Climate Action Institute Archives

Good Cap, Bad Cap?

It’s here at last—but not there yet. The federal government unveiled its much hyped (and to some, much feared) oil and gas emissions cap “framework” at the midpoint of COP28, laying down its most ambitious climate policy to date. No other oil and gas exporting nation has placed a cap on emissions. Now Canada—the world’s fourth largest oil producer—is aiming to cut emissions by 35-38% by 2030. To get there, the government wants to limit the sector’s emissions and establish a cap-and-trade system that would charge producers for going over the limit and put the money into clean tech funds or, if necessary, carbon offsets. The big oil producers think they’re already on a course to hit those targets, using abatement technologies like carbon capture, but won’t get there until the mid-2030s. And then there’s jurisdiction. Alberta has been quick to say Ottawa doesn’t have the right to tell provinces how to manage their natural resources. Ottawa put the cap framework out for 60 days of consultation. Here are some of the questions we’re wondering:

What will oil and gas demand look like in the 2030s? The feds have gone with a forecast from the Canadian Energy Regulator that shows oil production higher in 2030, at 5.1 million barrels a day, with most of the increase coming from the oilsands and Trans Mountain pipeline expansion project. Gas production will remain steady, while LNG exports will be much higher. If nothing were done, the sector’s emissions would go from 174 megatons in 2019 to 199 MT in 2030. But with abatement technologies, emissions are forecast to come down to 134 MT, which would fit within the cap.
Where’s the money? The sector won’t come close to cutting emissions at that scale without massive subsidies from Ottawa and the provinces. Exhibit A will be the Pathways Alliance, a group of oilsands companies looking to build a massive carbon capture and sequestration project for their emissions. They’re still negotiating the terms with government and expect to have a memorandum of understanding within weeks. But they will need to see clear financial commitments before breaking ground. That includes a lot more clarity from Ottawa on its proposed investment tax credits, which currently are set to expire in 2030.
Can Ottawa set up a credible tech platform? Companies are likely to push for the right to channel their own money into their own clean tech projects, subject to emissions commitments. Others will push for an independent fund, or something like Emissions Reduction Alberta, to collect money from emitters and then disburse it to credible projects. The amounts will run into the billions, which could help position Alberta as a global leader in the energy transition. Or create a trail of boondoggles.
Can the cap include a cleaner approach to offsets? The cap framework offers up a lot of flexibility for offsets, including international ones, to help those emitters who can’t get their emissions down in time. Trouble is, the global offsets business has faced growing criticism this year, largely over the integrity of climate-positive activities like forestation and land protection. The credibility of the cap will be determined in part by the credibility of the offsets that companies buy.
What do other provinces think? All eyes are on Alberta and whether the federal cap can work harmoniously with the provincial system. But the challenges of “interoperability” don’t stop there. The cap also applies to British Columbia’s LNG ambitions, Newfoundland’s offshore oil dreams and Saskatchewan’s conventional oil business, each operating under a different emissions regime. Each province may want its emissions payments to remain at home, but an open market may be needed for more options.
How much flexibility will there be? It’s extremely ambitious to think the sector can cut its emissions by 2030. So the framework includes some important “shock absorbers” that allow for production swings— oil and gas markets are volatile, if nothing else — and also possible delays in technology. The framework offers up something called “multi-year compliance periods” that sound a bit like a homework extension of three years should carbon reduction projects not come together by 2030.
Will anyone go to jail? Penalties for non-compliance are, so far, vague, ranging from a warning letter to possible imprisonment under the environmental protection laws that will house the cap. The lack of clarity on enforcement measures will continue to cause anxiety among executives who have to make the whole thing work. A good cap will need a good cop.

After a winter of consultations, the feds will have to spend another year, in all likelihood, crafting the cap into law. And by then — if not before — Canada will be in the heat of election battle. Which means all this may be a prelude for an epic national debate about the future role of oil and gas in our economy.

If there were any doubts how far climate has fallen down Santa’s wish list for the Trudeau government, read Chrystia Freeland’s Fall Economic Statement. She delivered the government’s annual economic strategy without once mentioning “climate change” or “environment.” (“All I Want for Christmas is Two” could be her holiday jingle, as she dreams of 2% inflation.) Such a narrow consumer focus may be bad news for her green caucus. But Freeland’s renewed focus on execution may be welcome. In her government’s strategy for the “clean economy”—Ottawa speak for climate—she made a few things clear.

First, the new Canada Growth Fund will allocate roughly half its $15 billion funding for “carbon contracts for difference”—essentially carbon price guarantees if government policy changes. That’s a lot of money but may not be enough to underwrite a clean economy. Second, the government will soon introduce legislation for investment tax credits for carbon capture and clean technology projects, which were promised a year ago but never finalized. They will be critical to decarbonization projects, and there is some concern they’re still not competitive with U.S. incentives. Ottawa is also pushing ahead with its hydrogen agenda, promising tax breaks for ammonia, and giving more incentives for waste biomass (wood chips and crop residue) that can be used in sustainable aviation fuel. To attract more capital, Freeland gave the green light for a “taxonomy” to help banks and pension funds label investments as “green” or “transition,” and she will push pension funds to invest more in Canada’s “clean economy.”

How a taxonomy treats natural gas will be contentious, as will another Freeland proposal: a national Indigenous loan guarantee. Will Ottawa limit what Indigenous communities can buy, depending on its climate impact? A group of 130 Indigenous nations were quick to say, not a chance. After centuries of colonization, they’ll pick their own projects, including natural gas, thank you very much. Such debates will dominate the winter term, as the Trudeau Liberals try to show they can manage the current economy and help build a new one.

The weather in Ottawa turned gnarly this week, as did the politics around Net Zero. Is this the winter of our climate discontent? I spent Thursday at the Canadian Climate Institute’s third annual conference, and it was hard not to feel a change in weather. The sunny ways of the past decade are now clouded by economic reality, as governments (and consumers) look increasingly for economically minded ways to decarbonize our world. The days of free money are gone, which is undermining venture capital and all those innovators trying to create and scale new energy technologies. Governments (like consumers) are running low on fiscal gas, which will limit the billions they had hoped would stimulate climate action. The mood for regulation also seems to be dwindling, judging by the Trudeau government’s muted presentation of an oil and gas emissions cap (now called a “framework”) at the event. And then there’s all that global volatility—two hots wars and a cold one—that’s got energy markets (and market confidence) everywhere on edge.

Looking to 2024, the outlook for climate action may seem dark. But if there’s hope, it’s in private sector. This year’s CCI conference had a greater business focus, with steelmakers, oil producers and builders sharing their plans to decarbonize—not just for the planet but for their own competitiveness. That was also a clarion call from the Biden Administration, which sent its top energy diplomat to Ottawa this week to talk up business-led climate action. Geoffrey Pyatt laid out how the Inflation Reduction Act is transforming America’s energy systems (and its competitiveness), creating significant opportunities for business and trade for its allies. On that count, Pyatt wanted to know about Canada’s “political geography,” and how we can fit into a continental energy strategy that will include oil, nuclear, hydrogen and natural gas. In other words, climate security is now energy security, and both are about national security. The climate crowd didn’t embrace every word, but they did get the message. It’s a new season.

I visited Winnipeg last week and there’s a new energy in the air. The election of Wab Kinew as Manitoba premier—one of the first Indigenous persons to lead any province—has put a new spotlight on the province, its role in reconciliation and leadership in the race to Net Zero.

I met with Premier Kinew to discuss his climate policies, insights from the RBC Climate Action Institute, and whether Manitoba could be a new model for Canada’s transition. He kept returning to a single word: hydrogen. His NDP government wants to make Manitoba a green hydrogen hub, even though the province is running short of surplus industrial power. Kinew is also keen to advance electric vehicle adoption, especially for the buses, trucks and farm machines that account for a third of Manitoba’s emissions. He has a hometown advantage in New Flyer Industries, a global player in electric and hydrogen buses, but needs a growing economy to finance the transition.

More electricity generation and transmission will be an added challenge for Kinew’s promise of reconciliation. His province’s population is 20% Indigenous, the highest in Canada, and new projects will face growing tests of “free, prior and informed consent.” The same challenge will face the NDP’s promise of critical minerals production. (The province claims to hold 29 of 31 key minerals, including lithium.) Kinew said he is hoping to see “enthusiastic consent” exhibited through business partnerships.

Manitoba’s other great climate opportunity? Agriculture. I visited the University of Manitoba’s Glenlea Research Station, south of Winnipeg, to see Canada’s oldest soil sequestration test site, aimed at capturing greenhouse gases. The station is also developing technologies to capture gases from the province’s four million cows, hogs and pigs.

Manitoba is home to only 1.4 million people. It will need all the climate tech it can develop to harness their—and the province’s—energy.

Why we wrote this

Last fall RBC partnered with BCG’s Centre for Canada’s Future and Arrell Food Institute at the University of Guelph. We set out to explore what we believe is Canada’s moonshot: to produce 26% more food by 2050 (enough to maintain our contribution to the global population as it grows) with fewer emissions. The result was The Next Green Revolution: How Canada can produce more food and fewer emissions.

