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FINDING SUSTAINABLE PATHWAYS

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Benchmarking – Chapter 3.1

Chapter 3
Canada and the G8 Indicators: Detailed Ranking of Canada’s Low-Carbon Performance

3.1 EMISSIONS AND ENERGY
3.2 INNOVATION
3.3 SKILLS
3.4 INVESTMENT
3.5 POLICY AND INSTITUTIONS

3.1 Emissions and Energy Category

Canada Ranks 6th in the Emissions and Energy Category. Why This Matters:

A country’s energy emissions profile has implications for the range of emission mitigation options available to it and the cost of reducing emissions relative to other countries. Energy production, consumption, and trade are major components of a low-carbon economy. Reducing primary energy demand and shifting production from fossil-fuel-generated energy to more low-emission sources will be necessary to achieve deep emission reduction targets. Previous NRTEE analysis has shown that the most cost-effective way to reach our domestic emissions targets is to implement an economy-wide price on carbon in order to stimulate innovation and technology development and deployment. And the sooner this price is implemented, the lower the ultimate national economic cost to achieve targets will be.[20]

From a trade perspective where future climate regimes will increase demand for low-carbon goods and decrease demand for carbon-intensive ones, net carbon exporting countries will face new competitive risks and disadvantages in a low-carbon world. These will be exacerbated if low-carbon performance standards and/or border tax adjustments are put in place by competitors to reflect the carbon costs of imports and to level the playing field with countries that are operating with weak GHG emissions reduction obligations (and thus may have lower operating costs and perceived competitive advantage). For such reasons, national energy emissions profiles are important indicators for determining carbon productivity, driving innovation, and building competitive advantage in low-carbon goods, services, and technologies.

THE INDICATORS

The Emissions and Energy category includes three selected indicators:

// CARBON PRODUCTIVITY
// CARBON EMISSIONS EMBODIED IN EXPORTS
// SHARE OF LOW-CARBON ELECTRICITY

Carbon Productivity Indicator
CARBON PRODUCTIVITY is a measurement of the level of economic activity or GDP per CO2 equivalent emissions. It is an indicator of how productive a country’s economy is in producing low-carbon GDP.

This indicator speaks to the low-carbon productive efficiency of economic growth in terms of emissions.[b] It is used by the Climate Institute (Australia) and E3G (U.K.), Next 10 (California), and the McKinsey Global Institute, to name a few. Improvement in carbon productivity can be achieved through fuel switching, accelerated GDP growth, energy efficiency, and carbon capture and storage along with other measures. The higher a nation’s score on this indicator, the more economic wealth it will be able to produce in a carbon-constrained future. And it will be better positioned to avoid prospective carbon tariffs or other trade barriers imposed by countries seeking to protect themselves from lower-price, higher carbon-intensive imports. If a country scores low on this indicator, the challenge is to focus on decoupling sustained GDP growth from further emissions growth in order to become more carbon productive.

Canada’s ranks seventh in this indicator; our carbon productivity is the second worst in the G8, marginally behind the United States. France scores 2.5 times better. In fact, a significant gap exists between the performance of the leading countries and that of both Canada and the United States. While this could narrow in the years ahead given Canada’s progress in achieving efficiency improvements, the current carbon productivity rate is not significant enough to close the difference. As oil sands production increases, this gap will likely increase or at least remain wide.
Even when breaking out energy-related emissions only per unit of GDP, as seen in Figure 4, Canada continued to rank seventh in the G8. Looking at the number of tonnes of C02 generated in the production of electricity per thousand dollars of GDP (in US$), Canada basically tied with the U.S. in second-last place at 0.44 tonnes. France led at 0.16 tonnes, indicating the gap involved and the differences between our respective energy economies.

Carbon Emissions Embodied in Exports Indicator

CARBON EMISSIONS EMBODIED IN EXPORTS refers to carbon dioxide emitted at all stages of a good’s manufacturing process, from the mining of raw materials through the distribution process, to the final product provided to the consumer.[21] Embodied carbon in exports is the amount of carbon emissions contained in a country’s exports. It is a measure of a country’s reliance on emissions associated with the export of natural resources and energy-intensive products.

