Canada Is Off-Track For Its Paris Climate Goal. Stronger Policies Can Close The Gap, Save More Than $150 Billion Annually
- April 4, 2018
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Canada has committed to reduce its greenhouse gas emissions 30% below 2005 levels by 2030 under the Paris Climate Accord, and proposed the ambitious Pan-Canadian Framework (PCF) to reduce emissions while strengthening the economy.
New analysis by Energy Innovation (EI) and the Pembina Institute shows the PCF is a step in the right direction, but is insufficient to meet Canada’s Paris agreement commitment. In 2017 the government estimated the PCF will fall roughly short 44 million metric tonnes (MMT) of carbon dioxide equivalent (CO2e) in 2030 and suggests the gap can be filled with measures such as public transit investment, research & development (R&D), and carbon storage.
However, our analysis shows 2030 emissions will exceed Canada’s goal by 161 MMT even with a fully implemented PCF – a significantly larger gap than the shortfall predicted by Canada’s government. However, deeper emissions cuts are possible within the country’s existing policy framework through promised PCF policy reviews in 2020 and 2022, meaning more ambitious policy can still help Canada achieve its environmental, economic, and public health goals.
Modeling Policy Outcomes Under Canada’s Climate Commitments
EI and Pembina created the free and open-source Canada Energy Policy Simulator (EPS) computer model to evaluate the impacts of Canada’s climate policies on pollutant emissions, cash flows, human lives saved, and more. The EPS has been peer reviewed by staff at three U.S. national laboratories and top research universities, and EPS models exist for several other countries, covering 46 percent of global emissions.
Canada’s PCF includes a carbon emissions price, policies to improve vehicle efficiency and vehicle electrification, reduction of methane and refrigerant (F-gas) industrial emissions, and more. Between the PCF and other measures, Canada could utilize dozens of policies to reduce emissions. Many of these policies would interact with one-another, so a policy package would produce different effects in aggregate than simply adding its individual parts.
Canada’s climate goals have largely been analyzed with proprietary software. For example, the government’s PCF projections were made with non-public computer tools and data, making it impossible to verify the government’s assumptions, methodology, or accuracy. With the Canada EPS, anyone can assess and understand the effects of policy proposals to help craft recommendations for the government.
EI and Pembina created three scenarios in the Canada EPS, and forecast emissions under each scenario:
The Business as Usual (BAU) scenario represents the future trajectory of greenhouse gas emissions based on input data from early 2016, including Canada’s Energy Future 2016, the latest data that exclude the effects of PCF policies.
- Under BAU, most CO2e emissions come from industry. About 45% of industry sector emissions are from energy use while the remainder are emissions from industrial processes.
- Transportation is the second highest-emitting sector. Buildings and electricity follow transportation and are similar in magnitude, while land use is responsible for a small amount of net carbon reductions.
- Electric vehicles (EVs) will gain in market share through 2050, but without policies to support EV deployment, the penetration rate for light-duty passenger vehicles is expected to hit 38% in 2050.
- Projected electricity generation will remain dominated by hydropower through 2050, with a slowly increasing role for natural gas and renewables, and a slow decline in coal.
- Canada’s hydropower reliance means the electricity sector is already heavily decarbonized and cannot significantly contribute to emissions reductions by itself. However, certain provincial electricity systems are highly carbon intensive and can continue to decarbonize through a coal phase-out.
Due to the large industry and transportation sector contributions to Canada’s greenhouse gas emissions, its climate targets can only be achieved with an outsized contribution of emissions reductions from these two sectors.
Evaluating the Pan Canadian Framework
EI and Pembina modeled the PCF’s 12 policies including a national carbon tax, clean fuel standard (for industry, transportation, and buildings), policies to boost EV sales, building energy efficiency standards, methane and refrigerant (F-gas) emissions reductions from industry, phasing out coal by 2030, and eliminating existing fossil fuel subsidies.
The PCF scenario includes no assumed improvement beyond existing policies – for example, the carbon tax increases from $10/tonne in 2018 to $50/tonne in 2022, then holds constant at $50/tonne thereafter, as current law stipulates. The figure below shows PCF package emissions reductions broken out by policy, using the BAU projection as the upper edge of the colored area and the PCF projection as the lower edge.
In the PCF scenario, emissions are 161 MMT higher than Canada’s goal, a gap significantly larger than the 44 MMT shortfall predicted by Canada’s government.
- The most effective PCF policies for reducing emissions by 2030 are the carbon tax and methane capture and destruction. Together, these two policies are responsible for 73% of total emissions reductions in 2030.
- By 2050, energy-efficient building standards also become very important (the long lifetime and slow turn-over of buildings mean benefits of improved building codes often take many years to be realized).