Throughout the past year, here’s what we learned:

Canada is uniquely placed to lead: Our assets are unparalleled, but we need to do more to maximize them. Other nations are allocating substantial funding to promote climate-smart agriculture. Canada can proportionally match those investments while establishing new market mechanisms to help finance agriculture’s sustainable transition.
Nothing will happen without accurate measurement technology: Tools to monitor emissions accurately (especially carbon sequestration in soil) are essential to building markets and helping producers take advantage of them.
Cross-sector collaboration is key: A successful transition to Net Zero demands a new approach. It requires public-private actors across the fragmented agriculture supply chain to work together, as one sector, toward a single vision.
Private sector R&D is insufficient: Canada has invented some of the most important agricultural technologies globally. But private sector funding for innovation is at an all-time low. To remain leaders in this space, we’ll need private actors to invest.
Skills gaps are limiting growth: The sector requires more workers to drive the Net Zero transition. From on-farm managers to data analysts, qualified workers and advisors are desperately needed on Canadian farms, but post-secondary funding is insufficient.
Early adopters should be rewarded: A significant number of producers across Canada have engaged in climate-smart agricultural practices for years—if not decades. These pioneers could be left out as programs develop to financially incentivize farm operators making their first transitions to better soil health methods. To continue growing current carbon stock levels, early adopters must receive a financial benefit for their continued contributions.
The world needs Canada more than ever: With global supply chains under stress from the Ukraine-Russia War and extreme climate events, many countries are facing food shortages or unstable supply lines. As a politically stable country, and a reliable supplier of safe, high-quality food, Canada has an opportunity to become the world’s sustainable breadbasket.

Key takeaways

The building sector is the 3rd most carbon intensive industry in Canada, accounting for 13% of all emissions in 2022, or 92 million tonnes (MT) of CO2e. Canada aims to cut that amount to 53MT by 2030.
Widespread adoption of wood, specifically mass timber, as a substitute or complement to concrete and steel could cut embodied emissions in buildings by as much as 25%.
Mass timber deployment in new apartments, condos, and office towers could cut emissions by at least 9MT, or nearly 10% of the sector’s emissions, by 2030.
Aside from emissions savings, greater use of mass timber in building construction could conservatively grow the mass timber market by $1 billion by 2030. A share of this growth is anticipated to flow to Indigenous communities as they are in the employment catchment areas for logging sites, sawmills and mass timber manufacturing facilities.
Addressing the cost of construction and occupancy insurance, and mismatch between supply and demand is essential before Canada can achieve emissions savings, economic, and job growth opportunities.
Canada has all the puzzle pieces required to become a global leader in mass timber. The country’s climate commitments are an opportune time for all players in the building sector to come together to act on this collective ambition.

British Columbia And Quebec Spearheading Canada’s Timber Drive

Completed mass timber projects, 2022

Source: Natural Resources Canada’s Mass Timber database, RBC Climate Action Institute

661

The number of completed mass timber projects in Canada

87%

B.C., Ontario & Quebec’s share of Canada’s mass timber projects

The number of storeys permitted for mass timber projects in Canada

A 10-storey building rising near Toronto’s Harbourfront may not stand out among the crush of the city’s skyscrapers, but as an environmental statement it stands tall. George Brown College’s Limberlost Place is a mass-timber-and-glass structure with ambitions of being a net-zero carbon emissions building. It’s an idea whose time has come. While towering steel-and-concrete structures once symbolized economic growth, they are now emblematic of the climate challenge that needs to be scaled. The extensive use of carbon-intensive cement, steel and aluminum in buildings has made it the third most emissions generating sector in Canada, accounting for 92 MT of CO2e¹, or 13% of all emissions in 2022. Rising populations, continued urbanization and a rush to develop multi-storey concrete buildings to address a housing supply crisis could make it harder to rein in emissions. Canada can tap into its rich forestry resources to create a global market for large beams, panels and posts made of treated wood, that can potentially replace concrete and steel or dramatically cut their use—and their associated emissions. The rise of Limberlost Place, and the smattering of similar structures dotting Canada, suggests we may be on the cusp of the next wave of sustainable buildings: made with low-carbon mass timber and assembled like an Ikea wardrobe to help bring down emissions.

What is mass timber?

Mass timber products are solid, structural load-bearing building components such as columns, beams, and panels . They have similar fire and seismic performance as concrete and steel but are significantly lighter in weight. Mass timber can be a substitute for steel and concrete in low and mid-rise buildings. For taller buildings mass timber is typically used in conjunction with concrete and steel, where concrete is used for a building’s stairwell and elevator core and steel is used for columns.

Rise of mass timber

The emergence of mass timber in Canada as a complement and alternative to concrete and steel first emerged in 2007, with the completion of several commercial and institutional buildings in British Columbia, Ontario and Quebec². These include the College of the Rockies Kootenay Centre South in Cranbrook, B.C., the Winnipeg Humane Society in Manitoba, and the OslerBrook Golf Clubhouse in Collingwood, Ontario. Prior to this point in time, national and provincial building codes did not permit the use of mass timber. Canada now boasts 661 completed mass timber projects. The United States, in comparison, has about 356 completed projects. Governments or colleges/universities commissioned most of the early commercial and institutional buildings. And while they still dominate the building type mix, there’s a notable shift to multi-storey residential buildings, driven by private developers and builders. Today, a third of all planned and under construction mass timber projects are residential multi-storey projects.

Insight

Wood first: B.C.’s Mass Timber Playbook

Several enabling policies has made British Columbia a leader in the use and production of mass timber within Canada and internationally.

The long-time champion of its forestry sector and its products, B.C. introduced The Wood First Act in 2009, with the mandate to use wood in provincially funded buildings. The “wood first” procurement approach for public projects continued with successive governments and culminated with the establishment of the Office of Mass Timber Implementation in 2020. A Mass Timber Demonstration Program was announced in 2020 to support early adopters of mass timber, such as Adera Development, to accelerate wider adoption of this low-carbon building material. The province remains quick footed in addressing regulatory barriers, specifically building code requirements. British Columbia was the first province to permit six-storey wood frame residential buildings. When the National Building Code of Canada (NBC) was revised, in 2020, to permit 12-storey mass timber buildings, the province followed suit, even though the NBC was not finalized.

The province leveraged its abundant forestry resources to mirror the playbook used by many European countries to promote mass timber. Countries with sizeable forestry sectors, such as Austria, Germany, Sweden and Finland were some of the first European countries to remove building code restrictions on wood—the most significant obstacle to mass timber use and adoption. Recognizing that government support is often needed to commercialize and scale widespread adoption of new products, these governments also provided project development, and research and development grants for builders and developers to build with mass timber.

The 9 MT emissions imperative

12-25%

Drop in buildings emissions if developers swap concrete & steel with mass timber

Concrete, steel and aluminum’s contribution to Canada’s emissions

Decline in building sector emissions due to widespread use of mass timber

Concrete and steel’s emissions profile is 6 and 5 times greater than wood, respectively³. Within the context of buildings and embodied emissions, concrete, steel, and aluminum account for 6% of Canada’s total emissions or 41 MT of greenhouse gas emissions, in 2022⁴. In multi-storey buildings, the floor system is the largest total surface area within a building and accounts for 50% of a building’s embodied emissions,⁵ which reside in the materials that are considered especially challenging to decarbonize. Given the emissions profile of a building’s floor system, much of current decarbonization efforts have focused on this structural building element. Multi-storey buildings constructed with a mass timber floor system can reduce their average emissions by 27% for the floor system and 12% to 25% for the entire building structure⁶, according to builders with extensive experience working with mass timber.

Embodied emissions profile of a mid-rise tower

The sector could cut 5.5 MT in emissions by 2030⁷ if one-third of all new apartments and condos and all new office towers, in major urban centres, were constructed using mass timber. Emissions could decline by another 3 MT if all future apartments and condos were constructed using a mass timber floor system and domestic manufacturing capacity was not a constraining factor⁸. These emission savings demonstrate that small efforts, such as changing one element of a building’s structure, can lead to significant emissions savings, even though the size of the gains may pale in comparison to other purely technology-based solutions, such as heat pumps or electric vehicles^⁹. Construction with mass timber could also lower on-site vehicular traffic and reduce the use of fossil-fuel powered heavy equipment. Unlike concrete, mass timber is a prefabricated wood product that can be delivered in a few shipments and then stored on a construction site. Mass timber practitioners, Veronica Madonna of Athabasca University and founder of architect firm Studio VMA, and Lee Scott of Element5, a mass timber manufacturer with plants in Quebec and Ontario, have found that this storage benefit can reduce on-site vehicular delivery traffic by 80 to 90%, compared to the construction site for a traditional concrete and steel building.

Insight

The story of embodied emissions in steel and concrete

Mass timber, steel, and concrete all have their origins as natural materials extracted from or below the earth’s surface.

