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Wedge Advisory Note – Section 5

Advice on a Long-term Strategy on Energy and Climate Change

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Section V: Strategic Priorities – Near-term action for long-term impact

The first and perhaps most important finding of the NRTEE’s analysis is that existing technology is sufficient for Canada to significantly reduce GHG emissions by mid-century even if the future examined here is similar to the present and takes into account population and economic growth. The second major finding is that both energy use and energy production activities must be involved. Doing only one or the other is not sufficient for Canada to make a significant dent in its GHG emissions. The final set of findings deals with identifying which technologies must be encouraged now. The wedge diagram shows that the broad deployment of all potential GHG reduction technologies – at heretofore unseen levels – will be necessary to achieve the 60 per cent reduction target. Because this scenario is only one potential pathway to achieve this level of GHG reductions, the relative size of many wedges could be varied to achieve the same result. However, a few of these wedges are of such great importance that they effectively become “make or break” issues for Canada – failure to start implementing the technologies associated with these wedges would greatly impede Canada’s ability to significantly reduce GHG emissions, even in the long run. Therefore, the NRTEE recommends that near-term action on these strategic priorities is needed to help set Canada on a long-term trajectory towards a low emission energy future. These key “must have” measures have been grouped into three areas which will be discussed below:

• With respect to energy use: Energy efficiency improvements in the industrial sector, the transportation sectors, and to residential and commercial buildings.
• With respect to energy production: • Carbon sequestration and storage in the oil and gas sector • Reducing the carbon intensity of electricity generation

Strategic Priority 1 – Energy Efficiency Improvements Prior to the oil shock of the 1970s, increases in energy consumption and therefore emissions of greenhouse gases grew in tandem with growth in GDP. Since the 1970s GDP growth has often grown faster than the rate of GHG emissions, reflecting the productivity gains that have been achieved in the economy. The good news is that the dollar value of goods and services produced in the Canadian economy is growing faster than our energy consumption-related emissions. But as this study clearly shows, to achieve the necessary reductions in emissions, the energy efficiency of the Canadian economy will have to improve at a much greater rate than in the past. The area of energy efficiency highlights two key differences that emerge when examining significant GHG reductions on a longer time frame. This first is that unlike the current debate on climate change, the question is not which technologies to deploy, but how to deploy nearly all of the potential GHG reduction technologies. How to effectively deploy many different energy efficiency technologies in several different sectors then becomes an important policy issue. Examining GHG emissions on a longer time frame also shifts the relative importance of different energy use sectors. While the industrial sector (excluding the oil and gas sector) remains an important source of emissions, the influence of residential, transportation and commercial/service-related activities all become greater over the course of the next 45 years. The emphasis on reducing energy use in these three sectors therefore becomes more and more important. Increasing energy efficiency in all of these sectors is key. In this section we will look at the implications for the industrial, commercial and residential and transportation sectors that are the primary energy consumers in Canada. These findings are based on an historical analysis of Canadian energy use that examined the period between 1990 and 2003. Industrial sector The industrial sector, which in this study includes mining, manufacturing and agriculture[4], is normally front and centre when there is a discussion of reducing GHG emissions because of the volume of their emissions and the visibility of their operations. The track record of this sector has been quite good. From 1990 to 2003 GDP for the sector grew at 24 per cent, while energy use grew by only 11.7 per cent and emissions grew by only 1.3 per cent. These accomplishments represent a combination of energy efficiency improvements and fuel switching, particularly in the pulp and paper sector, where wood waste has become an increasingly important fuel source for firing boilers. These improvements have been driven generally by issues of competitiveness rather than government regulation, since it is not unusual for companies in this sector to have energy represent 20 per cent of their operating expenditures. For companies that are selling their products on the international market, managing these operating costs is often the difference between profitability and not. This is also an area where there has been investment in co-generation and more conventional combined heat and power (CHP) to maximize the benefit of fuel combustion. There are, however, additional gains that can be made. This study assumed that energy intensive industry continues to improve its efficiency at rates similar to those achieved between 1990 and 2003. Specifically:

• Pulp and paper – Energy intensity increases 10 per cent/tonne/yr. By 2030, 80 per cent of energy comes from wood wastes.
• Iron and steel – energy use per tonne declines 20 per cent by 2050
• Smelting and refining – as above
• Chemicals – energy intensity declines 2.5 per cent per year.
• Cement – energy intensity declines 0.1 per cent per year.
• Mining (excluding oil and gas) – energy intensity declines 1 per cent per year.

