missing, by comparison, is any clear focus on increasing Canadians’ energy productivity – our ability to provide the same goods and services with less energy inputs.
The cheapest, lowest risk and lowest carbon energy option is the energy we don’t need. Decarbonizing the economy needs to be about more than creating clean energy markets and electrifying everything, whatever the risk or cost. Rather, iI needs to be about how we better use all energy sources to create wealth, heat buildings, produce and transport goods and services and meet the needs of Canadian businesses and citizens.
The potential for Canada in this space is enormous. According to OECD data, Canada has one of the worst track records for energy consumption per capita and the lowest energy productivity (wealth creation per unit of energy consumed) in the world. Energy efficiency and productivity should have been at the forefront of the federal government’s strategy to support the resiliency and competitiveness of our economy in a net-zero world. This would have included measures to improve the management, productivity, and efficiency of energy used in Canada, as well as efforts to expand its ‘clean’ production.
The level of consistency and focus in the federal government’s decarbonization and ‘clean’ industrial strategies is commendable. But the 2023 budget highlights the need for some refinements in the government’s approach. A more rigorous analytical lens needs to be applied to the federal government’s ‘clean’ energy investments in terms of their likely costs, risks, up and downstream consequences and ability to deliver reductions in GHG emissions within the required timelines. Conceptually, the government needs to shift from its overwhelming focus on expanding ‘clean’ energy production, to address the question of Canada’s poor energy productivity. That element will be essential to building an economically and environmentally sustainable pathway to decarbonization and competitiveness for Canada.
Mark Winfield is a Professor of Environmental and Urban Change at York University and Co-Chair of the Sustainable Energy Initiative
Johanne Whitmore is Senior Researcher, Chair in Energy Sector Management, HEC Montréal