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RBC Thought Leadership Archives for lavanyakaleeswaran

Climate Crunch: Canada’s great energy—and carbon capture—rush

Author: lavanyakaleeswaran

Disclaimer

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➔ How the proposed West Coast pipeline and Pathways project impact emissions

➔ Six energy transition trends triggered by conflicts

➔ Tired energy batteries get a new lease on life

Signals

Canada’s zero plastic waste agenda is a U.S. target. Lost in the flurry of blocked bridges and wider CUSMA uncertainty, zero plastic is another of Washington’s trade grievances against Canada. Will Ottawa be forced to backtrack on the program? It’s making a dent: Since the ban began in 2018, the Canadian shoreline cleanups have reported declines in targeted items (60% reduction in straws, 25% fewer bags), while microplastics in Great Lakes water have plummeted since the microbead ban, experts told a Senate Committee recently.

Global sustainable debt issuance hit a five-year high. Issuance reached nearly US$1 trillion in the first five months of 2026. Still, at US$216 billion issued in May, it only accounted for 4.6% of total global debt offerings in the month. Green and sustainability bonds and securitized social debt accounted for over three quarters of the issuance, according to Bloomberg New Energy Finance. Canada issued only 0.7% the global market from its 2022 highs when it captured 3.1% of issuance.

Global Sustainable debt defies headwinds, scaling new heights

Retired electric vehicle batteries are getting a second life. Vancouver-based Moment Energy started what it describes as the world’s largest battery repurposing facility, converting retired EV batteries into stationary energy storage systems, with a target of one gigawatt-hour of production by 2030. Backed by Canadian and U.S. governments, the Amazon Climate Pledge Fund, and others, Moment aims to utilize the first generation of EV batteries that are set retire. While they may not have the juice to meet exacting automotive performance standards, they can be repurposed for grid storage.

The new Calgary Stampede for Canadian energy

A federal and Alberta-backed West Coast pipeline, an Alberta-Ontario Northern Shield corridor, Ottawa’s support for B.C. LNG—it seems to be a stampede for energy in recent days.

Then came Canada’s big action on climate change: five major oilsands firms agreed with the Alberta province and federal government to build the long-planned Pathways carbon capture and storage (CCS) project.

The developments could set the pace on emissions in the country, and be a leading indicator for how the slew of other major projects would require Canadian policymakers to balance economic development with their stated climate ambitions.

Energy Policy Lead Shaz Merwat examines the Pathways memorandum between the companies, Alberta and the federal government:

It was a one-two punch. Days before the Pathways announcement was the Alberta-to-B.C. West Coast Oil Pipeline (WCOP), to move up to a million barrels a day to the Pacific coast. But the same policy package that fast-tracked the pipeline is built upon the withdrawal of marquee federal tools that had been setting the timeline on oilsands emissions, most notably the proposed oil and gas emissions cap. What Ottawa kept was the funding: the 50% federal carbon capture, storage and utilization (CCUS) investment tax credit, stacked with Alberta’s incremental support. The “stick” was withdrawn, but the “carrot” stayed.

There appears to be an emissions file reset. The market-oriented federal government has stopped using regulatory timelines to force the pace and left the pace to the market—and to Alberta. Prime Minister Mark Carney has been unusually direct about the near-term costs: the changes, he said, will mean emissions would be “higher in the next few years than they were projected to be under the previous government’s plan,” calling the plan he inherited “too expensive” and “too divisive.” In effect, Carney rebooted the emissions file.

Pathways is the first project proposed under the rebooted climate regime. Five oilsands majors—operating as the Oil Sands Alliance—agreed to advance a scaled-back version of the Pathways carbon-capture project, with binding terms still to come. The commitments have been resized from what the alliance originally promised in 2021 (see table).

Oilsands Alliance’s Emissions Reduction Commitments

OriginalRevisedRevised % of original
Initial Phase / Phase 1
Total emissions reductions22 MT6 MT16 MT less
Emissions reductions, CCS project10-12 MT6 MT4-6 MT less
Emissions reductions deadline20302035+ 5 years
Additional Phases / Phase 2-3
Total emissions reductions46 MT10 MT36 MT less
Emissions reductions, CCS project28-30 MTUndisclosed18-30 MT less
Emissions reductions deadline20502045– 5 years
All Phases / Phases 1-3
Total emissions reductions68 MT16 MT52 MT less
Emissions reductions, CCS project40 MTMin. 6 MT24-34 MT less
Emissions reductions deadline20502045– 5 years

Source: Oilsands Alliance, RBC Capital Markets, RBC Climate Action Institute

The alliance’s total reduction commitment is now 16 metric tonnes (Mt) annually by 2045, against an original plan of roughly 68 Mt—and the original figure was always the narrow one, covering operational (Scope 1 and 2) emissions only, not the far larger volume released when the barrel is burned (Scope 3). Set against oilsands emissions of roughly 90 Mt per year, a 16 Mt commitment leaves most of the sector’s footprint outside any quantified plan.

Climate is a square peg for a round hole. The November Canada–Alberta MOU named its own objective as achieving net-zero emissions by 2050 while unlocking the growth of Alberta’s oil and gas—including the pipeline. So, the deal simultaneously declares a 2050 destination, enables higher near-term production and emissions, and resizes the sector’s flagship abatement project down by more than three-quarters—without publicly reconciling the three.

Canada’s 2050 net-zero goal remains intact. Net-zero-by-2050 remains legislated federally. Alberta still holds a 2050 goal, now worded as a carbon-neutral economy. The MoU keeps the ambition, even though it remains unclear at the company level.

So, is this bad for the climate? It depends on what you count as progress. The pipeline adds an estimated 15.5–18.2 Mt a year upstream through 2030 if it drives new output; offsets from rail-to-pipeline switching and displacing higher-emissions Asian crude bring the net closer to 10–12 Mt. The alliance’s 16 Mt nominally covers that—but nominally is working hard: the pipeline emissions are nearer-term (still likely 6-7 years away). The 16 Mt is an almost 20-year target in 2045 with no accompanying published bridge to net-zero by 2050. Under the old regime, progress meant distance to a target on a regulatory clock. Under the new one, the target stays on the books, but the clock belongs to the market, and the flagship project is sized to what’s deliverable now, not what 2050 requires. Whether that’s a slower road to the same place or a quiet exit remains unanswered. That ambiguity, more than any other number, is what’s new.

How the Ukraine war accelerated EU’s energy transition

Global emissions from the energy sector rose 1.1% in 2025, with the U.S. accounting for more than a third of the rise, according to the Energy Institute’s Statistical Review of World Energy, now in its 75th edition. Once published by BP Plc, it’s now published by the non-profit Energy Institute in partnership with consultants Ember, Kearney and KPMG.

The big takeaway: there is fragmentation of climate policies around the world, but renewable energy deployment is also accelerating at a scale that is reshaping entire energy systems.

Some key highlights from the report that speak to wider trends:

  • The sun is shining. Globally, solar energy achieved 30% growth in 2025, and its share of total power generation reached 8.7%–eclipsing wind (8.4%) for the first time and almost equalling nuclear’s share of 8.8%.

  • The U.S. is an emissions laggard: In absolute terms, the increase in U.S. emissions was four times greater than that of China. North America was also the only region to increase its carbon intensity of energy in 2025.

  • Ukraine war has already altered behaviour. The European Union saved €72 billion from avoided fossil fuel imports in the past four years, by deploying wind and solar in the aftermath of Russia’s invasion of Ukraine.

  • Battery capacity is expanding rapidly: Global battery capacity expanded by 66% to 302GW in 2025, as countries looked to cut reliance on fossil fuels. The accelerated deployment of wind and solar, plus supportive policy environments such as REPowerEU, meant that by 2025 the two sources generated 852TWh, more power than coal, gas and oil combined (760TWh).

  • China is insulating itself from periodic fossil-fuel disruptions. China’s road fuel demand is already plateauing and remains six times lower than the U.S. on a per capita basis, as the Asian country adopts electric vehicles.

  • Fossil fuel growth is decoupling from economic growth. In Europe, fossil fuel consumption has fallen by 15% over the past decade. In North America it has grown by 1%, but it masks a switching from coal to gas over the same period. It has fallen 4% in South and Central America, helped by renewables in major markets like Brazil.

Conversations

  • Investors are adjusting to the federal and provincial governments—and First Nations—playing more active roles in the energy business, noted John Stackhouse at the Calgary Stampede. This represents a new Canadian reality and signals the rise of state capital globally. The Calgary event, once a celebration of frontier-spirited free enterprise, is now more comfortable being a meeting ground for government and business.

  • Canada has entered a new smoke era, where elevated wildfire smoke exposure is becoming the new baseline, writes Dave Sawyer, principal economist at the Canadian Climate Institute, in a new briefing. His key finding: wildfires’ health costs are large, about $19 billion annually, driven primarily by accelerated mortality.

  • Can AI help decarbonize construction? That was Housing Policy Lead Stephanie Shewchuk’s key takeaway from a George Brown Polytechnic event. One approach: optimizing material use. Read Stephanie’s key insights here.

Curated by Yadullah Hussain, Managing Editor, RBC Climate Action Institute.

Climate Crunch would not be possible without John Stackhouse, Jordan Brennan, John Intini, Farhad Panahov, Lisa Ashton, Shaz Merwat, Vivan Sorab, Caprice Biasoni, Lavanya Kaleeswaran and Joelle Schonberg .

Have a comment, commendation, or umm, criticism? Write to me here (yadullahhussain@rbc.com)

Climate Crunch Newsletter

Disclaimer

rbc_tl_disclaimer

Despite recent crop and export volume hitting records, a key risk to the Canadian grain sector is its ability to move its products to overseas markets efficiently and reliably. Infrastructure—particularly rail networks and port terminals—isn’t keeping pace with the growth of bulk commodities like wheat and canola. The risks of disruption leaves money on the table for farmers and limits investment and business opportunities—all while Canada seeks to diversify and expand its trade.

Targeted infrastructure investments can mitigate the risks of disruption and congestion, but that requires agriculture to receive the same focus as other critical sectors in the nation’s conversation about competitiveness and growth. 

Export Development Canada notes that the country’s infrastructure investment trails many OECD peers, and the ratio of infrastructure investments to trade volumes has been falling.1 Canada has an overall infrastructure deficit ranging from between $110 billion to $270 billion,2 and investments for railways and seaports needed by 2070 are estimated at $284 billion and $110 billion, respectively.3

Ag is a national priority

  • The agriculture and agri-food sector contributes more than $150 billion to GDP and supports 2.3 million jobs. It is export-dependent, sending more than $100 billion in agriculture products to international markets, making it the 9th largest globally.4

  • The ranking follows a decades-long story of crop productivity gains, both in efficiency and absolute terms. Since 2000, Canadian wheat production has grown by an annual average of 3.9%, and canola yields by annual average 3.4%, meaning farmers are getting more output from the same area of land.5

  • The U.S. accounts for more than 60% of Canada’s agri-food exports1. As Canada looks to become less reliant on a single customer across all sectors, more agri-food export sales will have to come from overseas markets in Asia and Europe, with commodities primarily shipping through the west coast.

  • The Port of Vancouver moved a record 170 million metric tons of cargo in 2025, 30 million of which were bulk grains. Prince Rupert is also a growing western alternative corridor, handling 26 million metric tons of goods in 2025, up 14% from the year prior.6

Exports are at risk of disruption 

Canada’s port and rail network is strained with several bottlenecks, with a history of disruptions:  

  • The 57-year-old Second Narrows Rail Bridge is the crossing for 50% of the country’s grain production that moves through the port, and nearly a third of all cargo. It is the key rail path to the North Shore terminal for servicing grains, potash, and coal. In February 2026, the bridge was locked in its down position due to a mechanical problem, which halted ships access to the inlet for four days.  

    Figure 2. Second Narrows Rail Bridge: Critical chokepoint connecting shipments to the Port of Vancouver’s North Shore terminals operated by G3, Cargill, and Richards, as well as Neptune potash and coal terminals

  • U.S. ports offer alternative export terminals for some commodities, particularly potash, for several reasons—favourable labour conditions and less port congestion among them. This is leading some Canadian businesses to consider large terminal investments on U.S. shores, rather than Canada. Bulk Canadian grain has no such relief for overseas markets and moves almost exclusively through Canadian ports, creating vulnerabilities at the country’s critical choke points. 

  • Labour issues can also come into play. In 2024, a four-day Grain Workers Union strike cost the sector an estimated $35 million per day in stalled export shipments.7 These vulnerabilities lead to lower profits for farmers and more hesitation from international buyers.  

  • If a significant disruption shuts down either Canadian National Railway Company (CN) or Canadian Pacific Kansas City (CPKC) railways for a single week, the estimated economic damage to the grain industry from lost sales, contract penalties and other costs could reach $250 million8.