From a policy perspective the important factor to note is that major technology investments are aligned with capital stock turnover. Most plants have an operating life of 25 to 40 years, and although upgrades and improvements are made constantly, the kinds of investments that will contribute to an 80 per cent reduction in emissions (as envisioned with pulp and paper) are made when the plant is replaced. Decisions are being made continually to replace and upgrade facilities. It is important that these decisions be informed by a clear policy framework designed to optimize the energy efficiency of new facilities. It is also important to realize that heavy industry as defined in this study will play a smaller role in terms of energy consumption in the future, since it has been assumed that domestic based industry will need to produce higher value-added products in order to grow and prosper. For example, Dofasco Inc. produces the same volume of steel that it did 15 years ago but its sales volume has tripled because of changes to its product line. This is a trend that will prevail in Canadian heavy industry with the result that energy consumption in this sector will remain largely static and will decrease as a percentage of overall energy consumption. Service and residential sectors – Renewing Canada’s building stock Canada’s building stock is a long-lasting component of its energy use infrastructure: 66 per cent of the buildings that will be standing in 2050 are already built. This means that there will be a major renovation effort needed to bring these buildings up to the standards necessary. It also means that 34 per cent of the buildings have not been built yet, and these provide the opportunity to improve building codes and standards so that they will not be additions to the inventory that needs to be retrofitted. The results of this study show that while Canada’s building stock can be renewed and improved over the years, setting better standards soon is key. In the residential sector there is good news and bad news with regard to the history of energy use and energy efficiency. On the good news side there have been improvements of 13 per cent in energy use per square foot over the period from 1990 to 2003. This, however, has been offset by the increase in average living space as our affluent society opts for larger homes. Also, home entertainment, information technology and appliances are increasing the electricity load. Air conditioning is still a relatively small load, but is increasing rapidly. The net effect is that residential energy use increased over that same time period. The 60 per cent reduction scenario made several assumptions with regard to the residential sector. Some of major assumptions, listed below, illuminate the need for early action:

• That 90 per cent of the existing 6.6 million single family homes and the 5.6 multi-family dwellings will undergo an energy audit over the next 50 years and that the identified savings can be made through air sealing, insulation upgrades and other will be carried out. This implies that 2.5 to 3 per cent of Canadian homes will need to be audited and retrofitted each year, or approximately 165,000 homes per year.
• That virtually every furnace in service today will be replaced by 2050 with high efficiency furnaces (greater than 90 per cent) becoming standard equipment by 2008. Of the approximately 3.5 million homes in Canada using electricity to heat their homes, some 520,000 electrically heated homes in Alberta, Saskatchewan and the Atlantic provinces (which all use a large proportion of coal to generate electricity) will need to be converted at a rate of about 26,000 homes per year. In areas where natural gas is not accessible, these homes would be converted to high efficiency propane furnaces.
• That the 4.1 million new single family dwellings projected to be built by 2050 will be 30 per cent more efficient than current standards by 2010. Similarly, the 3.4 million multi-family dwellings projected to be built between 2010 and 2050 will be 60 per cent more efficient.

