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RBC Thought Leadership Climate Action Page 11

Nation Building: Unlocking Indigenous Potential To Power Canada’s Net Zero Economy

Category: Climate Action

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In a guest essay, Allan Clarke explores ways Canada can tap First Nations’ potential to advance Canada’s green growth

Key Points

  • Federal government’s 2023 budget commitments will empower Indigenous Peoples to play a vital role in helping Canada achieve its Net Zero goals.
  • Government’s financial support for Indigenous investment in major projects is critical in achieving economic reconciliation.
  • Made-for-Canada tools could include loan guarantee programs, capital-raising vehicles, and credit risk management to hone Indigenous potential and embed their capital and skillsets in green economic and community development projects.
  • Long-term and sustainable access to a predictable capital stream can only be achieved through structural changes in fiscal and taxation frameworks.
  • Indigenous Groups can lead in advancing Canada’s Critical Minerals Strategy—which is expected to play a pivotal role in fuelling the domestic and global low-carbon economy.

Indigenous Groups Emerge As A Net Zero Pillar In Budget 2023

In Budget 2023, the Government of Canada recognized “the world’s major economies are moving at an unprecedented pace to fight climate change, retool their economies, and build the net-zero industries of tomorrow.” To keep up, Budget 2023 proposed several initiatives that were described as necessary “to build a thriving, sustainable made-in-Canada clean economy.” Some notable budget highlights:
  • Significant investments to accelerate the supply and transmission of clean electricity
  • A refundable tax credit to support and accelerate clean electricity investment in Canada
  • Prioritizing investments through the Canada Infrastructure Bank to support the building of major clean electricity and clean growth infrastructure projects
  • Recapitalizing funding for the Smart Renewables and Electrification Pathways Program to support regional priorities and Indigenous-led projects.
At the same time, Ottawa recognized two fundamental challenges to the success of this effort. First, large-scale, long-term investments are required to support the realignment of global supply chains and build a Net Zero future. And second, the recent passage of United States’ Inflation Reduction Act (IRA) poses a major challenge to Canada’s ability to compete in the industries that will drive the green economy. To accelerate the completion of major projects required to drive the clean economy, the government intends to prioritize expediting major project reviews while maintaining strong regulatory standards. The government also stated its commitment to further improving the quality and consistency of benefits that Indigenous communities derive from major projects in their territories, by advancing opportunities for Indigenous communities to participate as partners in major projects.
  • Budget 2023 identified $8.7 million to support engagement with Indigenous partners, including Indigenous rights-holders, towards the development of a National Benefits-Sharing Framework.
  • The Canada Infrastructure Bank is tasked with providing loans to Indigenous communities to support them in purchasing equity stakes in major projects in which the Bank is also investing.
Both initiatives will serve Canada’s effort to build the clean economy.
Meaningful implementation of the United Nations Declaration on the Rights of Indigenous Peoples in Canada requires a sharing of wealth and power
In the first case, meaningful implementation of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) in Canada requires a sharing of wealth and power. Article 26 of UNDRIP states that “Indigenous Peoples have the right to the lands, territories and resources which they have traditionally owned, occupied or otherwise used or acquired.” A National Benefits-Sharing Framework could be an important step in implementing UNDRIP and achieving economic reconciliation. Support from the Canada Infrastructure Bank to help Indigenous communities purchase equity stakes in major projects, while limited in scope, is another welcome development.

Making Capital Affordable

It’s a start, but more can be done. Here are three mutually beneficial ways Canada can unlock capital for Indigenous participation. 1. A More Comprehensive Loan Program The greatest impediment to Indigenous participation in major projects is access to affordable capital. The causes are well documented: a legal and regulatory environment that is unfavourable for economic and business development; historic and deliberate exclusion from exercising jurisdiction over traditional lands and resources; inequitable public investment in housing and infrastructure; lack of support for business growth; and a complex government funding regime. According to the National Indigenous Economic Strategy: “While the effects of colonialism have been devastating to the social, physical, and mental health of our communities, one of its most nefarious objectives was the deliberate exclusion of Indigenous Peoples from sharing in the wealth of this country.”1 The principal instrument to achieve this nefarious objective is generally understood to be the anachronistic Indian Act, which regulates almost every aspect of community life on reserve for nearly 600,000 registered Indians.2 It defines who is an “Indian” and, among other matters, regulates band membership, band government, taxation, lands and resources, estates and money management. While legislation and regulations in off-reserve contexts typically evolve and are updated over time, the Indian Act has largely been frozen in time, leaving on-reserve communities with outdated and paternalistic rules and procedures that have not kept pace with a modern economy. Partly as a result of its fiduciary duty to Indigenous people, the federal government often acts in ways that hinder economic and business development on reserve. As a fiduciary, the Crown is required to protect the interests of First Nations and is liable if it fails to do so: witness the growing inventory of Specific Claims that deal with historic wrongs against First Nations.3 This slows down transactions considerably, as the Crown often acts in a manner designed to reduce potential liability for decisions over which it has ultimate authority under the Indian Act. According to research conducted by Fiscal Realities, in its report Expanding Commercial Activity on Reserve Land, “as result of delays and a reluctance of the Crown to allow First Nations to share risk, First Nations are not only protected from bad deals but also lose many good ones.”4 Deployed prudently, loan guarantee programs similar to the ones in place in Alberta, Ontario and Saskatchewan, can help Indigenous communities overcome the impediments to economic development and barriers to economic inclusion that are the product of outmoded policy and legislation. Most recently, the Alberta Indigenous Opportunities Corporation (AIOC) played a key role in the landmark agreement that resulted in 23 First Nations and Métis communities acquiring an 11.57% non-operating interest in seven Enbridge pipelines in northern Alberta (valued at $1.12 billion). In this case, the AOIC provided a loan guarantee that made the project a viable proposition for the Indigenous groups. At the time, Indigenous leaders involved spoke passionately about impacts the stable source of long-term revenues generated by the partnership will have on their citizens and communities. Fort McKay Métis Nation president Ron Quintal said the agreement will mean the community can direct more money to education, infrastructure and housing.5 A federal loan guarantee program would facilitate equity participation by Indigenous communities in major projects, thereby advancing economic reconciliation by redressing past efforts at economic exclusion. It also furthers the implementation of UNDRIP by creating the conditions conducive to free, prior and informed consent, and support Indigenous communities in generating revenues that will be re-invested in Indigenous housing, education, health and other services that promote community well-being and better socio-economic outcomes. 2. Overcoming Development Barriers Canada needs to take meaningful action on closing the infrastructure gap. Longstanding under-investment in key infrastructure in First Nations communities has created immense economic, social and health inequities. While adequate infrastructure is vital to community health and well-being, the lack of infrastructure—housing, broadband, connectivity, transportation, energy, adequate water and wastewater treatment systems—is a serious barrier to economic development and an impediment to participation in major projects. While investments announced in recent budgets represent a significant increase to historical levels of Indigenous infrastructure funding, they are still inadequate to substantially close the infrastructure gap. New approaches and innovations are also required to more effectively deploy available federal funding. It’s generally accepted that the serious shortages of on-reserve housing and infrastructure cannot be addressed exclusively through the current “annual cash funding” model of federal funding. When inflation exceeds annual budget increases, less infrastructure is built each year even as the Indigenous population continues to grow. Alternatives must be contemplated. The First Nations Fiscal Management Act and its institutions, including the First Nations Finance Authority, the First Nations Financial Management Board and the First Nations Infrastructure Institution, can be used to leverage long-term federal transfers to raise debt financing through the capital markets to build on-reserve infrastructure and housing.
Canada needs to take meaningful action on closing the infrastructure gap
Specifically, the First Nations Fiscal Management Act (FNFMA) provides First Nations with fiscal powers similar to those exercised by municipalities and other orders of government in the areas of real property taxation, financial management and access to capital. Promoting strong and accountable on-reserve taxation and financial management frameworks, and providing a mechanism to access pooled borrowing for infrastructure and other public works, has allowed the regime to demonstrate its value as an important instrument to promote economic development and support sustainable First Nations communities. Since the issue of its first debenture in 2014, the First Nations Finance Authority has raised over $1.8 billion in the capital markets. This financing is used to construct housing and public infrastructure in First Nation communities. Today, more than 350 First Nations have joined the FNFMA, and 142 First Nations are now qualified borrowing members. According to Closing the Infrastructure Gap by 2030: A Collaborative and Comprehensive Cost Report Identifying the Infrastructure Needs of Canada’s First Nations, published in 2022, $349.2 billion is required between now and 2030 to close the infrastructure gap in First Nations communities.6 The report—undoubtedly the most thorough, comprehensive and far-reaching assessment and costing of First Nations housing and infrastructure needs ever undertaken—outlines the capital and operations and maintenance costs to construct, repair and improve First Nations infrastructure and ensure its proper and on-going maintenance. The report identifies major infrastructure requirements across a broad range of needs—often needs that are not typically funded by Indigenous Services Canada or other federal government departments. In addition to estimating costs associated with education, housing and public infrastructure, the report provided a comprehensive examination of the cost associated with all-season access roads, climate adaptation, meeting Net Zero carbon goals, connectivity and accessibility. Building on the success of FNFMA, the government should allow First Nations to borrow against long-term federal transfers. This would ensure that more infrastructure and housing can be built now, in today’s dollars, and with higher standards for design, construction and maintenance than currently exists in government programs. 3. Forging A New Fiscal Relationship With Indigenous Peoples Canada must fulfill its commitment to building a new fiscal relationship with Indigenous Peoples. In 2019, the Joint Advisory Committee on Fiscal Relations released its interim report7 with wide-ranging recommendations on improving the Nation-to-Nation and Treaty-based fiscal relationships of First Nations and Canada. These recommendations included moving toward sufficient flexible and predictable funding, enhancing revenue generation opportunities, strengthening the institutions that support First Nations, new approaches to measuring for results, new fiscal and taxation powers, and the establishment of new fiscal institutions. The fiscal powers, institutional structures and financial and administrative capacity associated with a new fiscal relationship are necessary pre-requisites to support successful and authentic partnerships with Indigenous communities in major projects. It’s a necessary step on the road to a clean economy that would ensure Indigenous governments have meaningful access to capital, including their own. These recommendations are consistent with the government’s own stated positions. For example, Canada’s Critical Minerals Strategy was described by the Minister of Natural Resources as setting the stage for the “advancement of reconciliation with Indigenous Peoples.”8
“By growing and building our expertise at each point along the critical mineral supply chain, Canada can grow its economy from coast to coast to coast, fight climate change at home and around the world, and improve the resiliency of our supply chain and those of our allies to future disruptions. Importantly, this must be done in a way that advances the Government of Canada’s commitment to reconciliation with Indigenous peoples through meaningful consultation, early and ongoing engagement, investments in capacity supports, environmental stewardship, community safety, and economic opportunities for Indigenous peoples.” – The Canadian Critical Minerals Strategy
The Critical Minerals Strategy will prioritize economic reconciliation, respect Aboriginal and Treaty rights and contribute to the socio-economic well-being of Indigenous communities. The strategy identifies strong, progressive relationships with First Nations, Inuit, and Métis peoples across Canada through early engagement, collaboration, and the development of mutually beneficial partnerships as key success factors. The strategy also identifies systemic barriers to Indigenous participation and leadership in the sector, in addition to addressing economic, business, and community skills and capacity gaps. The blueprint also identifies the need for more Indigenous-led research and inclusion of traditional knowledge and inclusion in planning, and decision-making throughout the project lifecycle. It also rightfully cites lack of access to competitive capital for equity participation as a major impediment. The implementation of a federal loan guarantee program would facilitate equity participation of Indigenous communities in major projects. Closing the infrastructure gap by employing innovative solutions would help address a long-standing impediment to creating the conditions for economic development in Indigenous communities, while complementing efforts to increase own-source revenues from participation in major projects and to establish a modern fiscal relationship between Canada and Indigenous governments. These efforts would pay dividends—not to shareholders in private companies—but to citizens of Indigenous governments through new investments in housing, infrastructure, education, health care and facilities and other public works. All of which are sorely—and demonstrably—needed.

Contributors:

Lead Author: Allan Clarke, Consultant, Indigenous Issues

RBC Climate Action Institute Myha Truong-Regan, Head of Climate Research Yadullah Hussain, Managing Editor Shiplu Talukder, Digital Publishing Specialist Darren Chow, Senior Manager, Digital Media

Allan Clarke is an Ottawa-based consultant on Indigenous issues. He previously served more than 30 years in the Public Service of Canada, most recently as the Director General, Economic Research and Policy Development with the former Indigenous and Northern Affairs Canada. Allan has served on several not-for-profit boards, including Catalyste+, the Indigenous Screen Office, the John Howard Society (Ottawa), BookNet Canada and the Association for the Export of Canadian Books. He is Anishinaabe with family roots on the Wikwemikong Unceded Indian Reserve.

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Canada has the world’s longest coastline. At 243,000 km, it can circle the world nine times. This expanse plays a critical role in the Canadian economy, supporting 300,000 jobs, anchoring critical trade routes and providing over $31.7 billion annually to gross domestic product from marine transportation, seafood production and energy. Yet its greatest potential—as a weapon in the fight against climate change—remains largely untapped. The ocean’s power to sequester carbon—pushing us closer to our climate targets—is unmatched by any other sector. It absorbs 31% of global CO2 emissions, capturing and storing blue carbon through a variety of processes involving mangroves, seagrass (known as eelgrass in Canada) and salt marshes.i And the financial toll of ignoring it is growing as more nations take on the challenge of mapping their seabeds and developing nascent blue carbon markets. Blue carbon credits are worth two to three times more than typical carbon credits—largely because of significantly higher sequestration potential and additional ecosystem services. Early estimates suggest Canada’s blue carbon represents a US$3.5 billion market opportunity.