The energy and industrial processes required to transform iron ore into steel and limestone and clay into cement, and eventually concrete, are the reasons for their high embodied emissions profile, compared to mass timber. The industrial processes for steel and concrete require using extraordinarily high heat, between 1,400 to 1,600 degrees Celsius, to transform raw materials in blast furnaces or kilns. Energy required to power blast furnaces for steel-making accounts for 87% of emissions generated in the steel making process, according to the International Energy Agency. For cement production, the reverse is true, with 65% of emissions attributable to industrial processes, specifically, the release of greenhouse gases from the heating of limestone and clay in kiln ovens. Mass timber’s significantly lower emissions profile can be attributed to a manufacturing process that largely leaves the original raw materials intact.

Another advantage is that mass timber weighs about 30% less than concrete. The downstream benefit of lower on-site delivery traffic and higher weight differential is lower transportation related emissions. The prefabricated nature of mass timber combined with its relative lightness compared to steel and concrete, means that less heavy machinery such as cranes are needed on a construction site. And when they are used, they have a shorter running time. Both practices reduce the fossil fuel used to operate construction machinery, lowering emission levels.

Canada’s opportunity to capture a slice of the global mass timber market

Growth in Canadian jobs associated with mass timber by 2030

Growth in Canadian GDP from mass timber by 2030

$4.9B

Global mass timber market by 2030

Mass timber accounted for 1% of all building construction materials in North America last year. The global mass timber market reached $1.6 billion in 2022 and is forecast to rise to $1.9 billion this year¹⁰. Analysts estimate the market could reach $4.9 billion by 2030 if global demand continues to grow at an annual rate of 14.5%. Canada’s share of the global mass timber market is $379 million in 2023. And it’s growing, with an additional $649 million expected to be added to the country’s economic output from the production of mass timber, under a scenario where there’s no new manufacturing capacity by 2030. Increased production capacity and efforts by Canada to capture 25% of the global mass timber market could see economic output surpass $1.2 billion by 2030. If the construction material mix moves away from carbon-intensive concrete and steel and mass timber industry takes off, it could account for a larger share of the estimated $2.6 trillion global building materials market by 2030. While there are no official employment data for the mass timber sector, we estimate that the sector employs, directly and indirectly, about 4,000 Canadians in 2023¹¹. The sector’s job growth is anticipated to triple by 2030, to a high of 12,150 jobs across manufacturing, technology, forestry, design and engineering, if future demand materializes. Some of these jobs are anticipated to flow to Indigenous peoples as the employment catchment areas of logging sites, sawmills and mass timber manufacturing facilities often encompass their communities.

Canada’s Forestry Resources Could Boost Its Low-Carbon Economy

Two scenarios for Canada’s promising mass timber economy

RBC Climate Action Institute derived analysis using data in Polaris Market Research’s Cross Laminated Timber Market report, Natural Resources Canada Mass Timber data base, and Statistics Canada sectoral GDP data.

Barriers to Canada’s mass timber and climate ambitions

The steady increase in the number of mass timber projects underway in Canada is a testament to the building sector’s green ambitions. Industry interviews suggest a strong desire to increase the use of mass timber, but fundamental challenges are preventing market participants from raising their ambitions at a pace necessary to reach Canada’s climate goals.

Mass Timber’s Big Opportunity To Grab Greater Market Share

Breakdown of building construction materials use in North America

Source: RBC Climate Action Institute, Mantle Developments, 2022

Insurance underwriting has emerged as the most difficult challenge for both building construction and occupancy insurance. Presently, each building requires a bespoke policy, which significantly adds to a project’s final cost,¹² and is ultimately passed down to the end buyer. Construction insurance premiums for a mass timber building can be up to 10 times the costs of a similar building constructed with steel and concrete. This layer of cost erodes the competitiveness of buildings featuring mass timber and hampers its widespread use in residential, commercial, and institutional buildings¹³. A second structural issue is a mismatch between the location of mass timber production and demand for the material. Patrick Chouinard, the founder of Element5, noted that B.C.’s early mover status resulted in a manufacturing base that is concentrated in western Canada, but current and emerging demand largely coming from eastern Canada and central and northeastern United States. Patrick Crabbe, Director of Mass Timber at Bird Construction, an early adopter and proponent of mass timber, estimates that 62% of capacity and 22% of demand is concentrated in western Canada, but 78% of demand and 38% of capacity is concentrated in eastern Canada¹⁴.

Insight

Sky-high premiums for mass timber buildings

Lack of data to assess the fire risk of mass timber buildings is primarily why building construction and occupancy insurances for mass timber buildings is 6 to 10 times higher than conventional steel and concrete buildings.

Exacerbating this situation is the small and niche market for mass timber. The lack of actuarial data has meant that insurance companies typically insure mass timber buildings to the closest approximate building structure archetype—a wooden frame house constructed with 2×4 lumber. Recognizing that wider adoption of mass timber is necessary to decarbonize the sector, construction services firm Ellis Don has made attempts to bridge the knowledge and information gap that exists in the insurance industry, by bringing industry players together to discuss the insurance challenge and explore potential solutions. These actions have yet to yield the desired outcome, either in Canada or internationally, and continue to present a significant obstacle to scaling the use of mass timber.

For manufacturers, one of the biggest impediments to scaling their operations is the cost of acquiring specialized mass timber machinery and technology, which is produced by only a handful of European based manufacturers. High cost of manufacturing equipment is also preventing new players from entering the mass timber business. The capital required to set up a manufacturing facility, with 50,000 m2 capacity, is estimated to cost $200 million, with the bulk of the costs attributable to machinery. Canada’s sawmills are dominated by players who produce “dimension lumber”, which are the 2×4/6/8 lumber found at big box home improvement stores and used to build the structural frame of single detached homes. Mass timber products are manufactured using dimension lumber but the moisture content and milling requirements of the lumber are materially different. These differences have created a shortage of appropriate mass timber “feedstock”, leading to a mass timber supply storage. Craig Applegath, a partner and architect at DIALOG, and early adopter of mass timber, estimates that there’s a two-year waitlist for mass timber in Canada¹⁵. Some mass timber manufacturers have addressed this third structural issue through backwards integration, by purchasing sawmills to control the type of wood that is sourced and how it is processed into feedstock. Bird Construction’s Crabbe applauds the leadership role that various governments have taken to spur interest in and use of mass timber. He notes that the success of their efforts has unintentionally led to the supply and demand imbalance. If not resolved, this market imbalance could slow the pace of mass timber adoption and the building sector’s decarbonization goals.

Recommendations

Canada may be late to the mass timber market, but it has caught up with its European competitors in less than a decade, both in the use and manufacturing of mass timber. It didn’t happen by chance either. Tailored federal and provincial policies and programs that were attuned to evolving market and regulatory forces, combined with visionary entrepreneurs along the building value chain drove Canada’s early successes. But we are just getting started. Canada has an opportunity to play a leading role in the global mass timber movement if it adopts the following recommendations: Standardize insurance underwriting to lower costs. Standardizing insurance fire risks for mass timber buildings, during building construction and occupancy, will lower insurance premiums and overall costs for builders and building owners. Continue funding capital expenditure grants. Federal and provincial grants have played a pivotal role in lowering machinery costs and enabling additional manufacturing capacity, either from existing manufacturers or new entrants. Continuing these programs would ensure supply can keep pace with double digit growth in domestic and international demand.

Conclusion

In the course of conducting research for this report we repeatedly heard from builders, architects, engineers, and manufacturers that Canada can and should be a global leader in mass timber research, manufacturing, and use, while spearheading efforts to decarbonize the building sector. While there are fundamental challenges that must be addressed before these ambitions can be realized, there’s industry consensus that these challenges are not insurmountable. Now is the time for all players in the building sector to work together to act on these challenges and solutions. And for Canada to showcase to the world that we are a nation of innovators in building construction and climate action.

Soil As An Asset Class

A corn farmer near the township of Elmira, Ontario, recently shared his excitement with us about the prospect of boosting his bottom line by integrating carbon credits into his farming practices. He’s not alone. Thousands of Canadian farmers are also eyeing the carbon credit market, which promises fresh sources of revenue and recognizes their efforts to remove carbon from the atmosphere. However, stories and experiences of unsuccessful pilots that didn’t ultimately pay out, unclear guidelines on access, and limited data and knowledge is dampening enthusiasm. In addition, producers that implemented practices to sequester carbon at a higher rate years ago feel left behind and rue their timing. Canadian governments could pursue three policy measures to create thriving carbon markets.

1. Build Standards To Support Carbon Markets

- Opportunity
  
  A $4B carbon market by 2050

Challenge

No clear standards

Serving as a powerful carbon sink, active farmland in Canada can sequester between 35MT to 38MT of carbon by 2050, around 40% to 45% of the oilsands’ current annual emissions. Currently in a nascent stage, Canadian voluntary carbon markets could emerge as a $4 billion behemoth by 2050, our research shows. An active market could mean tens of thousands of dollars in fresh revenues streams for some operators—and over a $1 million for larger operations.

But the building blocks of a viable carbon inset or offset carbon market in Canada will rest on a solid system for measuring and reporting soil carbon and emissions. Agriculture and AgriFood Canada (AAFC) and Environment and Climate Change Canada (ECCC) have done extensive work in this space, but more can be done collaboratively.