New homes would be better insulated and sealed, with higher quality windows and doors. They would be heated with high efficiency furnaces where setback thermostat controls are standard and designed to take greater advantage of available solar gain in winter. It is expected that many of these upgrades are already cost effective for homeowners and result in more comfortable homes – and energy bills – with homeowners enjoying energy costs at least 30 per cent lower than they would otherwise have been. The service sector referred to in this study consists of office, commercial and institutional space. As Canada has become increasingly a service-based economy it is not surprising that the service sector grew by 36 per cent between 1990 and 2003 while GDP only grew by 25 per cent over the same period. There was no correlation between changes in the price of energy and demand: over the period of the study, gas prices rise significantly but there is no corresponding decrease in demand. This speaks to the demand being structural and once the decision is made to use gas for space heating it is both expensive and disruptive to change. This furthers the argument that it is important to influence these decisions on buildings before they are built. The service sector is therefore growing rapidly and must therefore become a key focus for reducing GHG emissions in the long term. Some of the assumptions that have implications for short-term action include:

• A heavy emphasis on renovation, since commercial buildings are renovated more frequently than residential homes: some commercial buildings may undergo several major renovations between now and 2050. This study assumes that over the next 40 years, 50 per cent of buildings are retrofitted to reduce energy use by 25 per cent. The balance are renovated to the equivalent of the LEED platinum standard, which reduces energy use by 50 per cent.
• All new buildings constructed after 2010 are required to meet the LEED Platinum standard which reduces energy use by 60 per cent over current standards.

Transportation Sector As with the residential and service sectors, the trend in personal transportation between 1990 and 2003 shows that energy intensity per passenger-kilometre improved modestly, by 8 per cent. But the overall level of activity (in this case kilometres traveled) increased by 27 per cent, creating an overall increase in GHG emissions. This trend has been further driven by the popularity of light trucks and SUVs. The 60 per cent reduction scenario shows that significant gains in this sector coming from new technologies such as hybrids that increase the efficiency of personal vehicles. To a lesser extent, it also emphasizes improved access to and use of public transit. One of the assumptions that has implications for short-term action is related to a gradual increase of the average energy efficiency of the fleet:

• 2005-2014, efficiency increases 2.25 per cent/year
• 2015-2020, efficiency increases 2.40 per cent/year
• 2021-2050 efficiency increases 2.55 per cent/year.