Eelgrass and Salt Marshes

  • Eelgrass is a breed of seagrass found off Canada’s Atlantic, Pacific, Arctic coasts.
  • Eelgrass promotes biodiversity and is a habitat for marine life like eels, lobsters, crabs, and cod. Unlike kelp or seaweed, eelgrass develops roots and flowers.
  • Salt marshes are found across Canada’s coastline. They act as a transitional zone between terrestrial and marine environments and are a buffer against coastal erosion.
  • Salt marshes provide a critical habitat for a variety of plant and animal species.

The great Canadian coastal mapping challenge

Realizing this economic potential could bring significant cross-sectoral benefits: helping fisheries become more resilient, rewarding conservation, and improving national defense through the mapping of seabeds and coastlines. But to make it happen, we’ll need to grapple with many of the same obstacles facing soil sequestration efforts, including scientific challenges that begin with how to measure and verify the carbon sequestered in coastal ecosystems. Tidal wetland carbon sequestration cycle

Our most precious blue carbon assets

While other marine organisms, like macroalgae, can sequester and store carbon, eelgrass and salt marshes are the most promising blue carbon assets we have. This is both because of their sizeable current carbon stock and the immediate benefits their ecosystems provide. Through chemistry and the process of photosynthesis in marine organisms, carbon dioxide dissolves in water to create carbonic acid—a form of carbon that doesn’t easily escape the ocean. Eelgrass (a marine plant with ribbon-like leaves) can store twice as much carbon as terrestrial forests while salt marshes can sequester carbon 11 times more efficiently than grasslands and around 125 times more than forests. Roughly 90% of eelgrass meadows in Atlantic Canada have been decimated since the 1930s. And salt marshes in many coastal regions have been converted into agricultural lands or have been flooded to make way for hydroelectric dams. Current figures suggest the global blue carbon market is worth over US$190 billion (81 million metric tons of carbon) with countries like Australia, Indonesia, The Bahamas, and many more involved.ii Despite Canada’s potential to become the largest player in this market, our presence will remain minimal without a national blue carbon strategy. Action is needed now. Here are three key steps for building a made-in-Canada blue carbon strategy:

  • Step 1: Indigenous communities must take the lead

For any blue carbon strategy to be successful, Indigenous communities must be key stakeholders in its management. Many of the remaining eelgrass meadows and salt marshes across Canada are in or are close to Indigenous communities and are protected for food provisions and ecological integrity. For instance, the Cree protect eelgrass because Canada geese, a staple in their diet, feed on it. Tasks like mapping and monitoring carbon stock levels—critical to voluntary offset markets—can be best organized and led by Indigenous communities. And ultimately, blue carbon programs can provide a new source of revenue for these groups. Technology that can map ecosystems and measure carbon sequestration is not currently effective in Canada. Satellite imaging and drones can be helpful in certain circumstances, but unlike tropical regions where clarity is high, Canada’s coastline waters are too murky to be mapped with these tools. While hyperspectral imaging might overcome present challenges, satellites are only now starting to use sensors with such capabilities. The most effective approach, while lengthy, is to manually map locations. Many Indigenous communities across Canada have already started to do this. Funding for skills development in data science and information systems is needed to ensure Indigenous groups are prepared to administer carbon credit protocols as effectively and profitably as possible.

  • Step 2: Start with mapping and research

A voluntary offset market for Canada’s blue carbon assets is key—and won’t happen without mapping and research. As with agriculture, we need to develop effective measurement, reporting, and verification (MRV) systems that can ensure activities that sequester higher amounts of carbon are monitored accurately. Over 300,000 hectares of eelgrass meadows and salt marshes have already been identified along Canada’s shoreline. But this is likely just a sliver of our blue carbon assets (experts say we may have only mapped only 10% of our entire coastal seabed). Mapping of Canada’s shoreline has been both understudied and underfunded—particularly in comparison to other nations. The Bahamas recently found over 9.2 million hectares of seagrass meadows off its coastline, dwarfing Canada’s official stock.iii Mapping takes money. Though the Blue Carbon Canada initiative received $1.59 million in funding for three years of research to assess the carbon stock of eelgrass, salt marshes, and kelp, much more will be needed to truly understand Canada’s potential. What’s holding us back? In part, a mindset that identifies extraction as more important than conservation. For a long time, mapping Canada’s coastline did not present as viable a business case as mining or fishing. The rise of a blue carbon market could change that narrative. But Canada will need to catch up to countries that are decades ahead in mapping their coastlines. Canada has only started to earnestly advance efforts to study its shoreline in the past three years. The United States is arguably decades ahead, particularly in studying the carbon sequestration cycles of eelgrass and salt marshes. This is mainly due to the many restoration, water quality, and biodiversity projects involving seagrass and salt marshes across the U.S., especially in Chesapeake Bay.

  • Step 3: Start conserving and restoring eelgrass and salt marshes now

Canada’s viable blue carbon market can be valued at US$130 million annually or US$3.5 billion cumulatively by 2050, according to figures on the assessed size, carbon stock, and rate of sequestration of its eelgrass and salt marshes. By 2030, eelgrass and salt marshes located in tidal wetlands could sequester 17.2 MT of CO2e/year. iv However, according to new research from the University of British Columbia, the total carbon stock of eelgrass in the top 100 cm of sediment holds an estimated 88 million metric tons of carbon. v A voluntary blue carbon credit market can equip companies and organizations to buy and sell carbon offsets to meet their own objectives. Unlike compliance markets, voluntary markets are self-governed and do not legally mandate that participants reduce emissions. But voluntary markets complement compliance markets and offer private actors the opportunity to buy, generate, and sell carbon credits. Asset owners, like businesses, private investors, public agencies, or non-governmental organizations can purchase these credits. The benefits of voluntary markets are that unlike compliance markets, projects that are more experimental and innovative can be launched (in part due to less restrictive regulatory oversight). They offer participants the opportunity to reduce their emissions outside of a compliance market and expand the pool of participants.
Type of carbon offset market Compliance Voluntary
Regulated by national, regional, or international reduction regimes
Open market for trading and generating credits
Rely on independent standard bodies
Legally mandated reduction of emissions
Optional reduction of emissions
However, to develop a successful and effective blue carbon program, we must evolve from conserving current blue carbon assets to restoring lost marine ecosystems. Eelgrass and salt marsh ecosystems already have a substantial carbon stock and are efficient at sequestering carbon while acting as vital marine habitats. It takes years to plant eelgrass or restore salt marshes that can then grow to store and sequester carbon. And destroying them leads to the release of carbon that has been stored for millennia. Conservation activities should be focused not only on declaring protected environmental areas, but also limiting any human activity that can disrupt them.vi Such initiatives can include the development of management plans for coastal ecosystems, promoting sustainable fishing, and preventing the destruction of habitats. Restoration of eelgrass and salt marshes will take at least a decade to complete and these projects will come online gradually. Still, it’s critical that we start now. Eelgrass meadows can take at least a decade to grow and even longer to sequester carbon efficiently. Salt marshes can grow swiftly by comparison, but oftentimes we need to reflood areas that were converted for agricultural use. Restoration projects can issue valuable and high-quality carbon credits, but they also have the net benefit of increasing fishing stock as a marine habitat. Ultimately, conservation and restoration initiatives must also support local community values and needs, biodiversity, and rural development. Releasing the carbon currently stored in eelgrass meadows and salt marshes will also come with a hefty toll. The “social cost of carbon” is estimated at US$2.5 billion annually.

Conclusion: Perfection is the enemy of execution

Canada cannot wait for perfection. We must start executing a blue carbon strategy immediately. To succeed, the federal government should consider adopting a two-pronged approach. First, eelgrass and salt marsh ecosystems that currently store carbon ought to be protected. Policies should be developed with communities that depend on fisheries for their livelihoods to ensure their buy-in and participation in future blue carbon markets. A clear separation of departmental jurisdiction between Environment and Climate Change Canada (ECCC) and Department of Fisheries and Oceans Canada (DFO) can ensure program rollouts aren’t trapped in bureaucratic overlaps. For instance, ECCC has dominion over salt marshes till the high tide line, while DFO manages the ocean at large. Major funding for climate change research is mainly diverted to ECCC, oftentimes leaving DFO’s expertise and research on climate change aside. For this strategy to be effective, both departments ought to be involved and have their roles clearly defined. Through an intergovernmental top-down approach, the federal government can also motivate and guide provinces to collect data on existing blue carbon assets. Second, studies into the carbon stock of eelgrass meadows and salt marshes need further funding. Government should collaborate further with researchers to develop a national blue carbon stock account and understand that promising results will emerge within years, not months. This research will contribute to the policy development of any voluntary market that issues credits based on blue carbon. It will ensure measurements fit within the proper magnitude of carbon sequestration measurement. Blue carbon can be Canada’s defining initiative against climate change. We just need to rise to the challenge.

Contributors:

Lead author: Mohamad Yaghi, Agriculture and Climate Policy Lead, RBC

RBC Naomi Powell, Managing Editor, Economics and Thought Leadership Farhad Panahov, Economist Darren Chow, Senior Manager, Digital Media Acknowledgements: Kristina Boerder, Research Scientist Future Of Marine Ecosystems Lab, Dept. of Biology, Dalhousie University Mary O’Connor, Professor, Department of Zoology, Director, Biodiversity Research Centre, The University of British Columbia Melisa Wong, Ph.D., Research Scientist, Fisheries and Oceans Canada

  1. Nicolas Gruber et al.,The oceanic sink for anthropogenic CO2 from 1994 to 2007.Science 363,1193-1199(2019).DOI:10.1126/science.aau5153
  2. Friess DA, Howard J, Huxham M, Macreadie PI, Ross F (2022) Capitalizing on the global financial interest in blue carbon. PLOS Clim 1(8): e0000061. https://doi.org/10.1371/journal.pclm.0000061
  3. Gallagher, A.J., Brownscombe, J.W., Alsudairy, N.A. et al. Tiger sharks support the characterization of the world’s largest seagrass ecosystem. Nat Commun 13, 6328 (2022). https://doi.org/10.1038/s41467-022-33926-1
  4. C. Ronnie Drever et al., Natural climate solutions for Canada.Sci. Adv.7, eabd6034(2021). DOI :  10.1126/sciadv.abd6034
  5. Christensen, M.S. (2023). Estimating blue carbon storage capacity of Canada’s eelgrass beds. University of British Columbia.
  6. Additionality will be a challenge in some circumstances where eelgrass meadows or salt marshes may be located near tributaries of forests that have issued credits.

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Why we wrote this

Canada is on the edge of a building boom. With our housing stock already severely strained, we’ll soon need to find a way to accommodate a record surge in new Canadians. That’ll mean building nearly six million new homes.

Constructing these homes sustainably—as we must if we are to hit our climate targets—brings with it economic opportunity. Canada can lead North America’s construction sector into a new greener era, one defined by novel building materials, smart building systems and the rapid deployment of low-carbon heating and cooling. In addition to the buildings themselves, we’ll need to construct new supply chains, skilled workforces and critically a retrofit economy to support the transition.

This challenge compelled the RBC Climate Action Institute and George Brown College’s Brookfield Sustainability Institute to launch a collaboration that begins with this paper. High Rise, Low Carbon: Canada’s $40 billion Net Zero Building Challenge aims to help inform and inspire Canadians to see both the urgent need and growing opportunity that will come with more sustainable buildings.

John Stackhouse, Senior Vice President, Office of the CEO, RBC

Luigi Ferrara, Chair and CEO, Brookfield Sustainability Institute

Key points

  • By 2030, Canada will need 5.8 million new houses—a 40% increase—as the current housing affordability crisis and immigration boom accelerate demand.
  • If built with current practices and prevailing codes, these structures will add up to 18 MT (million tonnes) of greenhouse gas emissions to our carbon footprint annually.
  • Emissions from production of the cement and steel used to build them will add even more.
  • Canada’s existing buildings are already among our biggest emitters, releasing some 90 MT of greenhouse gases annually.
  • To meet our Net Zero targets, we’ll need to change how and what we build. We’ll also need to re-visit our current buildings—retrofitting some 16 million homes and 750 million m2 of commercial space.
  • This will require more than $40 billion a year in capital investment, with 60% going to retrofits and the rest to new builds.1
  • New technologies will be essential. Heat pumps—already gaining traction in Atlantic Canada and B.C.—must become mainstream, augmenting and eventually replacing gas furnaces that are the largest source of building emissions.

Key Charts








 

Seven Ideas

Provinces should set progressively tighter emissions standards for new and existing buildings.

Codes for new construction must tighten quickly, and emissions permitted in existing structures should decline gradually according to a transparent but ambitious schedule. Sales of emissions-heavy technology and materials should be phased down according to that schedule.

Building owners must collect and share emissions and retrofit data.

A national open-access database showing the impact of various retrofits across all building types can help owners make capital plans to meet the aforementioned standards. Governments at all levels should help share the cost of the database.

Utility commissions must send the right price signals.

Provinces can use electricity rates to encourage the installation of heat pumps in large buildings and conservation and demand shifting in small ones.

Target affordability with mortgage insurance, lending, and land-use regulations.

Ottawa should allow longer maximum amortization for insured green mortgages and fund larger direct subsidies for low-income heat pump buyers. Municipal governments should lower development charges and increase allowed density for green buildings. Banks should study how lending criteria can evolve to help homeowners afford more expensive green homes.

Municipalities should create low-carbon design districts.

Designate areas, rather than specific sites, for low-carbon building types (e.g., mass timber, innovative concrete, prefabricated homes) to rapidly scale pilots.

