The worldwide transition toward a low-carbon economy is well under way. Ambitious international targets are in place and policies are being actively debated, developed and implemented step by step to make the transition. Many businesses and institutions – notably in Europe, China and North America – are reducing their greenhouse gas (GHG) footprint. The more innovative firms and governments are exploring new growth opportunities in this lower-carbon world. Yet, progress is uneven across sectors, regions and governments, and the 180-degree turn in U.S. climate policy under Donald Trump risks slippage from the steps already taken.
In Canada, too, progress has been made, but it remains uneven. Initial steps have been taken, including the signing of a pan-Canadian framework that the federal and most provincial governments are now working to implement. But overarching policy is still a work in progress. I recently authored a study for the Conference Board of Canada, titled Shaping the Canadian Low-Carbon Economy, which develops an overall framework for defining the low-carbon economy and understanding the policies required to make material progress.
We identify four cornerstones of the low-carbon economy and the policies and practices needed to achieve it. The first two cornerstones are energy consumption and its complement, energy efficiency. The third cornerstone is the supply of energy and related technology, goods and services, and the fourth is the low-carbon business opportunity.
If Canada is to constrain and then reduce its GHG emissions, Canadians will need to change how and why we use energy in vehicles, public transportation, buildings and infrastructure. Energy consumption will need to shift progressively toward electricity in many areas, even though new low-carbon electricity may not be cheap and would require greater reliance on renewable sources.
Energy production plays a fundamental and central role in the growth of Canada's economy, and will do so for decades to come. Global demand for oil and gas is still on the rise; it would be foolish to neglect the energy production sector and its many supporting sectors such as energy distribution and construction.
Yet with the reality of climate change, transforming how Canada produces energy must be an essential part of a low-carbon strategy. Doing so in the smartest way possible presents a formidable technical, business and policy challenge, but also an enormous opportunity. For example, greening Canadian electricity production and adding supply to electrify the economy will require huge investment in electro-technologies. The business dimension is equally crucial. Firms will adopt a mix of strategies to reduce carbon emissions across their value chains, but some will also seize business opportunities from engaging in the clean-technology value chain for innovative low-carbon goods and services.
An array of policy tools will need to be developed and enhanced to help guide the low-carbon transition.
Carbon pricing: A carbon price is an anchor policy. It creates incentives for consumers and businesses to reduce the consumption and production of hydrocarbons and GHG emissions, with a lower impact on economic output than relying solely on regulations. In addition to developing effective carbon-pricing policies, revenues will need to be used wisely to sustain public support and offset negative economic impacts.
Standards and regulations: Regulations and standards are a complement to carbon pricing. For example, best-in-class building codes, construction methods, urban design and emissions standards for vehicles can be more effective in achieving lower future GHG emissions than relying on carbon pricing alone.
Public spending and investment: Government spending touches all four low-carbon cornerstones. Seeking ways to reduce GHG emissions should be a mandatory criterion when creating strategies and evaluating proposals for government spending. Governments can also play a central role in making green financing available to firms and for infrastructure investment, to encourage the development and adoption of low-carbon technologies and methods.
Low-carbon government procurement: Governments are significant purchasers of goods and services. Procurement policies and practices should include criteria aimed at reducing GHG emissions.
Carbon credits and other policy tools: To hit emission targets, Canada and its provinces could purchase carbon credits from other jurisdictions (such as California) that have made greater advancement in building a low-carbon policy framework.
A successful strategy would articulate how the Canadian economy will transform toward low carbon while sustaining sufficient economic growth, with broad buy-in by consumers and businesses.
In short, the advancing low-carbon agenda will be complex, demanding, risky, and create opportunities for societal and business transformation – all at once.
Glen Hodgson is senior fellow at the Conference Board of Canada.
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