Here’s how we can build a vibrant Canadian carbon market:

Based on the private sector’s work, the federal government can publish methodologies on the most credible approaches to creating offsets and insets (see box).
To receive any carbon credit payment, the impact must be measured scientifically. Working with farmers/ranchers and agribusiness and through regional pilots across the country, AAFC and ECCC could introduce publishing standards for a preliminary measurement, reporting, and verification (MRV) framework for different climate-smart practices. This would work in tandem with the soil database detailed in the next section. It will be tricky, though. Finding a consistent and cost effective MRV methodology to measure the impact of climate-smart agricultural practices (including cover cropping and no-tillage) on soil carbon sequestration and emissions remains challenging.
An MRV framework would guide producers on earning credits in an affordable way, and enable buyers to confidently purchase those credits or incorporate them in an inset program.

Governments should explore viable ways to ensure market prices are stable and farmers and investors can secure a consistent and substantial return.
The U.S.’s 8-year, US$300-million investment in MRVs could serve as a template for Canada. The investment will enable improved data collection mechanisms and build algorithmic models to establish current and future emission baselines. It will also determine the protocols needed for soil testing, identify scalable and affordable remote sensing and soil sampling technologies, and establish a nationwide network of research to improve on-farm practices. Canada will need to match this funding proportionally to ensure producers can compete.

Insets

Organizations directly avoid or reduce emissions within their own supply chains. 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.

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 their operations.

2. Create A Climate-Smart Database To Help Farmers

- Opportunity
  
  A data-smart ag sector to manage risks and boost productivity

Challenge

Lack of accessible knowledge

A deep and extensive data pool is critical for measuring status of climate practices and future areas of focus. But a lack of government funding for climate-smart data programs has hampered efforts to manage risks and boost productivity.

The federal government, in cooperation with provinces, can address these challenges and accelerate the adoption of efficient methods by developing the framework for a national soil database:

Building on years of work by the AAFC and provinces, a national soil database can collect data through a common system. This is critical to understanding the current health of various soil classes across Canada, particularly since some soil maps have not been updated since the 1950s. It’s also key to understanding soil’s impact on nitrous oxide emissions (which is especially damaging to crops and human health), carbon sequestration and organic carbon stock patterns.
Established and funded by the AAFC, the database could serve as a portal delivering real-time and downloadable economic intel to producers, experts, and decision makers.

The slew of data, from provinces, soil laboratories, ag-machinery providers and remote-sensing operators, will create real-time regional and national baseline emissions. It will also help in charting regional crop modelling, establishing ways to improve nutrient management, encourage biodiversity and water conservation practices.
Armed with insightful data, farmers could reduce the risk of adopting climate-smart agricultural practices by understanding potential economic impacts of adopting new practices. The database could also serve as an invaluable tool for companies and research firms looking to develop export-ready agricultural technologies.

3. Develop A Fair System That Ensures Market Equity

- Opportunity
  
  A system that incentivizes early-adoption of sustainable technology

Challenge

Little recognition for first movers

The first two pieces of our soil policy package are aimed at incentivizing future behaviour. This final segment recognizes past actions. Canadian farmers have been ahead of the curve, with many implementing climate-smart practices that pre-dates the Paris Accord, sometimes by decades. But these early adopters’ worry their carbon stock may not have been documented consistently over the years. After all, to be rewarded in a carbon market, producers must demonstrate an increase in carbon absorption over time.

Failing to reward these early adopters could bring unintended consequences. It could demotivate farmers or compel them to once again till their land (thereby releasing carbon) to set a lower baseline for carbon in their soil—leading to higher payouts in the future.Early adopters who can demonstrate they have increased carbon stock could be compensated in the following ways:

An expanded capital gains exemption could be created for qualifying farmland. Currently, there is an exemption of $1 million of property value that is not taxed on qualified property during intergenerational transfers. The new policy would entitle producers to the total value of organic carbon in their soil based on latest market prices (in addition to current exemptions). It would be associated with the value of the farmland at the time of transfer and exclude the exemption received. Through back-casting, a modelling process where past changes in soil-bound carbon are estimated, we can chart the evolution of soil organic carbon stock over several years. This method can be used to determine baseline estimates to compensate farm operators.

Producers could receive a pool of tax credits, based on scientifically proven carbon stock on their farms, that can be used toward paying taxes. An allotment of credits can be spread over 10 years with producers choosing the year they want to pay business taxes.
Parts of the Scientific Research and Experimental Development (SR&ED) can be simulated to encourage environmentally beneficial on-farm investments. A new program would issue investment tax credits to farm operators that invest in projects promoting ecosystem services. If an investment matches an activity from a list of appropriate on-farm investments, producers can submit a claim to receive a tax credit.

Methane As A Growth Opportunity

A dairy farmer just south of Ottawa told us he was eyeing a biodigester, but worried about its substantial price tag and economic viability. The biodigester will help break down organic materials (such as manure) at his farm to produce biogas, mostly methane. But he, and other farmers we spoke to, believe Canadian policies are not attractive, even under the supply management program. This made the biodigester hard to justify, despite its role in cutting costs and managing emissions. It’s a different story south of the border. Under IRA, American farmers are well positioned to benefit from 30% tax credits from the production of biogas through at least 2025. In addition, the U.S. Department of Agriculture’s Rural Energy for America Programs have provided US$2 billion in loans and grants to increase energy efficiency and renewable energy like biogas. Canada will need to match the U.S.’s investment in biogas to tap its improved sustainability benefits, waste-to-energy conversion and lower energy costs.

4. Promote Ways To Make Methane Cuts Profitable

- Opportunity
  
  Create a robust value chain for biogas

Challenge

Investments are not profitable

While Canada needs to produce more food, it must do so with fewer emissions. Crops and livestock production currently generates more than 10% of Canada’s greenhouse gas emissions, with methane among the most potent sources. As a signatory to the Global Methane Pledge, the federal government acknowledged that agriculture is responsible for 31% of the country’s total methane emissions. Enteric fermentation, the digestive process of ruminant animals, accounts for 86% of that total with manure responsible for the rest. While manure contributes to methane emissions, it can also emerge as a source for renewable natural gas, or biogas.

The technology and tools to tackle methane are ready, but successfully deploying them will require both financing and a broad system approach. We recommend the following approaches:

The federal government could co-ordinate with provinces to create a nationwide blend mandate to incentivize utilities to purchase renewable natural gas (RNG) from digesters. Provinces such as Quebec and British Columbia mandate natural gas providers have a blend of over 10% minimum renewable content within their supply by 2030, motivating utilities to purchase RNG. It has encouraged farm operators to install biogas-producing digesters that can then be converted into RNG at an upgrader. Through a nationwide mandate, provinces would be expected to establish a minimum blend requirement.
Support more proposals for the construction of digesters through the Strategic Innovation Fund (SIF). Though SIF currently accepts agrifood proposals, this is not a core feature of the program.

Credits can be granted to producers through the Clean Fuel Regulations (CFR) for biofuels used in the transportation market. To ensure the program is effective, ECCC could review the program after a year to ensure all participants are receiving appropriate financial compensation and that obstacles to installing biodigesters are reviewed and fixed in a timely manner.
Installation cost of digesters and pipes could be included in the Cleantech Investment Tax Credit. IRA provides a tax credit of up to 50% of project costs to businesses that install digesters. A similar tax credit will be needed for Canada to compete and develop a market that will use the RNG produced from this technology. Accelerating RNG production investment will lead to a greater supply of ultra-clean fuel for the transportation market.
Create agile regulations and government policies for methane-reducing feed additives to reduce methane emissions. These feed additives currently can’t enter the Canadian market due to stringent regulations. A permanent and independent panel of experts could advise regulators on the abatement potential and productivity benefits of low-emission livestock feed technologies. This panel could be empowered to work with regulators at Health Canada and the Canadian Food Inspection Agency (CFIA) to review regulations, collect data, and provide technical guidance on policies related to the new additives. As many feed additives are considered veterinary drugs, the panel will review and update regulations to ensure innovation and competitiveness are key criteria. The panel could also collaborate with key trading partners to develop standards that recognize producers who use methane reducing feed additives.

Supply Chains As Strategic Drivers

A potato producer in Lethbridge, Alberta, acknowledged the efficiencies of the 4R Nutrient Stewardship program—the right fertilizer source, at the right rate and time, and in the right place. But he believes the government can do more in the fertilizer space to ensure the security of inputs vital for safeguarding the national food supply-chain. Worrisomely, Canada does not have enough agricultural inputs to support the entire industry if it’s cut off from external suppliers, especially major exporters such as Russia. Promoting a domestic industry of fertilizers and other agricultural inputs would reduce costs and ensure a steady supply of innovative solutions to farmers across Canada. A domestic push on sourcing agriculture inputs will also create jobs in rural regions, as the raw resources for many innovative fertilizers, like biostimulants, originate in rural areas and are processed close to their source.