Upskill workers, boost labour supply, and adopt innovative new designs.

Unions and employers can collaborate to train workers in labour-saving building methods. The federal government can better target immigration policy to attract newcomers with the right building skills.

Industry can partner to secure heat pump innovation and supply.

Industry groups can target other cold countries to improve and lower the costs of cold-climate heat pumps. Governments can support trade missions and encourage domestic production of pumps and components, in part through synergies with other existing Canadian manufacturers and innovators (e.g., auto parts makers).

The case for greening Canada’s built environment

Buildings have long been at the heart of Canada’s emissions problem.

Heated by gas furnaces, powered by coal-fired electricity, and supported by emissions-heavy concrete foundations, our buildings are the third largest source of greenhouse gases after the energy and transportation sectors. In all, they generate an eighth of our emissions, or some 90 million tonnes (MT) of carbon dioxide each year. And those emissions are rising, as more houses and commercial spaces heated with natural gas are built.

To reach our climate targets, we must build in a new way. Through design and retrofits, we can do more than cut emissions. We can turn our buildings into powerful drivers of the green transition, acting as charging stations for electric vehicles, generators of solar power, and carbon sinks that protect emissions stored in raw materials.

Canada’s “built environment”—the shopping malls, homes and office towers central to our lives—is critical to the economy. Construction and real estate services directly account for a fifth of GDP, with commercial buildings supporting broader economic activities ranging from retail stores to assembly lines. But nearly half of our housing stock was built prior to 1980, when energy efficiency wasn’t a top priority. What’s more, Canada’s frigid climate and abundance of natural gas has long led us to heat our homes generously, with little need to focus on emissions.

Until now. Our existing housing stock is already well short of what Canadians need and soaring prices are placing home ownership increasingly out of reach. With record immigration targets set to bring 5.5 million newcomers to Canada by 2035, we’ll need to expand our housing supply by 40% in the next 10 years—without raising emissions.

The scale of this task may be daunting, but it also gives us a chance for a fresh start. And some Canadian companies are seizing it, taking a lead in the development of climate-smart building technologies. Element5, in St. Thomas, Ont., produces mass timber technology that glues wood together in layers strong enough to replace traditional steel and concrete in buildings. B.C.’s QuadReal is turning a Toronto warehouse into a solar farm, fitting the roof with reams of panels that will ultimately power electric delivery trucks. And Toronto’s Morgan Solar is designing window blinds that double as solar panels. Canada can lead North America by exporting these smart building solutions, growing the economy, and cutting our own emissions along the way.

The challenge for our builders will be to make such low-carbon innovations part of business as usual. They’ll also have to work with living spaces that are larger compared to most developed countries.

 

Labour shortages, strained electricity systems and stressed supply chains for new technologies will present significant barriers. So too, will the added consumer cost of building green. As living costs rise, every added dollar will weigh on Canadian households.

But building the way we always have will bring its own financial burdens, in the form of future retrofits and heftier carbon prices. We can’t afford to wait any longer.

Case study

Creating climate-positive communities

New communities are a chance for designers to develop neighbourhood-scale solutions that move us more rapidly toward Net Zero.

A “climate-positive community” adopts nature-based solutions, circular economy practices, and renewable energy. It designs for durable, flexible buildings, and the conservation of ecosystems. And it supports residents in adopting simple living philosophies, sharing economies and communal smart systems.

These communities typically favour public transport, smaller homes, and higher-density neighbourhoods that allow residents to live, work and play within a walkable radius. They usually integrate a variety of uses and tenancies, develop a network of natural and human-scaled paved spaces, adopt community-run co-housing features, and incorporate renewable energy systems and smart solutions to cut energy use.

London’s Bedzed, among the world’s first climate-positive communities, features 100 homes, a college, offices, and various community facilities. Local and recycled materials were used in its construction and its district heat system and passive house design have helped cut emissions by half for transportation and a third for heating. Water use was reduced by two thirds. That’s led to significant savings for the residents, whose annual bills are £1400 lower than that of the average Londoner.

Source: The Bedzed Story

New builds vs. retrofits:
A new pathway and a long grind

New buildings offer a unique chance to reimagine our built environment.

From the outset, communities and structures can be designed to be more energy-efficient and resilient to the physical threats and costs of climate change—like heat, floods, and wildfires. Starting from scratch, developers can more affordably create tighter “envelopes” or structures that allow less air and heat to escape. They can also design around more energy-efficient technologies like heat pumps, which move heat from the outside air, water or ground and transfer it for use inside. This allows savings to materialize faster. And since heat pumps can both heat and cool spaces, this technology can also eliminate the need for both a furnace and an air conditioner in many parts of the country, cutting costs even further.

These operating savings can do much to offset the added 5-10% upfront cost of constructing sustainable buildings. Mortgage policy changes (think longer amortization for insured mortgages on zero emission homes) can do even more. Meantime, a level regulatory playing field across municipalities, where building codes are equally supportive of Net Zero buildings, can ensure all builders face the same costs and meet the same standards.

A bigger challenge rests in what’s known as “embodied carbon”. These are the emissions produced in the manufacture of building materials (such as cement for new foundations and glass for new windows). By some measures, these account for 11% of global emissions,2 and can add up to nearly two decades of emissions from operating the building.

 

Fortunately, some of the most exciting innovation is happening in this arena. Using wood in tall buildings allows the carbon stored in trees to effectively be locked up for 100+ years, and studies suggest it also reduces heat loss, making it easier to cut operating emissions, too. Innovations in concrete can increase the carbon it stores and 3D-printed or prefabricated buildings can dramatically reduce the amount of materials wasted. More materials are currently in development: researchers in the UK, for instance, are growing structures out of mycelium, sawdust, and wool. Not all of these innovations will be scalable, but we need to invest heavily in the most promising ones.

Current regulations are a significant barrier. To build a ten-story mass timber building, architects at George Brown College in Toronto needed special exemptions from building codes. That took four years, much longer than the expected total construction time of the building itself. We’ll need to accelerate timelines and learn from global peers. The Europeans, for example, have three times as many tall mass timber buildings under construction.





 

Building from the ground up is one thing. Refurbishing spaces we already have—many of which were built decades ago—will be harder. To meet our 2050 targets, we’ll need to convert 57 million m2 of residential space (400,000 units) and more than 25 million m2 of commercial space to low-carbon heating each year. For housing alone that would mean nearly tripling our current pace of conversion.

But simply replacing aging buildings is costly and could create further upfront emissions. And there are ways to work with the structures we’ve got. Retrofits that improve air tightness and insulation can make heat pumps more cost efficient, though landlords may need to vacate tenants, losing rent, and homeowners may have to sacrifice space to add insulation. For owners, the savings from retrofits may not make up for the cost, except when replacements were due anyway. And embodied carbon means early retrofits can even be bad for emissions in some cases.

Still, every time our aging buildings need an upgrade, we must seize the opportunity. And there are enough commercial buildings nearing the end of life to keep us busy until the 2030s. We need to scale up a retrofit economy quickly, lest we miss the chance to ease the stress on our already overburdened electricity system.

Enablers

1. Finance

Cleantech may be the best available solution for cutting emissions. But for homeowners and commercial landlords, the numbers make it a hard sell. Modern buildings are as much complex mechanical systems as they are spaces in which we live and work. Large commercial buildings have complicated capital budget plans. And homeowners’ budgets have many competing priorities. Some retrofits can make good financial sense, with reasonable returns (though they’re still less exciting than a shiny new kitchen renovation). But in many cases, and especially for important changes like replacing a gas furnace with a heat pump, the numbers don’t add up. Indeed, though heat pumps do slash utility bills over time, the cost of warming a home with one remains higher than with a gas furnace.

Homeowners in Toronto will pay roughly $2700 per year to heat their homes with a new, high-efficiency gas furnace and to cool it with air conditioning.3 To do the same with a cold climate heat pump,4 accounting for its higher sticker price, would cost $3,300 to $3,800. A carbon tax over $200 would be needed to make heat pumps the clear financial winner.

The highest costs are attached to the most desirable heat pumps which, like existing furnaces, are largely invisible, and push air through ducts. By comparison, the most affordable versions heat homes less evenly. As global adoption accelerates, the cost of making heat pumps (and the consumer price) should fall. But how much, and how quickly, are critical uncertainties.

Another problem: heat pumps use less energy, but they rely on electricity, which costs four times more than natural gas.5 Retrofits that tighten a building’s envelope can allow for smaller, cheaper pumps. But the cost of those retrofits may exceed the lower pump price. If smaller heat pumps gain traction, we could avoid the cost of building a much larger electricity system—but this may not be enough to convince consumers.

 

To overcome this, governments have turned to household subsidies like the Canada Greener Homes program, which includes grants and interest free loans that can close cost gaps. But households have been reticent to join. In almost 18 months, just 19,000 homes (of a total 16 million) have taken advantage of the Greener Homes program of 196,000 applications (less than half as many retrofits than we need to do annually). Just $69 million has been distributed of a potential $2.6 billion.6 City-level programs like Toronto’s Home Energy Loan Program are even less successful (245 homes since 2014).7

Atlantic Canada offers some hope. Between a fifth and a third of households in the three maritime provinces use heat pumps as their primary source of heat (though often with wood or electric backup). That’s risen from less than 10% in the last decade, a strong growth rate compared to the rest of Canada. The driving force is provincial funding for energy-efficient homes, especially via grants and rebates for heat pumps.8 A well-developed provincial system for delivering retrofits and educating homeowners has also helped.

Case study

Haíłzaqv First Nation

The Haíłzaqv First Nation in Bella Bella, B.C. has undertaken major retrofits, with an eye to reducing its reliance on diesel, cutting emissions, and creating equitable access to clean energy.

The program has already retrofit 154 homes with heat pumps powered by clean hydroelectricity, reducing the high cost of heating oil for residents. What sets the Haíłzaqv project apart is its approach. Community leaders have bolstered engagement, both virtually and in person, for example by helping residents fill in energy surveys. The program distributes “eco kits” so residents can install LED lightbulbs and undertake air-sealing in their homes and offers training for associated work (like energy audits). Local residents were also trained by Coastal Heat Pumps to install new heating systems, enabling them to develop skills for the long term.

This bottom-up approach, with assistance from B.C. Hydro energy efficiency subsidies, has drawn nearly $20 million in investment from the community.

Programs that offer a path to commercial building retrofits are even more scarce. These tend to lean on low-cost finance from government entities like the Canada Infrastructure Bank. And even then, the lack of commercialized large-scale heat pumps makes the economics unattractive. To make the numbers more appealing, landlords will often reduce the scale of their decarbonization strategy. Simplified, standardized retrofit services that guide owners through an efficient process will be critical.

In their absence, we’ll either need larger subsidies or more stringent regulations. This is already happening. New York will ban fossil fuels in new buildings by 2029. In the UK, existing buildings with poor emissions performance can’t be rented with standards tightening over time.

2. Electricity infrastructure

Even after we retrofit buildings, electrifying them could quadruple peak demand in the system—meaning higher electricity rates for everyone.

To decarbonize the economy by 2050, we’ll need to invest $350 billion in electricity distribution networks (the wires that bring power directly to buildings), according to BNEF. About 40% of this spending will be on upgrades to existing infrastructure.9 Some of that is needed to ensure our grids can withstand the physical effects of climate change (heat waves can damage electrical transformers and lines), but most will be needed for electrifying buildings and EV charging.

Drawing the power stored in EV batteries (and compensating the vehicle’s owner) could meet at least 8% of expected new peak demand.10 Ontario’s new ultra-low overnight rate design—which encourages EV drivers to plug in when demand is lower overnight—can create savings for EV owners and relieve burdens on the grid. But to make a bigger dent, we need to do this across many other electricity-dependent devices. Supporting building owners who conserve power is critical too.

 

We can electrify many more buildings before we run into these problems. But without change, we run the risk of electrifying them in the wrong ways. If forced to decarbonize, big buildings may opt to avoid expensive heat pumps in favour of cheaper electric boilers. Those systems will add stress to grids.

In the interim, there’s a good case for using hybrid gas and electric systems to stem costs. Gas is already available and heating systems replaced today will need to be replaced again by 2050—giving us another chance to fully decarbonize. A heat pump with renewable natural gas backup, a route being explored by Hydro Quebec and Energir, cuts costs by two thirds even with the added cost of renewable natural gas.

Hybrid systems also address another issue. Buildings often can’t get all the electricity they need to fully decarbonize. Two recently built Toronto residential towers with 700 parking spaces could only secure power to support ten EV charging stations.

By around 2030, we’ll need to determine if hybrid systems will get us to Net Zero, or if we need to push harder to electrify buildings. If it’s the latter, we’ll need to rethink electricity pricing structures—which don’t currently cover peak charges or time of use evenly or transparently across the country.

3. Labour force

The new builds and retrofits we need could add significant demand to already tight labour markets. Our estimates indicate heating, cooling, ventilation and electrical tradespeople will be in highest demand. We’ll need 45% more HVAC tradespeople and 55% more electricians.

Some provinces will be more challenged than others. Inefficient electric baseboard heating can be replaced with heat pumps. But most of the emissions savings will be from replacing gas furnaces with heat pumps. Quebec and B.C., with larger existing trades workforces and less dependence on gas, will be best positioned for this transition. Ontario and Alberta, with a greater reliance on gas, the fastest growing populations, and largest skilled trades shortages, will struggle more.

As a quarter of Canada’s tradespeople approach retirement this decade, we’ll need new strategies to attract young workers. And we’ll need to upskill existing workers. Among trades, awareness about heat pumps and the retrofits needed to support them remains a barrier.

Innovation can also help. Mass timber buildings, for example, require 25% less time and use 40% less site labour than current building styles.11 But they also require workers experienced in 3D modelling and CNC machining to make wood panels. Wages for these workers are 30% higher than for construction labourers.12 Still unlocking the benefits of higher wages for workers, lower emissions, and sustainable design will depend on supporting education in the trades.

Case study

Building a retrofit workforce

Different skills are required to construct green buildings. Projects may require specialized expertise in areas such as solar panel installation, geothermal energy systems, rainwater harvesting, and green roofs. Building managers will need to collect and analyze data on energy use and greenhouse gas emissions and acquire new skills to manage retrofits. They’ll also need to operate smarter, more complex building systems. Architects will need to develop expertise in retrofits as well as sustainable design. And much greater focus must be paid to upskilling HVAC trades to deploy heat pumps and complex new systems to support them.

In Canada, Workforce 2030 is leveraging a network of community organizations, educators and industry experts to transition pandemic-impacted workers into green building work like energy retrofits and new low-carbon construction. More practical training will also be needed. Singapore’s “Green Skills at Work” program provides classroom-based and hands-on practical training for workers to gain skills and knowledge in low-carbon construction practices.

4. Supply chains

Canada isn’t the only country trying to decarbonize buildings. European heat pump sales have increased rapidly, with some 16% of buildings heated by this technology.13 Sky-high gas prices due to Russia’s invasion of Ukraine and major efforts by EU governments to drive gas conservation have helped this along.

The International Energy Agency warns sales might outpace supply.14 Companies in Asia and Europe have announced plans for new manufacturing plants, but these fall short of what’s needed. With just two years required to build these facilities, that could be quickly resolved. But robust demand will be important to spur investment.

Our cold climate and large living spaces make Canada’s needs unique—but also give us the incentive to innovate. Natural Resources Canada’s joint program with the U.S. Environmental Protection Agency and Department of Energy to develop cold climate heat pumps, is a good first step.

But with limited Canadian manufacturing, we’ll still need to compete for these critical goods. The Biden administration, for example, recently added heat pumps to the list of goods identified in the Defense Production Act identified as critical U.S. climate goals. Though Canada may benefit from more a robust U.S. supply, relying on foreign suppliers adds unnecessary risk to our transition. Canada’s collaboration with the U.S. should be paired with efforts to diversify our supply chains for this critical technology—and establish production at home.

For more, go to rbc.com/the-next-green-revolution-project.

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Contributors:

Principal author: Colin Guldimann, Senior Economist, RBC Climate Action Institute

RBC
Naomi Powell, Managing Editor, Economics and Thought Leadership
Farhad Panahov, Economist, RBC Climate Action Institute
Ben Richardson, Research Associate
Trinh Theresa Do, Senior Manager, Thought Leadership Strategy
Darren Chow, Senior Manager, Digital Media
Shiplu Talukder, Digital Publishing Specialist

Brookfield Sustainability Institute
Luigi Ferrara, Dean, Centre for Arts, Design & Information Technology
Jacob Kessler, Director Account Management & Business Development
Matt Hexemer, Director, Global Design Studio
Joseph Enaje, Lead Designer
Chiara Alberti, Writer/Designer
Lucrezia Marsili, Writer/Designer
Finn Crockatt, Writer/Designer

Acknowledgements
We thank the following people for insightful conversations and support with technical analysis:
Julia McNally, Sheena Sharpe, & Cara Sloat, Toronto 2030 District
Jon Douglas, Director, Global Sustainability, Corporate Real Estate, RBC
Denise Gray, Director, Enterprise ESG Strategy, RBC
Brendan Haley, Executive Director, Efficiency Canada
Isabelle Smith, Director, Engineering Net Zero, SNC Lavalin
Stuart Galloway, EVP, SOFIAC
Aaron Berg, Director, Energy Efficiency Investments. Canada Infrastructure Bank
Julia Langer, CEO, TAF
Carl Pawlowski, Senior Manager, Sustainability, Minto Group
Joanna Jackson, Director, Sustainability & Innovation, Minto Group
Jeff Ranson, VP Sustainability & Stakeholder Relations, BOMA
Mark Hutchinson, VP, Green Building Programs and Innovation, Canada Green Building Council
Andrew Guido, VP, Sustainability and Innovation, Empire Communities
Luke Gilgan, Board Member, Mattamy Asset Management
Roya Khaleeli, Director, ESG, Mattamy Asset Management
Kevin Kruk, VP, Project Finance, Tridel
Graeme Armster, Director, Innovation & Sustainability, Tridel
Malini Giridhar, VP, Business Development & Regulatory, Enbridge
Participants at the RBC x BSI Net Zero Buildings research forum on March 15, 2023

Net Zero Buildings Forum:
Sandhya Casson
Kevin Santus
Graeme Kondruss
Jasraj Singh Narula
Wing Yan Chan
Tyana Van-Tang
Thanusha Kanagendran
Isabel Mactal
Carmen Skoretz
Wing Yan Chan
Monika Patel
Lakshya Verma
Yasaman Musician
Haylie Wong
Dhruv Sheliya
Samyuktha Vasudevan
Livy Morden
Ka Man Carmen Lau
Berk Ercan
Angelo Barletta
Mansi Bhojani
Shree Shivrajnagesh

  1. These estimates incorporate the incremental capital cost of new net zero buildings vs. current codes as well as the upfront capital costs of retrofits (insulation, heat pumps, etc). They do not present the overall cost increases or added annual spending on buildings over the life of these assets, which would be offset by savings from lower energy bills.
  2. https://www.rbc.com/en/wp-content/uploads/sites/4/2025/03/WorldGBC_Bringing_Embodied_Carbon_Upfront.pdf
  3. Based on natural gas at $10/GJ. In parts of the country where gas costs more, heat pumps can make more financial sense, but break-evens still require significantly higher gas prices.
  4. Cold climate heat pumps are much more efficient at cold temperatures, and unlike lower-cost heat pumps, convert to electric resistance heat only on the very coldest days, meaning they cost less to run and are friendlier to the grid than traditional heat pumps.
  5. Assuming gas costs of approximately 30 cents per m3 and electricity costs at about 14 cents per kWh
  6. https://natural-resources.canada.ca/energy-efficiency/homes/canada-greener-homes-initiative/canada-greener-homes-grant/canada-greener-homes-grant/canada-greener-homes-initiative-2022-quarterly-update/24712
  7. https://www.toronto.ca/news/city-of-toronto-offers-zero-interest-loans-incentives-to-accelerate-home-retrofits-and-emissions-reductions/
  8. https://climateinstitute.ca/publications/heat-pumps-are-hot-in-the-maritimes/#:~:text=As%20the%20Canadian%20Climate%20Institute,big%20switch%20to%20clean%20electricity.
  9. The balance is split evenly between replacement of end-of-life infrastructure and investment to facilitate new generation assets
  10. https://www.google.com/url?client=internal-element-cse&cx=002629981176120676867:kta9nqaj3vo&q=https://www.ieso.ca/-/media/Files/IESO/Document-Library/engage/derps/derps-20220930-final-report-volume-1.ashx&sa=U&ved=2ahUKEwikidLY3pL-AhUEk4kEHcHIAPUQFnoECAUQAg&usg=AOvVaw1rkiAVix-4islQ2Ehk9cs7
  11. Wood Products Council, “Mass Timber: Shifting Labor from Jobsite to Shop”
  12. Median wage for CNC machinists in Canada is $27.35/hr, versus $21/hr for construction labourers.
  13. https://www.ehpa.org/press_releases/heat-pump-record-3-million-units-sold-in-2022-contributing-to-repowereu-targets/
  14. https://www.iea.org/reports/heat-pumps

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Canada’s agrifood sector contributes over 136 MT to the country’s annual emissions tally. By 2050, these emissions are expected to rise above 196 MT—representing 19% of the national total. As the world combats climate change, there has been a growing movement toward achieving Net Zero emissions across all sectors of the economy. But one sector that hasn’t been given what it needs to hit this target is agrifood. With a global population set to grow by two billion by 2050, agriculture needs to be integral to our national sustainability agenda. Producers must have the right tools to increase their adoption of climate-smart farm practices. And the entire agrifood supply chain recognizes that change needs to happen now. RBC, Loblaw, Maple Leaf Foods, Nutrien, Boston Consulting Group’s (BCG) Centre for Canada’s Future—with support from Smart Prosperity Institute/Natural Step Canada, and the Arrell Food Institute—have provided the initial support to launch the Canadian Alliance for Net Zero Agrifood (CANZA). At a high level, CANZA is about bringing the right people together across the food value chain and partnering sectors to significantly scale up investment and drive innovation at a national level, while being reflective of regional realities. CANZA will be a national voice for the industry and will utilize the power of the entire agriculture supply chain to spur change. The aim of this alliance is to cut emissions by 50 MT by 2030 and 150 MT by 2050. In late 2022, RBC, the BCG Centre for Canada’s Future, and the Arrell Food Institute at the University of Guelph identified six potential cross-cutting initiatives that could shape a Net Zero roadmap in agriculture. To make change as fast and effectively as possible, two workstreams have been established: the Carbon Farming Initiative and the National Biodigester Network Initiative. These will address the largest emission sources in the agrifood supply chain with the goal of reducing emissions by 50 MT by 2030. The Carbon Farming Initiative aims to develop a low cost, scalable, and nationally relevant measurement reporting, verification system (MRV) and create a carbon credit platform to help producers develop and monetize high quality carbon assets. The workstream will also help develop climate-smart products and a certification strategy to increase consumer awareness and demand. A first demonstration project in Saskatchewan will lay the foundation for additional pilots across the country that will cater to all farms. The National Biodigester Network Initiative seeks to develop a roadmap and model for scaling a ‘waste to value’ digester network in high emission areas across Canada. By creating policy and market incentives for agricultural digester development, the workstream will provide stable feedstocks and new economic opportunities. Upon the successful launch of these two workstreams, more initiatives will be introduced to help Canada reach its goal of cutting emissions in the agriculture sector by 150 MT by 2050. Ultimately, CANZA’s goal is to find mechanisms that financially reward farming operations for their conservation practices. The alliance seeks to build low carbon initiatives for farmers across the country and to scale the sector’s sustainability practices at an accelerated pace. Through this broad coalition, the agrifood supply chain will be able to take substantial steps toward reducing its emissions footprint. For more information, please contact mohamad.yaghi@rbc.

Canadian Alliance for Net Zero Agrifood partners

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Scaling down Canada’s emissions rapidly to 440 Mt by 2030 will require cuts equal to around four times the drop seen during the pandemic. Canada’s latest National Inventory Report highlights the progress made on curbing greenhouse gas emissions but also the distance that needs to be covered to reach climate targets. Canadian GHG emissions stood at 670 million tonnes (Mt) in 2021, a 54-Mt contraction from pre-pandemic levels, but 1.8% above the 2020 lows. Scaling down Canada’s emissions rapidly to 440 Mt by 2030 will require cuts equal to around four times the drop seen during the pandemic. While emissions were 8.5% lower from the 2005 benchmark, achieving the federal government’s target of 40% lower emissions by 2030, as set out in the Emissions Reduction Plan (ERP), would require greater effort.
Encouragingly, existing policies have moved the needle: the coal phase-out triggered the largest cuts in the country, while methane reduction policies appear to have a lasting impact, pointing to policy efficacy. Spearheaded by the ERP, further cuts could be driven by recently announced climate policies such as investment tax credits for cleaner fuels, the proposed Clean Electricity Regulations and Oil and Gas Emissions Cap. Carbon pricing remains the cornerstone of the government’s emissions drive, and its continued rollout will be critical to hitting 2030 targets.
Here’s a look at how some of Canada’s most carbon-intensive sectors are managing their emissions:

Oil & Gas

  • Oil & gas is charged with cutting emissions by 73 Mt—the single largest cut in terms of volume among sectors to meet Canada’s 2030 targets.
  • A relatively cheaper fix for methane leaks combined with stringent government policies will help in cutting another 23 Mt.
  • Carbon capture, utilization and storage (CCUS) capacity is projected to reach 30 Mt CO2e per year by 2030, consistent with ERP expectations. If realized, the technology will deliver half the cuts needed to reach the target.
  • New oil and gas related projects valued at $200 billion would require additional heavy investments in abatement technologies such as CCUS to manage emissions.
  • Industry would need to quickly develop and deploy more abatement technologies and identify electrification opportunities across the value chain.
Path to 2030: The proposed oil and gas emissions cap policy is designed to slow and limit emissions, while investment tax credits could potentially bolster additional CCUS capacity.

Transportation

  • Canadian car fleet, accounting for half of transport emissions, grew 30% in past 15 years to reach 24 million. That’s pushed emissions higher despite improved fuel efficiency and exhaust systems.
  • Zero-emission vehicle (ZEV) registration is growing, but at a 1% market share (in 2021), the stock has yet to make a dent in emissions.
  • At current pace, Canada is expected to achieve 40% ZEV sales of the total market by 2030—short of its stated 60% target. ZEVs would make up 17% of the total Canadian car fleet.
  • Pandemic lockdowns saw a 27 MT drop in emissions in 2020, but traffic levels returning to pre-pandemic levels would likely see sector emissions rebound.
Path to 2030: Auto makers will need to accelerate EV development and offer consumers more choices to comply with ZEV sales target of 60% of total car sales by 2030 and 100% by 2035. Boosting the stock of emissions-free cars could tip the emissions scale later in 2030s.

Electricity

  • A major coal phase-out drove emissions lower in Ontario and Alberta over the past decade. Ontario’s emissions fell rapidly as it expanded its clean energy infrastructure, but maintaining a low-emissions grid is a challenge as its economy and population grows. Meanwhile, Alberta’s electricity emissions declined largely due to a switch from coal to natural gas. Expanding its promising renewables infrastructure will be key in bringing emissions down further.
  • Nationally, continuing coal phase-out will provide just under half of the required 38 Mt reduction (assuming coal-to-natural-gas transition).
  • Additional challenges lie in meeting rapidly increasing electricity demand, grid upgrades, and dependence on stable sources.
  • Meeting new demand entirely with natural gas could potentially push the progress back by 30 Mt.
Path to 2030: The proposed Clean Electricity Regulations could facilitate the deployment of cleaner energy sources to curb emissions from rising demand, and lay the foundation of a low-emissions infrastructure to replace retiring plants.

Buildings

  • Population growth and expanding floor space is driving building emissions faster than energy efficiency can offset. Housing demand is also unlikely to relent any time soon.
  • In half the provinces, the sector is emitting at above 2005 levels. Many regions remain highly reliant on fossil fuels as a heating source and require heavy investments to switch to cleaner fuels.
  • The sector requires a massive 33 Mt reduction to meet 2030 targets, a 39% decline from current levels.
Path to 2030: Retrofit grant and loan programs have struggled with low pick-up rates. Retrofitting 30% of existing real estate—, an immense challenge and expensive endeavour,—would take us only halfway to our target. Complex set of measures, including but not limited to stronger incentives and stringent regulations, could lead the way past 2030.

Conclusion

Emissions in half the provinces are trending either at above or close to the 2005 stating point, as each region grapples with its own set of unique challenges. Despite higher emissions in carbon-intensive provinces, they will likely see relatively faster cuts in the near term as current policies continue to deliver results, mainly due to methane reduction. Ontario and Quebec made headway in cutting emissions over the past two decades but will enter a slower reduction phase as they tackle the more challenging transport and buildings sectors.
A few key measures drove emission cuts over the past two decades, but further reductions will require greater provincial and federal focus—and co-operation. Emissions rising in tandem with an economic recovery could also prove to be a headwind. However, the emerging trend of economic growth decoupling from emissions and Canada’s willingness to implement tough climate policies are grounds for some optimism. Farhad Panahov is an economist at RBC. He holds a BSc in Economics from the University of British Columbia, and Master of Applied Science in Data, Economics, and Development Policy from the Massachusetts Institute of Technology.

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The 2023 Federal Budget offers a strong response to the U.S. Inflation Reduction Act (IRA), but a Net Zero investment wave still faces headwinds from rising international competition, regulatory impediments and the difficulty in getting provinces on board.
Budget 2023’s new green measures are mostly about bolstering the upstream supply chain for a low-carbon economy with new refundable investment tax credits (ITC) for clean electricity, clean-technology manufacturing, and hydrogen. Combined with carbon capture and cleantech adoption ITCs announced over the past year, the Feds expect to spend about $80 billion over 10 years on green investment tax credits. That’s a significant response to the U.S.’s US$369-billion+ climate program–we estimate Canada would need to spend up to $120 billion to match IRA’s 10% estimated emissions cuts, but required new spending is lower given existing program spending and regulatory incentives.

Cost Of Net Zero: Canada’s Investment Tax Credit Bill

Measure Start Date Credit Rate Total Cost Over 10 Years(CAD)
Clean electricity Budget 2024 15% $25.7B
Clean-technology manufacturing January 1, 2024 30% $11.1B
Clean hydrogen Budget 2023 0-40%, depending on carbon intensity $17.7B
Clean technology adoption * Budget 2023 30% ~$16B
Carbon capture ** 2022 37.5%-60%, depending on equipment and project type ~$15B

* FES 2022; B23 addition of geothermal and extension to 2034 ** Budget 2022; limited new enhancements in B23

Large corporates the biggest direct beneficiaries

The new measures will be advantageous for large corporates given the capital-intensive nature of the related investments.  Consumers and other businesses are supposed to benefit indirectly through lower costs for clean energy and products that federal tax credits support. Other businesses will probably find greater direct benefit from the Fall 2022 updates’ Clean Technology Investment Tax Credit (Clean Tech ITC), which became effective on budget day and saw some enhancements. The budget’s expanded focus for the Canada Infrastructure Bank on clean electricity, more funding for existing programs to update the grid, and additional funding for the Strategic Innovation Fund could also benefit mid-sized businesses. Aside from the power sector, oil and gas, agriculture, and buildings–sectors that make up a sizeable chunk of Canada’s carbon emissions—received no new direct support for decarbonization, with only minor enhancements to the existing carbon capture tax credit.

New measures target mostly future emissions reductions

The clean electricity credit may encourage some near-term emissions reductions. It is being made available to non-taxable entities such as public utilities, which may help provincial planners increasingly opt for renewables over unabated natural gas for new power generation. But the measures are largely about facilitating future emissions cuts. Federal subsidies are meant to lower the costs households and industrial end consumers would otherwise face for important energy inputs, thereby paving the way for investments in low-carbon technologies. There is a strong case for this approach but there are risks. Budget 2023 offers no estimates on expected emissions reductions. Along with electricity and hydrogen, technologies like electric vehicles, batteries, heat pumps, electrolyzers, and non-emitting power equipment are covered by the new measures. These mostly correspond to abatement pathways for sectors where Canada’s 2030 climate plan seeks significant emissions reductions, suggesting the budget can play a role in achieving ambitious climate targets.

Provinces must play ball on electricity

The budget’s $25.7 billion spend on electricity over 10 years will help provinces implement the proposed Clean Electricity Standard (CES), but it requires them to get on board. The CES is Ottawa’s key regulatory tool to achieve a Net Zero emissions electricity system by 2035.  Access to the new clean electricity ITC in each province/territory will depend on provinces committing to a Net Zero electricity sector by 2035 and that federal funding will lower electricity bills. The Feds’ clean electricity intervention does more than aim for an affordable Net Zero grid. It throws its weight behind inter-provincial transmission corridors as an important pathway to lower the cost of a clean grid, and clean electricity underpinning Canada’s ability to compete for electricity-intensive, low-carbon industries such as battery manufacturing or green hydrogen. Provinces are also key to both these objectives, but it’s unclear how system planners will embrace cross-jurisdictional cooperation or precautionary capacity buildout. Without the provinces driving greater and faster investment, the new credit would just shift transition costs from provinces to the federal government.

Canada’s tax credits compare favourably to IRA on first review

Canada does not have production tax credits (PTCs) that are common in IRA and offer tax incentives for each unit produced versus capital invested as in an ITC. However, credit rates for the clean electricity and clean technology ITCs are generally on par with IRA. Canada’s clean hydrogen ITC carries a higher maximum credit rate of 40% (vs 30% in the IRA). Like IRA, Canada’s ITCs apply into the early 2030s, are generally technology neutral, and carry both wage and apprenticeship requirements. Unlike IRA, Canada’s measures do not phase out earlier if climate targets are reached, and the value of refundable tax credits in some cases could be greater than IRA’s direct pay provisions for unprofitable business.

Feds are sticking with ITCs, carbon pricing

The Budget emphasized that tax-based support is only one of four tools in Canada’s strategy for a clean economy. Pollution pricing and regulation is at the core, with strategic financing through the newly created Canada Growth Fund and Canada Infrastructure Bank and programmatic spending driving more targeted interventions. As such, Finance officials emphasized the deliberate choice of ITCs for tax-based support, instead of incorporating production tax credits. Upfront payment in capital intensive sectors is seen as providing significant value, and the best way for federal dollars to influence clean technology improvement. Avoided carbon tax or the sale of carbon credits is supposed to provide complementary revenue streams needed to underwrite decarbonization projects. To firm carbon pricing, carbon contracts for differences are mentioned as part of the toolkit for the Canada Growth Fund, which should start doing deals this spring. The government will also consult on a “broad-based approach” to carbon contracts for differences. It’s not clear what is intended here, and there are numerous complicated issues to resolve. For now, we see these contracts available only in a limited way, so carbon (credit) price uncertainty may continue to challenge investment decisions.

What’s missing in the budget?

Canada has not clarified how it will clear the way for major clean energy projects—which is emerging as an obstacle in securing new investments. Despite last year’s $1.3 billion allotted to federal agencies to improve their project approval process, Budget 2023 still only reiterates a plan to have a plan with concrete actions committed only by the end of the year.  Regulatory issues like permitting may be just as important as tax credits to a project’s feasibility. Budget 2023 enables the Canada Infrastructure Bank to support Indigenous communities to purchase equity in major projects in which it participates. It’s a step in the right direction, but we were looking for a broader and more transparent program to speed up the process, such as government guarantees. Many clean energy projects will be on Indigenous lands, and with both communities and project sponsors increasingly interested in Indigenous equity participation, communities’ challenges in accessing capital needs to be addressed. Cynthia is Assistant Chief Economist, Thought Leadership, a role in which she helps shape the narratives and research agenda around the RBC Economics and Thought Leadership team’s forward-looking economic and policy analysis. She joined the team in 2020.

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Key Findings

  • By 2033, 40% of Canadian farm operators will retire, placing agriculture on the cusp of one of the biggest labour and leadership transitions in the country’s history.
  • Over the same period, a shortfall of 24,000 general farm, nursery and greenhouse workers is expected to emerge.i
  • 66% of producers do not have a succession plan in place, leaving the future of farmland in doubt.ii
  • These gaps loom at a time when Canada’s agricultural workforce needs to evolve to include skills like data analytics and climate-smart practices that enable us to grow more food with fewer emissions.
  • Through short-, medium-, and long-term policies, Canada can establish the digitally-savvy agricultural workforce needed to make our country a global leader in low carbon, sustainable food production.
  • To offset a short-term skills crisis, we’ll need to accept 30,000 permanent immigrants over the next decade to establish their own farms and greenhouses or take over existing ones.
  • To meet our medium and long-term goals, we’ll need to build a new pipeline of domestic operators and workers by bolstering education and increasing the R&D spending behind productivity-enhancing automation.
  • Other nations, like Japan and New Zealand are rapidly deploying national strategies to tackle similar challenges. They are offering incentives to farm operators who become more autonomous or unlocking pathways for foreign skilled workers and new farmers to enter their industries. Canada needs to act fast.

Canadian farmers are getting older and fewer

2001

166M acres

 

346,000

Avg age 50

 

2006

167M acres

 

327,000

Avg age 52

 

2011

160M acres

 

294,000

Avg age 54

 

2016

159M acres

 

272,000

Avg age 55

 

2021

153M acres

 

262,000

Avg age 56

 

*all bars are illustrative
Source: RBC Economics and Statistics Canadaiii

A 3-point plan for growth

  1. Increase immigration of farm operators by 30,000 over the next decade.
  2. Promote agricultural education across colleges and universities to attract new students.
  3. Accelerate the adoption of autonomous and mechanized solutions on farms.

Short Term:

Opening the border to new producers

Canada’s agricultural skills crisis is already one of the world’s worst. The country has one of the highest skills shortages in food production compared to other major food exporting nations-trailing only the U.S. and the Netherlands.

Canada’s shortage of agricultural workers is among the most severe

Sources: OECD Skills for Jobs Databaseiv

A rapidly approaching demographics crisis is set to make the problem worse. In 10 years, 60% of today’s farm operators will be over the age of 65. Never have so many Canadian farmers been so close to retirement. In addition, the number of operators below the age of 55 has declined by 54% since 2001.v The most immediate solution to this challenge rests at our borders. Providing permanent immigration status to over 24,000 general farm workers and 30,000 operators can assist in bridging retirement and staffing gaps, help the sector fulfill its productivity potential and meet domestic and foreign food demands.

Many farms and greenhouses are already looking to other countries to address the need for low-skilled labour. Indeed, Canada’s agricultural sector is among the most diverse in the world though the degree of demand for foreign workers differs significantly by province and operation.

The Temporary Foreign Workers program remains a critical source of low-skilled labour. But it has its disadvantages. First, it’s a provisional solution to a chronic issue. Second, many of these temporary foreign workers (TFWs) who develop skills essential to Canadian seeding and harvests, must return to their home countries for short periods. If they are unable to return to Canada (for reasons that can include their government barring the shift due to its own food security fears) then Canada’s on-farm workforce is dramatically reduced. Better policies are needed to enable the immigration of low-skilled labourers. For instance, a pathway to permanent residency for experienced TFWs will immediately address this type of shortage.

When it comes to more highly-skilled farm operators, Canada has always welcomed these types of immigrants from the Netherlands, China, United States, United Kingdom and India. But there are now valuable untapped opportunities to attract operators who have lost their farms because of regulatory policies in other nations.

In the Netherlands for instance, the government set aside €24.3 billion to buy out the 3,000 Dutch farms with the biggest emissions. Producers that do not accept the offer will be forced to close. And farms permitted to stay in operation will need to significantly reduce their nitrogen application. The country will also have to reduce its livestock population to a third of its current size over eight years. In New Zealand, a 2019 law that requires producers to reduce their emissions by 10% in the next three years is already forcing farms to scale back.

Hundreds of thousands of skilled farmers worldwide are being forced to downsize or are facing closures. In the EU alone there has been a loss of over four million farms since 2005. This is creating a labour pool of qualified farmers around the world that can help Canada grow its food exports while also adapting to stringent sustainability regulations.

The immigration of scientists, data engineers, and entrepreneurs has been recognized as critical to Canada’s growth. A similar approach needs to be adopted to attract farmers.

Medium Term:

Agricultural schools must evolve to meet today’s demands

There has been a fundamental shift in agricultural schools across Canada. As enrolment declined in the 1990s, many schools reassessed their curricula. To boost enrolment, they began to offer cross-disciplinary courses that might attract urban students less interested in working on a farm. This meant focusing on topics outside agricultural science, from food security to international development.

The approach worked. Since bottoming out in 2003, admissions have grown by more than 40%—a sign of shifting attitudes toward agricultural studies.vi Currently, Canada’s rate of post-secondary education enrolment in agricultural, forestry, fishing, and veterinary education is among the highest in the OECD, EU, and G20. Despite this, demand for graduates continues to exceed supply.vii

Canadian enrolment in agricultural education is strong

Percentage of total enrolment

Source: OECD Education at a Glance Database and RBC Economicsviii

To boost enrolment further, more needs to be done to integrate agriculture into mainstream programs. For instance, no full-time MBA program among Canada’s top 10 business schools currently offers elective courses in agribusiness. Similarly, agricultural schools don’t do enough to promote a cross-disciplinary approach that integrates students in fields ranging from engineering to social science. These innovations will be critical to increasing enrolment and developing a stronger, better-resourced agriculture ecosystem.

On the other hand, some agricultural schools and colleges are transforming into the most cross-disciplinary centres in the country as they take on topics ranging from the financial incentives to promote carbon sequestration in soil to clean energy. The Controlled Environment Systems Research Facility at the University of Guelph even works with NASA and the Canadian Space Agency to research methods of growing food on Mars.

While raising enrolment numbers, agricultural schools must also keep an eye on equipping students with the tools to put their skills to work. For example, engineering, business and computer science schools could develop more ag-related coops, case studies, and special project courses that would provide experiential education opportunities focused on food production.

Advisory services for producers

Education doesn’t stop at the school gate. Producers have historically been among the first adopters of new technology. To put even more digital skills to work they’ll need access to advisory services that can educate them on the best solutions, the most effective production practices, and the best ways to reduce costs and promote sustainability on their farms. Just as the challenges facing each farm are unique, so too are the solutions for them. Advisory services help farmers design those bespoke solutions. They also offer formal and informal workshops to farm operators and their employees. Advisory services, similar to those provided to farmers in the United States, ought to be made more publicly available to new Canadian farmers.

Long Term:

Introducing more mechanized and autonomous solutions on the farm

Automation has been a core theme in agriculture for centuries. Most machinery and tools today are equipped with technologies that increase efficiencies on every acre. And producers that invest in technology tend to be more profitable. In 2020, over 50% of farms investing in new technology noted a decrease in costs. And while automation reduces the need for on-farm labour it also creates new jobs for highly skilled workers. The introduction of the tractor, self-propelled combine, and auto-steer are among the milestones in on-farm innovation and productivity.

Smart agriculture technology and practices will promote higher levels of efficiency, increase productivity, limit environmental impact, and promote sustainability. Just as important, these innovative solutions can reduce the need for low-skilled labour.

A lot of this innovative technology is already being developed in Canada. But more ambitious research and development is critical to cutting staffing needs and improving production rates and sustainability. This begins with funding. In Canada, agricultural R&D dollars predominantly originate from public sources. We should strive to be more ambitious with funding as every dollar invested in R&D generates $10 to $20 in GDP.ix As production intensifies on farms, more tools to decrease emissions autonomously will be needed.

Canadian public funding for agricultural R&D lags global peers

Millions $USD

 

RBC Economics, OECD, and Stats Canada

Public investments represent the largest source of funding for Canada’s agriculture R&D at CAD $ 450 million in 2020, but private in-house R&D lags by comparison at CAD $108 million.xxi And Canadian firms invest less on average in R&D than foreign firms. Corporations have contributed significantly to past innovations that ease labour shortages while making agricultural production more resilient to extreme weather events and improving quality and sustainability. However, for Canada to become the world’s most reliable and sustainable food exporter, further investments will be needed.

R&D can spur growth in the sector, but distribution among producers will be critical. Though capital expenditure in agriculture has risen faster than in other Canadian industries over the last 15 years the largest investments have been among crop producers.

Canadian agricultural firms trail global competitors in R&D spending

Expenditures as a percentage of revenues

2018

1.2%

Canada

 

5.2%

Foreign

2019

1.0%

Canada

 

3.8%

Foreign

2020

1.4%

Canada

 

4.6%

Foreign

RBC Economics, Statistics Canadaxii

World Comparison

Canada is not the only nation facing a labour and skills gap in its agriculture sector. These countries have already taken action to address shortages through unique policy programs:

Japan

The average age of a Japanese farmer is 68, making it the country with the biggest agricultural leadership challenge in the OECD. To ensure young farm operators enter the sector, the government provides them with income support for five years upon establishing their own farms. In addition, the launch of the Smart Agriculture program provides free advisory services for how to implement autonomous and mechanized solutions. The country has also established “pilot villages” that can demonstrate the effectiveness of new technologies.xiii

New Zealand

New Zealand is struggling to get young people and new producers to enter the sector. In 2014, the Primary Industry Alliance was formed among producers, universities, colleges, and public officials.xiiv The agriculture component of the program focuses on attracting new farmers through education and immigration. In addition, the government has engaged with the Māori community to increase its participation in the industry.

The Netherlands

Over 530,000 migrant workers are employed across the Dutch agriculture sector.xv While the Netherlands is increasingly reliant on these migrant labourers, it wants to increase its share of highly-skilled workers. To confront this challenge, the government established the Strategy for Green Education to attract students to the industry and coordinate education institutes to meet the labour needs of the sector.

The United States

Like Canada, the U.S. relies heavily on temporary labourers. However, as the rate of farm operators has declined, the demand for labour has only grown. There is funding for agricultural education programs in secondary schools and support for land-grant universities that offer advisory services to farmers. But the labour crunch is nevertheless forcing the average wage higher and has prompted many producers to invest in autonomous solutions.

Conclusion

The agriculture sector is facing a transformational skills and labour crisis. However, with the right approach, this acute disadvantage can become a generational advantage. By increasing the immigration of skilled farmers, encouraging colleges and universities to bring students of all backgrounds into the sector, and investing in innovative solutions to automate and reduce on-farm labour, Canada can lead the world into a new era of low carbon farming.

Budget 2023 was an opportunity to set ambitious goals that capitalize on Canada’s natural advantages in agriculture. While many of the measures unveiled provide temporary relief to various issues, the budget lacked a comprehensive vision for the sector’s future and the climate challenges it is encountering. The opportunity is there for farmers, governments and the broader agricultural supply chain to work together on this issue.

Meeting these challenges will demand a whole new approach that includes the participation of all of these stakeholders.

Success factors

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For more, go to rbc.com/the-next-green-revolution-project.

Download the Report

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Contributors:

Lead author: Mohamad Yaghi, Agriculture and Climate Policy Lead, RBC

RBC
Naomi Powell, Managing Editor, Economics and Thought Leadership
Farhad Panahov, Economist
Carrie Freestone, Economist
Darren Chow, Senior Manager, Digital Media
Shiplu Talukder, Digital Publishing Specialist
Gwen Paddock, Director, Sustainability & Climate – Agriculture

Boston Consulting Group
Youssef Aroub, Project Leader
Keith Halliday, Senior Director, Centre for Canada’s Future
Chris Fletcher, Managing Director and Partner
Thomas Foucault, Managing Director and Partner
Shalini Unnikrishnan, Managing Director and Partner
Sonya Hoo, Managing Director and Partner
Pilar Pedrinelli, Expert Consultant

Arrell Food Institute, University of Guelph
Evan Fraser, Director
Ibrahim Mohammed, Ph.D. Candidate, Environmental Sciences
Deus Mugabe, Ph.D. Candidate, Plant Agriculture
Lisa Ashton, Ph.D. Candidate

  • Dr. Joy Agnew, Associate VP of Applied Research, Olds College
  • Christopher Johnson, Senior Development Partner, Olds College
  • Dr. Danny Le Roy, Associate Professor of Economics, University of Lethbridge
  • Jeanna Rex, Arrell Food Institute, Education Coordinator, Arrell Food Institute at the University of Guelph
  • Beverly Agar, Senior Relationship Manager, Agriculture and Agri-Business, RBC

  1. Employment and Social Development Canada and RBC Economics,
  2. Statistics Canada 2021 Agricultural Census and RBC Economics,
  3. Statistics Canada 2021 Agricultural Census and RBC Economics,
  4. RBC Economics and OECD Skills for Jobs Database,
  5. Statistics Canada 2021 Agricultural Census and RBC Economics,
  6. Statistics Canada 2021 Agricultural Census and RBC Economics,
  7. OECD Education at a Glance Database and RBC Economics,
  8. OECD Education at a Glance Database and RBC Economics,
  9. Agricultural Institute of Canada, “An Overview of the Canadian Agricultural Innovation System.”
  10. Statistics Canada, and RBC Economics,
  11. Statistics Canada and RBC Economics,
  12. Statistics Canada, OECD Statistics, and RBC Economics.
  13. “Labour and skills shortages in the agro-food sector”, OECD Food, Agriculture and Fisheries Papers, No. 189, OECD Publishing, Paris, https://doi.org/10.1787/ed758aab-en.
  14. “Labour and skills shortages in the agro-food sector”, OECD Food, Agriculture and Fisheries Papers, No. 189, OECD Publishing, Paris, https://doi.org/10.1787/ed758aab-en.
  15. “Labour and skills shortages in the agro-food sector”, OECD Food, Agriculture and Fisheries Papers, No. 189, OECD Publishing, Paris, https://doi.org/10.1787/ed758aab-en.

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The Discovery

 


 

Canadian farmers manage one of the world’s largest inventories of agricultural land.

Canada’s vast area of cultivated agricultural land is the 12th largest globally.

 

 

This soil could be a powerful “carbon sink”.

Soil has the potential to store or “sequester” carbon, pulling it out of the atmosphere where it contributes to climate change. Canada’s agricultural land could sequester between 35MT and 38MT of annual GHG emissions—cutting about 25% of potential 2050 emissions, according to our estimates.

 

By using sustainable practices, farmers can unlock this potential, earn money and protect water, land and air.

Through practices such as cover cropping, reduced tillage and nutrient management, farmers not only increase soil carbon, they also improve water and air quality and preserve biodiversity.

 

The challenge: soil sequestration on Canadian cropland has fallen by 58%.

Degradation from heavy tillage and practices like mono-cropping (where a single crop is grown year after year on the same land), have halved the amount of carbon stored annually in agricultural soil over the last two decades.

 

And major financial barriers are deterring farmers from adopting sustainable practices.

Sustainable farming eventually enhances yields. But upfront costs (including for new equipment) and the potential for initial yield loss can pose significant obstacles. This is particularly true for farmers operating on slim margins.

 

To accelerate adoption of sustainable farming, we’ll need more money.

Financial incentives can boost farm income and assist producers with the costs associated with the transition. Storing 38MT of carbon in soil per year will require incentives of up to $4 billion annually. To secure those funds, we’ll need to find the right financial instruments and funding sources.

 

Insetting and government funding are currently the best mechanisms to inject this capital.

Carbon offsets will also be important. But uncertainties about systems to measure, report and verify soil carbon (MRVs) persist across all financial instruments. And Canada’s public funding for sustainable agriculture lags peer economies.

 

More reliable measurement, reporting and verification systems (MRVs) will provide the foundation for better insetting and offsetting.

But significant obstacles to MRVs persist, including the lack of standardization.

 

Betting on the farm:

Leveraging soil to fight climate change

For generations, Canadian farmers have been financially rewarded for the food they produce. The more bushels of wheat a farmer grows—and the greater price that commodity fetches on markets—the larger the return will be.

Yet by embracing sustainable practices, farmers also hold unparalleled power to cut emissions, and to improve air and water quality, soil health and biodiversity.

Tapping that power will require capital. While the current potential of sustainable agriculture is robust, the economics underpinning it are not. We’ll need to price in sustainable practices while supplying the funding and financial instruments to de-risk and incentivize their use. And we’ll need to rethink an economic system that wholly rewards agricultural production while placing little value on preservation.

These efforts—supported by national MRV protocols, and cross-industry partnerships—can be the foundation of a world-leading sustainable agriculture strategy.

What are MRVs?

Measurement: A tool monitors reduction of emissions by farming activity.
Reporting: The measurement is submitted to a third party verifier.
Verification: The third party verifier certifies emissions.

Agriculture could be a much larger source of emissions reduction and removal

Source: Elis (2021). BCG Analysis

What are insets and offsets?

Insets: Organizations directly avoid or reduce emissions within their own supply chains.
Offsets: Companies or individuals purchase tradeable credits generated by renewable energy or other emissions-reducing projects. This credit negates or offsets the same amount of carbon emissions created by the buyer.

Hitting pay dirt:

Three financial pathways to a more sustainable agriculture sector

In this paper, we examine three financial instruments that could boost carbon storage in soil and create other benefits: carbon offsets, carbon insets, and government funding. All of these tools are currently operating at varying scales. However, their potential to make an immediate impact on sustainable farming ranges.

Insetting is currently the most effective mechanism to incentivize farmers to adopt new practices. Though broad consumer demand for sustainable food has yet to develop, agri-food companies have displayed a willingness to pay more for sustainable inputs as a way to reduce emissions in their own supply chains.

Government support will also be critical in the early days of this transition. Yet as it stands, Canadian government funding is lagging that of its global peers. This discrepancy could put Canadian farmers at a disadvantage as sustainable and reliant food systems become more important in the global marketplace. In all cases, reliable measurement, reporting and verification systems (MRVs) are key. Offsets are particularly reliant on MRV trials to build a foundation of market integrity and trust. Developing these systems will take time.

