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Benchmarking – Chapter 2 – Canada and the G8 Index: Overall Ranking of Canada’s Low-Carbon Performance

Chapter 2 - Canada and the G8 Index: Overall Ranking of Canada's Low-Carbon Performance

2.1 Canada's Rankings

Canada’s overall ranking is sixth place on the NRTEE’s G8 Low-Carbon Performance Index. Canada falls within what can be considered a second tier of tightly grouped low-carbon performers, along with the U.S. and Japan. The first-tier countries are—in order— France, Germany, and the United Kingdom. Italy and Russia can be considered to be in the group of third-tier countries, significantly lagging behind the rest of the G8 nations. The performance gap between the “leaders” and the “followers” is reflective of the energy and emissions profile of their economies, as well as their commitment to date in investing in enabling conditions for low-carbon growth, as set out in the five building block categories identified. The most qualitative performance category is the Policy and Institutions one; in measuring this category, some binary indicators were used, (i.e., “yes” and “no” responses), causing some of the countries to have an equal rank. Tables 1 and 2 show the overall ranking of all G8 countries. For the full detailed indicator table, refer to Appendix 5.5. The Index illuminates both strengths and weaknesses of Canada’s low-carbon performance. In terms of best-to-worst performance by building block category, Canada ranks first in Skills, third in Innovation, fourth in Investment, sixth in Emissions and Energy, and sixth in Policy and Institutions. Table 3 illustrates Canada’s rankings from a variety of perspectives. Canada ranks among the top three G8 countries in five of the 15 indicators and is ranked in the bottom three G8 countries in five of the fifteen indicators. Canada ranks ahead of the United States, our main economic competitor and partner, in three of the five categories and six of the fifteen indicators. Because of the close ranking among the middle-tier of countries, Canada could find itself climbing to fifth or fourth place in future years if some effort is made, or dropping as other countries advance. A more strenuous effort would be required to move Canada into the top-tier ranking of G8 countries on low-carbon performance given the gap that now exists. Benchmarking is an exercise that provides a “moment in time” comparison of performance. It needs to be conducted over several years to fully develop and be confident about the patterns. Nevertheless, a detailed look at each indicator can show a more nuanced story of ranking and provide clues as to why Canada’s ranking in each category emerged and what this might mean for the future. While Canada ranks as the overall Skills category leader, it has the second-lowest proportion of low-carbon graduates among the G8, perhaps indicating some pressure on that ranking in the future. Canada’s significant hydroelectric generation and nuclear capacity enables it to rank among the leaders in low-carbon energy, but it still has the second most emissions-intense economy in the G8 giving the country its sixth-place ranking in this category. Importantly, energy-related emissions are growing at a pace exceeding all other G8 nations, suggesting that Canada will face a significant challenge in meeting future carbon reduction obligations. When it comes to the Innovation category, Canada ranks third in government R&D in the energy sector. However, this investment has been heavily oriented to nuclear technologies and funding levels have not kept up over the past two decades. In the Investment category, Canada’s relative strength is in clean technology venture capital. The absence of a comprehensive national climate change policy and low-carbon growth plan contributes to Canada’s low ranking in the Policy and Institutions category. Overall, the large European nations exhibit the best balance across performance categories, suggesting that their rankings are understandable and perhaps durable for the time being. As a group, they are the most advantageously positioned to take advantage of low-carbon competitiveness and to make the transition to a carbon-constrained future. By contrast, other countries, including Canada, are competitively well positioned in select building block categories and indicators only, suggesting that they have some but not all of the elements in place to effectively deal with the future transition to strong low-carbon performance. To varying degrees, all G8 nations will face challenges in transforming their economies but some potential strengths and weaknesses for country leaders and laggards are now apparent. 2.2 Canada's Competitors Canada’s G8 competitors, are presented in order of top to bottom ranking on the Low-Carbon Performance Index in this section. Table 4 illustrates top scores and rankings by country on both a category and an indicator basis. FRANCE (Leads in two categories; in top 3 of eight indicators) France’s low-carbon profile outperforms all nations primarily as a result of an electricity generation mix dominated by nuclear. It performs well in the areas of R&D investment, low-carbon skills and education investment, and has directed significant funds to low-carbon projects through its stimulus spending. GERMANY (Leads in zero categories; in top 3 of nine indicators) Germany demonstrates the most well-balanced low-carbon performance of all G8 nations, ranking in the top three across nine indicators. Its use of market incentives and requirements to drive increased renewable energy generation over the past decade has led to the second largest drop in energy-related carbon emissions within the G8. A strong commitment to education, skills, and investment, coupled with the highest carbon price coverage in the group, puts Germany in a strong low-carbon performance position. UNITED KINGDOM (Leads in one category; in top 3 of eight indicators) The United Kingdom ranks just behind Germany in its emissions profile, largely due to a shift from coal to natural-gas-fired generation as well as an overall transition from a manufacturing to service economy. The U.K. dominates the area of low-carbon policy and institutions, having established a Low-Carbon Transition Strategy and a Low-Carbon Budget and having the third most stringent carbon pricing coverage among the G8. Performance gaps include both private