This indicator helps to assess nations’ reliance on carbon-intensive exports as well as its potential exposure to tariff and non-tariff barriers placed on the imports of carbon-intensive goods and services. “Embodied carbon” refers to the carbon dioxide emitted at all stages of a good’s manufacturing process, from the mining of raw materials through the distribution process, to the final product provided to the consumer.[22] It is ultimately a measure of a country’s ability to reduce emissions associated with exporting high-carbon and energy-intensive products.

Canada ranks eighth in this indicator, producing more domestic emissions than it consumes largely resulting from our role as an energy exporter, principally to the United States. Presented on a balance of carbon trade perspective (exports less imports) Canada continues to score low. This is illustrated in Figure 5 below.

Research has found that more than 5.3 Gt of CO2 emissions exist in international trade flows, and that a high share of emissions embodied in exports affects competitiveness.[23] Given the increasingly global nature of economic markets, the carbon intensity of exports will affect trade flows as countries focus on meeting emissions targets and reducing the amount of carbon they import. Demand for carbon intensive exports will likely fall. There could also be higher economic costs associated with participating in a global climate mitigation regime for those nations that maintain a large share of their exports in carbon-intensive production.[24]

Canadian energy producers may face new competitive burdens—so called border carbon adjustments—as a result of policy and market restrictions enacted by our trade partners. Most domestic energy production cannot be relocated, and there are limits to Canada’s ability to dramatically shift to a less emissions-intensive production mix over the next two decades. Failing such a development, a 2009 study[25] suggests that Canada could face an average 2.8% tariff on imports of goods and services if embodied carbon is taxed at $50 per tonne of CO2. For example, the State of California has implemented a low-carbon fuel standard that could reduce future exports of relatively carbon-intense Canadian oil-sands exports to California refineries. The NRTEE’s forthcoming policy advisory report on Canada-U.S. climate policy options examines in detail the issue of possible national U.S. policies that could present risks to Canadian exports. It finds that U.S. border carbon adjustments could be applied to Canadian exports if the U.S. were to implement climate policy and Canada did not. Exports from specific emissions-intensive and trade exposed sectors like oil production would be at greatest risk.

Share of Low-Carbon Electricity Indicator

SHARE OF LOW-CARBON ELECTRICITY is a measure of a country’s low-carbon electricity generation mix. It is an indicator of its ability to produce energy from sources that produce fewer emissions than fossil-fuel-based generation. It is the sum of electricity generated by solar, wind, geothermal, biomass, hydroelectric, and nuclear divided by total net electricity generated.

This indicator is a reinforcing proxy for decarbonization of the domestic energy system. It is a measure of a country’s electricity generation mix and an indicator of its ability to produce energy from sources that produce fewer emissions than fossil-fuel-based generation. Low-carbon electricity includes solar, wind, geothermal, biomass, large-and small-scale hydroelectric, and nuclear. Power generation and transportation typically rank as the largest sources of CO2 emissions in developed nations; thus understanding a country’s electricity generation mix is important when developing national climate change reduction strategies. Power sector decarbonization will be critical to the achievement of deep GHG emission cuts, in particular as energy demand increases over the coming decades to fuel future economic growth.

Canada ranks second in this indicator; our large hydroelectric generating capacity is the major contributor.[c] We are second only to France, which tops the list due to its high percentage of nuclear power.[d] Canada nearly doubles the performance of Germany and has two to three times the low-carbon electricity generating capacity of the remaining G8 countries.

However, without significant growth in its renewable and nuclear generating capacity, Canada will be challenged to maintain this ranking in the face of projections for future growth in energy demand. Renewables currently make up a small percentage of Canada’s total supply (3%) and our low-carbon electricity performance actually decreased somewhat since 1992, as indicated below in Figure 6. That said, while other countries such as Germany and Japan have seen low-carbon electricity increases over time, all G8 nations may face challenges in raising their low-carbon generation penetration rates—especially as demand rises, prices increase, and existing transmission grids become saturated.