5. Strengthen Canada’s Domestic Fertilizer Portfolio

- Opportunity
  
  Ensure Canada is food secure

Challenge

Insufficient support for new biological companies

Beyond focusing on revenues, farmers need to ensure the supply of fertilizers and agriculture solutions, is affordable and accessible. Fertilizers are made of three vital components: nitrogen, phosphorus, and potassium. They ensure plants have the right access to nutrients to grow and increase yields. While Canada is the world’s largest producer of potash (a common form of potassium) and supplies 31% of global demand for this commodity, the country is reliant on other nations for nitrogen and phosphorus.

This has become a major pain point in light of the Russian invasion of Ukraine and Canada’s dependence on Russian nitrogen fertilizer. Before 2022, farms in central and eastern Canada used over 660,000 tonnes of nitrogen fertilizer imported from Russia annually (representing over 85% of total nitrogen fertilizer used in the region). With the government issuing steep tariffs on fertilizers to punish the Russian economy, Canadian producers have been left paying the bill. Biological products, such as biocontrols, biostimulants and biofertility (see box), can emerge as critical add-ons or substitutes to traditional agricultural solutions. Biostimulants can be blended with traditional fertilizers to promote healthier soils and increase efficiencies and currently represent a US$12 billion global market.[i] Canada is in a unique position to lead in this space given the raw resources required to create these solutions are found in rural regions. Firms making these products are often headquartered in rural communities and can ensure that local demand for organic nitrogen fertilizers is met while creating high-paying jobs.

The following steps can help build a resilient, home-grown agriculture value chain:

CFIA, which is tasked with registering biological products, should streamline approval processes. CFIA should also seek further funding for additional staff, as it currently takes the agency more than 380 days to approve new registrations–-not including potential delays.
The federal government, in conjunction with provinces, should bolster supply chains by improving transportation networks such as roads, railways and ports. Governments should also continue their support and expansion of carbon capture, utilization, and storage projects and research and development initiatives for domestic nitrogen fertilizer production.

Provide funding from the federal government to biological companies to improve domestic and foreign market development. Biological products can help reduce soil erosion, which is costing Canadian and American farmers over $3 billion annually, according to research. Research grants should be awarded for on-field trials for marketing purposes. While many fertilizer programs will continue to use chemical products, farmers can blend biological options to improve soil health.
The seaweed extract opportunity, often used as a biostimulant, can generate 30,000 jobs in rural British Columbia alone, the industry estimates.
Establish biological products as a lucrative made-in-Canada product. Several Canadian companies are currently providing innovative biological solutions, and many markets, including Europe and South America, are adopting them. In 2021, half of Canadian fertilizer retailers had a positive view of biostimulants while over 80% sold a biostimulant product. Common biostimulants include enzymes that promote nitrogen fixing, seaweed extracts, or beneficial bacteria and fungi.

Types of biological solutions

Biocontrol: Assists plants in biotic stress and prevents further damage from pests, pathogens, and other organisms.
Biostimulant: Supplies plants with support during abiotic stress to improve overall crop quality by increasing nutrient use efficiency.
Biofertility: Promotes crop growth through the application of living organisms to soil, seeds, or plant surfaces to colonize internal plant tissue and encourage growth.

Technology & Talent As Competitive Advantages

On the outskirts of Saskatoon, Saskatchewan, a canola producer told us he won’t bother posting a “Help Wanted” sign this year after recent efforts to find talent had failed. Like other farmers, the Saskatoon producer believes sourcing talent is about more than getting labourers to participate during harvest. Farms need on-site specialists and a network of advisors to identify key requirements. These specialists need to communicate quickly with data collected from machines to boost efficiencies. Farmers are also concerned about cost of critical technology and new innovations that could eliminate time-consuming tasks remain cost prohibitive. On-farm specialists and technology that can help manage droughts and weather episodes are going to be central to their success. Yet, investment in the space has been declining over the past few years. To guarantee operators’ access to technology and talent, the federal and provincial governments could increase their support of research and development to decrease the cost of new innovations, advisory networks, and education. The following policy package could help hone talent and drive innovation:

6. Nurture An Innovation-Driven Ag Sector

- Opportunity
  
  Find the next wave of Canada’s ag-tech giants

Challenge

Minimal investment in ag-tech

The launch of a thriving carbon market and growth of big data analytics will sow the seeds for the next crop of tech-savvy Canadian agriculture companies. However, ag-tech investment in Canada is lagging global peers, stymying innovation. In 2021, over US$6.9 billion in venture capital funding went to American ag-tech companies. By comparison, only US$270 million went to Canadian ag-tech firms. More public and private research and development (R&D) funding is needed to scale Canadian ag-tech companies.

Here’s how Canada can fine-tune its funding mechanisms:

The private sector and Innovation, Science and Economic Development Canada, could invest in the creation of a network, similar to the Clean Resource Innovation Network (CRIN) for oil and gas projects that promote research and development. The public-private partnership would include farm operators, smart farms, research institutions, investors, and companies (small, medium, and large) throughout the agriculture supply chain.
Hold competitions (similar to CRIN) to develop and commercialize sustainable technologies. For instance, a call for proposals focused on reducing harmful nitrous oxide emissions could spur innovation in the genetics of nitrogen-fixing crops, enhanced efficiency fertilizers, or other technologies that allows plants to take nitrogen directly from the atmosphere, reducing the need for energy-intensive fertilizers.

Allow innovative companies to showcase their solutions and finance their innovations. Participating farm operators and smart farms in the network can evaluate innovations directly through on-field trials at minimal cost. Researchers can also initiate studies that companies can use for marketing purposes, gaining access to investors at different levels. Corporations involved in the network can have priority access to investments and can pair their R&D teams with the ag-tech firms participating in the challenges.
Increased private sector R&D in agriculture will ensure that current obstacles to on-farm labour are eliminated in the future. Technologies can automate processes, enable farm operators to focus on management, decrease inputs and grow yields.

7. Revive Canada’s Knowledge-Sharing Network

- Opportunity
  
  Build a Canadian ag knowledge portal

Challenge

Insufficient infrastructure

Agriculture extensions—a network of agriculture experts dotted across provinces— and Canadian universities have historically supported farmers with guidance. Agronomists and experts in these networks often offered advice to producers on the most suitable strategies and technologies. But over the years most universities have stepped back, while provincial extension services diminished due to funding cuts. The U.S. witnessed the reverse, with many land-grant universities providing a series of programming initiatives to help producers.

Here’s how Canada can revive these networks:

Farmers can acquire information and knowledge from privately funded experts, but greater provincial involvement is needed as the urgency of climate challenges build. Indeed, on-farm demonstrations are the most effective tools for increasing adoption of new management practices and innovation. Farmers have also identified a lack of access to experts, on-farm demonstrations and knowledge as the main barriers to further adoption.

A new approach to extension service programs should consider a collaborative approach involving public, private, and institutional actors. A new blended approach would encourage provinces to partner with agricultural colleges and post-secondary institutions through increased federal and provincial investment in research facilities on campuses. It would also promote in-house consultancies in provincial agricultural departments (as in Nova Scotia) that can drive further recruitment.
The private sector has a powerful role to play, too, with in-house agronomists offering farmers real-time recommendations to boost productivity.

8. Boost Investment In Post-Secondary Education

- Opportunity
  
  Grow and deepen the ag sector’s talent pool

Challenge

Difficulty in attracting diverse set of skills

Canada’s agricultural sector will soon enter one of its biggest labour and leadership shifts. Current immigration policies that fast-track skilled farmers and on-farm labourers should continue to expand to meet this challenge.

Here’s how we can ensure future generations of producers and a network of advisors and consultants are on hand to provide expertise:

Agricultural colleges and universities should continue creating programs that welcome students from different educational backgrounds and micro-credential programs. Creating programs that blend the expertise of different faculties will help increase students’ exposure to agriculture.

A carbon management program could invite students from different faculties to understand how greenhouse gas emissions are tracked, ways to create corporate objectives to decrease emissions, and effective methods to monitor progress.
Eliminating barriers to foreign credentials (for example for veterinarians) can help bridge labour gaps and bolster productivity in the agriculture sector.

Consumers As Drivers Of Market Change

An apple farmer from Quebec posed a question to us at an Ottawa event: why is the government not proactively procuring climate-smart food from domestic producers. While acknowledging that procurement should respect trade deals, she believes governments should lead by example and purchase locally as a sign of support. Incentivizing consumers can be a challenge and the government has a role to play in leading by example. Research from Fertile Ground, another report in our Next Green Revolution series, found that few consumers are willing to pay more for sustainably made food due to its higher cost. To stimulate the market, different levels of government should make a concerted effort to remunerate producers who are implementing climate smart agricultural practices.

9. Influence purchasing patterns through procurement

- Opportunity
  
  A “green premium” government program

Challenge

Government not optimizing procurement levers

To ensure a virtuous cycle, the federal government’s procurement policies should be aligned with its Net Zero commitments.

