Canada has a new climate plan target

What does a net zero Canada in 2050 mean for you?

Contributing author: Stephanie Hamilton

With the announcement of Canada's new 2030 target at the US Climate Ambition Summit on April 22, it's a good time to take a closer look at Canada's Climate Plan that was published late last year. While still short on some details, the new Canada Climate Plan sketches out how Canada will meet its refreshed 2030 reduction target. It also provides some direction on how we might get to the new commitment of net zero by 2050.

Two things are clear:

• This plan changes the dialogue around the 2030 target and details specific levers.
• The plan will impact every company regardless of size, sector or scope.

That means there’s never been a more pressing need to establish a clear — and above all integrated — corporate approach to climate change that seamlessly connects strategy, risk and governance.

With 64 new measures and confirmed funding of $17.6 billion in April's budget, the government’s refreshed approach to tackling Canada’s climate change commitments under the Paris Agreement centres on four fundamental pillars for business.

Taken together, these four pillars aim to reduce demand for carbon-intensive products and services by making them more expensive to use while increasing the supply of low-carbon products and services by stimulating action to reduce emissions across the value chain.

The principles underpinning the four pillars may not be new, but the explicit way they are laid out, and how they will continue to be used to support the new stated goal of net zero by 2050, certainly are. That’s come as a surprise to many. A certain complacency had set in, as Canada failed to meet previous milestones and worried about being out of step with our largest trading partner to the south.

These measures will have significant impacts that reach right across an organization. That includes every aspect of operations, from procurement to sales and fiscal planning to talent development. Such far-reaching implications reinforce the need for an internal plan that connects functions and teams in smart ways. Siloed tactics and half measures won’t be enough for Canadian companies to successfully navigate what a net zero Canada in 2050 means to the business. Now’s the time for clear planning.

How can your plan be well defined and ambitious enough to be effective?

Rally your leadership team to tackle these three areas of your umbrella strategy:

Assess risk with a broader lens than ever before

To mitigate your vulnerabilities, you need to know where they are.

With climate change, the caveat is to think outside the box in terms of what those risks could be. We tend to default to the physical risks when we talk about climate change — invasive floodplains spurred by rising sea levels or raging forest fires exacerbated by more frequent heatwaves and worsening droughts. Those are important. Case in point, an agricultural business in the Prairies will undoubtedly want to factor changing weather patterns — longer growing seasons but also a higher risk of drought — into their plans and forecasts.

But a good risk assessment should also extend well beyond the more traditional risks we peg as climate related. This is about covering off a wide range of additional business risks, as policy and markets accelerate the transition to a low-carbon economy: consider costs, talent, operations, safety and more. 

Shake up your thinking and analyze a wider range of risks so that the plans you’re making now are resilient enough to work tomorrow. That principle should also extend to include the idea of abandoning negative connotations around the idea of climate risk itself. Repositioning risks as priorities, or opportunities, can transform your climate change approach into a more engaging push towards innovation. That could move your people to become part of the solution.

Ground your approach to climate change in a strategic vision

You can’t set clear objectives or develop effective tactics without understanding where you stand in relation to the government’s stated objectives and the measures described in Canada’s new plan. Front-end scenario analysis allows you to truly dive into what the deep decarbonization envisaged in Canada’s plan means for your operations — and your bottom line. At the other extreme, if Canada and the world continue on the current trajectory, what increasing physical climate change impacts might your business face?

For an automotive company, that could mean considering the number of electric vehicles the government expects to see on Canada’s roads by a given date, and analyzing how operations must evolve to drive that change. Under the plan, Canada has targets for zero-emission vehicles to reach 10% of light-duty vehicles sales per year by 2025, 30% by 2030 and 100% by 2040.

Doing that scenario analysis now and thinking beyond the three- to five-year mark to focus on the broader timeline is important. There’s a tremendous difference between simply setting 2030 targets and doing so in a way that also builds momentum toward 2050. Good analysis of the economy-wide transformation expected in the plan will help you understand where you’re starting from, where you hope to go, and how you’ll need to correct course as you work to achieve objectives by milestone dates. Building that overarching strategy now is an investment in business continuity and resilience.

Refresh your governance framework to measure climate success and propel progress

Good governance begins with good insight. You need the right information, with the right level of granularity, to not only keep track of how you’re doing but to empower your leadership to course-correct as need be. 

Where do we go from here?

