3.2 Emissions Lock-In Risks
Framing the Future: Embracing the Low-Carbon Economy
The NRT has consistently concluded that delay in government action to meaningfully cut emissions is costly.41 Here, we quantify the implications of delay in sending strong, economy-wide policy signals to guide investment and technology choices toward low-carbon goals: the economic risk of emissions lock-in. G8 countries, including Canada, have acknowledged the importance of limiting global warming to no more than 2° Celsius over pre-industrial temperatures, and have agreed that “urgent action” should be taken to meet this long-term objective.42 For Canada, this corresponds to a 65% reduction in emissions from 2005 levels by 2050.g
The emissions profile from infrastructure or equipment currently in place or under construction is, essentially, “locked-in” for the future: avoiding these emissions involves refurbishments, significant retrofits, slowing or stopping operations — all actions that impose substantial costs on businesses, potentially compromising their competitiveness. For example, once a coal-fired power generation facility has been commissioned, it is in place for a minimum of 30 years.h Undertaking significant retrofits or refurbishing the facility to meet new GHG emissions standards before this time would 1) typically cost more than it would have to have incorporated the new performance objectives in the original design and 2) present costs to the proprietor that were not factored into the initial business case for the facility. Every year of delay in implementing “loud, long, and legal” climate policy represents a wasted opportunity to take advantage of natural cycles of infrastructure and equipment renewal, making it more difficult and expensive to meet emissions reduction targets.
We used the well-known CIMS energy-economy simulation model to quantify the emissions stemming from locked-in infrastructure and equipment in buildings, transportation, electricity, manufacturing, and oil and gas sectors.i Based on the REFERENCE CASE, we quantified the emissions from locked-in infrastructure and equipment out to 2050, taking into account their average lifespans. We considered two cases of infrastructure lock-in. The first case looks at emissions from Canada’s stock of infrastructure and equipment in place and under construction as of 2012 (see Figure 7). The second case looks at the 2012 stock plus infrastructure and equipment built and installed between 2012 and 2020 (see Figure 8). Neither case assumes additional climate policies beyond what’s included in the Reference Case (all significant existing and proposed federal and provincial/territorial abatement measures).
Figure 7 & 8
The infrastructure and equipment in place today and by 2020 could be responsible for 40% to 56% of Canada’s emissions by 2030, with their share of emissions declining to between 4% and 7% by 2050. Figure 7 and Figure 8 show the emission profiles of the Canadian stock of infrastructure and equipment in 2012 and 2020, based on the Reference Case. The relative share of emissions from 2012 and 2020 stocks of infrastructure and equipment declines as these assets reach the end of their useful lives. A comparison of both figures shows the additional locked-in emissions that result from the eight-year modelled delay in policy implementation. Infrastructure and equipment in the oil and gas sector is the longest lived, comprising about 47 per cent of locked-in emissions by 2030 but 71% by 2050 (locked-in emissions 2012 case). Emissions from 2012 and 2020 transport and building stocks are close to zero by 2050.
We also compared the emissions profiles from locked-in infrastructure and equipment in 2012 and 2020 to an emissions profile that would allow Canada to cut cumulative emissionsj by 65% from 2005 levels in 2050. This is what we found:
// Delaying implementation of strong climate policy to 2020 could require retrofits or premature retirement of infrastructure and equipment until at least 2025, if Canada is to meet the 2050 target. The triangular area identified above the Target 2050 scenario in Figure 8 represents emissions from capital assets that would have to undergo significant retrofitting, refurbishment, or slow or cease operations (i.e., premature retirement) in order for the country to maintain an emissions trajectory consistent with the Target 2050 scenario (i.e., these represent avoidable economic costs associated with delayed action).
// Policy delay compromises Canada’s ability to cut emissions cost-effectively. The cost per tonne of cumulative abatement under the Target 2050 scenario is just under $56. Our analysis indicates that delaying clear policy signals until 2020 raises the cost of abatement to $71 per tonne. Canada would need to invest $2.9 billion per year between 2020 and 2050 to achieve cumulative emissions cuts comparable to the Target 2050 scenario to make up for the eight-year delay in policy action — a total additional investment of roughly $87 billion over this period.