Here’s how public-sector buying policies can support climate-smart farming practices:

To improve sustainability across federal departments, Public Works and Government Services Canada should establish a green procurement program to purchase food produced through climate-smart agricultural practices. According to available figures, the federal government purchases over $400 million in food annually to cater its facilities. Directing these funds to sustainable food purchases will guarantee a buyer for growers and potentially reduce food waste.

By setting clear and broadly recognized standards and certifications, producers can sell their goods to government. Measures could include improved soil health, 4R management, livestock partnerships, effective grazing and pasture practices, efficient water use, restoration of native grasslands, and fuel and energy efficiency. Metrics should be accessible to every farmer in Canada.
This should be directly administered by commodity groups and farm organizations. On-farm interviews by these groups will verify the practices performed on farms and inform producers on their status. Results will be reported to government before a designation is assigned. These groups should receive additional funding to cover the cost of verification. Due to their expanded role, the organizations should receive further resources for on-farm demonstrations of leading-edge land management practices.
To ensure government accountability, a review mechanism should exist to track Ottawa’s progress in expanding adoption of climate-smart agriculture practices.

Conclusion

The Canadian producers we spoke to over the past year are positioned for growth. The sector has punched above its weight, serving as a rich source of jobs, trade, and economic gains, even during periods of crisis. But producers believe that the ambition of recent government budgets has been less ambitious than peer nations that are implementing generational programs. Canadian governments have an opportunity to step up their commitments and create a robust policy environment that recognizes the sector’s economic potential, its global role as a reliable food exporter and as a climate-smart leader. This is Canada’s moment.

For more, go to rbc.com/climate.

Download the Report

Download

Contributors:

Lead author: Mohamad Yaghi, Agriculture & Climate Policy Lead, RBC Climate Action Institute

RBC Yadullah Hussain, Managing Editor, RBC Climate Action Institute Naomi Powell, Managing Editor, Economics and Though Leadership Darren Chow, Senior Manager, Digital Media Shiplu Talukder, Digital Publishing Specialist Caprice Biasoni, Graphic Design Specialist Myha Truong-Regan, Head of Research, RBC Climate Action Institute Gwen Paddock, Director of Sustainability, Royal Bank of Canada Arrell Food Institute Evan Fraser, Director, Arrell Food Institute, University of Guelph Ibrahim Mohammed, Ph.D. Candidate Lisa Ashton, Ph.D. Emily Duncan, Ph.D. Boston Consulting Group Kilian Berz, Managing Director and Senior Partner Keith Halliday, Director, Centre for Canada’s Future Sonya Hoo, Managing Director and Partner Chris Fletcher, Managing Director and Senior Partner Thomas Foucault, Managing Director and Partner Taylor Whitehouse, Project Leader Chris Kornas, Project Leader

Erin Doherty, Arrell Food Institute, University of Guelph
Alice Raine, Arrell Food Institute, University of Guelph
Rene Van Acker, Dean, Ontario Agriculture College, University of Guelph
Lenore Newman, Director, Food and Agriculture Institute, University of Fraser Valley
Rickey Yada, Dean, Land and Food Systems, UBC
David McInnes, Founder and National Coordinator of the National Index on Agri-Food Performance
Kim McConnell, Strategic Partner, AdFarm
Keith Currie, President of the Canadian Federation of Agriculture
Peggy Brekveld, President of the Ontario Federation of Agriculture
Tyler McCann, Managing Director, Canadian Agri-Food Policy Institute
Barbara Swartzentruber, Senior Fellow & Program Director Agriculture & Food Systems, SPI/Natural Step
Cameron Charlton, Vice President, Corporate Client Group, RBC
Scott VanEngen, Financial Planning Specialist, RBC Dominion Securities Inc.
Karen Proud, President & CEO, Fertilizer Canada
Catherine King, Vice President of Public Affairs, Fertilizer Canada
Cassandra Cotton, Director of Sustainability, Fertilizer Canada
Fawn Jackson, Chief Sustainability Officer, Dairy Farmers of Canada
Fiona McNeil-Knowles, Sustainability Specialist, Dairy Farmers of Canada
Adam Hayter, Hayters Farm
Wayne Cantelon, Cantelon Farms
Dana Dickerson, Market Development and Sustainability Manager, Grain Farmers of Ontario
Michael Williamson, CEO and Co-Founder of Cascadia Seaweed
Nick Harsulla, Manager of Government Relations, United Farmers of Alberta

“Canada’s 2021 Census of Agriculture: A story about the transformation of the agriculture industry and adaptiveness of Canadian farmers,” Statistics Canada, last modified May 11, 2022.
Stratus Ag Research, “Tracking biostimulants: Retailers – USA and Canada 2022.”

Canada is facing a major electrification challenge at a time of rising demand—and intense competition for decarbonization dollars. We have a head start with a low-emissions grid but building on that advantage would require significant new investments to develop a larger and reliable electricity infrastructure that attracts clean industries. As the new Net Zero race heats up, the U.S.’s Inflation Reduction Act (IRA) has emerged as a key catalyst, with its slew of incentives running into billions of dollars. While offering Canada fresh opportunities to capitalize on energy transition, IRA also challenges Ottawa, the provinces and industry to raise their game. If Canada gets it right, a substantially bigger and sustainable grid would serve as a springboard for the new energy economy. In a bid to meet the challenge, the federal government unveiled its much-anticipated Clean Electricity Regulations (CER) last week, sketching out a roadmap for a Net Zero grid by 2035—with a few detours. Ottawa’s original, stringent stance on a non-emitting grid has given way to a more flexible approach, accounting for each province’s unique challenges and the sheer scale of managing the energy transition without hurting affordability and reliability. It’s an acknowledgement that the country needs all the energy sources at its disposal to build out a reliable energy infrastructure, with guardrails to ensure new dollars heavily favour low-emission sources. The proposal also offered more clarity on the role of abated natural gas in the power grid—a contentious issue between Ottawa and the provinces. Despite some latitude, the proposed CER still requires electricity generation in Canada to achieve a low-carbon grid 15 years sooner than legislated targets for the whole economy. The regulations are going to be play a critical role in boosting the country’s green credentials. A diverse mix featuring gas-fired power with carbon capture, nuclear, hydro and renewables will be needed to meet growing electricity demand. It would also help attract investments to build an electric vehicle supply chain, sustainable mining and other new energy sectors. The onus is now on provinces to adopt the new regulations. The federal government is seeking feedback until November 2023 with plans to publish finalized regulations by 2024.

Some provincial grids will find it harder to hit Net Zero targets by 2035

GHG emissions in electricity sector by jurisdiction

Jurisdiction	Electricity Total Greenhouse Gases (Megatonnes)	Electricity Sector Emissions as a % of Total Emissions	Share of clean/renewable electricity (%)
British Columbia	0.4	1	97.5
Alberta	32.7	13	15.1
Saskatchewan	13.9	21	14.1
Manitoba	0	0	99.8
Ontario	3.7	2	92.3
Quebec	0.3	0	99.7
New Brunswick	3.5	28	73.4
Nova Scotia	6.3	43	26.6
Prince Edward Island	0	0	99.3
Newfoundland and Labrador	1	10	97.8
Yukon	0.1	9	72.8
Northwest Territories	0.1	4	68.7
Nunavut	0.2	25	0.2
Canada	62.1	9	82.6

Source: Environment & Climate Change Canada, Canada Energy Regulator, RBC Climate Action Institute

A Role For Natural Gas

The CER consultations launched last year had sparked tensions between Ottawa and fossil-fuel reliant provinces such as Alberta—which recently announced a six-month moratorium on renewable energy projects. Other gas-powered provinces such as Saskatchewan, Ontario and Nova Scotia had also expressed concerns. Provincial utilities worry that as more power comes from wind and solar power, it will be harder to reliably match supply and demand of electricity, risking blackouts. Ontario’s Independent Electricity System Operator (IESO) noted that 40% of severe weather events that could cause renewables outages exceeded the length of time it can store power in batteries. Rising demand and higher costs of alternatives such as energy storage or nuclear power makes the case for gas a lot stronger. The proposed rules offer some flexibility to help alleviate those concerns and ensure natural gas has a role to play, albeit diminishing, in provincial grids:

The draft regulations require that grid-connected electricity generating units online as of 2035 with a capacity of 25 megawatts (MW) or more meet an annual average emission threshold under 30 tonnes of CO₂ per gigawatt-hour (GWh) of electricity produced. An unabated gas-fired generator produces 400-500 tonnes per GWh.
For reliability, unabated peaking gas turbines can fire for up to 5% of the year without meeting an emissions performance standard. Ottawa considered allowing peakers to run more but found it decreased costs by only 2% while increasing emissions.
Natural gas turbines already in service before 2025 have 20 years of uncapped emissions before being subject to the rule (this likely will not apply to any gas units not already planned, which won’t be commissioned before 2025).
Natural gas-fired generators that install carbon capture can apply for exceptions to the emissions threshold (increasing allowed emissions to 40 tonnes/GWh on an annual average basis) for up to 7 years after commissioning the unit, to allow for capture system downtime.
“Behind-the-fence” (i.e., own-use) power generation is exempt, as are emissions associated with the heat element of combined heat-and-power systems (e.g., those used in the oil sands). They are still covered under the large emitters carbon price.