Every organization has the opportunity to contribute as Canada works towards hitting net zero by 2050. Investors are actively seeking low-carbon investments as they, too, look to decarbonize their portfolios and assess the real-world impact of their investments. That’s especially relevant in light of the growing focus on ESG and the call for a better understanding of climate risks largely related to the uptake of the TCFD recommendations. At the same time, securities regulators are increasing their vigilance, wanting to see that climate risks attached to the new plan have been adequately assessed and disclosed in annual reports. That’s one more reason to take action.

Diving in now can help you emerge as a leader who not only complies, but actually shapes the recovery and the new economy, while remaining two inspirational steps ahead of stakeholders’ changing expectations. We won’t meet Canada’s climate ambitions by reverting to previous emission levels during the recovery. Canada is looking to build back better.

Start the process. Collaborate where and how you can to drive industry and cross-sector success. Explore the federal expansion from SRED-focused tax credits into more climate-specific initiatives and programs to seize opportunities and create change.

Above all: get a plan in place that’s as strategic about decarbonization as it is clear eyed to risk, and robust in governance. With targets as bold as these, your business’s future resilience depends not on what you’ll do down the road, but what you did right now, this year, this quarter, today.

What’s the Canada Climate Plan?

• It’s an update to the 2016 Pan-Canadian Framework on Clean Growth and Climate Change.
• It’s a combination of regulation, funding and programming that touches all sectors of the economy.
• Its intent is to ensure Canada meets its original 2030 commitment to reduce emissions to 30% below 2005 levels, now further tightened to 40 to 45%.
  
• It provides direction for the major shifts needed to meet Canada’s latest ambition to be net zero by 2050 confirmed at the recent international Climate Ambition Summit.
• It’s responding to the growing public demand for a credible plan to address climate change.

What does a net zero Canada by 2050 mean to the power and utilities sector?

Should strategy focus on grid storage or distributed generation to integrate intermittent renewables? In certain regions, pumped storage might be an excellent solution for grid storage.

What further intertie projects are then needed at scale? According to Canada’s new climate plan, the ambition is to have a net-zero emissions grid while increasing power supply for the electrification of key sectors. Under the plan, non-emitting power is seen to double or triple by 2050. As a consequence, a natural gas distributor may want to evolve their business model based on the increasing number of residential clients who may have access to cheaper, cleaner energy sources over the course of time.

How much hydrogen can be injected into our natural gas networks to reduce the carbon impact for hard-to-abate industrial sectors where electrification of energy-intense processes is still not feasible? Canada’s Hydrogen Strategy, released alongside the Climate Plan in December 2020, suggests up to 20% blending.

What do the pricing dynamics need to be for this to happen using green hydrogen produced from renewables (electrolysis or gasification of biomass) vs. grey hydrogen produced from natural gas? Today, less than 1% of the world’s hydrogen production is green. To make grey hydrogen blue – capturing and sequestering the CO₂ emitted during the steam methane reformation typically used for its production — serious advances in carbon capture and storage (CSS) at scale would be needed. This would add costs and reduce overall efficiency, but it would improve environmental performance. CCS is not yet available beyond select demonstration projects.

According to the updated climate plan, Canada’s vision is to deliver up to 30% of Canada’s energy in the form of hydrogen by 2050, up from less than 2% today.

What does a net zero Canada by 2050 mean to a mining company?

The cost of fuel will rise significantly, whether directly through the federal carbon price on fuel or a province’s own carbon pricing mechanisms. With funding and tax breaks being put in place through the Net-Zero Challenge and the Net-Zero Accelerator ($3b over 5 years), now is the time to address the electrification of the underground mining fleet – thereby also solving a health and safety problem dealing with diesel emissions that require costly ventilation systems. Drilling and blasting equipment, bolters, borers, scoops, haulers and personnel carriers are all being electrified.

Will suppliers of cleantech be ready with scalable technology? Support is also available for pre-commercial technologies to get to market more quickly.

As a large final emitter, depending on your location, you’ll be participating in some cap and trade or output-based system working with carbon credits. What investments can be made today to maximize the creation of low-cost credits onsite or elsewhere in the value chain? Under the Plan, 15% of the reduction for 2030 is meant to come from heavy industry. See diagram (CASCADE of reductions as per Figure B of the Plan).

Exporting that product? Canada is a resource-based economy that relies on large volumes of exports. The climate plan sees Canada decreasing the carbon-intensity of our exports rather than the export volumes.