New investments are helping, but much more is needed 

  • The federal-government owned Trans Mountain Expansion Pipeline shows how new infrastructure investments in one sector can relieve pressure for another. When the oil pipeline capacity grew to 890,000 barrels per day, Canadian crude-by-rail dropped to the lowest levels since 2012,9 freeing up capacity for Western grains, pulses, and oilseeds, and other commodities. 

  • Investments like DP’s World’s Port Authority Rail Yard project ⁠at the Fraser Surrey Terminal in Surrey, British Columbia, aim to improve handling capacity and efficiency for agricultural exports. The newly announced Canada-British Columbia Cooperative Prosperity Agreement includes $10 billion in federal funding to upgrade the Roberts Bank Terminal 2 in Delta, B.C., along with other potential investments at the Prince Rupert port, further north of the province. (For more on this topic, listen to the Disruptors podcast discussing the Roberts Bank Terminal 2 expansion). 

  • Other efficiency enhancements underway at the Port of Vancouver include the port’s new Active Vessel Traffic Management Program (AVTM) and a centralized scheduling system, which coordinate bridge lifts and vessel movements with train scheduling and reduce delays10. Improving methods for loading grain in the rain, which can halt loading between 30-60 days a year, can also increase port turnaround times. 

Recent years have shown where Canada’s transport system is fragile. The rail and port infrastructure decisions made over the next few years will influence how gains in productivity translate into stronger export growth, and whether the country’s supply chains stay anchored in Canada. Addressing these acute risks should be core to Canada’s nation-building conversation, and large capital investments are needed alongside supply chain efficiency improvements. Farmers have done their part to boost production—the systems moving the output need to keep up. 

Disclaimer

rbc_tl_disclaimer

As debate continues over the costs of building Alberta’s proposed West Coast Oil Pipeline (WCOP), there is a question of how Canadian heavy crude can compete with the Persian Gulf and ever-rising Venezuelan grades that already serve the Asian market. There are several key elements that need to hold for the economics of the proposed pipeline to work—and none are guaranteed.

Canada’s transportation costs challenge

A Canadian barrel costs roughly twice what a Gulf barrel costs to land at the same refinery—the arithmetic of being 1,200 kilometres from tidewater. On delivered cost alone, any case for the pipeline must explain what offsets a gap that wide.

A Competitive Oil Market

Heavy sour crude delivered to Northeast Asia (C$/per barrel)

WCSArab HeavyMerey
Delivered costs (C$/b)(CA)(Gulf)(VZ)
Field to tidewater$9-$11$2-$3$4-$6
Freight to NE Asia$4-$6$3-$4$4-$5
Delivered, all-in cost$13-$17$5-$7$8-$11

Notes: Persian Gulf and Venezuelan field-to-tidewater costs are RBC Thought Leadership estimates. Western Canadian Select (WCS) costs are modelled off Trans Mountain’s shipping costs to China from its Westridge Marine Terminal.  Freight rates are mid-cycle estimates.

The tolls can be competitive—if the build stays on budget

The new pipeline does not need to follow the same path that unfolded for the Trans Mountain Expansion Project (TMX), i.e., cost overruns that were part passed onto shippers.

Pipeline Economics

West Coast Oil Pipeline (WCOP) vs. Trans Mountain (TMX) financial metrics

WCOPWCOPTMX
Pipeline Metrics (C$)LowHighActual
Capacity, 000 bpd1,0001,000890
Capital cost, $ billion$35.2$43.7$35.3
Capital cost, $ per bpd$35,200$43,700$59,831
Pipeline toll, $/bTBDTBD$9-$11
Freight to Asia, $/b$2-$3$2-$3$4-$6

Notes: The TMX toll reflects the revised rates as disclosed in the July 7 submission to the Canada Energy Regulator ($9.20-$11.05 per barrel). The TMX capital cost per barrel is calculated based on expansion volumes only (590,000 bpd). Freight rates are mid-cycle (normalized). All dollar figures are quoted in Canadian dollars.

The West Coast Oil Pipeline’s transportation costs should hopefully be less expensive than TMX, given the use of a larger line along a ‘de-risked’ corridor, and loading supertankers (Very Large Crude Carriers) directly rather than the mid-sized Aframaxes. The challenge would be to keep the project on budget. The $35-$44 billion estimated price tag for the project excludes escalation and financing—key concerns from a competitiveness standpoint.

What must hold for the barrel to clear

Western Canadian Select (WCS) trades well under global benchmarks, much of it due to captivity (as it’s one and only market is the U.S.) rather than quality. While a cheaper price improves competitiveness (buyers get a similar barrel for less cost), it is less than ideal for producers and getting oil to tidewater lets the barrel escape this structural disadvantage. The Alberta government estimates WCOP could narrow the price gap between WCS and the U.S. benchmark West Texas Intermediate by up to US$3 per barrel. For reference, WCS has historically traded at a US$10-15 discount to WTI, but has at times gone in excess of US$20 per barrel.

Buyers are hoping Canadian crude is more reliable. Cheap Persian Gulf barrels carry a Strait of Hormuz risk, while Venezuelan barrels are dependent upon an extended economic reconstruction. Canada’s oil carries neither risk, with Asian buyers willing to pay for that security.

Producer commitments are less a question of Asian demand—TMX’s fill rate suggests the demand is clearly there, but cost overrun concerns need to be alleviated to ensure the West Coast project’s competitiveness.

Bottom Line

The trade case rests on several conditions: the project is built on time and on budget, with a discount that is more structural in nature rather than subject to periodic events, and a reliability premium outlast recent disruptions. If these conditions hold, the prize is significant: roughly $20 billion in incremental annual exports (based on 1 million barrels per day at 90% utilization, and a WCS price of $60 per barrel), along with a potential US$3-per-barrel tightening in a spread across future bitumen production of between 4.5 and 5 million barrels per day by 2035, worth about $5 billion annually. Whether Canada should make this bet with public money is a fiscal judgment, particularly given the country’s recent history with pipeline development, but one that seems increasingly likely with each passing day.

–By Shaz Merwat, Energy Policy Lead

500 Leaders | 2 Nations | 1 Day

RBC brought together more than 500 business, government and policy leaders last month for the U.S.-Canada Summit, in partnership with the Eurasia Group. Ministers, governors, ambassadors, economists, investors—and an astronaut—gathered in one room to talk about the future of the world’s most prosperous relationship.

The week that was

Donald Trump threatens to cut off trade to Spain

  • The U.S. President issued the threat over the European country’s refusal to increase defence spending to 5% of GDP by 2035. The U.S. administration is now preparing a list of Spanish goods to potentially embargo.

Canada tells the UAE it’s not ready for an inflow of cash

  • The federal government’s Major Projects Office told an official UAE delegation that it was too soon to inject billions of dollars into Canada, as projects are still in early stages. Prime Minister Mark Carney landed a $70 billion investment commitment from the UAE last year, but that capital has yet to be deployed.

Brussels launches probe into imports of Chinese duck

  • The European Commission has launched an anti-dumping investigation targeting Chinese Pekin duck, the breed used to make the iconic Peking duck dish. The latest dispute highlights growing trade tensions between the EU and China.

Global trade and economic groups warn of uncertainty

  • The heads of major global organizations—the International Energy Agency (IEA), International Monetary Fund (IMF), World Bank Group (WBG) and World Trade Organization (WTO)—met to discuss the impact of the war in the Middle East. While they noted that the global economy has been “broadly resilient,” they warned that uncertainty remains high and that the impacts of the war may linger.

U.S. trade deficit widens, as does Canada’s surplus

  • The U.S. trade deficit increased sharply in May, ballooning to a 14-month high despite tariffs on imports. Canada, meanwhile, saw its trade surplus widen to a four-year high in May, with exports of metals and energy increasing during the war in the Middle East.

Disclaimer

rbc_tl_disclaimer

While the U.S. and Mexico were kicking off bilateral talks on CUSMA (and announced two more sets of meetings in June and July, without a mention of Canada), Prime Minister Mark Carney was in New York making the country’s case to a business audience.

As the U.S. pivots to bilateral talks in its effort to reshape North American trade dynamics, we examine how Canada and Mexico have fared as the U.S. squeezed both with tariffs and other economic pressures.

Mexico’s exports to the U.S. soared, Canada’s slipped in 2025

Annual U.S. imports from Canada and Mexico, billion US$

  • Despite one of the lowest effective tariff rates of ~3-4%, thanks to CUSMA shielding ~90% of Canadian exports, the U.S. imported nearly US$30 billion less goods from Canada—the second largest drop among U.S. trading partners behind only China.

  • Canada’s loss was almost identical to Mexico’s gain. It remains America’s largest import source and has extended its lead on the rest of the pack.

  • Both Canada and Mexico were at the epicenter of the tariff war, yet the divergence came down to the product mix, and new emerging trends, such as AI.

    Tariff-hit sectors squeezed both countries, but AI lifted Mexico

    Change in imports compared to 2024 by product categories, billion US$

  • Canada’s losses were broad-based. U.S. purchases from Canada fell across product categories that accounted for 84% of all imports from Canada. Lower oil volumes along with soft oil prices in 2025 accounted for a third of the drop in imports, with auto, steel and aluminum extending the decline by nearly as much.

  • Like Canada, Mexico reeled from the Section 232 tariffs. The U.S. imported US$13 billion less in auto and parts from Mexico, accounting for half of the decline.

  • The AI boom, however, lifted Mexico’s trade balance. The U.S. imported US$250 billion data processing units last year—almost double what it bought a year earlier—and Mexico was the single largest seller, supplying a third of that.

  • Data processing machines climbed to the top of the Mexico’s export ladder displacing passenger cars. Mexico’s share in global supply has doubled over the past two years, now supplying 18% of the US$550 billion global imports, and rapidly catching up to China and Taiwan.

    Manufacturing sector remained soft throughout 2025

    Manufacturing Purchasing Managers’ Index (PMI)

  • Canada’s manufacturing sector, which makes up a tenth of the economy, took far more than a tenth of the pain, with GDP down 2.5% in 2025, marking a third consecutive decline. The squeeze was broad-based—14 of the 18 manufacturing subsectors contracted, from transport equipment and food & beverage to chemical and metal products.

  • Both countries shed factory jobs in 2025 but things are now diverging. Canada is regaining footing on its factory floor, with PMI climbing above 50 this year—seen as a level that signals expansion driven by new orders. Mexico’s manufacturing has been trending within the contraction zone for the past 22 months, long before tariffs were introduced, and shows no signs of immediate recovery.

    U.S. tariff impact less damaging than feared for both Canada and Mexico

    Projection and actual real GDP growth for 2025

  • Doom and gloom scenarios did not materialize thanks largely to CUSMA, though tariffs shaved off about a fifth of Canada’s pre-trade war growth expectations, and over half for Mexico.

  • Resilient consumer demand and fiscal policy provided a cushion for the Canadian economy. Mexico saw the opposite trend as the government tightened its budget. Meanwhile, remittances from the U.S. dropped 4.6%, partially due to an immigration crackdown and softening household consumption.

— Farhad Panahov, Economist

For more:

One year later: How US tariffs and trade policy have reshaped the landscape – RBC Economics

One year of tariff shocks in Canada: What we learned

The week that was

Brussels prepares broader measures against Chinese imports

  • The European Commission signalled it will expand the use of import quotas and safeguard tariffs across entire sectors as concerns grow over Chinese overcapacity in chemicals, metals, clean technology, and manufacturing. Industry Commissioner Stéphane Séjourné said the EU’s trade deficit with China has reached roughly €1 billion per day, with policymakers increasingly framing the issue as a threat to European industrial competitiveness.

India sends largest-ever trade delegation to Canada

  • Indian Commerce Minister Piyush Goyal led an Indian trade and investment delegation as Ottawa and New Delhi look to accelerate free trade negotiations and target $50 billion in bilateral trade by 2030, up from roughly $10 billion today. 

Shipping industry warns of rising costs and capacity constraints

  • Global shipping executives told the World Trade Organization that disruptions in the Gulf region and other maritime chokepoints are driving up costs across supply chains, while alternative transport corridors face growing capacity constraints. Industry leaders noted that a single container ship can carry the equivalent of roughly 70 freight trains.

ECB warns geopolitics are becoming a financial stability risk

  • The European Central Bank warned that the Iran conflict, volatile U.S. trade policy, and growing geoeconomic fragmentation are increasing risks to global financial stability. The Bank cautioned that markets may be underestimating the potential economic impact of prolonged energy disruptions, elevated sovereign debt levels, and renewed inflationary pressures stemming from geopolitical shocks.

—Thomas Ashcroft, Global Issues Policy Lead

Disclaimer

rbc_tl_disclaimer

Canada has a scaleup problem. We create entrepreneurs, but too many of them feel they need to leave to build world-class companies.

Fred Lalonde is one of the exceptions. He is the founder and CEO of Hopper, the Canadian travel-tech company that uses data, prediction and fintech to help travellers book with more confidence.

Now Lalonde is bringing that same ambition to Deep Sky, a Canadian carbon removal company.

