1. Government Green Capital Allocation:

Building upon ‘The Carbon Reduction Policy Tracker’ published by Canadian Climate Institute(opens new window), RBC Climate Action Institute team has expanded the coverage of details and geography to include provinces of Ontario, Quebec, British Columbia, Alberta, categorized based Canada’s emissions sectors, and classified by the measure/technology type.

Green capital allocation refers to program spendings announced in Federal and Provincial budgets, towards climate related measures since 2016. It also includes announcements in Fall Economic Statements, Emissions Reduction Plan and Strengthened Climate Plan. Program spending may take the form of grants, loans, tax credits and etc.

Announced program spending amount are distributed evenly across the years, and categorized to the sector it aims to decarbonize. Some policies with sector agnostic decarbonization goal is marked as ‘multi-sectoral’.

Individual federal and provincial subsidies provided for private sector in green space (concentrated in clean steel, clean fuels and EV/batter manufacturing) have been collected from public news announcements.

  • Buildings: Greener Home Grants, announced in FES 2020, with $2.6 billion proposed program spending between 2020 and 2025.
  • Transportation: $434 million announced in Quebec 2019-2020 Budget for extension of the Drive Green Program for 2019 and 2020.
  • Agriculture: $9.5 million announced in Ontario 2023 for improvements of soil data, spread across 2023 and 2025.

2. Sectoral Capital Requirements:

Sectoral capital requirement estimates are accumulated costs required to reach 2030 decarbonization targets with 2022 as a starting point.

Abatement costs have been adopted from RBC’s flagship report $2 Trillion Transition, which had conducted a comprehensive analysis of academic papers, industry analyses, abatement cost studies and industry expert interviews.

Some adjustments have been made where applicable to reflect relatively more up to date estimates and evolving environment.

Sectoral Emissions And Abatement Assumptions

As a starting point, latest emissions estimates from Early Estimates of National Emissions published by Canadian Climate Institute (CCI)(opens new window) are used for the year 2022. The path for decarbonization is adopted from Emissions Reduction Plan’s sectoral projections(opens new window) and no additional modelling is involved. Assuming the latest levels of GHG constant absent any further capital injection to reduce emissions, we derive required annual emissions reduction by sector. We assumed most applicable technology choices mix for each sector and used estimated abatement cost per tonne of CO2e to calculate annual and total costs. Total cost then is annualized over the 8-year period.

In keeping with the current period of our analysis, we assume no change in the composition of Canadian production from 2022. That allows us to identify the added costs to the economy in a given year where production and emissions look very similar to 2022. We make no assumptions about future productivity or emissions intensity, nor changes in future production (unless specified otherwise).

  • Main assumption is that absent wind and solar generation, the demand is met by electricity sourced from natural gas.
  • CER 2023 forecasts are used to identify required electricity growth by sources and emissions in the sector.
  • Using new wind and solar generation, we applied a forecasted levelized cost of electricity (LCOE) to estimate total cost. An emissions intensity of natural gas was used to identify total abated emissions in the sector.
  • The ratio of the two above is then used as average abatement cost per tonne CO2e for the sector.
  • We assumed that projected abated electricity emissions from Emissions Reduction Plan Progress Report are done so using solar and wind energy.
  • Electricity sector costs are limited to wind and solar installations for the abated emissions, and excludes any costs related increasing demand, transmission lines, hydro, natural gas, or energy storage expansion.

  • The oil and gas sector has many complex production processes that produce various types of emissions. We broke down emissions based on key sub-sectors and gases (e.g., treating methane emissions separately).
  • Abatement costs mainly come from Pembina Institute(opens new window) and Navius Research(opens new window), with some penetration/feasibility from the IEA (particularly on methane emissions).
  • We assume electrification is the primary methane abatement method for half of natural gas and conventional oil (installations that are grid-serviced) while the other half rely on CCUS.
  • Oil sands emissions cuts from CCUS are assumed to have penetration of 80% of stationary combustion emissions at 90% capture efficiency.
  • Refining & upgrading emissions mostly rely on carbon capture, with 30% of emissions cuts coming from blue hydrogen production and the balance from post-combustion capture and electrification for refinery boilers and distillation processes.

  • Breakdown of potential emissions cuts from buildings are estimated from a global McKinsey(opens new window) study
  • We assume a net zero building code could address about ¼ of 2030 building emissions (new buildings, rebuild of existing ones)
  • Another ¼ of emissions cuts come from energy efficiency measures at existing buildings excluding building envelope retrofit.
  • Deep envelope retrofits address 8% of 2030 building emissions
  • The balance (~40%) of emissions are addressed by fuel switching to electricity for space and water heating in existing buildings.
  • Abatement costs for net zero building codes come from Canada Green Building Council(opens new window)
  • Abatement cost for buildings, including heat pumps are based on the marginal abatement cost curves from ICF, for
    Ontario Energy Board(opens new window)

  • Transportation sector’s emissions reduction is assumed to be achieved by reliance on EV adoption. Projected increase in emissions from other transportation sub-sectors will likely result in an underestimated cost of the abatement happening from passenger transport.
  • Passenger EV costs are calculated from BNEF data(opens new window) for average vehicle prices by types.
    • Weighted average prices is derived based on Canadian passenger vs truck sales share of 15/85.
    • Price parity is assumed to reach in 2030, and the abatement cost has been adjusted to incorporate the path of prices differential.
    • An average EV in Canada is estimated to save 37.5 tCO2e over the 12 year lifecycle, average age of ICE vehicles in Canada. Average year of EV utilization is assumed to be 8 years due to uncertainties around battery life.
  • Transportation sector emissions declined during the pandemic and have been slowly rebounding. Suppressed emissions can be attributed to lower ridership compared to pre-pandemic. Emissions estimates and path for transportation sector has been adjusted to path as projected in Emissions Reduction Plan Progress Report, uses higher base level of 163 Mt CO2e for 2022 compared to 154 MtCO2e as estimated by CCI.
  • Capital costs also include costs required for home charging by households and to expand public infrastructure, which is estimated to cost $45 billion into 2030 or $5.1 billion annually.

  • Share of technology use in industrial decarbonization is derived from McKinsey, though we remove the use of hydrogen for heat in all sectors or as a feedstock in steel and iron-making, given the early level of development in that technology. The main abatement technologies are CCUS, use of biomass, and electrification.
  • We assume reference case electricity costs of ~US$40/MWh, in line with current averages.
  • Costs for industrial CCUS applications come from the global CCS Institute, and McKinsey’s overall abatement costs are used for other abatement options.
  • We then assume these technologies are applied to address as many emissions as possible. Residual emissions come from the fact that energy efficiency and carbon capture cannot fully decarbonize industry.

  • Abatement measures come from Nature United. A range of abatement costs is included, and we assume abatement above $100/T costs on average $150. (These are generally a small share of the abatement options. Otherwise we conservatively assume all costs are the highest in the band (e.g., tonnes abated for $10-$50 are costed at $50).
  • We supplement with a few additional measures for livestock (e.g., selective breeding) from McKinsey.
  • Using the breakdown of abatement available at varying costs, we conservatively assume opportunities in each category are the highest cost.
  • We exclude tree planting pathways (riparian and silvopasture applications) given the wide confidence bands for these estimates.
  • The sector’s emissions reduction contribution has been adjusted to incorporate revisions made by National Emissions Inventory since the release of Emissions Reduction Plan. 2030 target has been adjusted based on 40% decline in emissions from 2005 level. Modelled path, too, is adjusted accordingly. Keeping other sectors’ emissions unchanged, agriculture sector emissions projection have been recalculated to as difference between total and sectoral emissions.

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