The figure below shows PCF policies displayed as boxes along a cost curve through 2050. Boxes below the X-axis save money, while boxes above the X-axis cost money.
The PCF’s most cost-effective policies are transportation demand management (policies to encourage walking, biking, public transit, etc.), energy-efficient building codes, an EV sales mandate, and early coal power plant retirements. Building codes, methane capture and destruction, and the carbon tax all provide a good blend of high pollution reductions and low or negative costs.
Extending The Pan-Canadian Framework To Mid-Century
EI and Pembina also modeled out a PCF Extended to Mid-Century scenario, increasing the PCF’s ambition by assuming that all 12 PCF policies strengthen at a constant rate through 2050 (or until their potential is realized, whichever comes first). For example, the carbon tax policy increases at the same rate of $10/tonne per year from $10/tonne in 2018 to $330/tonne in 2050. In this policy package, most emissions reductions are provided by the carbon tax.
- As in the PCF scenario, the PCF Extended scenario’s most cost-effective policies are transportation demand management, energy-efficient building codes, vehicle electrification or an EV sales mandate, and early coal power plant retirements.
- The carbon tax, which does most of the work when it comes to pollution reduction, provides overall economic savings or benefits to society.
The PCF Extended scenario increases EV penetration, even as it reduces overall demand for passenger vehicles. By 2050, this scenario projects fewer than 22 million cars on the road (compared to 28 million in BAU), and 60% of them will be battery EVs (compared to 38% in BAU).
More Than $150 Billion Annual Savings, 4,600 Fewer Annual Deaths Possible By 2050
Both the PCF and PCF Extended scenarios save money, illustrating the compatibility of climate change goals and economic development. While the scenarios exhibit a pattern of costs in early years and savings in later years, they both result in net savings through 2050 relative to BAU.
Even without accounting for uses of the carbon tax revenues (carbon taxes paid are treated as pure expenditures), annual savings balance out costs in the PCF policy package by 2037 and in the PCF Extended package by 2031. By 2050, the PCF policy package is saving about $25 billion per year, and the PCF Extended package is saving about $95 billion per year.
If carbon tax revenues are returned to society, the PCF Extended scenario would save money from day one. The PCF package’s annual savings now balance costs by 2032, instead of 2037. By 2050 the PCF package saves $45 billion per year, and the PCF Extended package saves more than $150 billion per year.
Under the PCF scenario Canada will have 2,700 fewer deaths per year due to reductions in particulate matter emissions, while the PCF Extended package will prevent 4,600 deaths annually in 2050.
Hitting Canada’s 2050 Deep Decarbonization Goal
Canada’s mid-century goal is reducing emissions 80%-90% relative to 2005 levels. However, even the PCF Extended scenario falls far short of this goal. Energy-related emissions are greatly reduced under the PCF Extended scenario, but additional process emissions reductions may require innovative techniques like carbon-neutral cement, reducing methane emissions from livestock and soils, or carbon capture and sequestration to store emissions that are otherwise difficult to eliminate.
The PCF Extended scenario’s process emissions decline is modest and additional efforts to reduce them will be necessary. Many of the easiest and lowest cost reductions would already been taken advantage of: it already eliminates of methane leakage from natural gas and petroleum systems and completely phases out F-gases.
Transportation is the largest sectoral contributor of energy-related emissions in the PCF Extended scenario, responsible for 103 MMT (60%) of all energy-related emissions in 2050, but is difficult to fully decarbonize.
Even under the PCF Extended scenario’s large EV market share, the majority of transportation sector fuel use comes from petroleum and jet fuel. Canada will need to reduce fossil fuel consumption in trucks, rail, and shipping in order to eliminate the largest remaining segment of energy-related emissions and approach its mid-century goal. Possibilities include electrification (particularly rail and some trucks), hydrogen derived from electrolysis, or carbon-neutral biofuels.
Canada Is Off To A Great Start, But Opportunities Exist To Achieve Climate Goals
Canada should be commended for creating an ambitious policy package – the PCF – which will greatly reduce emissions. However, the current PCF will fall short of achieving Canada’s commitment to the Paris Climate Accord.
Extending and strengthening the PCF policies comes shrink that gap, but falls short of Canada’s mid-century decarbonization goal. Additional industrial process emission reductions and transportation sector decarbonization will be necessary, on top of the PCF Extended policies, to approach the 2050 target.
Canada is off to a great start, and opportunities exist to make deeper emissions cuts. With more ambitious policy, Canada can achieve still better environmental, economic, and public health outcomes.
Jeffrey Rissman is Industry Program Director and Head of Modeling for Energy Innovation, Robbie Orvis is EI’s Director of Energy Policy Design.