In this episode of Disruptors, recorded in front of a live audience, John Stackhouse speaks with Fred about what it takes to build and scale from Canada – and why the country needs more founders willing and able to do it here.

In this episode, you’ll learn:

  • How Hopper became one of Canada’s leading tech success stories

  • Why Fred thinks entrepreneurs better be motivated by building, not just money

  • Why AI, energy and advanced manufacturing are central to Canada’s next growth chapter

  • What it takes to build a world-class company without leaving Canada

Listen on Apple Podcasts, Spotify or Simplecast

FAQs

Fred Lalonde is a Canadian entrepreneur, founder and CEO of Hopper, and co-founder of Deep Sky. In the episode, John Stackhouse frames Fred as one of Canada’s original disruptors, and Fred describes his path from teenage hacker to entrepreneur.

Hopper is a travel platform for flights, hotels, homes and car rentals. Hopper says 120 million travellers use its platform to plan trips, and the company is known for using data and prediction tools to help consumers decide when to book.

Deep Sky is a Canadian carbon removal company co-founded by Fred Lalonde. The company is building infrastructure to remove carbon dioxide from the atmosphere.

The episode is about Canada’s need to build more globally competitive companies from home. Leaders Fund and Specter found that in 2024, the U.S. produced 45x more high-potential startups than Canada, and nearly half of Canadian founders who raised more than US$1M were based in the U.S.

Fred says good entrepreneurs are motivated by building – by making something, putting it into the world and ideally changing it. He also stresses how hard the founder journey is, including the long timelines and high failure rate.

When asked about Canada’s growth challenge, Fred points to AI, climate and energy, and automated manufacturing resilience as areas where the country should focus.

RBC plans to deploy up to C$1 billion over the coming years to form a growth fund and make equity investments in support of homegrown Canadian companies. 

The Canadian Unicorn Who Stayed

SPEAKERS

Frederic Lalonde, John Stackhouse

John Stackhouse 00:00:10

Hi, it’s John here. If you’ve been listening to Disruptors over the years, you know that Canada has a problem. We are not the land of unicorns. Sure, we create a lot of companies, but as we’ve heard over and over and over again, many of our entrepreneurs, far too many, feel they have to leave Canada to create and scale a world-class business. There are, of course, exceptions and we’ve profiled a lot of them on Disruptors and one of the most impressive is our guest today, Fred Lalonde. Fred is the epitome of a Canadian unicorn. He has built a billion-dollar company here in Canada and chosen to stay in Canada, not just to continue to grow that company, but to launch more companies with even more ambition. It’s the sort of spirit many Canadians feel and we’ve got to do a lot more to help that spirit flourish right here in Canada.

If you don’t know Fred Lalonde’s story, it’s a pretty good one. He started in the digital economy as a hacker, selling pirated software on the school yard, then dropped out of school and created a solution allowing third-party hotel booking sites to integrate with hotels. He sold it to a young company called Expedia. Next, he built Hopper, another travel site that became that unicorn, and now Fred’s taking the same ambition to the fight against climate change in building a carbon removal company called Deep Sky. So when it comes to building world-class companies and scaling them here in Canada, Fred Lalonde is definitely worth listening to and that’s the conversation we want to bring to you today.

This episode was recorded in front of a live audience and it has the energy of one. Fred is funny, blunt, and occasionally dark, but underneath that is the clarity you so often find in builders who know how to create and also know how to live with failure. As Fred explains, he doesn’t manage disruption, he assumes it. We cover a lot of ground, AI, energy, manufacturing, and Canada’s stubborn reluctance to scale. That’s the challenge that we all have to take on.

Here’s my conversation with Fred Lalonde.

Fred was one of the original Disruptors. I think we’ve had you on the stage a couple of times talking over the years. It’s always great to be with you. We’re going to talk about a whole range of stuff, but Fred, let’s start with you. Amazing life history, lifelong hacker. Grew up in a household with more computers than I think you could count. I’m not going to talk about how you learned your way to hack into Bell phone systems, but that’s a whole different story. I think you once called yourself to the Global Mail no less as unemployable. So that’s a great thing to have in your Google search. Fred Lalonde, unemployable. And you’ve had a couple of near death experiences with companies and yet here you are thriving more than ever. Tell us a bit about you. What is it about you that just keeps you coming back in the face of all that has put you down, pushed you back, tried to keep you down over the years?

Fred Lalonde 00:03:22

Yeah. I mean, I ask myself that same question every day. The term is serial entrepreneur and not for nothing, it’s like you just can’t help yourself. You just keep going and going. So everything that you said is true. I dropped out of school when I was 19. I was a hacker. I’m a child of the ’80s. So I learned when I was 14 that I could copy video games. Some people are old enough to remember floppy disks. And so in high school, I made $16,000 selling these in the schoolyard. I don’t know why parents never wondered where the money came from. And of course, the next step from a hacker is being an entrepreneur. It’s the legal version of what hackers do. It is true. I’ve never had a paycheck, never had a mortgage. I’m functionally ineligible for credit cards. I learned this because you’re now my wealth manager, and they’re like, “Oh, you don’t have a credit card.”

John Stackhouse 00:04:16

Did they turn you down for a credit card?

Fred Lalonde 00:04:18

No, they just said I had no credit history, which is technically true. But the point is I like building things and it’s like a compulsion. I spend a lot of time and as I’m getting older, every year I try to do one board where I find some smart kid in Canada and I kind of help him navigate through all the crap that I wish I knew when I was 28 trying to do this. And functionally people come to me, “I want to start my company.” It’s always the same question, which is like, do you really need to do this? Is this some visceral thing that drives you? And I don’t mean making money because somebody comes to me and says, “Hey, I want to do this.” And you can kind of tell they’re motivated by money.

I’m like, “Dude, there’s a lot of ways to make money. I can give you 10 things because this is really, really hard. And actually you’re going to build for seven, eight, 10, 15 years now and you have a nine out of 10 chance of getting nothing at the end.” And people don’t understand how hard it is, how often you have to fail. So it takes a special disposition and I think good entrepreneurs are motivated by building. You don’t really care about the money or anything else. It’s just about making something, putting it into the world and ideally changing it. People don’t realize the failure ratio, like how often you’re going to be in trouble.

John Stackhouse 00:05:32

Who did you learn the most from in the early goings?

Fred Lalonde 00:05:42

So I was super lucky. When we sold to Expedia, I had no idea. The CEO of Expedia was Eric Blatchford. He grew up in Montreal and he was at some McGill football thing and he walked in, like in the movies, and then a month later he’d bought my company. I was 28. And then they brought me over to Seattle because they had integrated my company and everything. And there’s a book called Barbarians Led by Bill Gates. If you’ve ever read, it’s not very good, but it talks about the ’90s where Bill Gates had these guys that worked for him, and what they would do is pretend to go acquire a company and then they would basically steal the IP and Microsoft would replicate it. And it’d gotten so bad that venture capitalists would not back anything… They would check with Microsoft first before they invested in your company. It was crazy.

Then at some point the government talked about breaking Microsoft and they stopped. So there was 13 people that were in charge of this and the guy that was renowned for being the killer was called Lloyd Frink. He’s in the book. That was my boss at Expedia. Let’s say you were having a conversation with him and you bored him, he would leave mid-sentence. It was fascinating. And the other guy that started Expedia is Rich Barton. He’s built Zillow since. So I completely lucked out. I ended up working for those guys for four years. That’s actually the only time I didn’t sign my own paycheck. And today, if I had to give back that early money I made or the knowledge, I would give the money back tomorrow morning. That actually helped me understand what it was to build a really great company. So I would have to say it’s those guys.

John Stackhouse 00:07:17

What was the best lesson from those guys that helped you with future companies?

Fred Lalonde 00:07:21

It’s this thing that’s been misused. It’s attributed to Steve Jobs, but it’s actually not him. Then it gets attributed to Wayne Gretzky, but it’s actually not Wayne Gretzky. It’s Wayne Gretzky’s dad. Skate where the puck is going, not where it is. It’s actually really hard to do because you actually have to have a credible understanding of what the future is going to be like… And there’s this crazy thing and there’s no… Startup environments are the place where this is the most problematic, but it applies to a multi-hundred year old bank at the end of the day, especially in the era that we’re in now, which is the era of AI. But it’s like if you’re actually building something new, whether it’s small, big, something you run, something you’re a product and it makes sense in current day context, it’s probably not going to work. And so I’ll give you a few examples.

You will be standing in the rain in front of a completely licensed taxi that has been audited by the city and has paid a medallion and you’ll be waiting for a stranger to pick you up in a Toyota Corolla. Instead of checking into a hotel, you will prefer to stay in somebody’s spare bedroom. If I told you these things in 2010, you would’ve called me crazy. I just described Uber and Airbnb. The point is if your idea makes sense in present day context, it’s not going to work in the future, and that’s true in a normal 50-year span, like the one I’ve lived through now. But if you’re looking at what’s about to happen in AI, it’s an exponential problem at the end of the day that’s going to change completely. So that’s the main thing I picked up from those guys.

John Stackhouse 00:09:01

One of the great challenges in building a company of the visionary entrepreneur, usually the founder, and then especially as you scale, you need an operator. How have you found that balance because it’s not often the same person, one individual?

Fred Lalonde 00:09:15

Honestly, and I’ve thought about this a lot, I don’t actually believe in the founder/operator thing. It may have worked a few times, but even the ones that are known for being the highest visionary… So one of my good friends is Laurence Tosi, he was the CFO of Blackstone. He famously turned down Steve Jobs for CFO. So he knows Steve very well. Steve would know the operational details, the cost of the microchips. I have never seen a good CEO operator in a startup. I don’t know what it is to run a bank, and God help us, nobody will ever give me the opportunity to try that, but fundamentally, if you’re building something that has high velocity, high growth, lots of unknowns, you have to be able to get the big vision and the execution. And I’ve seen a few teams, but the really, really good ones are able to go all the way down, and I would argue your current CEO is one of the few that I’ve met that really, really qualifies and I think it shows in the culture of the bank.

So I actually think sometimes a team, but you kind of have to have that willingness to go all the way down to the nuts and bolts because when things are stable, it’s okay. I’ll give you my favorite example. If you work at a large organization like this one or Mitsubishi, what, maybe 5% of your company is new, like hiring spree, something like that. At Hopper for the first 15 years, 50% of the company was new. Think of that, right? It’s like your company’s constantly made of spare parts.

John Stackhouse 00:10:47

How do you manage that as a founder, you were there, you were the origin story and then you’ve got all these newcomers coming in and regenerating it. How do you kind of roll with that and let other people also take it in directions that you may not-

Fred Lalonde 00:10:59

The culture question. I’ve become convinced that culture is the only way to go. So for example, at Hopper and in our other companies, Deep Sky, the carbon removal company that you guys know well, we don’t have a traditional C-suite, we don’t have a CTO, we don’t have a CIO. We’ve gone to something called single-threaded ownership, which is an Amazon model. And so when we reached about a hundred people at Hopper, I started losing velocity. It gets harder to do stuff. Again, if you work in big companies, you know how hard it is to do stuff. And my problem at Hopper is I made no money doing the thing we did. We were selling flights, which is a really bad idea. And so I had to do a second thing and most companies don’t have that. They either do one thing, run out of money and die because it didn’t work, or they do a thing that works.

We had to find other things. And so what made us profitable is our financial products or fintech, blah, blah, blah. But before I could get the company to do more than one thing, it was attacking itself. So I had to design the culture. So I started reading everything I could. So Eric Schmidt wrote a book called “How Google Works.” There’s a boring long book, but there’s a children’s book. This is crazy. It’s illustrated. It’s like for five years old. I really recommend this to everybody and he explained how Google worked when he took it over from Larry and Sergey. Reed Hastings wrote a lot about this. Then I found Jeff Bezos’ shareholder letters. And if you have not done this, every year since starting Amazon, he writes. You should read this. It’s a whole insight into his mind. And I realized something fundamental.

The first thing is culture is not what you say. It’s not the poster on the wall. It’s not what your HR department does. We don’t actually have those, but if I had an HR department. It’s actually how you act and what you reward and what you punish. People will act according to what you do and what you say good or bad to somebody. And most people don’t realize how important that is. Everything’s being observed when you’re in a position of leadership. And so then I realized something really fundamental and this is actually why we’re successful. We’d be out of business if I hadn’t figured this out, I’m 100% convinced of it. Most companies get together at some point. Somebody tells them, “You need to define your culture.” Get in a room and you say, “Here are our values,” and that’s it. The really good companies, the amazing ones, they did something different. The founder at some point said, “What kind of company do we need to be for our customers?”

And so Google that was making all of its money on one algorithm, put the engineers in charge, right? Netflix, because streaming kind of didn’t work, it just wouldn’t start. If you guys are, again, old enough to remember this. So they put the product people in charge and Amazon super interestingly realized that they had no network effect where Google had the search, Facebook is a network, blah, blah, blah, all this kind of stuff. They put the category managers in charge and everything… I could go on for hours on this. So what I realized is companies have two types of cultures. The ones that kind of emerged because they got in a room and put a bunch of stuff on a sticker board and voted for it, and the cultures that are designed, that were built for a purpose and that purpose should be the business you’re in and where your customers need you to be. So we got to very, very simple things: move quickly, obsess on the customer and we put revenue as our core value, and people quit.

