Commentary by Michelle Robichaud, President, Atlantica Centre for Energy.
This commentary first appeared in SaltWire on August 15, 2024. It was also published in the Telegraph Journal on August 17, 2024.
Canada’s economy is extremely dependent on the energy sector. Energy prices are often a significant input cost for businesses, many regions of the country still have predominantly resource-based economies, and the energy sector itself is a significant contributor to job creation and government revenues.
In Atlantic Canada, the energy sector employs more than 37,000 people, oil and gas royalties generate more than $1.6 billion annually for provincial governments, and most energy rates are competitive with those in New England, which strengthens export-dependent industries. At the same time, many argue climate change is the greatest global challenge, and Canada has an important role to play in reducing its emissions, starting from the largest contributor: its energy systems.
Atlantic Canada has the rare opportunity to have its cake and energy, too.
Green projects
With the challenges of an evolving energy sector come opportunities to grow the region’s economy. A new report by the Atlantic Economic Council estimates $90 billion worth of green hydrogen projects have been proposed in Atlantic Canada (as of June, 2024). There is also massive potential to develop an offshore wind industry, a small modular reactor sector, and a clean fuels economy, among others.
The opportunity for Atlantic Canada to emerge as a North American energy powerhouse could be ours for the taking. With the energy transition now underway, when developing policies, governments cannot lose sight of the codependence between energy and the economy, especially in this region, or the cake will fall flat.
There has been a constant barrage of federal policies aimed at reducing emissions in the energy sector. Recently, however, a report from the Auditor General of Canada on Canada’s 2030 Emission Reduction Plan stated, “weaknesses in Environment and Climate Change Canada’s economic modelling included overly optimistic assumptions, limited analysis of uncertainties, and lack of peer review.”
While some federal decarbonization policies are supported by “carrot” approaches like new investment tax credits and low-interest loans for certain large projects, Canada seems to be taking a more heavy-handed approach to emission reduction than nearly all other countries.
Compliance onus
Canadian industry is put at a disadvantage with increasing obligations and compliance costs resulting in extended project timelines and lagging investment decisions. More importantly, Canada, and especially Atlantic Canada, will lose out on attracting foreign investment that will instead flow to projects in countries with lower costs, and a faster, more certain path to get a return on investment.
Unfortunately, the compliance onus recently grew again for the sector with new federal legislation passed in June aimed at combatting “greenwashing.” Bill C-59 made changes to the Competition Act to make it easier to challenge a business’ environmental claims or representations. These changes mean companies must now prove any claims they make about their environmental benefits or “green” actions with internationally recognized tests or methodologies.
While this may seem reasonable, the reality is it is very hard to prove because the legislation provides no clear standards for businesses to base their information on today, even though the penalties are significant. For example, the Government of Canada hasn’t even clearly defined what “net zero” means.
At a time when the country is looking to get industry onside to make significant decarbonization investments, the last-minute addition to Bill C-59 is vague and adds unnecessary uncertainty and compliance costs.
“At a time when the country is looking to get industry onside to make significant decarbonization investments, the last-minute addition to Bill C-59 is vague and adds unnecessary uncertainty and compliance costs.” – Atlantica Centre for Energy’s President, Michelle Robichaud.
Affordability burden
Unfortunately, Canada is not setting itself up to capitalize on massive climate-friendly energy developments such as clean hydrogen or offshore wind. If anything, it is undermining its energy resource advantage, especially for Atlantic Canada.
The Atlantica Centre for Energy expresses concern that the federal government is failing to adequately appreciate how economic growth and emission reduction are interdependent. Without a business case to invest in clean energy projects, funds will go elsewhere. Without manageable costs, the public will not support decarbonization efforts.
These are some of the missing ingredients for which the federal government has the recipe.
Staying with the same approach to policy development could have dire consequences. It is imperative that governments help create an environment where Atlantic Canada’s economy can grow. Governments must also be mindful not to add to the energy affordability burden in order to maintain public support to meet the region and country’s decarbonization goals. Governments must understand the energy sector isn’t the problem, but it can be part of the solution.