// Emissions resulting from locked-in infrastructure and equipment leave little headroom to grow the economy and meet the 2050 target. Figure 8 shows the potential for locked-in emissions pertaining to the 2020 stock of infrastructure and equipment to limit options to reduce emissions across the economy through 2050 without costly retrofits or premature asset retirement. Had the appropriate signals been in place, less emissions-intensive technology would have been employed, allowing more room for emissions associated with economic expansion.
The emissions lock-in risk could be greater than what we have shown here, for two reasons. First, our analysis excludes the potential for factors like the shape, size, and density of Canada’s cities; the lack of regulatory frameworks; and the path dependency created by existing land uses to further constrain the long-term emissions profile. For example, the existence of natural gas infrastructure paves the way for continued use of natural gas for space and water heating, despite the option to replace this equipment with new zero-emission technology prior to the end of a building shell’s lifespan. Second, some equipment and infrastructure applications can be maintained to run for much longer than their average lifespan. For example, it is possible that with appropriate overhauls, coal plants in existence today could be maintained to operate to 2050.
3.3 Conclusions
Canada needs to move now. The significant opportunity in moving to embrace a low-carbon future for the country discussed in Chapter 2 and the economic risk of delaying action discussed in this chapter provide compelling reasons to act. Canadians can adjust the pace as they move forward, but they cannot let the perfect be the enemy of the good. Policy-makers need to expect to iterate, to not get it right the first time round, and need to build in flexibility. Canada cannot afford to wait for the “optimal” system / approach to arrive — it never will. Canada can build on the pioneering work undertaken by world leaders, addressing key gaps in existing approaches, and contributing to the state of knowledge. The approach will be uniquely Canadian and will need to evolve over time, but it needs to start now.
Innovation is essential. Our earlier assertion concerning continued market demand for oil sands crude likely depends heavily on the successful commercialization and deployment of carbon capture and storage (CCS) technology. Innovation is crucial to the long-term success and economic resiliency of Canada’s current economic base and is also fundamental to the development of LCGS, which have the potential to contribute significantly to the economy in the long term.
Canada will need to be strategic. Many players have moved and are moving to secure a place in the clean technology and clean energy space. Much of this is low-carbon. In looking to support the transition to a low-carbon economy, Canada needs to identify those areas where it has both existing strength and the potential to build upon that strength.
Although Canada can continue to benefit from the extraction and sale of unconventional crude and other energy-intensive resources, Canadians should not take them for granted. A transition plan — a lowcarbon growth plan — is required for the long term.
[g] Under Canada’s Turning the Corner policy statement, the federal government committed to GHG reductions of 60-70% below 2006 levels. This was considered consistent with achieving deep GHG emissions reductions. In Getting to 2050, the NRT chose a reduction target of 65% to represent this commitment. Consistent with the government’s treatment of base year for its 2020 targets, for the purpose of this report we have changed the base year to 2005. Several OECD nations (e.g., the U.K. and Japan) have adopted policy pathways aimed at achieving reductions of 80% below 1990 levels by 2050 (OECD 2011e). The long-term U.S. commitment under Copenhagen is 83% below 2005 levels. The UNDP’s 2008 Human Development Report notes that developed nations will need to reduce their emissions by at least 80% by 2050 (United Nations Environment Programme 2007).
[h] Under the Reduction of Carbon Dioxide Emissions from Coal-Fired Generation of Electricity Regulations, useful life is determined as the later of 45 years from the unit’s commissioning date or the end of their purchase power agreement (Government of Canada 2011a).
[i] The consultant’s report, Investment and Lock-in Analysis for Canada by Navius Research Inc. (Navius Research Inc. 2012), is available upon request.
[j] Cumulative emissions reduction is the scientific metric by which climate change mitigation is measured. Whereas annual targets speak to the emissions level at a specific point in time, cumulative emissions reduction considers the total GHG emissions over a given period. Consideration of cumulative emissions allows for direct comparison of costs and policy effectiveness.
[41] National Round Table on the Environment and the Economy 2009c, 2011b
[42] United Nations Framework Convention on Climate Change 2011