John Stackhouse 00:14:38

Revenue is your core value?

Fred Lalonde 00:14:39

Yeah. We have three core values, obsess on the customer, move quickly, make money. And you know what happened once we put revenue? We went from 10 million to three quarters of a billion where we are now. It’s declarative. It’s like a marriage. I pronounce revenue, and it happens. And that’s what a founder has to do. You have to manifest 90%.

John Stackhouse 00:15:00

And people not interested in revenue left.

Fred Lalonde 00:15:02

Yeah, exactly. And then it becomes a self-fulfilling prophecy. You attract people that want the thing that you’ve declared. Now, whether I believe revenue is the core thing that should drive society is irrelevant because I’m here for my customers, I’m here for my investor.

John Stackhouse 00:15:16

So we’ll switch to AI, but you mentioned in passing there, you don’t have an HR department.

Fred Lalonde 00:15:21

No.

John Stackhouse 00:15:22

How does that work?

Fred Lalonde 00:15:23

You don’t need it. Sorry. Is there anybody in HR? We realize you don’t need it. Yeah, and that’s a very long-

John Stackhouse 00:15:30

But there’s lots of HR functions that you do need.

Fred Lalonde 00:15:33

No, no.

John Stackhouse 00:15:33

How do you manage it-

Fred Lalonde 00:15:34

No, actually you don’t. Have you ever read Dilbert?

John Stackhouse 00:15:38

This could be my last conversation for RBC, but I’m genuinely curious. How does that work?

Fred Lalonde 00:15:47

We don’t have functions. So what we do is my companies all work like federations of startups. So one person’s in charge of financial products, another one’s commerce. We have somebody running banking and they have full hire and fire over their entire team. The only function that’s horizontal is finance. And so at the end of the day, the short answer is if you have a problem with your paycheck, you go to finance, but we don’t have any HR. We also don’t have offices and we never meet, which is probably another whole thing that we should talk about.

John Stackhouse 00:16:14

No HR, no offices, no meetings.

Fred Lalonde 00:16:15

It’s awesome.

John Stackhouse 00:16:16

How do you exchange ideas?

Fred Lalonde 00:16:18

You actually write them down. So we’ve actually found that… And there’s actually the founder of WordPress-

John Stackhouse 00:16:25

Bezos does this too, right?

Fred Lalonde 00:16:25

Yes. It’s a Bezosian thing. He’s not the only one. Schmidt does it a lot. So the founder of WordPress… This is a big company back in the day, still pretty meaningful. They never met anybody they hired and it was by design. And the reason is he believes to this day that if I meet you, all my cognitive bias, you’re white, we’re about the same age, I’m likely to like you, all that kind of stuff. And so they did their entire interview process in writing and they actually realized they had a very low close rate. So at the end they added one step that took up a few years. They would call you and say, “Actually, it’s a real job in case you’re wondering,” because people wouldn’t think that it was a real job. And so his point is it’s very easy for somebody to trick you verbally, especially if the person has high EQ. If you really want to know how my brain works, read me, and vice versa, I should read you. So a lot of it’s writing.

And we’re global. So we have people in every country. We serve Japanese banks and all this kind of stuff. And one of the things that it let us do because we’re a written asynchronous culture, it lets us hire the best people in the world anywhere where they are. And so when the return to office happened after the pandemic, we picked up people that were leaving Google and it’s continuing to happen now that we never would have gotten. So we’ve been punching ahead of our weight class because of talent density and that is the only metric that we have, talent density, like you would if you were building a professional football team.

John Stackhouse 00:17:55

Perfect segue into the AI part of the conversation. Is AI going to get rid of all this, this human aspect?

Fred Lalonde 00:18:03

And a lot more. Yeah. So I’m going to preface this. I have a really dark view on a lot of things. In these periods where there’s extreme disruption, there’s also extreme opportunities. So I’m going to do my best to scare the crap out of you, but for as troubling as these things are, there’s actually a lot of upside. And the reason I speak this way about climate and about AI is because I fundamentally believe in first principle thinking. You have to ask why and the why of the why. That’s how you make good decisions. If you go back to the 1900s, 1905, there were about 27 million draft animals in the United States. And so there were about 95 million people. So every three humans there was a draft animal. How do we know this so specifically? It’s because this was so important that it was part of the census.

They would count the number of horses when they did the census for the people. Why? Because all transportation but also all food was produced by draft animals. And so there were horses everywhere. The first commercial vehicle, internal combustion vehicle, was sold in the US in 1886. And so if you think of it, there’s this really bizarre period between 1890 and call it 1910, 20 years, give or take, where you had a small number of internal combustion engines and you had horses everywhere. The peak horseness was around 1915. So for 25 years we kept adding horses as part of the base of the economy, even though the internal combustion engine was there. This is Vaclav Smil, by the way, How the World Really Works. I’ve stolen all this. So the role of the internal combustion engine was to completely change transportation and food production. It replaced the horse. AI replaces thinking. So what do you think is going to happen?

Make no mistake about it. If you talk to anybody who works at an AI lab that builds AI, they are not building it to make your life easier or your people’s… They’re not building it to enable you. Every time you load Claude to make a cash flow statement for one of your customers or to goof around on something, they are training the model to do it without you. This is 100% understood. Every AI engineer understands this.

John Stackhouse 00:20:41

What would you recommend/advise people in this room to talk with their teams, with their clients, and to think about themselves, about those challenges coming at us?

Fred Lalonde 00:20:50

So I think what you have to do is break apart what your team does, what your group does, what your company does into its core components, and you need to basically do what Steve Jobs did when he did the Mac. You need to start a completely shadow organization over here and only bring… Obviously this runs entirely on AI and only bring in the parts that you need assuming that AI will do everything else. And then figure out if you can… Just remove every constraint you think you have and some like the security of the bank, you don’t have a choice, try to move it to an AI-first world. And if you get something that works, raise your hand and go, “Hey guys, look at this,” and hopefully the person next to you and the one will pick up on it and improve on it.

And the people that can do that are probably the ones that are still going to have a high-paying job because it’s that creative judgment-based act that even though the AI could probably learn, it’s probably where you want to keep the human in the loop.

John Stackhouse 00:21:53

I know we’re over time, but I want to steal another minute to just get your thoughts on this growth challenge, which we’re leaning into, we’re investing in. What do you think Canada needs to come to grips with most critically to ensure we get a better trajectory of economic growth and that we help companies and entrepreneurs like you take on the world but scale a lot faster here at home than we’ve seen?

Fred Lalonde 00:22:16

You kind of have to hunker down. So if you take Canada, we’re probably the richest country in the world, just by natural resources. We’ve talked about this actually. But we’re so comfortable we don’t realize it, right? But if I was asked to figure out what to do with the bank’s fund, which again, hopefully never happens, I think it’s very, very simple. AI for sure, climate and energy, which are the same thing, and fully automated manufacturing resilience. We need to be building our own sovereign energy. We need to be dealing with our emissions. We’re not good at wind farms. We have no tech. We’re dependent on the Chinese, the Europeans. We have nothing on solar, the Chinese… Not ideal. Our nuclear program, like every program in the world is in shambles because we gave up on it. You know what we’re really good at? Really, really good at? Drilling.

And you can either drill for dead dinosaurs at about two kilometers, but you know what happens if you keep going to five, six, seven, eight kilometers, you hit heat energy, geothermal. There’s enough energy on the ball of rock that we’re living on right now that 0. 1% of it will power our civilization for two million years. And there’s actually a company in the US that figured out how to do it cheaply two months ago. So I can tell you it’d be those themes, AI, climate, energy, and manufacturing resilience.

John Stackhouse 00:23:40

And with Canadian engineers in that US company, I mean, everything you talk about is really connected to scarcity and scarcity leads to more innovation. You’re the embodiment of that and we facilitate that. So scarcity can squeeze, it can hurt, but it leads always to some kind of innovation, usually great innovations. The other thing I love that you said, Fred, is you’ll be back next year, which tells me you have hope that we’ll all be here next year. So just in the darkness, he thinks he’ll be here next year, he thinks we’ll be here next year. I’m not that smart, but I’m connecting dots to say that we got hope here. What you’re saying, Fred, is we stand a chance to be here a year from now and doing even better things.

Fred Lalonde 00:24:32

I’m actually an optimist.

John Stackhouse 00:24:33

Okay. Fred, we’re going to close there.

Fred Lalonde 00:24:37

We’ll close on this: It’s not because something is hard and the odds are not super in our favour that we shouldn’t do it, right? That’s the whole point of everything I’ve been saying.

John Stackhouse 00:24:48

Yeah. It’s like that great line in Dumb and Dumber, “What you’re telling me is we got a chance.” Fred, thank you. Thank you. Thank you.

That was Fred Lalonde, founder and CEO of Hopper, recorded in front of a live audience. I hope you’ll agree that Fred has a way of making the future seem both more alarming and more navigable than it did before you started listening. His clarion call about scaling more here in Canada also should be a message that every Canadian can take on. At RBC, we’re trying to do more with the launch of a new billion dollar platform to invest growth capital in the companies that will help Canada grow in the years and decades ahead. And right across the country, we’re seeing big investors, private companies, and ordinary Canadians all wanting to put more capital behind this country’s amazing potential. It’s not just those big projects that we hear a lot about in the news. It’s about the big ambitions of entrepreneurs who are creating companies, whether it’s in the resource sector or the digital economy that can help Canada and Canadians sell more to the world.

For more on all this, visit rbc.com/thoughtleadership. You’ll find research, perspectives, and ideas to help you clarify what’s next.

And if you like this podcast, follow, like, and review us wherever you listen. This will help others find these conversations on the ideas, technologies, and entrepreneurs reshaping Canada’s economy.

I’m John Stackhouse and this is Disruptors, an RBC podcast. Thanks for listening.

Disclaimer

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Also in this edition: The Power of Siberia 2 and implications for Canada 

A Canadian first

A year into Prime Minister Mark Carney’s trade diversification push, global infrastructure investors are registering the signal. The Global Infrastructure Investor Association (GIIA) Spring 2026 survey—covering leading infrastructure funds across North America and Europe—ranks Canada #1 for investment attractiveness, ahead of the U.S. and Germany. It’s the first time Canada has finished atop the annual survey. Here are the highlights: 

  • Global infrastructure fundraising hit a record US$289 billion in 2025. LP allocations are rising further in 2026—but capital is concentrating, with the top 10 managers capturing 40% of total commitments. Commitments above $2 billion are increasing most sharply. 

  • Battery storage topped North American sector rankings for the first time. Regulated gas improved materially. Geopolitical risk is now priced in individual transactions: supply chain exposure, policy durability, and counterparty strength are deal-level considerations. 

  • Canada’s pension funds—CPPIB, OMERS, Ontario Teachers’, PSP—sit at the intersection of that capital and those relationships. Their sovereign co-investment networks across Asia, the Gulf, and Europe are the intermediation layer global allocators. 

The world is noticing the shift in Canada, but it wants to see evidence of intent and action. The federal government will get a chance to bolster the case for Canada at the Canada Investment Summit in Toronto this September. 

— Shaz Merwat, Energy Policy Lead 

Look what’s trending 

In ‘Surging gold prices, inroads to foreign markets cushion Canada’s exports,’ RBC Economics notes that ‘gold exports to the U.K. surged by a nominal $17 billion, or 76%, in 2025—making gold Canada’s second-largest export after crude oil—significantly cushioning declines in other goods.’ 

Chokepoint: Power of Siberia 2 Stuck on Price 

It wasn’t a headline agenda item of the Xi–Putin summit this week, but the Power of Siberia 2, a long-stalled pipeline that would carry Russian natural gas east to China, inched back into the spotlight as a result of the two leaders high-profile meeting. 

What is being proposed? 

A 2,600-kilometre pipeline carrying up to 50 billion cubic metre per year of gas, nearly on par with the capacity of the now idle Nord Stream 1, from Siberia’s Yamal gas fields through Mongolia to China.  

What’s the holdup? 

For one thing, price. Beijing wants roughly 12–13 cents per cubic metre, near Russia’s domestic rate; Moscow wants double. The summit ended with warm words but no price or project timeline. 

If it did come to be, how would it alter Chinese demand for non-Russian imports? 

An overland gas pipeline sidesteps maritime chokepoints China’s seaborne LNG must run through, such as the Strait of Hormuz, where tensions have left oil and gas tankers stranded for weeks (two Chinese tankers passed through Hormuz this week). A direct pipeline link to Russia would displace gas that China might otherwise pull from global LNG markets, with potential downward pressure on prices. 

Implications for Canada’s LNG ambitions? 