and public sector energy R&D investment, although the government has directed significant funding through its Low-Carbon Transition Strategy to begin financing renewable energy and carbon capture and sequestration technology development. JAPAN (Leads in one category; in top 3 of five indicators) Japan is considered to be one of the world’s most energy efficient economies. Having achieved early, relatively low-cost reductions, it now faces the prospect of more challenging and costly improvements. Japan’s carbon productivity has remained high over the last 15 years. It has high absolute emissions that have continued to grow, but the size of the economy has grown at a comparable pace. Japan is positioning itself to compete in the global clean technology market, and in line with its reputation, is considered a world leader in low-carbon innovation. UNITED STATES (Leads in zero categories; in top 3 of six indicators) The United States’ economy is emissions-intensive, and emissions are growing. However, the U.S. exports less carbon than all other G8 countries. While GDP growth outpaced emissions growth over the 1992–2007 period, leading to an overall decrease in emissions intensity, absolute emissions have grown 18.09%,[19] second only to Canada in the G8. The U.S. leads the way in venture capital investment in clean technology, an important indication of technology leadership and clean technology manufacturing capacity. It is strong in the investment category. The U.S. gains in the Policy and Investment category as a result of the appointment of a “climate change czar” by the Obama administration, and the presence of a carbon market through the Regional Greenhouse Gas Initiative. ITALY (Leads in zero categories; in top 3 of three indicators) Italy consistently ranks near the bottom across all categories and most indicators. Italy has the lowest percentage of low-carbon electricity generation among the G8. Its carbon productivity profile is relatively high, largely as a result of its industrial makeup. Italy scores poorly across all categories, although it faces relatively stringent carbon price coverage as a result of its latest National Allocation Plan target. RUSSIA (Leads in zero categories; in top 3 of one indicator) Russia lags the G8 across almost all indicators, finishing last in four of five categories. While having achieved the largest improvement in emissions intensity over the assessment period (minus 70%), this drop is largely due to the economic transformations occurring within the Russian economy after the dissolution of the Soviet Union. Energy generation is largely coal-fired and projected to increase, and the country is a major net exporter of natural gas to western European markets. The country’s relative strength in this Index lies in its technical capabilities, with Russia ranking third in low-carbon graduates. 2.3 Canada's Context The challenge for each country is to identify which nationally appropriate actions are most important to the achievement of its low-carbon objectives, and to push for continual improvement. While this report does not evaluate performance trends, secondary data collected and presented for context below suggests areas in which a country's performance is either improving or declining and reinforces the findings of the Index. All nations face the fundamental challenge of providing a high standard of living with increased energy use, but from more low-emission sources. Each will differ in terms of the type and magnitude of challenges and priorities it faces, influenced in large measure by the particular circumstances of a country, such as its stage of economic development, geography, demographic profile, and climate. Canada is no exception. As the world increasingly moves toward a low-carbon economy, Canada will have to act to ensure competitiveness in this new energy context. As outlined in the NRTEE’s 2008 report Getting to 2050: Canada’s Transition to a Low-emission Future, Canada faces many challenges affecting its ability to compete in a low-carbon economy. Our geography is immense, our climate cold; we are a net energy exporter; our economy benefits from the extraction and exportation of natural resources; and there is a current lack of political consensus about how to reduce domestic emissions, resulting in a patchwork policy approach. Canada’s largest challenge is its current energy emissions profile. While Canada accounts for just over 2% of global emissions, we are the second-highest per capita emitter in the world. Figure 2 illustrates Canada’s emissions profile compared with other major competitors for 2008. In 2008, Canada accounted for 2.08% of the world’s carbon emissions—significantly lower than the U.S. (20.18%) or China (21.84%). By contrast, Canada’s emissions per capita exceeds that of Norway, also a net energy exporter country (see Appendix 5.1 for more details). And, despite the fact that the U.K. has approximately double the population of Canada, it emits a lower relative share of the world’s carbon emissions. Of more significance, in per capita terms, Canada’s emissions are only slightly lower than those of the U.S. and are significantly higher than China’s. Absolute emissions over time can be an indicator of a country’s track record in reducing its CO2 output, and thus how well it is positioned to compete going forward. As illustrated in Figure 3, Canada has experienced the largest relative increase in total emissions over the last 17 years among the G8—a worrying result with impacts for future low-carbon competitiveness. Countries such as Germany and the U.K. have decreased their total emissions over the same period, while Japan’s have increased as a result of its much lower starting point. It is important to relate a nation’s emissions intensity to its proportion of low-carbon electricity. As a result of public policies mandating nuclear power generation in France, promoting solar and wind generation in Germany, and shifting market mixes from coal to natural gas in response to changes in relative prices in the U.K., these countries have reduced or minimized overall emissions growth. Notwithstanding the fact that Canada has unique national circumstances that influence its energy supply and demand profile, bending its emissions trajectory to achieve significant reductions will require a substantial transformation in the way energy is produced and used within this country.