The Canadian Institute for Climate Choices today released its timely report “Sink or Swim: Transforming Canada’s economy for a global low-carbon future” (the Report). The Report is the first of its kind in Canada and is critical in prudent planning in a rapidly changing global economy that directly affects Canadians, Canadian companies, and Canadian exports. The Report moves from qualitative transition paradigms and platitudes to quantified realities for Canadian business, workers, and communities as the world rapidly progresses in its transition to a decarbonized global economy. The key findings and recommendations of the Report follow.
Findings
Net zero emissions. The Report indicates growing support for net zero emissions by 2050, currently including economies representing over 60% of the world’s GDP and over 50% of global emissions, and that an ambitious low-carbon transition will cost less than inaction. We expect that number to increase dramatically at or around the upcoming UNFCCC COP26 negotiations during the first two weeks of November.
Canadian exports and jobs are at risk. Approximately 70% of Canadian exports and 60% of foreign direct investment come from transition-vulnerable sectors, with over 800,000 Canadian workers in these sectors. Alberta has the highest percentage of workers in transition-vulnerable sectors whereas Ontario has the highest absolute numbers in such sectors. Transition-vulnerable sectors include:
- mining and mineral products;
- downstream and midstream oil and gas;
- auto manufacturing and parts;
- chemical, plastic, and rubber materials;
- airlines;
- oil and gas exploration and productions; and
- high-carbon power.
Private finance. Canadian companies listed on the TSX are more exposed to transition risks than other major international stock markets and are facing a -14% market capitalization impact by 2050.
Transition opportunity. Industries best positioned to profit from the transition include those associated with biofuels, batteries and storage, fuel cells, and solar and wind equipment. The Report notes that the main driver affecting profitability for these industries is demand creation from global climate strategies and policies. Although investments in transition-opportunity sectors is increasing, with low-carbon electricity and bioproducts and bioenergy attracting the most investments, Canada must do more to generate innovation and investment with greater domestic technology adoption and clear market direction. We note that the report does not fully reflect the impact of Canadian innovation in and around Direct Air Capture of CO2 and Carbon Capture and Utilization – both areas where Canada is a global leader.
Recommendations
The Report makes four key recommendations:
- Prioritize forward-looking decision making. Decision making on carbon pricing, regulations, procurement, and infrastructure investments should explicitly account for the future competitive benefits of near-term climate action.
- Emphasize future-fit innovation and economic development. Governments should redirect public investments and tax incentives towards activities with export and growth potential that face barriers to private investment.
- Develop local and people-focused transition plans. All levels of government should work together to develop detailed transition plans to support workers and communities.
- Mandate the disclosure of climate-related metrics that are decision-useful. The federal government should work with the Sustainable Finance Action Council and key stakeholders to accelerate the development and require the use of quantitative and comparable company- and product-level metrics, standards, and certifications that measure climate, environmental, social, and Indigenous performance. We expect that this is a precursor for announcements on mandatory climate-related disclosures that the Canadian Securities Administrators are currently consulting on (see our recent Bulletin here).
For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.
