In March 2022, the Government of Canada unveiled its new climate change plan to reduce greenhouse gas (GHG) emissions by 40% below 2005 levels by 2030 and achieve net-zero emissions by 2050. Critical components of Canada’s Emissions Reduction Plan (ERP) include CA$ 9.1 billion in new investment to cut pollution and grow the economy. More recently, targeted GHG reduction measures, such as the Aviation Climate Action Plan and Clean Fuel Regulations, have also been adopted to decarbonise the oil and gas and transportation sectors, which are 27% and 24% of Canada’s overall emissions, respectively. Moreover, to harness Canada’s potential and cater to the growing market for batteries, which is projected to become larger than the oil market’s value by 2050, the federal government has developed a Critical Minerals Strategy that aims to support the transition to a green and digital economy.
However, based on Canada’s Environmental Commissioner’s latest report, achieving and implementing these national targets to the fullest will be a challenge given the current GHG emission levels and will require more actionable policies and technological innovation to decarbonise the economy.
New research highlights how Canada can advance climate change efforts and make inroads into the challenge of achieving net-zero emissions by 2050. For instance, Farrpoint’s latest report noted that digital policy had been overlooked, and better usage in combination with climatetech solutions could reduce Canada’s GHG from current projections by up to 20%, eliminating 120 megatons yearly. Likewise, Canada needs to unlock capital, particularly from the private sector, and leverage its existing mining, manufacturing, aviation, and R&D expertise to build the infrastructure and develop solutions for tomorrow’s net-zero economy.
In a series of interviews, leading experts provided insights into how digital policy and climatetech solutions and unlocking investments can help Canada reduce its GHG emissions, develop globally competitive solutions, and achieve net-zero goals.
Leveraging digital solutions to advance GHG reduction and climate mitigation measures
A recent report by the Information and Communications Technology Council (ICTC) highlights that Canada’s progress towards a green economy has lagged behind its peers. According to Yale University’s Environmental Performance Index 2022, Canada ranks 7th in the G7, and the Climate Change Performance Index 2021 ranks Canada 17th among the G20.
The ICTC report emphasises that the digital economy can play a significant role in building a sustainable economic system and that leveraging it can provide Canada with opportunities to improve and progress towards reducing greenhouse gas emissions. In recent years, other major economies such as the United States, United Kingdom, European Union and China have implemented measures to address global challenges such as climate change by integrating digital solutions utilising artificial intelligence (AI) and machine learning (ML) to drive their competitiveness and transition to a low-carbon economy.
According to Sue Paish, CEO of the Digital Global Innovation Cluster, “in the transition to a net-zero economy, new infrastructure such as hydro, solar, wind, hydrogen and other clean energy-generating facilities will have to be built to decarbonise high-emission sectors such as electricity, transportation, and manufacturing/construction that make up the vast majority of the GHG emissions in Canada.”
She adds: “To enable these clean infrastructure projects operate more efficiently; digital solutions can play a supportive and complementary role. In particular, as intermittent power supply from renewable energy is brought onto the grid, and distributed generation becomes more prominent, digital solutions can be used to evaluate energy consumption patterns and balance the energy supply and demand to optimise the grid in terms of price and stability.”
As such, for Canada to modernise traditional industries and advance net-zero goals, Paish notes, “an integrated approach is needed where Canadian cleantech and digital solutions are broadly incorporated into the production of clean infrastructure and energy projects.” Through this approach, she points out, “critical sectors, for example, mining that is integral to the development of electric vehicles, can expand their exploration and extraction efforts by using sensors and AI to find minerals while optimising energy use.”
Moreover, given the mitigation and adaptation measures needed to manage the long-term impacts of climate change, Paish points out, “digital and data solutions can also provide valuable insights that can help governments prepare for extreme weather events and through the use of big data analytics from sensors and satellites, enhance the monitoring of fisheries and marine ecosystems in Canada.”
Unlocking investment and broadening collaboration to develop innovative solutions
According to research conducted by the Canadian Climate Institute and Deloitte, several proven and emerging technologies have the potential to accelerate Canada’s energy transition in the upcoming years. However, to fully scale and develop competitive solutions globally, these technologies require access to capital, which has been a challenge for Canadian climatetech companies. For instance, a report from Sustainable Development Technology Canada and Cycle Capital noted that relative to the size of the economies, the total venture capital investment had been about half of what it should be on a per capita basis in Canada vs the United States between 2002-2015. More recently, United States companies have raised double the climatetech investment of Canadian cleantech companies in the past ten years.
With the Inflation Reduction Act expected to provide 3x more investment per capita in the United States than what Canada has committed to in its most recent federal budget, it will be necessary for Canada to find ways to increase access to capital for its climatetech companies to compete on a global level and accelerate its energy transition.
Alison Cretney, Managing Director at Energy Futures Lab, said in an interview: “Across Canada, we are seeing various regions develop climatetech solutions that are becoming attractive opportunities for investors, for example, hydrogen in Alberta, carbon sequestration in the Prairies and electric vehicles, mining and battery manufacturing in Ontario and Quebec.”
Given the varied sectoral emission levels and different energy mixes and markets, Cretney notes as follows: “To support the energy transition, Canada will benefit from transition finance taxonomies in development to accelerate and unlock capital investment, particularly for transitioning high-emission sectors and regions to help decarbonise and adopt greener business models.”
Through this approach, she adds, “high-emission industries such as the oil and gas sector can access capital to repurpose their existing and legacy assets, which often don’t qualify under sustainable financing, towards low emission technologies like carbon sequestration, clean hydrogen and geothermal energy projects.”
Aside from transition finance, Bereskin & Parr’s research recommended that strengthening intellectual property laws, domestically and internationally, will provide additional mechanisms for investors to fund climatetech solutions, as patents assist with access to foreign markets and decrease the risk surrounding the need for higher capital expenditures and patient capital.
Meanwhile, the Canada Cleantech Alliance (CCA) suggested leveraging proven financial tools like flow-through shares to unlock private capital and de-risk investment into ventures, such as developing and deploying emission-reducing technologies, by including them in the list of principal-business corporations under subsection 66 of the Income Tax Act. These changes would allow expenditures that may incur in relation to the deployment of emissions-reducing technologies to be considered qualified expenditures and incentivise the use of innovative technologies.
As complementary measures to investment, particularly given Canada’s focus on developing mining, achieving a net-zero electricity grid and expanding renewable energy, Cretney highlighted, “transparent climate disclosures combined with stakeholder collaboration that includes equity participation with Indigenous Nations will be important in driving forward projects and regulatory changes—which in the past has taken time.” With climate disclosure reporting now becoming part of the due-diligence process for investors, transparent disclosures from companies would help investors allocate capital for projects more efficiently.
In the case of mining, where 54% of global minerals are located on or near Indigenous peoples’ lands, Cretney said the following: “For Canada to attract investment into these sectors, companies will need to form meaningful and mutually beneficial partnerships with Indigenous communities and Nations, and create opportunities for economic reconciliation and ownership of resource development.”
Disclosure: I am a Fellow at the Energy Futures Lab and work at Cycle Capital.