This results in an average energy efficiency of 3.01L/100km by 2050 (78 mpg). The role of freight transportation is of great importance in this study. The evolution of just in time manufacturing as the norm has placed increased pressure on freight transportation. This is borne out by an increase of 46 per cent in volume in tonne/kms compared to a GDP growth of 26 per cent from 1990 to 2003. This growth in volume was only somewhat offset by energy efficiency improvements that reduced trucking energy intensities. The result was a significant 42 per cent increase in GHG emissions during this time period. Truck efficiency improvement is the second largest single GHG reduction wedge in this study, after carbon capture and sequestration. The study assumes that light and medium trucks will triple their fuel efficiency by 2050, and that heavy trucks will double fuel efficiency by 2050. These assumptions are based on the US 21st Century Truck Program that has set the goal to develop by 2010 the technologies to triple, among other things, the fuel efficiency of light and medium trucks. In its 2005 annual report, this group seemed to be reporting reasonable progress; however, this is not currently demonstrated technology. In the meantime, a number of existing, demonstrated and cost-effective technologies exist today that could increase energy efficiency of small and medium trucks by 50 per cent. Strategic Priority 2 – Carbon capture and sequestration in the oil and gas sector This study showed that Canada’s growing role as a major energy exporter is compatible with deep GHG emissions reductions by mid-century, but only if the carbon intensity of oil and gas production is reduced through the use of carbon capture and sequestration (CCS). However, while carbon capture technology is mature, carbon storage with permanent sequestration is not yet a widely proven technology. The development and use of this and other emission reducing technology is possibly the single greatest issue determining whether or not Canada can significantly reduce GHG emissions in the long-term. In the Canadian oil and gas industry, the oil sands are the dominant factor in future development. Currently producing just over a million barrels a day, that production is forecast to grow five-fold over the next 45 years. The potential emissions implications of that level of production would dwarf all other considerations in trying to reach the GHG reduction target explored in the NRTEE scenario. At the same time, there is a global demand for the output of the oil sands, and the billions of dollars of investment in developing these properties is critical to the health of the Canadian economy. Fortunately carbon capture and geological storage holds the potential to virtually eliminate these emissions and also has a series of important collateral benefits. From a “wedge perspective”, the 191 Mt/yr of emissions that could be reduced represents 18 per cent of the overall target and is the largest single wedge in Figure 3. This assumes that CCS reduces emissions from the oil and gas industry by 30 per cent by 2030, and by 60 per cent by 2050. Once the CO2 is separated it can be used for enhanced oil recovery in the Western Sedimentary Basin. Conventional drilling will only recover about 40 per cent of the oil, at which point the pressure in the formation is insufficient to continue production. The carbon dioxide can repressurize the well and increase recovery. A similar approach can be taken to enhanced gas recovery. The key point is that not only are emissions being reduced by pumping the CO2 back into the geological formations but a valuable resource is being recovered. In addition, water is currently being used for enhanced oil and gas recovery and water is a limited resource in Alberta and Saskatchewan. This technique can also be important for recovering coal bed methane, tight gas and other non-conventional reserves. The potential value of carbon capture and storage is widely recognized for many of the reasons noted above. Canada has the opportunity to be on the leading edge of deploying this technology. This not only has significant benefits for Canada in terms of resource development but it also becomes an important exportable expertise. Given the outlook for growth in the production and consumption of fossil fuels internationally, and in particular the impending development of the vast coal reserves of China and India, carbon capture and storage technology will also have a critical role to play in global scenarios for GHG emission stabilization. There will be significant global opportunities for those who can demonstrate the ability to deliver effective carbon capture and storage technology. This is one of the key underlying themes of this paper, that environmental and economic objectives can achieved in a manner that produces incremental economic and export benefits for Canadian industry. Strategic Priority 3 – Electricity generation As noted above, the NRTEE’s scenario implies that that the electricity sector will be transformed between now and 2050. The measures with the greatest immediate strategic importance are: Co-generation Canadian industry requires significant volumes of process steam provided by industrial boilers. That same steam can drive a turbine producing electricity before it is used for process purposes. The emissions associated with the fuel used to fire the boiler are already occurring so the power generation occurs with no net increase in fuel consumption. Historically, difficulties in interconnecting to the electricity grid have discouraged the full development of combined heat and power (CHP) potential but advances in control technology combined with standardization and downsizing of co-generation technology expand the potential contribution of this option. The large proportion of co-generation implies that the Canadian electricity sector will become a much more distributed one. Industrial co-generation, as well as micro turbines and CHP in the residential sector (apartment and condominium buildings) and commercial sectors must all be deployed. The increase in capacity – a total of 2010 MW per year between now and 2050 – provides a sense as to the urgency surrounding this measure. Clean coal with carbon storage Canada has sufficient proven deposits of coal to fuel our coal fired power generation fleet for the next 500 years. “Clean coal” technology offers the potential to exploit these coal reserves and at the same time to minimize the environmental impact. In the clean coal process, the coal is first gasified, the sulphur is removed, the gas is burned in a turbine in an oxygen enriched atmosphere and the NOx is removed. The exhaust gas is almost pure CO2 that can be captured and stored as discussed previously. This technology can result in a 95 per cent reduction in GHG emissions, and the virtual elimination of SO2, NOx and mercury emissions with the resulting benefits of cleaner air. One of the by-products of coal gasification is hydrogen produced in an environmentally sustainable manner. If our transportation sector moves towards hydrogen as a future fuel source this production method will be important. This study assumes that all coal-fired generation in Alberta, and Saskatchewan will use clean coal and CCS by 2050. Wind All renewables feature in the 60 per cent scenario, including wind, solar, bio-mass, hydro, geo-thermal, ground source heat pumps, and tidal power. The contribution by wind is particularly important. In May 2006, Quebec Hydro announced that it plans to build 4,000 MW of new wind capacity, in addition to the 3,000 MW already committed. Ontario has indicated its intention to acquire 5,000 MW of wind by 2025. This wedge envisions just over four times that amount of capacity being added in the next 40 years, in other words 40,000 MW of wind by 2020 rising to 50,000 MW of capacity by 2050. This additional capacity would result in approximately 33,000 additional turbines to be installed (assuming 1.5 MW turbines, which is currently a common size, but which are rapidly being replaced by larger turbines on wind farms being built today).