That gives gas-reliant Alberta and Saskatchewan some breathing room before they need to reduce their dependence on fossil fuels. Still, incentives are firmly nudging the provinces to transition natural gas out of the grid over time.

Provinces Take Charge

We think these are material concessions in response to provincial and industry feedback, without sacrificing the core intent of the regulations. We expect the regulations will have a significant impact on the role of unabated natural gas in the grid. The 5% threshold for peaking is restrictive (many peakers operate above this capacity factor) but existing transition gas (e.g., Alberta’s recently grow in gas to get off coal) will be allowed to operate for at least 20 years, enough time for operators to be paid out for their investments. Future gas baseload plants will likely be significantly challenged in areas without access to carbon storage. If the regulations come into force as proposed, gas baseload power is unlikely to offer a solution for eastern Canada without significant work to develop a carbon, capture and storage (CCS) strategy and studies of storage opportunities. Indeed, the federal government’s model sees little role of emitting generation under the regulations even with the peaker provisions, with natural gas providing somewhere between 0.5% and 1% of Canada’s electricity after 2035. The sum of the regulations and investment tax credits from Budget 2023 would help move the needle. Teasing a forthcoming clean electricity strategy, Ottawa suggested federal funds would be restricted to provinces that “take concrete action to achieve Net Zero.” Indeed, provinces will likely need to publicly commit to the 2035 Net Zero Electricity goals and start cutting emissions beyond electricity. Supporting the required permitting for transmission lines, power storage projects, and carbon capture equipment will also be critical for provinces to move at an accelerated pace.

Contributors:

Lead author: Colin Guldimann, Senior Economist

RBC Climate Action Institute Myha Truong-Regan, Head of Climate Research Yadullah Hussain, Managing Editor Shiplu Talukder, Digital Publishing Specialist Caprice Biasoni, Graphic Design Specialist

Ontario’s clean grid strategy, released this week, has the “all-of-the-above” vibe to it

The province is doubling down on its nuclear power prowess, keeping natural gas in play and eyeing more hydro even as it plugs in more solar and wind into the grid.

There’s a lot to like in the provincial government’s plan to meet rising long-term electricity needs. The plan to invest more in nuclear will add certainty that Ontario’s electricity grid would facilitate Net Zero goals by 2050. But its reliance on natural gas in the near term could threaten short-term climate targets.

Ontario’s “Plan For A Clean Energy Future” signals the government’s recognition that the province’s economic growth depends on more clean electricity: a greener grid would help the province attract billions of dollars in transition energy investments such as electric vehicle supply chains, decarbonizing industries, energy storage, and critical minerals.
But the plan falls somewhat short in putting much of the focus on the 2040s. The province’s decision to maintain natural gas-fired power in the energy mix could set up a potential political dust-up with the federal government, which is poised to finalize its Clean Electricity Regulations.

Our key take-aways from Ontario’s clean energy plan:

Demand Surge

By 2050, Ontario’s electricity capacity—how much power the province can produce at one time—is expected to more than double to 88,000 megawatts. The province will also have to replace power generation capacity of 20,000 megawatts over the next three decades. Coupled with rising population over the next few decades, Ontario will be challenged to power the grid without raising its emissions.

The province is also attracting unprecedented investments in electric vehicle battery manufacturing, clean steelmaking and other sectors, partly as a function of subsidies, which would strain capacity. Five major investments in the new energy economy alone will increase industrial demand by 21% once online.

Nuclear Renaissance

Ontario is going big on new nuclear reactors to meet that demand. Plans to make Bruce Power Generating Station the world’s biggest nuclear site with a 4,800-megawatt expansion, announced last week, were augmented to add three innovative small modular reactors to one announced at the Darlington nuclear site in 2021.

Stand-by Source
It’s what the province calls its “insurance policy.” Natural gas will continue to play a role as the Darlington and Bruce sites undergo refurbishment over the next decade (at its peak four nuclear units representing 9% of Ontario’s capacity will be offline). To that end, the province is in search of 1,500 MW of new gas generation capacity (growth of about 15%, if met). But that could upset the province’s plans to cut emissions: a recent Independent Electricity System Operator (IESO) estimate foresees nearly tripling electricity sector emissions by 2030 as gas plants stand-in for nuclear power generation in the short-term.

While some gas will be needed to meet rising peaks as hot days become more frequent, there are other options that could be explored as we noted in our recent report, Power Shift, How Ontario Can Cut Its $450-Billion Electricity Bill.

Facilitating Renewablese
The province is procuring electricity storage, which is critical if it’s to deploy more cost-effective wind and solar power. It’s current procurement of 2,500 MW of clean energy storage is the largest battery procurement in Canada’s history. The Oneida Energy Storage Facility and Marmora Hydroelectric Pumped Storage Project are also positive developments.

But as the province’s grid integrates more renewables, a buildout of transmission lines will be critical to plug in power from remote sites. The province has not yet outlined a strategy to address that looming transmission challenge.

What’s Missing

The province has the long-term plan mostly right in our view: nuclear and hydro firming up a lot of new renewables, with some questions around peaking power from gas with carbon capture or hydrogen. Efforts to expand hydropower capacity and exploring promising low-carbon technologies such as renewable natural gas and renewable diesel will also ensure the province remains a clean-tech hub.

But a lack of near-term focus on key infrastructure is concerning. Transmission will be critical to integrate renewables, investments to facilitate electrification of households by local distribution companies will be needed to ensure the grid can handle EVs and heat pumps, and smarter technology can help facilitate more limited natural gas peaking in the near and medium term.

The plan takes some good first steps in facilitating a more flexible electricity system, by allowing consumers to access their utility data via Green Button, an energy efficiency tracking program, and considering more use of distributed energy (like rooftop solar) or energy conservation.

Ontario’s long-term nuclear investment will secure a visible path to 2050 climate goals. But the province will need to move quickly and make costs more visible to consumers if it’s to avoid major investments in emitting infrastructure over the next few years.

Ontario faces a $450-billion investment bill by 2050 to meet surging demand and emerge as a green-grid hub that’s attractive to industries looking to cut or eliminate their emissions.
Rising electricity demand could strain the province’s grid as early as 2026 and even trigger chronic shortages by 2030.To meet pressing short-term needs, Ontario is eyeing more gas-fired power generation, which, unabated, could clash with the federal government’s forthcoming Clean Electricity Regulations.
The province can avoid making expensive decisions on its future energy mix by pursuing robust policy measures and incentives to save power.
Timely action to conserve energy could save enough electricity to power 3 million homes by early 2040s—a little more than half of the province’s residential electricity demand.
Readily available technologies such as smart thermostats, electric panels and AI-enabled HVAC systems that can substantially improve grid efficiency and sustainability would give Ontario the room to manage demand peaks without building new gas plants.
The measures could save Ontario ratepayers at least $500 million annually in avoided generation costs over that time.

Smart homes can unlock grid efficiencies

Tech-savvy homes could save Ontario ratepayers $500 million annually

1

Smart thermostats
2

Solar panels
3

Smart HVAC
4

Distributed battery storage for EVs
5

LED light bulbs for conservation
6

Insulation and air sealing
7

Smart electrical panel
8

Wi-Fi enabled plugs
9

Energy-efficient appliances
10

Heat Pump Water Heater

Ontario is bracing for a wave of electricity demand

The province’s rapidly growing population, electrifying industry, and aging nuclear reactors will shift the province’s electricity grid from decades of comfortable surplus to critical shortages in just a few years. By 2026, the province’s grid could strain to meet demand during peak hours; by 2030 soaring demand could outpace generation capacity. Clearly, building more power generation is going to be unavoidable in the coming years. The Independent Electricity System Operator (IESO), which runs the province’s power market, plans to import power (primarily from Quebec), expand renewables, store power in batteries, and dabble with new nuclear reactors to meet demand. But IESO is also seeking bids for new gas-fired power plants that are vital to manage near-term capacity pressures.