1 | Carbon Offsets

  • Short-term: Challenged
  • Long-term: Important

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How do carbon offsets work?
  • ...
  • Projects
    Projects reduce or remove GHG emissions (for example, through direct air capture, reforestation, sustainable ag practices). Once the projects are validated, credits are issued and then verified by a 3rd party auditor.
  • ...
  • Offsetting
    Organizations or individuals can purchase external credits to offset their emissions.
For farmers, the return on offsets doesn’t add up

A farmer using sustainable practices receives roughly $8 to $13 in carbon credits per acre. But due to imperfect science and shaky measurement, a large portion of these credits may be withheld. That’s before multiple project costs deduct as much as 60% (35% for costs, 25% for fees) and another 20% for insurance. In the end, the farmer’s share is just $2 to $4 per acre, a sliver of total farm receipts.

Poor revenue

  • ~$8-$13

Carbon credits per acre

Large deductions

  • Costs – 35%
  • Fees – 25%
  • Insurance – 20%

Weak incentive

  • ~$2-$4

Carbon credit per acre after deductions

Source: Research on North American MRV trials; BCG analysis

The quality of carbon credits hinges on measurement

3 Main Types of MRVs

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Framework to identify high quality MRVs

Though every MRV is different, the most effective deploy the following:

Previous columnNext column
MRV Function Bronze Silver Gold
Soil sampling
Process-based models cross Checkmark Checkmark
At least two 3rd party certifiers to audit findings cross Checkmark Checkmark
Remote sensing cross Checkmark Checkmark
Assessment of life cycle inputs on farm or more than three best management practices cross cross Checkmark
Coverage of more than five field crops cross cross Checkmark

2 | Insetting

  • Short-term: Ready
  • Long-term: Important

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How sustainably-grown foods can cut supply chain emissions
  • ...
  • Farmers
    A network of farmers within a supply chain are selected to farm sustainably by incorporating new practices or expanding them.
  • ...
  • Companies
    Companies pay farmers more for this food, which helps compensate them for the costs and risk associated with transitioning to sustainable farming. Companies may absorb the added cost of this or pass it on to consumers in the form of a higher price or “green premium”.The process helps companies avoid or reduce Scope 3 emissions in their supply chains and better prepares for them for future regulations that may be more stringent. These supply chain initiatives can also be used for marketing purposes.
  • ...
  • Consumers
    Consumers have the option to purchase products that have been grown sustainably.
Most consumers won’t buy for sustainability alone1
  • 10%
  • of consumers are buying just to “save the planet”.
  • 10-30%
  • of consumers are willing to buy when sustainability2 is linked to other benefits such as health, safety and quality.
  • 40-60%
  • of consumers express concern for sustainability but are limited by barriers3 like income, cost and convenience.

1. Including shoppers often/very often purchasing sustainably and considering themselves as sustainable; 2. Including shoppers that sometimes buy sustainably; 3. Includes non-buyers that would be willing to pay a >5% premium at parity of other benefits.

But half of companies, including those in agri-food, will pay more

Source: BCG sustainability consumer survey (June 2022);
BCG project experience and analysis; BCG-WEF Report (2023)

Reasons given to pay green premium

  • Meet sustainability commitments (e.g. insets)
  • Gain advantage in faster growing markets
  • Secure supply ahead of future scarcity
  • Prepare for government regulation, (e.g. carbon price)
  • Capture customers willing to pay for and/or willing to stop buying for sustainability

3 | Government funding

  • Short-term: Ready
  • Long-term: Important

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Canada’s funding for sustainable agriculture lags peers

USA

United States

Total farm receipts1

$545B

Ag support as a % of receipts

$64B|12%

Climate funding as a
% of total farm receipts

~1.7%

Inflation Reduction Act (IRA) includes $27 billion for agricultural conservation and stewardship through 2031

Europe

European Union

Total farm receipts1

$699B

Ag support as a % of receipts

$122B|18%

Climate funding as a
% of total farm receipts

~1.8%

Common Agricultural Policy includes about $224 billion through 2027 for ‘climate-relevant initiatives’

Canada

Canada

Total farm receipts1

$83B

Ag support as a % of receipts

$8B|10%

Climate funding as a
% of total farm receipts

~0.5%

The Sustainable Canadian Agricultural Partnership could commit $500M in added funding, and $800 million in On-Farm Climate Action Fund & Ag Clean Tech funding

For more information see appendix

Recommendations:

Harvesting change
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Cover crops | Crops, such as clover, can be grown in the off-season after cash crops, increasing carbon storage & reducing soil erosionReduced Tillage | Reducing soil disturbance by limiting tilling in croplands improves carbon storage

Nutrient Management | Applying fertilizer from the right source, at the right rate, at the right time, and in the right place, using as little as required

Silvopasture Integrate trees, forage, and livestock grazing in the same area to improve soil nutrients and livestock wellness

Crop rotations | Planting different crops sequentially to improve soil health and nutrients, while combating pests and weeds

Manure Management | Manure can be turned into energy through anaerobic digestion or used as a natural fertilizer

Biochar | Converting crop residue (i.e., waste) to charcoal; when used as a fertilizer, it can increase carbon storage

For more, go to rbc.com/climate.

Download the Report

Download

Contributors:

Lead author: Youssef Aroub, Project Leader, Boston Consulting Group

Boston Consulting Group
Keith Halliday, Director, Centre for Canada’s Future
Chris Fletcher, Managing Director and Partner
Thomas Foucault, Managing Director and Partner
Shalini Unnikrishnan, Managing Director and Partner
Sonya Hoo, Managing Director and Partner
Pilar Pedrinelli, Consultant

RBC
Darren Chow, Senior Manager, Digital Media
Naomi Powell, Managing Editor, Economics and Thought Leadership
Mohamad Yaghi, Agriculture and Climate Policy Lead
Colin Guldimann, Economist
Trinh Theresa Do, Senior Manager, Thought Leadership Strategy
Zeba Khan, Digital Publishing
Aidan Smith-Edgell, Research Associate
Shiplu Talukder, Digital Publishing Specialist
Gwen Paddock, Director, Sustainability & Climate – Agriculture

Arrell Food Institute, University of Guelph
Evan Fraser, Director
Ibrahim Mohammed, Ph.D. Candidate, Environmental Sciences
Deus Mugabe, Ph.D. Candidate, Plant Agriculture
Lisa Ashton, Ph.D. Candidate

In addition to those cited in this report, we’d like to thank the following individuals for their insights:

    • Alison Sunstrum, Founder, CEO CNSRVX-Inc
    • Dan Lussier, Director, Canadian Agri-Food Data Initiative
    • Tim Faveri, Global VP, Sustainability & Stakeholder Relations
    • Michelle Nutting, Director, Agricultural and Environmental Sustainability, Nutrien Ltd.
    • Karen Haugen-Kozyra, President Viresco Solutions
    • Dr. Brian McConkey, Chief Scientist, Viresco Solutions
    • Anthony D’Agostino, Director – Commodity Markets, RBC
    • Marty Seymour, COO, Carbon RX
    • Gillian Flies, Co-Founder, Farmers for Climate Solutions
    • Matt Sawyer, fourth generation farmer, Acme, Alberta
    • Doug Whitehead, crop farmer, Manitoba
    • Julia Maria-Becker, Senior Manager, Sustainable Enterprise Solutions, RBC
    • Janay Meisser, Director of Innovation, United Farmers of Alberta
    • Derek Eaton, Director of Industrial Policy, The Transition Accelerator
    • Ryan Cooke, Research Associate, Smart Prosperity Institute
    • David Hughes, President and CEO, The Natural Step Canada
    • Kristjan Hebert, Managing Partner, Hebert Grain Ventures

Appendix

Canada
The Sustainable Canadian Agricultural Partnership includes $3 billion over 5 years. About $1 billion is through federal programs and activities, of which $690M goes to innovative and sustainable growth including the AgriScience program to tackle pre-commercial and other research. About $2 billion is dedicated to supporting sustainable agriculture, equipment purchases, training, and scientific research.The $200 million On-Farm Climate Action Fund was distributed through 12 organizations across Canada. These will dispense money to help farmers adopt sustainable practices. Provinces are also establishing or managing their own carbon trading systems where producers can sell agricultural carbon credits. Alberta and Quebec’s offset systems are well established, while Nova Scotia and Saskatchewan are in the process of launching their own approaches.United States
The Inflation Reduction Act (IRA) is the largest piece of federal legislation to ever address climate change, increasing the pool of funding for conservation efforts by US$20 billion. It expands the Partnerships for Climate-Smart Commodities program which seeks to remove 50 million metric tons of carbon dioxide. It has allocated US$3 billion to 141 projects on crop and livestock farms across all 50 states and Puerto Rico. And it involves collaboration among more than 100 universities, 20 tribes and tribal groups, and 60,000 farms, on over 25 million acres of working land. The project will remove the emissions amounting to the equivalent of 12 million gas-powered vehicles.

European Union
The Common Agricultural Policy (CAP) program was revamped in 2022. It includes €387 billion, a third of the EU’s entire 2021-2027 budget, to assist in the transition to Net Zero farms and rural communities. Its goal is to cut greenhouse gases by 55% by 2030—in line with EU’s Green Deal targets. In all, 40% of the CAP’s financial plan is explicitly dedicated to climate relevant activities and a further 10% of the EU’s budget outside the CAP is directed towards biodiversity efforts.

Australia
The Emissions Reduction Fund is Australia’s flagship program for fighting climate change. It supports farmers, businesses, and rural communities in decreasing greenhouse gases by providing carbon credit units that can be sold on to public or private buyers. The scheme actively promotes soil carbon projects by sharing the upfront costs of soil sampling. The program expects Australian farmers to earn over AUD 400 million from the sale of credits from soil carbon sequestration by 2050. The federal government is also dedicating AUD 64 million in funding to promote the development of soil carbon measurement technologies and an additional AUD 54.4 million to encourage active soil testing and national data sharing.

Brazil
Brazil is offering farmers low-interest loans through the ABC Plan. Farmers are given credit and financing options to adopt sustainable farming practices like no-till, intercropping, crop rotation, and recovering degraded pastures. Launched in 2010, the program was recently revamped with the goal of storing 41MT annually of carbon dioxide over 177 million acres of farmland across the country. In its last financing round, over 62,000 contracts were signed. This made Brazil the second highest ranked nation in the world for no till farms (around 18% of Brazil’s total agricultural land).

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Move over, tree huggers. Potato farmers, urban planners and mountain bikers are the new vanguard of biodiversity. Call it Conservation 3.0. The big UN biodiversity conference in Montreal this week will see a shift from forests to finance as the host country Canada looks to capitalism to unleash trillions of dollars needed to protect and enhance nature, and fight climate change. If Conservation 1.0 was about ring-fencing nature, going back to the tragedy of the commons in the 1800s, and Conservation 2.0 was about integrating nature and development, a new chapter of biodiversity thinking has turned to the economics of ecology. With a capitalist bent. Nature as an “asset class” will be a major theme at the United Nations Conference of the Parties—yes, another COP—as the UN tries to advance its Convention on Biological Diversity. Over the past 30 years, since the first Earth Summit in Rio, the world has slashed our natural capital per capita by 40% while doubling production per capita. It’s not all bad news. Nature United figures soil, trees and water could absorb 37% of current greenhouse gas emissions. But we need to move fast to restore what’s been lost. Canada is pushing countries to adopt a 30-by-30 goal, to ensure 30% of nature is protected by 2030. The UN says we will need to get to 50% to mitigate climate change, too. Here are some ways business can help restore and enrich nature:

1. Give nature a business model

Business models can be anathema to some nature lovers, but they may be the only way to generate the revenue needed to attract capital to enhance forests, land and water. The current gap is about US$700 billion, far more than governments and philanthropists can cover. But here’s the thing: nature already powers our economy, accounting for roughly 12% of GDP, and is critical to countless businesses beyond extractive sectors like mining and forestry. According to the World Economic Forum, as much as half the world’s economic output—US$44 trillion—is highly dependent on nature. Just ask a coalition of resorts in Cancun, Mexico that are investing in coral reef protection. No reef, no business.

2. Set finance loose in the wild

Finance is already creating opportunities for nature, and will need to do a lot more. Consider a bike park in Akron, Ohio. The city was able to protect forests where bikers, rather than builders, could roam, and financed it with bonds backed by increased taxes from tourism. More significantly, governments are using green bonds to finance conservation, appealing to investors who want their money to support biodiversity while also generating funds to restore habitats. We’ll need a lot more. Of the US$632 billion of climate capital invested in a typical year, only 2% goes to nature.

3. Think inset, not offset

The race to Net Zero has inspired many companies to buy carbon offsets that finance nature-based solutions such as the planting of trees. A bigger opportunity may lie in “insets” that allow companies to pay for natural climate solutions through their own supply chain. Among the most popular insets now are “soil capture” investments that see farmers adopt regenerative agriculture practices, such as cover cropping, in return for money from food producers and retailers trying to reduce their own footprint. It’s not only economically powerful, but it helps companies trace the roots of their production back to nature.

4. Develop nature-minded housing

Canada is going to see more tensions between people and nature as our population grows by 500,000 a year through immigration. That will require a lot of new housing development, as the debate over Ontario’s Green Belt has shown. But the debate needn’t be binary, between sprawl and condos. Innovative urban design—and suburban design—is showing how more housing can be built sustainably using nature corridors, integrated wild lands and small-scale farming in the same vicinity.

5. Eat as if our lives depended on it

One reason for this year’s food crisis is that too much of the world’s diet depends on a small range of crops and animals. Roughly 75% of the world’s food comes from 12 plant and five animal species. Regardless of your food preferences, diversity is the spice of nature. It not only provides more interesting meal choices, it makes us all less dependent on monocultures. The World Economic Forum estimates US$310 billion in business opportunities—equivalent of another Singapore—could be generated annually if we enhance biodiversity in our food systems.

6. Reward nature as your star talent

Every good asset manager knows you have to reinvest some of your proceeds if you want to keep growing your assets. A more capitalist approach to nature would see us place a clearer price on biodiversity, just as we have with carbon, and then funnel some of that price into restoration and enhancement. Such investments would be good for the economy, too. Consider natural sea walls that not only protect cities but help nurture sea life. Or storm sewers that keep runoffs from wiping out forests and fields. Just as with climate, we will need new accounting methods and systems to measure the costs and benefits of nature, and build them into our economic equations.

7. See nature tech as a growth sector

Seems paradoxical to apply artificial intelligence to nature but scientists are—and it’s working. According to a Worldwide Fund for Nature (WWF) study, general purpose technologies like AI, remote sensors and environmental DNA are quickly helping us do more than count trees. Sophisticated AI-driven models linked to satellite imagery and ground sensors are allowing countries to map their natural assets and measure both depletion and growth. After all, what gets tracked gets measured, and what gets measured gets managed. With billions of dollars flowing into biodiversity, nature tech may just become a new asset class of its own.

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The backdrop for the 27th United Nations Climate Conference was always going to be an odd one.

Sharm El-Sheikh is a beach resort town built by the Israelis during their occupation of the Sinai Peninsula in the 1970s, and dedicated pretty much to the hedonistic pursuits of European and Arab charter groups. Picture a faux Roman amphitheater, a Hollywood theme park and 10-lane highways through the desert. And then picture 30,000 climate actors, advocates and activists crowding into the Tonino Lamborghini International Convention Centre to tackle, without a hint of irony, the future of our consumption-based society.

From the get-go, COP27 had to be a kind of Truman Show of climate conferences—a conceit wrapped in a bubble, cloaked in a narrative at odds with reality outside. In the centre of that bubble, in a “blue zone” of temporary hangars that gave the feel of a military encampment, climate visitors tried their best to draw in the world and project their intentions back. The stakes were otherwise too high. But the odds of success were also daunting.

During a year of economic disruption, this was a critical chance to reconcile the growing tensions between energy security, climate security and economic security. Here are some of my takeaways of what was achieved and what was not.

1. The “Implementation COP” needs more implementers

COP26 in Glasgow was all about ambition, with nations committing to deeper emissions cuts by 2030 to ensure the world meets its Paris agreements. Sharm El-Sheikh was meant to be about implementation plans, and how countries can do what they say. Five G7 leaders came: France’s Emmanuel Macron, Germany’s Olaf Scholz, Italy’s Giorgia Meloni, Britain’s Rishi Sunak and America’s Joe Biden.

They each must have noticed a sign, “Act Now,” on their way into the main hall. The European Union upped its goals—remarkable given its energy crisis. So, too, did Indonesia. Canada noted the prevalence of climate action, from carbon capture projects in Alberta to green steel mills in Ontario and manure methane plants in Quebec.

Biden, in his keynote speech to COP27, recommitted the U.S. to its promise of cutting emissions by 50% from 2005 levels by 2030, a key part of his presidency. Businesses, too, came with greater commitments; there’s been a ten-fold increase in companies with science-based climate targets since 2019. But those implementers are still a minority. Among 196 countries, only 29 came to Egypt with revised action plans.

2. 1.5 may not be alive for long

A signal achievement from Glasgow was the endorsement of the 1.5-degrees-Celsius imperative–that is, all climate action needs to contribute to containing global warming to that threshold, after which catastrophic results accelerate. “Keep 1.5 alive” was the Glasgow mantra, as it’s the threshold at which, according to the UN climate scientists, we can say goodbye to coral reefs such as the ones off the beach at Sharm. To contain temperature increases, the world needs to cut emissions by roughly 50% this decade.

Instead, we saw emissions rise 1% last year (even more in the U.S.) and are on course for a 10% increase this decade.

A draft Sharm declaration maintained the rhetorical commitment to 1.5, but in the corridors there was a striking number of questions about the authenticity of such commitments, and whether the world should begin focusing on a more realistic ambition, such as “well below 2.0 degrees.”

3. Coal’s not dead

Glasgow declared a death knell for coal. What a difference a year makes. Germany is using more coal. China and India, too. But it’s not inevitable.

If COP27 can claim meaningful success, it might be through the curiously named JET Partnership, for a Just Energy Transition. The partnership of wealthy nations and financial institutions is designed to help developing countries wind down coal. JETP had its first partner in South Africa, and moved quickly at COP27 to sign on Indonesia, to help it reach peak power sector emissions by 2030 and get to Net Zero by 2050. Vietnam may be next.

The costs are enormous, and raise concerns about burdening poorer countries with more debt–and likely seeing them shift from coal to natural gas, which still warms the planet.

But the effort also misses the elephants in the room. China consumes 50% of the world’s thermal coal; India close to 20%. Neither is moving quickly away from it.

In fact, India sidetracked the COP discussions with a provocative challenge of its own, to cancel coal when the rest of the world agrees to cancel oil and gas. There weren’t many takers. African nations were among the most vocal at COP27 for an enhanced role for gas, which they see as an essential energy source as they transition away from coal and wood.

4. The oil COP?

Sharm El-Sheikh proved to be a good summit for the oil industry. For proof, you only needed to look out your window on the drive in from the airport. A 10-lane road, financed by the Saudis and named for King Salman, took COP-goers past another striking display of Saudi swagger.

The green-lit, twin-dome Saudi Innovation Park, built in a patch of desert next to the main conference centre, was an early indication of how the oil world, led by OPEC, has shifted to its front foot.

UN Secretary General António Guterres kicked off COP with a provocative metaphor—“a highway to climate hell with our foot on the accelerator”—that captured the point, but his PR machine met its match on the test track. The Saudis, who share the Red Sea with Egypt, vowed to increase oil production and intend to produce oil past 2100. The United Arab Emirates, who will host COP28 in Dubai, described the region as “superheroes.”

The Arabs argue they will develop carbon capture and storage (CCS) technologies that will bring their net emissions to zero. Indeed, the Saudis plan to open the world’s biggest CCS facility by 2027. Environmentalists have fought to marginalize so-called abatement technologies, to ensure they don’t facilitate more fossil fuel production. Expect that debate—reduction versus abatement—to define the Dubai COP.

5. A loss for developing countries; damage for the UN

If host Egypt had one ambition for COP27, it was to win global support for “loss and damages”—a popular term that essentially translates as compensation for countries hardest hit by climate change and least able to pay for it.

Pakistan was a poster child for Egypt’s campaign; the diplomatically savvy South Asian country used pretty much its entire COP presence to advocate for a mechanism to compensate it for some of the estimated US$30 billion in damages it has suffered from this year’s floods caused by global warming and early snowmelt.

Sadly, the Egyptians didn’t think through the levels of concern from the wealthy countries they hoped would pay. The U.S. has a deep allergy to anything in the UN that hints at reparations, not least because of legal fears (never underestimate the influence of government lawyers) over unlimited liabilities. A draft agreement recognized Egypt’s concern, but offered only pennies to the dollars that developing countries were pushing for.

6. America’s back. China’s not

A striking feature of COP27: America’s climate ambitions. Fresh from midterm elections that kept the Senate in Democrat hands, Joe Biden landed in Sharm El-Sheikh en route to the G20 summit in Bali, Indonesia, to promote his Inflation Reduction Act and the US$370 billion it will allocate to climate.

His administration has a tech-forward approach, betting on five key technologies: batteries, heating and cooling systems, electricity grids, aviation fuel and de-carbonization of the chemical, steel and cement industries. It’s clear the U.S. is going to use more carrots than sticks to get to its 50% emissions cut and assert itself globally as a clean-tech superpower.

A few years ago, China wanted that mantle. Today, it’s a diminished power as the Xi regime struggles with a hostile relationship with Washington, rapidly aging demographics and COVID lockdowns. China has not abandoned its green ambitions as it’s still one of the world’s leading developers of wind and solar power, and electric vehicles. But Beijing’s no longer the climate champion it was during the years of US President Donald Trump, nor is it a leader of nations. The rest of the world may be more dependent on the U.S. than ever. For better and worse.

7. #WTF: Where’s the finance?

There are not a lot of economists at a COP, which is too bad, because economics drive political action. No more so than when money’s getting tight. The sharp rise in interest rates this year is quietly becoming a drag on climate policies, especially in developing countries.

Few appreciate this more than Mark Carney, the former central banker who helped launch the Glasgow Financial Alliance for Net Zero at COP26. Carney’s alliance now consists of 550 financial institutions in 50 countries, representing trillions of dollars in assets. It’s a grand coalition with a grand promise to mobilize capital for Net Zero—and it’s leading to a grand array of criticisms.

Carney came under fire at COP27 for overpromising and under-delivering; for most developing countries, the capital hasn’t arrived. The concern even fuelled a COP-meme, #WTF, as in “where’s the finance?” One reason is a lack of sufficiently large projects.

Egypt tried to bend that curve at this COP, announcing a massive renewables project. Carney believes the world needs US$1 trillion a year of projects like that to quadruple the ratio of renewable energy to non-renewable investments to 4:1. The capital is there. But a challenge lies in the U.S. Federal Reserve’s aggressive campaign against inflation, which has jacked up U.S. interest rates and attracted a lot of capital to, well, the U.S.

8. Agriculture, the new climate champion

Believe it or not, this was the first COP where agriculture took centre stage. Pretty surprising when you realize the food supply system accounts for roughly a quarter of global emissions.

The UN, and many of its members, have shied away from tackling agriculture as they don’t want to alienate farmers, who are central to global development. But increasingly, agriculture is viewed as a climate solution—perhaps even a net positive to the world if farmers can turn their soil into profitable carbon sinks. With a newfound spirit of ag innovation, the conference devoted a day to agriculture, and the “blue zone” of pavilions had plenty on display from every continent.

More sustainable fertilizer practices and lower emitting fertilizers will be key. So, too, will new technologies like anaerobic digesters that turn animal emissions into energy. China, which accounts for 20% of the world’s methane, needs to be a leader on that front.

But the most contentious opportunity may be regenerative agriculture—a series of practices like cover cropping and no-till farming that ensure soils capture and sequester greenhouse gases. The U.S. is racing ahead with voluntary markets that will allow companies and investors to pay farmers for harnessing their soil in return for carbon credits. Other countries are more cautious, knowing soil science isn’t quite advanced enough to prove how much has been captured or stored.

9. Hello, atmosphere. The ocean’s calling. Rainforests, too

This was also the first COP where oceans got a serious look. That’s appropriate as Sharm El-Sheikh is not just a desert town; it sits next to some of the Red Sea’s finest coral reefs, which face extinction if more progress isn’t made.

I sat in on a session with Prince Albert of Monaco, Sylvia Earle, the great oceans champion, and Johan Rockström, a pre-eminent climate scientist with the Potsdam Institute for Climate Research. Rockström explained what rising temperatures are doing to the world, and to oceans.

The Arctic is already 2C degrees warmer, which is not only leading to ice shelves disappearing into the sea; it’s disrupting air currents and leading to heat waves like the one that engulfed Western Canada in 2021.

Some 93% of that excess heat is absorbed by oceans in a massive energy transfer that’s changing life deep below the surface. Global ocean heat was at a record high in 2021. Cue the storm surges. This kind of interplay between oceans, land and air has been appreciated by scientists for centuries but lost a bit of its imperative in recent years. That’s changing, as biodiversity and climate are again seen as two sides of the same coin.
It will be a central theme of the UN Biodiversity Conference in Montreal in December, and got a big endorsement in the final days of COP27 from the incoming Brazilian president, Luiz Inácio Lula da Silva. Lula, as he is universally known, got a bigger cheer than Biden, pledging to renew the fight to save the Amazon. It won’t be easy, not when an anxious world is looking for economic growth more than natural growth. But Lula’s message on biodiversity was clear: “There is no climate security for the world without a protected Amazon.”

10. Whose COP is it anyway?

This was the first COP in memory where Canada had a national pavilion. It wasn’t techie like India’s pavilion next door, or bold like America’s. But it did, in that Canadian way, stand out as inclusive. With a design that felt a bit like an upscale donut shop (there was even free coffee), the venue gave voice to more views and experiences than perhaps any other I saw.

Activists, Indigenous leaders, corporate executives, mayors, entrepreneurs, investors—it was Canada in full. And in a way that’s an enduring challenge for COP. This one, in Egypt, adhered to the strict laws and security standards that barred any serious form of protest. Even Greta Thunberg, the young environmental activist, didn’t see the point in being there. Across a major road, a Green Zone was set up for community groups and activists, and was actually more interesting and enjoyable than the conference halls. But even there, one didn’t get the impression the world was on edge.

COP benefits from a diversity of voices, which has grown over the years. Only the most arrogant or naïve delegates believe they have a clear answer to the world’s challenges, and only they would not welcome differing views.

As the world adds Sharm El-Sheikh to a long and growing list of COP hosts, and turns its mind to Dubai, that curiosity will be needed more than ever. It may just be Canada’s best contribution to COP28, and beyond.

John Stackhouse is senior vice-president in the Office of the CEO at Royal Bank of Canada, leading the organization’s research and thought leadership on economic, technological and social change. Previously, he was editor-in-chief of the Globe and Mail and editor of Report on Business. He is a senior fellow at the C.D. Howe Institute and the Munk School of Global Affairs and Public Policy and sits on the boards of Queen’s University, the Aga Khan Foundation of Canada and the Literary Review of Canada.