According to Robert Johnston at the University of Calgary, Canada’s gas story lies closer to home. More Russian gas east would push U.S. and Qatar LNG cargoes toward the same Asian buyers Canada is courting, impacting prices as LNG Canada’s second phase ramps up. But with an image of geopolitical stability and strong emissions credentials (Russian gas has an emissions intensity 50% higher than Canada’s gas) the decisive variable for Canada’s LNG ambitions–the rollout of major projects–is domestic execution rather than economics.

Additionally, energy importers are increasingly wary of relying heavily on one geography, especially after Russia weaponized natural gas exports to pressure Europe as it ramped up its war in Ukraine, and Middle East suppliers are being hemmed in by the Strait of Hormuz blockade. Canada offers largely apolitical, stable supply in a fragmented world with disrupted energy trade flows.

— Vivan Sorab, Clean Tech Lead 

The week that was

IEA warns oil markets nearing “red zone” by late summer 

  • International Energy Agency Executive Director Fatih Birol warned oil markets could enter a “red zone” by July-August, with 14 million barrels per day disrupted, inventories falling, and no meaningful new Middle East supply entering the market amid the Iran crisis.  

China’s renminbi payment system sees record surge

  • China’s Cross-Border Interbank Payment System (CIPS) processed a record average daily value of RMB920.5 billion (US$135.7 billion) in March, briefly peaking at RMB1.22 trillion and nearly 42,000 transactions in a single day representing a surge in energy trade outside the U.S. dollar system.

Brussels advances implementation of U.S. trade pact 

  • EU lawmakers and member states reached a provisional agreement to implement last year’s U.S.-EU trade arrangement, including safeguards allowing Brussels to suspend tariff reductions if Washington maintains steel and aluminum duties above agreed levels beyond 2026.   

EU approves expanded foreign investment screening powers 

  • The European Parliament approved new foreign investment screening rules covering sectors including AI, semiconductors, quantum, aerospace, energy, and critical infrastructure, broadening scrutiny over third-country investment across the bloc.

Ottawa and Nunavut launch tariff-response workforce program 

  • The governments announced more than $1.5 million in funding for marine-sector training and employment supports tied to tariff-related economic disruption.  

Manitoba opens trade office in India amid diversification push 

  • Manitoba announced plans to establish a trade office in India as provinces continue pursuing direct commercial relationships abroad and reducing reliance on the U.S. market.

—Thomas Ashcroft, Global Policy Lead 

Disclaimer

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  • Pathways for pipeline: Breaking down the Alberta-Canada deal

  • Why Hope Bay project boosts Indigenous participation

  • Oil is spiking, but clean energy stocks are the ones getting a bump

Signals

Honda may have shelved its $15-billion EV plant in Ontario—but there’s a world where Canada’s assembly lines bustle with activity. In Steering Through Uncertainty, RBC Thought Leadership’s Managing Director Jordan Brennan outlines four possible futures for the embattled Canadian auto industry. One of the rosier forecasts sees the industry restore access to the U.S. market, unlock billions in pledged investment for EVs and conventional vehicles, and ramp up car assembly to two million by 2040 (from 1.3 million today). Leveraging critical mineral reserves bolsters the case for made-in-Canada cars. That’s the fast lane scenario. Other projections lead to diversification, deceleration, and even a dead end. Dive into all four scenarios here.

Hope Bay project promises Inuit-led development. Ottawa broke ground on the $2 billion redevelopment of the Hope Bay gold mine in Nunavut—projecting $2.6 billion in annual export growth and nearly 2,000 jobs. Ottawa also committed $25 million to the Kitikmeot Tugliq Energy Hope Bay Wind Project, an Inuit-owned wind and battery storage system that will power the mine. The project is a useful real-world test of the framework examined in Nations Building, our assessment of Indigenous loan guarantee programs in Canada’s new project wave. Hope Bay is promising on three counts:(1)The mine will be powered by wind and batteries rather than diesel. (2) Indigenous equity participation in mining remains structurally underrepresented. Hope Bay is gold, not a critical mineral, but it establishes a template for the harder projects that follow. (3) An Inuit-owned energy project powering a mine on Inuit lands offers opportunities communities in remote regions toparticipate in Canada’s new projects.

Clean energy index has outpaced oil since Middle East conflict began

Oil prices are spiking, but momentum rests with low-carbon stocks. Clean energy companies benefit from both elevated fossil fuel prices and accelerating renewable policy support on growing concerns over energy independence, Christopher Dendrinos, RBC Capital Market’s clean energy analyst, told us. This is particularly pronounced in oil-and-gas import-reliant Europe. While natural gas dominates the data centre space, renewables are also benefiting from rising demand to power AI. “The sector remains resilient going forward given the strong energy demand macro backdrop,” Dendrinos said.

Pipeline for Pathways, and a climate reset for Canada

Canada and Alberta’s landmark Implementation Agreement last week builds on the November 2025 Memorandum of Understanding that aimed to balance Canada’s economic and environmental goals.  However, the Implementation Agreement doesn’t stand alone. A day before, Carney had launched a National Electricity Strategy committing to double Canada’s grid capacity by 2050, with consultations now underway with provinces, territories, Indigenous Peoples, utilities, and unions. The strategy projects up to $15 billion in total energy savings and lower energy costs for 7 in 10 Canadian households. Natural gas retains a role for grid stability, nuclear and geothermal get explicit support, and the Clean Electricity Investment Tax Credit is being extended to intra-provincial transmission. A joint Alberta-Canada Electricity Working Group has been struck to advance the work.

Other stakeholders will now weigh in on the national electricity strategy, but the Alberta-MoU is much further ahead and poised for action. Energy Policy Lead Shaz Merwat breaks down its key highlights:

  • Carbon pricing in Alberta is locked in through 2040: Headline TIER (Technology Innovation and Emissions Reduction) prices: $95 today, $115 per tonne in 2030, $130 in 2035, $140 in 2040. The federal backstop will be updated to match — this is now effectively the national industrial carbon pricing framework.

  • A binding floor on TIER credits — for the first time: Starting at $60/t in 2030, rising to $110/t by 2040. Pre-MOU, TIER credits traded at roughly $20 against a $95 headline. The floor is the most consequential new mechanism in the deal.

  • 75 Mt of Carbon Contracts for Difference: Jointly issued 2030–2040, equally cost-shared, $600 million maximum liability per party ($1.2 billion aggregate). If either government walks back, that party assumes sole liability.

  • The West Coast pipeline has a defined timeline: Alberta submits to the Major Projects Office by July 1, with Ottawa designating it as a “project of national interest” under the Building Canada Act by October 1. The one million barrels per day pipeline to Asian markets could start construction by September 2027.

  • No Pathways, no pipeline. The two projects are explicitly mutually dependent. Pathways targets 16 Mtpa in total emissions reductions: 6 Mtpa by 2035, 5 Mtpa by 2040, 5 Mtpa by 2045. The trilateral MOU with the Oil Sands Alliance is still unsigned.

  • Sector-specific stringency rates. Large oil sands companies face 2% annual tightening of emissions intensity through to 2040 under revamped TIER, while Pathways operators see a tightening of just 1% from 2031 onwards.

  • Co-operation agreement on Impact Assessment. Two-year cap on impact assessments and federal deference to provincial processes where projects fall primarily within Alberta’s jurisdiction.

  • Indigenous economic participation centred across the framework. Co-ownership and equity partnership paths referenced repeatedly in today’s Implementation Agreement and the Co-operation Agreement on Impact Assessment.

  • The Co-operation agreement reflects intriguingly different working on UNDRIP. Canada maintains its commitment, while Alberta views UNDRIP as non-binding.

  • Climate targets remain intact. Both Alberta and Ottawa re-commit their target of net zero by 2050.

Taken together, the twin announcements represent a potential move towards creating the most comprehensive federal-provincial energy framework Canada has produced in a decade — covering carbon markets, carbon capture, storage and utilization, oil export infrastructure, and grid expansion simultaneously. The architecture is scoped, but execution will be key. The proxies to watch over the summer, in the lead-up to Ottawa’s Canada Investment Summit in September: a named pipeline proponent, the trilateral MOU with the Oil Sands Alliance, and the first material Indigenous consent agreement on the pipeline route.

Conversations

  • Long-term uncertainty in global oil markets may ultimately accelerate the shift toward EVs as Canada strengthens domestic electricity generation, Victor Fedeli, Ontario’s Minister of Economic Development, Job Creation and Trade, told John Stackhouse at the Toronto Region Board of Trade Auto Event.

  • Agriculture Policy Lead Lisa Ashton on why Canada and other countries are embarking on a fertilizer emissions accounting overhaul. Read the brief here.

  • It’s hard to trace where critical minerals come from, weakening their environmental bona fides. Around 30-40% of the companies have a traceability system. The International Energy Agency says strengthening incentives for collecting and sharing data could be one of five ways to address the challenge.

  • Alberta’s “failure” to build new transmission could cost consumers in the province over a  quarter of a billion dollars annually through higher electricity bills, Will Noel, of the Pembina Institute, estimates.

  • Leah Stokes, a professor of environmental politics at the University of California-Santa Barbara, says the current U.S. administration’s push away from clean sources is costing each American household US$1,508 this year alone.

Curated by Yadullah Hussain, Managing Editor, RBC Climate Action Institute.

Climate Crunch would not be possible without John Stackhouse, Jordan Brennan, John Intini, Farhad Panahov, Lisa Ashton, Shaz Merwat, Vivan Sorab, Caprice Biasoni, Lavanya Kaleeswaran and Joelle Schonberg .

Have a comment, commendation, or umm, criticism? Write to me here (yadullahhussain@rbc.com)

Climate Crunch Newsletter

Disclaimer

rbc_tl_disclaimer

As Canadian farmers produce more per acre to feed a growing global population, fertilizer use has jumped 108% over the past two decades. That has come with an environmental impact: synthetic fertilizers now account for a quarter of the agriculture sector’s emissions in Canada.1 But the current emissions accounting system is flawed as it primarily focuses on the quantity used. What’s missing in the equation is farmer stewardship of fertilizer use to optimize placement, source and timing that help lower emissions.

Crop emissions from fertilizers have risen by 111% since 2005. Source: Environment and Climate Change Canada and RBC Climate Action Institute

In an effort to optimize fertilizer use, the number of Canadian farmers with a nutrient stewardship plan has more than tripled over the past five years.2

Rising adoption rates are a sign of climate action. But it’s also an economic decision, especially as geopolitics continue to disrupt fertilizer supplies and raise prices. Nitrogen fertilizers have faced the brunt of supply chain shocks from geopolitical conflicts over the past five years as key producers include the Middle East and Russia. Nitrogen is also the primary driver of GHG emissions from fertilizer use. When nitrogen is not fully consumed by crops to grow, nitrogen can be emitted into the atmosphere as nitrous oxide (N2O) emissions, a GHG that is 273 times more potent than carbon dioxide over a 100-year time scale. When farmers adopt nutrient stewardship practices, GHG reductions can be substantial. An Ontario study, for example, found that when nitrogen fertilizer rates are optimized, and technology and practices that improve the source, timing and placement of fertilizer are adopted, N2O emissions can fall by up to 57%.

To capture in the accounting the full suite of practices, Canada, and other agriculture producing countries, including Australia, Denmark, New Zealand, Brazil and the U.S., are developing research and industry networks to collaboratively advance N2O measurement and monitoring systems.  

These research-driven networks have multiple lab-to-market applications, including those focused on:

  • Improving the understanding of how farmers’ practices impact N2O emissions, supporting investment decisions by farmers, industry and governments in nutrient stewardship

  • Building a suite of indicators that allow for more accurate tracking against GHG emission targets at the farm, regional and national scale

  • Refining the measuring, monitoring, reporting and verification (MMRV) protocols for carbon offsets and sustainability programs, improving the accounting of farmers’ climate actions to better connect them to market-based incentives and provide greater assurance to carbon credit buyers

Canada: A driving force in innovation of measurement and monitoring practices

Canada’s response to fertilizer-related N2O emissions has increasingly focused on improving measurement, coordination, and on-farm nitrogen management. A central initiative is the Canadian Nitrous Oxide Network (CanN2ONet), a collaborative research network involving universities, government agencies, farmer groups, and industry partners. The network was established shortly after Canada’s national target for reducing fertilizer-related N2O emissions by 30% by 2030 was announced in 2020—a policy with notable industry push back that has since faded in sector discourse.

CanN2ONet operates a series of long-term monitoring sites across Alberta, Saskatchewan, Manitoba, and Ontario. These sites use micrometeorological techniques to continuously measure N₂O emissions from agricultural fields under different climates, soil conditions, and management systems. The network also addresses a long-standing challenge in agricultural climate policy: accurately measuring emissions at field scale. Traditional national GHG inventories often rely on generalized assumptions that do not fully capture local soil and weather conditions.

Denmark: An ambitious vision for meeting GHG targets

Denmark’s SmartField initiative represents one of Europe’s most advanced efforts to reduce agricultural N2O through data-driven and field-scale innovation. Led by the Danish Technological Institute and funded by the Novo Nordisk Foundation, SmartField aims to cut N2O emissions from Danish agriculture by as much as 30% by 2030 without reducing yields or increasing other forms of nitrogen pollution. 

Canada and Denmark-based researchers are advising one another as both CanN2ONet and SmartField focus on building a national testing and validation platform for emission-reduction technologies and farming practices. The SmartField project combines stationary “supersites,” mobile measurement systems, advanced sensors, and modelling tools to monitor how fertilizers behave in real farming conditions. These facilities generate detailed datasets on nitrogen cycling, soil biology, crop performance, and greenhouse gas emissions. 

One of the initiative’s features is the integration of science, policy, and implementation. SmartField brings together universities, government agencies, agricultural organizations, and private-sector stakeholders to accelerate the adoption of low-emission farming practices.

New Zealand: Balancing rural economic growth and GHG trajectories

Agriculture accounts for roughly half of the country’s GHG emissions. Cattle manure from livestock and fertilization of grasslands for animal feed are the main culprits of N2O emissions. The agricultural sector is also the largest contributor to export revenue, accounting for 70% of merchandise exports, with agricultural production alone contributing 5% to the country’s GDP.

New Zealand’s approach to managing its large agriculture environmental and economic footprint has evolved over the past five years with an initially strong prioritization on GHG reductions aligned with legislated net-zero targets. Through industry engagement, the focus has shifted towards innovation and scaling practices and technologies that present win-wins in productivity and emissions reduction. A government-led, centralized approach to advancing N2O emissions accounting has been driven by the country’s Ag Emissions Centre and rolls into New Zealand’s broader ambitions to mitigate GHG emissions from agriculture.

Lisa Ashton is RBC Thought Leadership’s Agriculture Policy Lead

Disclaimer

rbc_tl_disclaimer

Also in this edition: Should farmland be used to produce food or fuel? And four potential routes for Canada’s embattled auto industry. 

A summit about managed competition

The summit between President Donald Trump and President Xi Jinping in Beijing produced no breakthrough agreements, but that may have been beside the point. After a year in which tariffs between the two countries exceeded 100% and trade flows sharply contracted, the immediate objective on both sides appears to have been stabilization versus resolution. 

The atmospherics mattered. Trump described the talks as producing “fantastic trade deals,” while Beijing emphasized “common understandings” and continuity. But beneath the optics, the summit revealed where the real negotiations and constraints now sit.  

A few themes stood out: 

The trade relationship is structurally smaller than it was 

  • U.S. imports of Chinese goods and the bilateral trade deficit are now at roughly 20-year lows. Washington’s efforts to reduce exposure to China through tariffs, supply chain diversification, and industrial policy have had a measurable effect. The relationship is no longer defined by integration.

  • There was no material progress on tariffs or the Section 301 trade investigations targeting China over state-subsidized production overcapacity in sectors like steel, and electric vehicles.

China’s priority is predictability 

  • The Chinese spent the years between Trump’s first and second terms doing their homework, preparing counteractive policies for more U.S. trade confrontation. Export controls on rare earths and critical minerals, industrial policy tools, and tighter supply chain leverage have proven key weapons in China’s arsenal.  

  • But the summit reinforced that Beijing’s near-term priority is a more predictable operating environment with Washington—one that reduces the risk of escalation and preserves access to key export markets, technology inputs, and capital flows.  

No major progress on chips and export controls 

  • Global semiconductor stocks slid with no major chip deals announced and continued stagnation over the sale of Nvidia’s H200 chips to China.  

  • This remains the clearest dividing line in the trading relationship. Washington still sees leading-edge chips and export controls as a way to mitigate China’s access to advanced semiconductors that could be used for military applications or AI innovations. Beijing, in turn, hasn’t formally approved shipments of the chips and has looked inward, urging Chinese firms to switch to domestic hardware.

Agricultural purchases are a U.S. political priority 

  • The clearest deliverables, as is often the case in trade negotiations with China, may ultimately come in agriculture. U.S. Trade Representative Jamieson Greer said Washington expects China to commit to “double-digit billions” in annual purchases of U.S. agricultural products over the next three years, including soybeans, poultry, and pork.  

  • The White House needs to be seen as supporting U.S. farmers, especially as the impacts of the Iran war on fertilizer prices and other agricultural inputs rise ahead of the mid-terms and as planting season gets underway.

Both sides appear to want guardrails 

  • Discussions around a possible “board of trade,” investment mechanisms, and even preliminary AI guardrails show neither Washington nor Beijing currently wants uncontrolled escalation.  

  • The strategic rivalry continues, but both sides appear increasingly focused on managing it rather than intensifying it in the near term. 

—Thomas Ashcroft, Global Issues Policy Lead 

Food or fuel? 

Skyrocketing oil and gas prices and supply constraints are pushing countries to boost biofuel production and use. The shift aims to curtail reliance on Middle East oil and gas supplies. But the surge in policy-driven biofuel demand coincides with the rising food affordability crisis reviving a recurring debate: should farmland be used to produce food or fuel?  

The biofuel boom:

  • The U.S.’s Environmental Protection Agency set record Renewable Volume Obligations (RVOs) for 2026–2027 with notable increases for biomass-based diesel, produced primarily from soybean and canola oil in North America. In addition, the U.S. House passed legislation this week to allow nationwide year‑round sales of gasoline containing 15% ​ethanol (labelled as E15), which is largely produced from corn in the U.S. 

  • The European Commission proposed the AccelerateEU strategy in April, which includes measures to boost EU sustainable biofuel production and use. This proposal is a rapid response to the bloc spending an additional €24 billion on fossil fuel imports within the first 50 days of the Iran conflict.  

  • Indonesia revived its plans to introduce a higher biofuel blend in 2026 following rising fossil fuel import costs. The blending rate mandate ​for biodiesel made from palm oil is planned to move to 50% from 40% this year.   

  • Brazil is actively accelerating its biofuel blending mandates to enhance energy sovereignty. President Luiz Inácio Lula da Silva announced in April that the ethanol blend mandate will be raised to 32% (E32) in gasoline this spring. For biodiesel, testing is underway to understand the viability for moving the blending rate from 15% to 20%.  

  • India reached its E20 ethanol blending goal in April. Disruptions to the country’s oil and gas prices and supply are prompting discussions on ramping up to E85 or E100 as production capacity expands.    

  • Vietnam expedited its national mandate for 10% ethanol blends in gasoline to begin in April due to energy shocks in price and supply. Ethanol is produced mostly from cassava, sugarcane, and increasingly corn in the Southeast Asian nation.   

  • …and Canada? In response to the previous shock to Canada’s biofuel supply chains from U.S. trade tensions, the federal government announced a $370 million Biofuel Production Incentive and committed to amending the Clean Fuel Regulation to prioritize domestic low-carbon fuel production. These measures, while not in response to Iran war, are intended to increase the resilience of the domestic biofuel sector.  

Bottomline: The global biofuel market is poised to enter another expansion cycle as countries raise blending mandates to meet energy security and transition to lower greenhouse gas emitting energy sources. However, early signs of rising corn, sugarcane, and vegetable prices may further pressure food prices this year.  

—Lisa Ashton, Agriculture Policy Lead 

Road Test 

About 200 auto sector executives packed into a hotel ballroom this week for the Toronto Region Board of Trade’s Ontario Auto Forum. Magna CEO Swamy Kotagiri laid out three distinct options for dealing with the industry’s headwinds: protect jobs, chase affordability, or build resilience through anchoring the industry in capabilities that can’t easily be replicated. The latter, he said, should be the priority.  

RBC Thought Leadership’s Managing Director Jordan Brennan also took to the stage, presenting findings from his latest report Steering Through Uncertainty, which charts four distinct paths for the embattled auto industry.  

Canada's auto sector lost productive capacity during expansion phases

Read the full report, including the five strategic considerations that cut across all four scenarios, here.  

The week that was  

USTR pushes for “Fortress North America” steel protections under USMCA 

  • Deputy U.S. Trade Representative Jeffrey Goettman said an updated USMCA should include “unified tariff borders” for sectors like steel, aluminum, and autos to prevent products made with non-North American inputs from entering through Canada or Mexico. U.S. steel executives backed tighter “melt-and-pour” origin rules. 

EU sanctions on Chinese chip supplier raise fears of automotive disruption 

  • Industry executives warned EU sanctions of Chinese chipmaker Yangzhou Yangjie Electronic Technology, for allegedly supplying military technology to Russia, could trigger renewed chip shortages across the auto sector. Some firms are already seeking exemptions as manufacturers remain vulnerable following last year’s rare earth and semiconductor disruptions.   

EDC expands focus on diversification, defence, and strategic sectors 

  • Export Development Canada announced it facilitated $135 billion in trade-related activity in 2025, supported nearly 24,000 businesses, launched new programs, while expanding its European and Indo-Pacific presence. 

Bank of Canada research highlights declining maritime connectivity 

  • Canadian ports became less central to global shipping networks between 2016 and 2023, with declining direct connectivity and lower shipping capacity relative to major Asian hubs. The risk, writes the BoC, is “greater exposure to supply chain disruptions that could increase the cost of doing business.”  

Disclaimer

rbc_tl_disclaimer

This report is part of RBC Thought Leadership’s Growth Project, our ongoing initiative to generate new ideas for the Canadian economy. Canada’s auto industry, which employs 125,000 people and accounts for 10% of Canadian exports, is central to the dynamism of the country’s wider advanced manufacturing sector and economic relations with the U.S. Over the past 10 months, to help chart a path forward for the industry at this critical moment, we spoke with automakers, parts suppliers and other industry experts to inform the research, which sets out four different futures for the industry.

Key findings

  • Canada’s auto industry is at an inflection point within the North American industry. Washington’s focus on reviving domestic production threatens to rip up decades-old Montreal-to-Detroit supply chains. In our most pessimistic scenario, auto assembly plants in Canada could shutter by 2040.

  • Alternatively, Canada’s unit volume could grow to two million by 2040. Continued tariff-free access to the U.S. market could ramp up manufacturing in our most optimistic scenario.

  • The industry is also grappling with two global transitions unfolding at different speeds. Electric vehicle adoption is proceeding more slowly than forecast, stranding billions in investments. Meanwhile, AI, autonomy, and software revolutions are accelerating faster than original equipment manufacturers (OEMs) can embed in assembly lines, creating a mismatch between capital commitments and market-ready technology.

  • The auto industry’s future will be increasingly defined by the value generated per vehicle. The U.S. captures roughly twice the amount of GDP per assembled vehicle than Canada–and the gap is widening. Automation and robotics could lead to a world where fewer workers build more vehicles.

  • Market access is a powerful, underutilized asset. Only Americans buy more cars, per capita, than Canadians. With 90% of the Canadian market supplied by imports, Canada can link market access to investment commitments across manufacturing, R&D, software, testing, and certification.

Canada’s auto industry is at the centre of a storm. This isn’t the first time the industry has been threatened by precipitous conditions, but the present deluge poses a serious—perhaps existential—threat. The greatest source of upheaval comes in the form of President Donald Trump’s use of tariffs to repatriate manufacturing capacity to the American heartland. The year following Trump’s re-election was dotted with a painful series of product line cancellations, plant closures, and the most job losses in Canada’s auto industry since the Great Recession.

Adding to the tariff turmoil are four structural shifts in the industry: 

Electrification

Electric vehicle adoption initially grew quickly thanks to consumer incentives, emissions rules, and industrial subsidies. But recent incentive rollbacks have made EVs less attractive for consumers, hurting sales, and prompting automakers to pause or cancel EV programs. In the short term, EV adoption may remain uneven due to affordability and charging infrastructure concerns. Long-term, frequent oil market shocks could accelerate adoption as domestically generated electricity leaves countries less exposed to geopolitical instability. 

Software

As new models come loaded with connectivity, autonomy, AI, and electric propulsion, cars are increasingly becoming rolling technology platforms. More of a vehicle’s performance and value depends on batteries, chips, sensors, and software. As a result, the value pool expands beyond final assembly. That’s leading to a retooling of the industry as demand for new expertise and components disrupt the established skills and supply chains.

Market

In 2025, some 92 million vehicles were sold globally, down from 95 million in 2017. Sales in the U.S. peaked in 2016, with Canada following a year later.1 The combination of an aging population and rapid urbanization is triggering structural shifts in global demand. That’s even before an impending autonomous vehicle revolution that could reimagine car ownership.

China

Chinese automakers surpassed their Japan rivals as the world’s largest car seller in 2025, having grown its market share from less than 1% to ~35% over the past 25 years. The country’s rising dominance in the global auto market, often with superior technology and lower prices, poses the most significant long-term threat to North America’s auto industry.  

Ultimately, Canada must decide how it positions itself in a transformed global auto system. With US$735 million in annual R&D spending, auto manufacturing is a high-tech, high value industry with substantial spillover benefits across sectors.2 Canada has several competitive advantages, too—skilled labour, clean and affordable power, and award-winning assembly facilities—that position it well to capture value across the supply chain. Success depends on maintaining the competitiveness of the ecosystem of suppliers, services, and technology providers.

With punitive Section 232 tariffs on steel, aluminum and copper still in force and the Canada-U.S.-Mexico (CUSMA) renegotiations imminent, Canadian policymakers and industry need to weigh the tradeoffs between competing strategic orientations. With that in mind, we look out to 2040 and explore four potential paths for Canada’s auto future.

China's rising dominance in the global auto market poses the most significant long-term threat to North America’s auto industry. Toyota: Woodstock Assembly - RAV4 Hybrid General Motors: CAMI Assembly (Ingersoll) - Status: Idled Chevy BrightDrop EV Vans cancelled Toyota: Cambridge Plants (North and South); south - Lexus RX 350 (ICE + Hybrid) Lexus RX 500 Hyrbrid; North - Lexus NX (ICE + Hybrid) RAV4 Hybrid General Motors: St. Catharines Propulsion Plant - Next-generation V8 engine Stellantis: Windsor Assembly - Chrysler Pacifica (ICE + Hybrid), Chrysler Grand Caravan + Voyager, Dodge Charger lineup Honda: Alliston Plant Plant 1: Civic (ICE + Hybrid); Plant 2: CR-V (ICE + Hybrid); Plant 3: Four-cylinder engine plant General Motors: Oshawa Assembly - Chevrolet Silverado - (Light & Heavy-Duty models Steelantis: Etobicoke Casting Plant - Parts and components for vehicles Ford: Oakville Assembly - Retooling for Ford Super Duty, Plans to build EV, SUVs abandoned Stellantis: Brampton Assembly - Status: Idled; Jeep Compass program moved to Illinoi

Canada’s OEM Industry Profile

MeasureEstimate Quantities
Employment125,000 workers: assembly (35,000), parts (71,000), body and trailer (18,000)
Units Produced1.3M (2024)
Value Added (GDP)$17B (2024)
Shipments$102B ($64B vehicles + $38B parts)
OEMsToyota, Honda, Stellantis, GM, Ford
# Parts Suppliers700
Gross Capital Stock$65B (replacement cost)
Robot Density1,475 robots /10,000 employees

The road ahead

1. Fast Lane—Higher volume, more value and closer integration

Key assumptions

  • Canada secures duty-free access to the U.S. market

  • Reforms are made to the rules of origin, domestic content requirements, and most favoured nation tariff rates

  • Tariffs limit Chinese access to the North American market

  • The total cost of EV ownership continues to decline

  • Pledged EV investments proceed on a longer timeline

  • Advancements in AI and autonomy boost value per vehicle

  • Canada expands its low-carbon grid and strengthens its critical minerals refining capabilities.

Life in the ‘Fast Lane’

This is a world where North American integration holds, electrification advances, and value deepens inside existing ecosystems. The five OEMs (General Motors, Ford, Stellantis NV, Honda and Toyota) in Canada maintain their manufacturing presence, but plants that were furloughed or operating at low utilization win new product mandates and increase assembly volumes. The Windsor-Montreal corridor combines assembly plants, Tier-1 suppliers, tooling firms, automation, AI and software firms, and in-market engineering talent that few jurisdictions can replicate. The 700-plus suppliers feature world-class Canadian companies, including Magna, Linamar, Multimatic, and Martinrea.

The Fast Lane is narrow but navigable. The foundation is restored duty-free trade with the U.S. Reforms to the rules of origin, domestic content requirements, and most-favoured-nation tariff rates further incentivize OEMs to allocate product to Canadian assembly plants.3 Simultaneously, a protective tariff wall rises around North America to keep Chinese EVs out—creating the competitive breathing room that North American OEMs need to invest with confidence.

Restored access, coupled with improvement in EV affordability unlocks tens of billions in pledged investment, most of which was deferred during the tariff war. Units assembled climb from 1.3 million in 2025 to 2 million by 2040—as many vehicles as Canadians purchase annually. Plus, Canada’s capabilities in light-weight materials, mobile communications, sensors and controls, software, data analytics, AI, cyber security and battery research are leveraged to win new mandates higher up the value chain.4

The Windsor-Montreal corridor functions as a Silicon Valley of the North—with deep engineering talent in autonomy, AI, lightweight materials and embedded systems. This is important since, as McKinsey projects, the software, sensors, control units, and electronics segment of the global industry will grow from US$335 billion to US$520 billion between 2025 and 2035.

The electrification path is longer than originally forecast, but it arrives. After $70 billion in EV write-downs in 2026, battery costs continue to fall while range and charging infrastructure improve. By 2030, market-driven consumer adoption begins. PHEV and BEV penetration rises from 10% in 2025 to 25% by 2030 and more than 60% by 2040. British Columbia and Quebec lead adoption—EV registrations hold around 20% in hydro-powered provinces even after federal rebates expire—before expanding into other markets as economics improve.

Canada trails U.S. on GDP-per-vehicle assembled Motor vehicles and parts manufacturing GDP per assembled vehicle, USD/vehicle* *Canadian industry: Motor vehicles and parts manufacturing; U.S. indsutry: Motor vehicles, bodies and trailers, and parts GDP is based on chained 2017 dollars; CAD converted to USD --Insights from RBC thought leadership

Canada’s critical minerals strategy bolsters Canada’s case. The mining, processing, and secondary manufacture of copper, cobalt, lithium, and magnesium—increasingly concentrated along a Northern Ontario-Quebec supply chain—strengthens battery integrity and reduces OEM exposure to Chinese inputs. Clean, affordable power bolsters the investment case. Ontario and Quebec’s low-emissions grids—Quebec’s electricity prices already sit below auto hubs like Michigan and Ohio—matter more in the smart-car era because electrification raises the power load. Computing, testing, and validation add to that demand. A cleaner, cheaper grid widens the margin and reduces carbon exposure on vehicle exports to increasingly emissions-conscious markets.

The Waterloo-Ottawa-Montreal corridor functions as a Silicon Valley of the North—with deep engineering talent in autonomy, AI, lightweight materials and embedded systems. This is important since, as McKinsey projects, the software, sensors, control units, and electronics segment of the global industry will grow from US$335 billion to US$520 billion between 2025 and 2035.

By 2040, Canada has an ecosystem where value is created across the stack—from the mine to the battery cell to the software-defined vehicle—anchored by assembly.

In this world, it’s clear the auto industry has become a technology platform, not just a manufacturing industry. The winning auto jurisdictions are not only judged on the number of units they assemble, but by the amount of value captured within each vehicle. Industrial ecosystems, not individual firms, bestow sustained competitive advantage.

Strategic tensions

  • Canada strengthens its position inside the North America auto system but becomes more dependent (and more exposed) to U.S. policy volatility.

  • If OEMs vertically integrate, pulling more EV content, software, and system integration in-house, Canada’s move into EVs and smart cars could be threatened.

  • Restricting Chinese imports and foreign competition raises domestic vehicle prices and delays EV adoption, with implications for transportation emissions.

Canada’s EV assembly plants face extended retooling delays Publicly reported project value (CAD $B)

What needs to happen

  • In exchange for duty-free access, Ottawa and the provinces could enter a critical minerals auto pact with the U.S., co-creating incentives (e.g., off-take agreements, stockpiling, price floors) that commercially de-risk private investment flows into the mining and processing of nickel, copper, lithium, graphite, aluminum and REE’s, bolstering North America’s strategic industrial supply chain.    

  • Canada, the U.S. and Mexico could take a coordinated approach to tariffing EVs, steel, aluminum, and auto parts outside the bloc to hedge against Chinese dumping. All three jurisdictions could align policy on the rules of origin and Most Favoured Nation tariffs to incentivize investment within the bloc.

  • To ensure an abundance of competitively priced, non-emitting power, Ontario could embark on an aggressive expansion of hydro, nuclear, and wind power, expanding and modernizing the grid. Federal and provincial governments could massively expand charging infrastructure to bolster EV adoption. 

  • To win new mandates in R&D and software, Ontario and Quebec could consider co-investing with assemblers and parts manufacturers in shared research, testing and validation facilities. Eligibility thresholds for the Scientific Research and Experimental Development (SR&ED) program could be lowered to attract investment mandates in electronics, connectivity, autonomy, cyber security, and lightweight materials.

  • Ottawa could consider reforming its immigration strategy to attract and retain professors and graduate students in computer and materials science, mechanical and chemical engineering, and AI and machine learning, deepening the ecosystem of competitively priced tech talent.

The transition to EVs is underway worldwide

2. Slow Lane—Assembly survives, EV adoption slows,value grows elsewhere

Key assumptions

  • CUSMA survives but is diluted

  • EV adoption continues but is slower than expected

  • Chinese OEMs expand their presence in Canada’s consumer market

  • The U.S. continues to exclude Chinese vehicles 

  • Critical minerals and clean power lead to select mandate renewals

  • Canada retains strategic value as a site for spillover capacity and assembly diversification

Drifting into the ‘Slow Lane’

Canada maintains its presence within the North American system, but its position and strategic relevance diminish. The trigger for the Slow Lane scenario is a sub-optimal outcome in trade talks. CUSMA survives the 2026 renegotiation but emerges narrower and less predictable. Canada secures a 10% headline tariff—a 5% effective rate on assembled vehicles—which compresses assembly margins close to zero. It’s not fatal to plant economics, but it changes the calculus for OEM investment allocation committees sitting in Detroit, Tokyo, and Stuttgart. And with the perennial threat of higher tariffs lurking in the background, investing in Canadian operations becomes prohibitively risky.

The Slow Lane is not a crisis—it sees Canada retain current production—but the higher value layers of the auto ecosystem grow elsewhere. Plants continue to run, retooling investments occur periodically, and assembly employment is largely maintained. Canada steadily cedes the investments, mandates, and capabilities that determine long-term industrial relevance, however. By 2040, Canada assembles 1.2 million vehicles, but Canada captures a smaller share of the value per vehicle over time.

Ironically, Canada’s auto industry was birthed behind protective tariffs on American-made vehicles.5 In the early twentieth century, a 35% National Policy tariff on imported cars was implemented to protect Canadian production from American competition.6 Rather than sustain Canadian automakers, the tariffs prompted American giants like Ford and GM to hop over the tariff wall and establish branch plants in Canada.7 This result: Canada became the world’s second-largest vehicle producer by 1930. By the turn of the century, Canada was assembling three million vehicles a year and ranked first when benchmarked against population. But the country lost that edge, assembling just 1.3 million vehicles by 2024.

The EV transition compounds the problem. Consumer adoption further slows after federal rebates expire—EV registrations fall below 10% nationally in 2025 and do not recover without sustained policy support. ICE and hybrid platforms extend their commercial life, which sounds like a reprieve for assembly but is a strategic trap: the investments Canada made in EV battery supply chains generate returns below their business case assumptions. EV supply remains stranded behind anemic consumer adoption, hindering Canada’s investability.

Meanwhile, the fast-growing layers of the industry migrate elsewhere. R&D mandates shrink as engineering and software functions consolidate around U.S. and Japanese assembly hubs. Contract revenues from OEM R&D programs thin out for the Windsor-Montreal corridor. STEM graduates take their skills to better-paying markets. Some of Canada’s homegrown giants remain globally competitive—but their growth happens in the U.S. Sun Belt, Mexico, and Germany, not in Ontario.

Top Auto Assembly Jurisdictions: 2024 vs 1999

2024 = 92 million units assembled globally

RankCountryUnits Assembled
(Million)		Share of
Global Total		Units Assembled
per 1,000 Residents		Per Capita
Rank
1China31.334%229
2U.S.10.611%318
3Japan8.29%663
4India6.07%415
5Mexico4.25%327
13Canada1.31.5%336

1999 = 56 million units assembled globally

RankCountryUnits Assembled
(Million)		Share of
Global Total		Units Assembled
per 1,000 Residents		Per Capita
Rank
1U.S.1323%477
2Japan9.918%782
3Germany5.710%694
4France3.26%526
5Canada3.15.4%1011

Sources: OICA; UN World Development Indicators

Canada’s aging consumer market reinforces the trajectory. Vehicle sales peaked in 2018 and have not scaled to those heights even as the population had risen by four million by 2025. The slowdown signals structural shifts in ownership patterns among largely urban, younger cohorts who increasingly rely on transit, ride-hailing, and car-sharing. A market that fails to grow in volume gives OEMs less reason to invest in Canadian production capacity.

Governments respond by competing for individual mandates—matching U.S. incentives on a project-by-project basis. The approach is costly and reactive. Each subsidy dollar spent defending existing assembly is a dollar not spent building capabilities—testing infrastructure, advanced manufacturing clusters, engineering talent pipelines—that would make Canada competitive for higher-value mandates. The Parliamentary Budget Office documented that public support for the auto sector between 2020 and 2024 exceeded private capital committed.8 In the Slow Lane, that ratio worsens.

Canadian auto sector retains less value than its North American peers

By 2040, Canada still ships vehicles, but a growing share of the value inside those vehicles—the software stack, the battery chemistry, the electronic control systems—originates outside Canada’s borders. The ecosystem gradually thins out with each lost investment mandate.

It becomes clear that industrial erosion can occur gradually—not through collapse in unit production, but through declining value per vehicle. Value can migrate outside Canada’s borders while assembly remains within it. Industrial decline does not require plant closure; it occurs through missed investment cycles and diminished mandates.

Strategic tensions

  • Canada preserves employment and assembly operations but fails to capture the high-growth, high-value segments of the industry.

  • Governments increase subsidies to retain lower-value layers of the industry, raising fiscal costs without improving ecosystem competitiveness.

What needs to happen

  • Canada’s current industrial policy is optimized for this scenario. Investment incentives are concentrated in construction investment, not operational subsidy, and the SR&ED program excludes activities that would have qualified otherwise.

  • Public policy measures that lower power costs, improve tax competitiveness, reduce regulatory friction, or strengthen critical minerals supply chains are made sparingly, owing to fiscal constraints and industrial uncertainty.

3. On-Ramp—Canada turns to Eurasia for investment

Key assumptions

  • Canadian exports to the U.S. are tariffed at 15%—7.5% effective  

  • Canada dangles market access as a carrot to attract foreign investment

  • Modest tariffs are maintained on Chinese imports

  • The EV transition proceeds. By 2040, most vehicles sold in Canada are BEVs 

  • Canadian auto policy pivots to attract non-U.S. investment

Taking the ‘On-Ramp’

As North American integration slowly fragments under persistent tariffs—Canadian exports to the U.S. face an effective 7.5% rate—Ottawa recasts trade and industrial policy around a strategic remissions framework. OEMs that invest in Canadian manufacturing, R&D, engineering, or certification receive preferential market access. OEMs that do not are tariffed or exit. The definition of ‘investment’ is deliberately widened, encompassing not just assembly and parts but software development, testing facilities, systems integration hubs, and regulatory certification capacity.

This attracts a different mix of firms than the traditional North American model. Asian and European OEMs—Hyundai, BMW, BYD, and a cohort of emerging EV and software-defined vehicle producers—view Canada as a gateway market and a hedge against concentration risk in China and the U.S. Some build or expand assembly operations in partnership or independently; others focus on engineering, testing, and specialized production tied to global supply chains. The Windsor-Montreal tech corridor becomes a hub for compliance infrastructure and software validation, positioning Canada as a trusted jurisdiction capable of certifying vehicles for multiple regulatory markets simultaneously.

Only Americans buy more than Canadians, per capita

The purchasing power of the Canadian consumer also comes into play. Only Americans buy more cars than Canadians, per capita. Canadians spend nearly $110 billion annually on cars. And 90% of those vehicles are built abroad. That gives Canada the ability to leverage market access to secure investments. Canadian consumer preferences shape which OEMs make the investment. The Ford F-Series has been Canada’s best-selling vehicle for 15 consecutive years; the Toyota RAV4 and Honda CR-V dominate the SUV market. This truck-and-SUV profile aligns Canada’s consumer market with higher-margin, higher-content vehicles—the segment where EV and software integration creates the most value. An OEM that wins the Canadian consumer for its next-generation PHEV pickup or smart crossover earns returns that justify the cost of establishing a Canadian R&D or certification presence.

Canada is a prized market for global carmakers

The EV transition proceeds in parallel. By 2040, BEVs represent the majority of vehicles sold in Canada, with PHEVs serving as the bridge for the truck and SUV segments where range anxiety remains most acute. OEMs without an assembly footprint in Canada pivot toward R&D investment, software integration, and certification—embedding themselves in Canadian value chains without owning a stamping press. Employment concentrates in high-skill STEM occupations: systems engineers, software architects, regulatory specialists, and battery chemists working along the Windsor-Montreal corridor.

Canada’s critical minerals endowment and clean power grid serve a dual function. They attract European or Asian OEMs seeking to diversify supply chains away from Chinese inputs, and they give Canada credibility as a partner in global battery supply chains. A vehicle manufacturer that sources lithium and copper through Canadian mining and processing operations builds a supply chain argument for regulators in Europe and the U.S.—and a reason to deepen its Canadian footprint.

Canadians have a penchant for heavier, higher value cars

By 2040, Canada assembles a million vehicles—the majority sold into its own market. Exports to the U.S. continue to decline, constrained by tariffs that impair competitiveness on lower-margin models. But the measure of Canada’s auto economy is not just units assembled. It is also the value embedded in modules, systems, and services that Canada increasingly exports: software stacks validated on testing tracks in Oshawa and demonstration facilities in Markham, battery modules assembled from Canadian minerals, and engineering services rendered for global vehicle programs. Canada is less central to North American production decisions and more embedded in global value chains—becoming a technology integrator. That’s a more defensible position than the branch-plant model it replaces.

Clean power offers Canadian auto sector a competitive advantage

Strategic tensions

  • Trade diversification reduces dependence on the U.S., but risks provoking retaliation or reduced cooperation with Canada’s largest economic and security partner.

  • Greater openness to Chinese OEMs raises national security, data governance, and supply chain integrity concerns.

What needs to happen

  • Canada’s remissions framework could trade market access for investment. OEMs with Canadian operations could import a certain quantity of vehicles duty-free if they maintain Canadian-based production and investment commitments.

  • To incentivize OEMs to re-tool their plants for high-mix, low-volume assembly, Ontario and Ottawa could co-create a capital cost offset fund (carefully designed and stringently monitored) and allow full immediate expensing of investments in automation, robotics, and digital manufacturing systems.

  • Ottawa could help boost demand for Canadian-made vehicles through public sector fleet procurement and restriction of EV incentives to vehicles made in Canada.

4. Off-Ramp-Assembly anchors leave, industrial policy becomes reactive

Key assumptions

  • The auto provisions of CUSMA are scrapped or severely weakened

  • Canada opens its market entirely to Chinese imports in exchange for enhanced market access for Canadian agri-food and energy exports to China

  • By 2040, most vehicles sold in Canada are BEVs

  • Canadian industrial policy is transformed from proactive to reactive

Taking the ‘Off-Ramp’

The Off-Ramp begins with a pattern that has governed Canada’s auto industry for the past quarter century: plants continue to operate, but with diminished mandates. In this case, the mandates expire, as investment decisions tilt toward jurisdictions with lower tariff exposure and stronger policy certainty.

Historically, Canada did not lose assembly capacity during the contraction phase of the cycle; it lost it during the recovery, when the production footprint failed to return, having initially migrated to right-to-work states like Alabama and Tennessee and eventually to Mexico, which grew from 1.9 million units assembled in 2000 to 4.2 million by 2025. The Off Ramp is that dynamic, accelerated and made permanent through the collapse of CUSMA’s auto provisions.

Canada faces an effective tariff of 12.5%, which makes export-oriented assembly economically unviable. Companies continue to assemble vehicles, losing money, but try to hold onto market share for the valuable out-of-warranty parts and servicing of vehicles.

Canada follows Australia in allowing its auto industry to exit.9 By 2040, all auto assembly plants in Canada have shuttered. Low-cost BEVs from Chinese players BYD, Geely, and Leapmotor—already competitive on price and increasingly competitive on quality—fill the demand gap left by departing North American OEMs. By 2040, most vehicles sold in Canada are Chinese-built BEVs. For the Canadian consumer, vehicle prices fall and emissions decline.

Canada's auto sector lost productive capacity during expansion phases

For the Canadian auto ecosystem, the consequences are structural and severe. Plants anchor a supplier network that generates more economic activity than the facilities themselves. Tier 1 suppliers maintain their global competitiveness and continue exporting to U.S. and international customers. But the loss of domestic assembly volume erodes the density that makes Canadian Tier 2 and Tier 3 suppliers viable. Tool-and-die shops—of which Canada has few global peers—lose their customer base. Specialized component manufacturers close or consolidate. Some follow production south; others simply shutter operations. The fastest-growing segments of the auto industry—software, batteries and electronic control systems—were never deeply rooted and fade away without assembly to anchor them. The corridor’s density advantage, built over a century of branch-plant production, dissipates within a decade of losing its anchor customers.

Auto sector job losses and wage stagnation persist in Canada

The knock-on effects run deep. Steel mills in Hamilton and Sault Ste. Marie that have long supplied automotive-grade sheet metal lose one of their primary customers, as do chemical and plastics producers in Sarnia. The advanced manufacturing ecosystem spanning auto, aerospace, and defence loses the cross-pollination of skills, tooling capability, and engineering talent that assembly concentration made possible. Windsor, Oshawa, and Ingersoll face sustained economic decline: unemployment spikes, real estate prices fall, and tax bases erode, generating long-term pressure on social programs and government transfers.

Canada’s industrial policy pivots from active support to triage. Two separate tracks are pursued:

  • Incentives to retool auto parts makers for defence manufacturing. Parts suppliers with the capital and capability to succeed in defence manufacturing are supported through retooling funds, accelerated depreciation, and public subsidy of workforce retraining.

  • Transition the remaining workforce. Fiscal supports for OEMs are repurposed to facilitate displaced workers through retirement bridging, retraining programs, relocation.

The Off Ramp makes clear what other scenarios obscure: auto manufacturing is not just an industry. It is an ecosystem anchored by assembly. Remove the anchor and lose the density required for industrial dynamism across advanced manufacturing.

Strategic tensions

  • The loss of auto ecosystem density accelerates broader industrial decline, weakening adjacent industries.

  • By ending production subsidies, Canada preserves fiscal resources in the short run but loses industrial capacity and capability in the long run. Ironically, this threatens long-term fiscal capacity.

  • The end of domestic auto assembly removes the rationale for protectionism. Canada opens its market entirely to Chinese EVs, which create more affordable options for consumers and reduces Canada’s transportation emissions.

  • Policy focuses on managing industrial transition, redeploying capital and labour toward adjacent sectors such as aerospace, robotics, defence, and advanced manufacturing, and preparing the workforce for a painful transition.

What needs to happen

  • Ottawa could co-create an industrial strategy with key provinces to support the transition of parts makers to defence equipment manufacturing, including financing supports, supply chain integration, workforce retraining, and re-tooling of facilities.

  • To support affected workers and communities, Ottawa could strengthen employment insurance (across eligibility, benefit level, and duration) and, with Ontario, co-fund a targeted program to support auto workforce retraining, retirement bridging, and relocation. 

  • In anticipation of Chinese entry into the Canadian market, Ottawa could enact a connected vehicle security and data governance framework that covers software, hardware, and data localization.

Key considerations

Canada’s auto sector of the future will most likely be some combination of what’s outlined above. What’s critical is that public policy remains flexible and adaptive to any possible future. Cutting across all the scenarios are five strategic considerations that Canada must confront:

  • Defend the North American manufacturing corridor. Canada’s industry was built on preferential access to the U.S. market. Roughly 90%-95% of auto exports flow south. This concentration creates both strength and vulnerability.

  • Compete for value inside the vehicle. Vehicles are becoming technology platforms, with a growing share of value embedded in software, electronics, batteries, and systems integration. Historically, Canadian policy focused only on assembly volumes and employment. This policy focus needs to expand as automation advances and more value migrates toward engineering, software, electronics, and digital services.

  • Use market access as leverage. By global standards, Canada’s domestic auto market is large and lucrative. Production capacity is presently geared towards export economics. Market access can function as a policy tool to secure investment commitments across a range of functions and assets, including manufacturing, R&D, testing, and regulatory certification.

  • Deploy public capital strategically. Governments in North America, Europe, and Asia have committed tens of billions to auto manufacturing, battery supply chains, and advanced automotive technologies. Canada faces a difficult balance. Large-scale subsidies can attract investment, but they also expose public finances to significant risk. The Parliamentary Budget Office estimates that between 2020 and 2024, the $46 billion in pledged investment across the EV supply chain was matched with nearly $53 billion in government support. Taxpayers need to see value for money.

  • Preserve the industrial ecosystem: Assembly plants anchor a network of suppliers, engineers, tool-and-die firms, logistics providers, and service businesses, but they also create demand for other heavy industries such as steel, aluminum, chemicals and plastics. If the assembly anchors weaken or close, the wider ecosystem that supports advanced manufacturing could lose the density required for dynamism and efficiency.

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Contributors

Jordan Brennan, Managing Director

John Intini, Senior Director, Editorial

Yadullah Hussain, Managing Editor

Lavanya Kaleeswaran, Director, Digital Marketing and Production

Caprice Biasoni, Design Lead

The author would like to thank the experts who were consulted on this report, some of whom are listed below.

Tim Hollander, Toyota Canada

Brian Kingston, Canadian Vehicle Manufacturers Association

Scott MacKenzie, Toyota Canada

David Paterson, Government of Ontario

Brendan Sweeney, Pacific Manufacturing Association of Canada

Don Walker (Retired), Magna

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