The strategy could clash with Ottawa’s expected Clean Electricity Regulations (CER) that will prohibit unabated gas-fired power plants to ensure a Net Zero electricity grid by 2035. Electricity generates 7.7% of Canada’s greenhouse gas emissions—the 6^th largest source of emissions in the nation. The country boasts one of the cleanest grids in the world, but that label is threatened as provinces such as Ontario, Alberta and Saskatchewan remain heavily dependent on natural gas and see it as a critical and reliable source to meet future demand. The expected CER builds on federal coal regulations that stipulate phasing out unabated coal-fired electricity units by 2030, and aims to avoid grid emissions as other sectors electrify. Rising demand for electric vehicles and heat pumps, electrified steelmaking, and battery manufacturing, among other segments, will cause the grid to expand rapidly over the next few decades. Left to their own devices, some provinces have planned to add natural gas power, partially offsetting emissions cuts from these sectors. The federal government believes recently announced electricity tax credits should offset the cost of taking gas out of the power mix or fitting it with carbon capture, but several provinces say building enough non-emitting power to meet Ottawa’s timeline is going to be difficult. Alberta and Saskatchewan who are rapidly phasing out coal as a power source, are reluctant to shut the door on natural gas without ensuring the reliability of other sources. The CER’s rollout in its current form and timeline could set up a federal-provincial fight. Ontario, the country’s largest economic engine and most populous province, faces the most immediate challenge. But investing $450 billion in generation, transmission, and distribution by 2050 without knowing the scale of demand is risky. To ensure an accelerated but orderly transition, Ontario will have to do both: boost supply, but also find other ways to manage demand in the interim. RBC’s $2-Trillion Transition report estimates annual investment of $5.4 billion in renewable and batteries are needed to save around 11 million tonnes in electricity emissions, but natural gas will have to play a stabilizing role in ensuring an orderly energy transition. As Ontario’s reliable generators such as nuclear plants get refurbished and coal power shuts down, more natural gas generation is the province’s preferred route. But that strategy is at odds with federal Net Zero targets: A recent IESO estimate foresees nearly tripling of emissions by the end of the decade, as gas plants meet increasing demand and declining nuclear production.

Stepping off the gas

What can the province do to bide its time and avoid making an early call on costly natural gas generation? One way is to use policy levers to delay demand. Energy conservation can buy the province time to build large-scale, cleaner power sources such as hydro and nuclear instead of gas, saving money long-term, as we wrote in Price of Power last year. Deferring hefty financial commitments will keep electricity affordable and gives Ontario time to redefine itself as a low-carbon manufacturing hub that attracts companies involved in electric car supply chains, green metal production, and clean-tech. The good news: technology exists that Ontario can use to navigate the looming demand rush and delay committing to natural gas-powered generation. Changing consumer attitudes and behaviours to promote flexible demand and energy efficiency will also be key to unlocking significant savings and alleviating grid pressures.

By 2040, Ontario could meet nearly 20% of its electricity demand growth via economically viable conservation

Electricity conservation is often overlooked, since it has done little to cut emissions in Ontario’s already-green grid, but it could emerge as a vital policy lever to avoid new gas plants. By 2040, Ontario could meet nearly 20% of its expected demand growth—or 28 terawatt-hour (TWh)—via economically viable conservation. Doing so could save Ontario ratepayers at least $500 million annually by 2040. It’s worked before. Over the past two decades, albeit against slowing demand growth, IESO’s conservation programs have outpaced demand. By funding retrofits and LED lighting, among other actions, electricity conservation doubled between 2014 and 2021, from 11 TWh to nearly 22 TWh. Demand grew just 7 TWh in comparison. To maximize potential, Ontario will need to leverage technology to shift peaks to avoid building more capacity now.

Smart tech to the grid’s rescue

Ontario can build on its reputation as a leader in grid innovation to support smart energy use. It’s one of the only jurisdictions globally that has a smart meter installed in nearly every home. That’s allowed the province’s widespread time-of-use pricing policy to manage peak demand. Flexible demand can also respond better to variable zero-emitting sources, like wind and solar. Given the right financial incentives that inspire attitude change, consumers may be prompted to install home solar panels, smart thermostats and smart electrical panels that can improve grid efficiency. Currently, Ontario’s centralized grid system is underutilizing these technologies. Here are a few ways the province can leverage new technologies.

Make it pay: EV owners save money when they charge their cars overnight. But what if they could use it themselves when they turn on their induction stove or sell the leftover power in their car back to the grid? Our research suggests EV owners could earn as much as $100 per month. Those payments could offset distribution upgrade costs for households, although infrastructure upgrades will be needed to facilitate the new vehicle-to-grid technology. Set right, they can save the province money, too, since storing power in EVs may be cheaper than single-use utility-scale batteries. Giving consumers the right price signals can facilitate more responsive demand.
Make it smart: Home monitoring systems attached to electrical or smart panels can combine with Wi-Fi-enabled plugs and smart thermostats to remotely control appliances, lights, heating and cooling to avoid electricity peaks. In Montreal, start-up Brainbox’s artificial intelligence software cut electricity use 10% in a major office tower by weeding out inefficiencies in the system.
Make it responsive: With smarter systems in place, electrical panels can alert consumers that the dryer they just turned on is more economical to run in an hour. Or when the system predicts new peaks, smart water heaters could pre-heat and store hot water for later in the day. This could be key to managing a grid that’s increasingly reliant on variable renewable power.
Make it accessible: Ontario’s current demand response programs focus on paying industry and large buildings to cut demand during peaks. Finding ways to encourage widespread, distributed adoption of these technologies can help consumers benefit (and get paid) for the services they can provide to the grid, easing the cost of electrification.
Make it cost-effective: Traditional energy efficiency can also ease the strain on Ontario’s grid. Think analog solutions like LED light bulbs, energy-efficient appliances, efficient pool pumps for homeowners. Retrofit programs will also need to be scaled up, with support from IESO.

Actions for a green & efficient grid

Ontario is in an enviable position to get electricity consumers to change behaviour. Adjustments to time-of-use pricing are already set to shift demand away from peaks. But with overnight set as the cheapest rate, consumers may not be willing to alter behaviour beyond EV charging. A well-established track record of successful efficiency programs does not mean consumers will invest in retrofits without education or financial incentives. The key will be to help consumers understand the cost of their actions and price them sufficiently to change behaviour. We’ll need to support household investments in technologies to get there faster and assist lower income households through transition. The action points below should ideally be pursued together to maximize benefits for consumers, industry and the province. Ideas to move forward

Ontario’s Ministry of Energy should direct IESO to ramp up and expand cost-effective energy efficiency programming.
Energy efficiency programs should finance low-income households’ adoption of smart technologies such as panels, thermostats, and water heaters to ensure they can benefit from new rate structure.
Economic incentives in existing time-of-use pricing structure are not large enough to nudge consumers to shift their energy consumption to off-peak and mid-peak hours. After supporting tech adoption and real-time pricing feedback, the Ontario Energy Board should introduce higher on-peak rates and set time-of-use pricing as a default, with financial support for low-income households.
Utilities should take a more consumer-minded approach to pricing that clearly communicates to ratepayers the pricing consequences of their electricity use patterns.
As a policy default, allow homeowners and building operators with onsite renewable power generation capacity to sell surplus power back to the electricity grid during peak demand.
Future electricity subsidies from all levels of government should not be focused on subsidizing more generation, regardless of cleanliness. Rather they should support adoption of new technologies to make the grid smarter and accelerate behaviour changes.

For more, go to Climate Action Institute (rbc.com).

Download the Report

Download

Contributors:

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

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

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

Nicolas Gruber et al.,The oceanic sink for anthropogenic CO2 from 1994 to 2007.Science 363,1193-1199(2019).DOI:10.1126/science.aau5153
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
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
C. Ronnie Drever et al., Natural climate solutions for Canada.Sci. Adv.7, eabd6034(2021). DOI : 10.1126/sciadv.abd6034
Christensen, M.S. (2023). Estimating blue carbon storage capacity of Canada’s eelgrass beds. University of British Columbia.
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.

John Stackhouse: Good Cap, Bad Cap?

Good Cap, Bad Cap?

Key takeaways

Rise of mass timber

Wood first: B.C.’s Mass Timber Playbook

The 9 MT emissions imperative

The story of embodied emissions in steel and concrete

Canada’s opportunity to capture a slice of the global mass timber market

Barriers to Canada’s mass timber and climate ambitions

Sky-high premiums for mass timber buildings

Recommendations

Conclusion

Related Reading

For more, go to www.rbc.com/climate-action-institute.

Download the Report

Contributors:

Soil As An Asset Class

1. Build Standards To Support Carbon Markets

2. Create A Climate-Smart Database To Help Farmers

3. Develop A Fair System That Ensures Market Equity

Methane As A Growth Opportunity

4. Promote Ways To Make Methane Cuts Profitable

Supply Chains As Strategic Drivers

5. Strengthen Canada’s Domestic Fertilizer Portfolio

Technology & Talent As Competitive Advantages

6. Nurture An Innovation-Driven Ag Sector

7. Revive Canada’s Knowledge-Sharing Network

8. Boost Investment In Post-Secondary Education

Consumers As Drivers Of Market Change

9. Influence purchasing patterns through procurement

Conclusion

For more, go to rbc.com/climate.

Download the Report

Contributors:

Some provincial grids will find it harder to hit Net Zero targets by 2035

A Role For Natural Gas

Provinces Take Charge

Contributors:

Ontario’s clean grid strategy, released this week, has the “all-of-the-above” vibe to it

Smart homes can unlock grid efficiencies

Ontario is bracing for a wave of electricity demand

Stepping off the gas

Smart tech to the grid’s rescue

Actions for a green & efficient grid

For more, go to Climate Action Institute (rbc.com).

Download the Report

Contributors:

Eelgrass and Salt Marshes

The great Canadian coastal mapping challenge

Our most precious blue carbon assets

Step 1: Indigenous communities must take the lead

Step 2: Start with mapping and research

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

Conclusion: Perfection is the enemy of execution

Contributors: