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RBC Thought Leadership Climate Action Institute Page 11

High Rise, Low Carbon: Canada’s $40 billion Net Zero building challenge

Platform: Climate Action Institute

Why we wrote this

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

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

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

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

Luigi Ferrara, Chair and CEO, Brookfield Sustainability Institute

Key points

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

Key Charts








 

Seven Ideas

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

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

Building owners must collect and share emissions and retrofit data.

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

Utility commissions must send the right price signals.

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

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

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

Municipalities should create low-carbon design districts.

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

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

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

Industry can partner to secure heat pump innovation and supply.

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

The case for greening Canada’s built environment

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

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

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

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

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

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

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

 

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

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

Case study

Creating climate-positive communities

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

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

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

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

Source: The Bedzed Story

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

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

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

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

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

 

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

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





 

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

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

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

Enablers

1. Finance

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

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

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

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

 

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

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

Case study

Haíłzaqv First Nation

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

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

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

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

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

2. Electricity infrastructure

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

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

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

 

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

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

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

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

3. Labour force

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

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

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

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

Case study

Building a retrofit workforce

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

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

4. Supply chains

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

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

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

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

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

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Contributors:

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

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

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

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

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

  1. These estimates incorporate the incremental capital cost of new net zero buildings vs. current codes as well as the upfront capital costs of retrofits (insulation, heat pumps, etc). They do not present the overall cost increases or added annual spending on buildings over the life of these assets, which would be offset by savings from lower energy bills.
  2. https://www.rbc.com/en/wp-content/uploads/sites/4/2025/03/WorldGBC_Bringing_Embodied_Carbon_Upfront.pdf
  3. Based on natural gas at $10/GJ. In parts of the country where gas costs more, heat pumps can make more financial sense, but break-evens still require significantly higher gas prices.
  4. Cold climate heat pumps are much more efficient at cold temperatures, and unlike lower-cost heat pumps, convert to electric resistance heat only on the very coldest days, meaning they cost less to run and are friendlier to the grid than traditional heat pumps.
  5. Assuming gas costs of approximately 30 cents per m3 and electricity costs at about 14 cents per kWh
  6. https://natural-resources.canada.ca/energy-efficiency/homes/canada-greener-homes-initiative/canada-greener-homes-grant/canada-greener-homes-grant/canada-greener-homes-initiative-2022-quarterly-update/24712
  7. https://www.toronto.ca/news/city-of-toronto-offers-zero-interest-loans-incentives-to-accelerate-home-retrofits-and-emissions-reductions/
  8. https://climateinstitute.ca/publications/heat-pumps-are-hot-in-the-maritimes/#:~:text=As%20the%20Canadian%20Climate%20Institute,big%20switch%20to%20clean%20electricity.
  9. The balance is split evenly between replacement of end-of-life infrastructure and investment to facilitate new generation assets
  10. https://www.google.com/url?client=internal-element-cse&cx=002629981176120676867:kta9nqaj3vo&q=https://www.ieso.ca/-/media/Files/IESO/Document-Library/engage/derps/derps-20220930-final-report-volume-1.ashx&sa=U&ved=2ahUKEwikidLY3pL-AhUEk4kEHcHIAPUQFnoECAUQAg&usg=AOvVaw1rkiAVix-4islQ2Ehk9cs7
  11. Wood Products Council, “Mass Timber: Shifting Labor from Jobsite to Shop”
  12. Median wage for CNC machinists in Canada is $27.35/hr, versus $21/hr for construction labourers.
  13. https://www.ehpa.org/press_releases/heat-pump-record-3-million-units-sold-in-2022-contributing-to-repowereu-targets/
  14. https://www.iea.org/reports/heat-pumps
Canada’s agrifood sector contributes over 136 MT to the country’s annual emissions tally. By 2050, these emissions are expected to rise above 196 MT—representing 19% of the national total. As the world combats climate change, there has been a growing movement toward achieving Net Zero emissions across all sectors of the economy. But one sector that hasn’t been given what it needs to hit this target is agrifood. With a global population set to grow by two billion by 2050, agriculture needs to be integral to our national sustainability agenda. Producers must have the right tools to increase their adoption of climate-smart farm practices. And the entire agrifood supply chain recognizes that change needs to happen now. RBC, Loblaw, Maple Leaf Foods, Nutrien, Boston Consulting Group’s (BCG) Centre for Canada’s Future—with support from Smart Prosperity Institute/Natural Step Canada, and the Arrell Food Institute—have provided the initial support to launch the Canadian Alliance for Net Zero Agrifood (CANZA). At a high level, CANZA is about bringing the right people together across the food value chain and partnering sectors to significantly scale up investment and drive innovation at a national level, while being reflective of regional realities. CANZA will be a national voice for the industry and will utilize the power of the entire agriculture supply chain to spur change. The aim of this alliance is to cut emissions by 50 MT by 2030 and 150 MT by 2050. In late 2022, RBC, the BCG Centre for Canada’s Future, and the Arrell Food Institute at the University of Guelph identified six potential cross-cutting initiatives that could shape a Net Zero roadmap in agriculture. To make change as fast and effectively as possible, two workstreams have been established: the Carbon Farming Initiative and the National Biodigester Network Initiative. These will address the largest emission sources in the agrifood supply chain with the goal of reducing emissions by 50 MT by 2030. The Carbon Farming Initiative aims to develop a low cost, scalable, and nationally relevant measurement reporting, verification system (MRV) and create a carbon credit platform to help producers develop and monetize high quality carbon assets. The workstream will also help develop climate-smart products and a certification strategy to increase consumer awareness and demand. A first demonstration project in Saskatchewan will lay the foundation for additional pilots across the country that will cater to all farms. The National Biodigester Network Initiative seeks to develop a roadmap and model for scaling a ‘waste to value’ digester network in high emission areas across Canada. By creating policy and market incentives for agricultural digester development, the workstream will provide stable feedstocks and new economic opportunities. Upon the successful launch of these two workstreams, more initiatives will be introduced to help Canada reach its goal of cutting emissions in the agriculture sector by 150 MT by 2050. Ultimately, CANZA’s goal is to find mechanisms that financially reward farming operations for their conservation practices. The alliance seeks to build low carbon initiatives for farmers across the country and to scale the sector’s sustainability practices at an accelerated pace. Through this broad coalition, the agrifood supply chain will be able to take substantial steps toward reducing its emissions footprint. For more information, please contact mohamad.yaghi@rbc.

Canadian Alliance for Net Zero Agrifood partners

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

Oil & Gas

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

Transportation

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

Electricity

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

Buildings

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

Conclusion

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

Key Findings

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

Canadian farmers are getting older and fewer

2001

166M acres

 

346,000

Avg age 50

 

2006

167M acres

 

327,000

Avg age 52

 

2011

160M acres

 

294,000

Avg age 54

 

2016

159M acres

 

272,000

Avg age 55

 

2021

153M acres

 

262,000

Avg age 56

 

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

A 3-point plan for growth

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

Short Term:

Opening the border to new producers

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

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

Sources: OECD Skills for Jobs Databaseiv

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

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

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

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

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

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

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

Medium Term:

Agricultural schools must evolve to meet today’s demands

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

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

Canadian enrolment in agricultural education is strong

Percentage of total enrolment

Source: OECD Education at a Glance Database and RBC Economicsviii

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

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

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

Advisory services for producers

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

Long Term:

Introducing more mechanized and autonomous solutions on the farm

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

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

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

Canadian public funding for agricultural R&D lags global peers

Millions $USD

 

RBC Economics, OECD, and Stats Canada

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

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

Canadian agricultural firms trail global competitors in R&D spending

Expenditures as a percentage of revenues

2018

1.2%

Canada

 

5.2%

Foreign

2019

1.0%

Canada

 

3.8%

Foreign

2020

1.4%

Canada

 

4.6%

Foreign

RBC Economics, Statistics Canadaxii

World Comparison

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

Japan

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

New Zealand

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

The Netherlands

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

The United States

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

Conclusion

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

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

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

Success factors

[inpage-tabs id=”1″]

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

Download the Report

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Contributors:

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

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

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

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

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

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

The Discovery

 


 

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

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

 

 

This soil could be a powerful “carbon sink”.

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

 

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

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

 

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

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

 

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

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

 

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

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

 

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

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

 

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

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

 

Betting on the farm:

Leveraging soil to fight climate change

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

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

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

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

What are MRVs?

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

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

Source: Elis (2021). BCG Analysis

What are insets and offsets?

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

Hitting pay dirt:

Three financial pathways to a more sustainable agriculture sector

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

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

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

1 | Carbon Offsets

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

[inpage-tabs id=”2″ background_colour=”#ffffff”]

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

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

Poor revenue

  • ~$8-$13

Carbon credits per acre

Large deductions

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

Weak incentive

  • ~$2-$4

Carbon credit per acre after deductions

Source: Research on North American MRV trials; BCG analysis

The quality of carbon credits hinges on measurement

3 Main Types of MRVs

[inpage-tabs id=”3″]

Framework to identify high quality MRVs

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

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

2 | Insetting

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

[inpage-tabs id=”4″]

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

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

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

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

Reasons given to pay green premium

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

3 | Government funding

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

[inpage-tabs id=”5″]

Canada’s funding for sustainable agriculture lags peers

USA

United States

Total farm receipts1

$545B

Ag support as a % of receipts

$64B|12%

Climate funding as a
% of total farm receipts

~1.7%

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

Europe

European Union

Total farm receipts1

$699B

Ag support as a % of receipts

$122B|18%

Climate funding as a
% of total farm receipts

~1.8%

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

Canada

Canada

Total farm receipts1

$83B

Ag support as a % of receipts

$8B|10%

Climate funding as a
% of total farm receipts

~0.5%

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

For more information see appendix

Recommendations:

Harvesting change
[inpage-tabs id=”6″]

 

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

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

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

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

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

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

For more, go to rbc.com/climate.

Download the Report

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Contributors:

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

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

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

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

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

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

Appendix

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

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

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

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

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

1. Give nature a business model

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

2. Set finance loose in the wild

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

3. Think inset, not offset

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

4. Develop nature-minded housing

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

5. Eat as if our lives depended on it

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

6. Reward nature as your star talent

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

7. See nature tech as a growth sector

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

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

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

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

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

1. The “Implementation COP” needs more implementers

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

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

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

2. 1.5 may not be alive for long

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

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

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

3. Coal’s not dead

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

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

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

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

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

4. The oil COP?

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

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

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

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

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

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

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

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

6. America’s back. China’s not

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

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

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

7. #WTF: Where’s the finance?

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

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

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

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

8. Agriculture, the new climate champion

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

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

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

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

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

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

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

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

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

10. Whose COP is it anyway?

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

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

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

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

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

Food is again at the forefront

It’s reshaping the economy, as food prices take inflation higher. It’s redefining national security, as countries reckon with the prospect of strategic supplies. And it’s resetting the climate conversation, as producers and consumers grapple with the need for more food with fewer emissions.

The world needs a new Green Revolution, and Canada can play a leading role. Indeed, we must.

By 2050, we must increase our food production by a quarter just to maintain our contribution as the world’s population swells. We need to grow more for humanity, with less impact on the planet. This can be Canada’s moonshot for 2030 and beyond, if we can harness the imagination and enterprise of Canadians in every sector and geography.

The coming age of disruption, in agriculture and food systems, compelled RBC, BCG Centre for Canada’s Future and Arrell Food Institute at the University of Guelph to take on this project to help inform and inspire Canadians to see both the urgent need and growing opportunity that will come with more sustainable food systems.

In our report series, we outline how we can build those systems by:

  • Using breakthrough technologies as well as some well-established practices,
  • Attracting and training a new generation of farm and food innovators,
  • Investing in farmers to develop new economic incentives that reward what they produce as well as what they preserve,
  • Creating a national policy framework to unite all key constituents, align our emissions measurement and reduction goals, and integrate with industries that intersect with agriculture,
  • And boldly declaring to the world that Canadian agriculture can help everyone move more quickly to a world that has solved the climate crisis.

How we grow, process and consume food is not the key cause of our climate crisis. It can be a key solution. And with the right investments, it can become a made-in-Canada, farmed-in-Canada solution for the world.

Our Project Partners


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The Growing Challenge: a Disruptors podcast series

The Growing Challenge is a special, three-part series on Disruptors, an RBC podcast, which tackles a critical question for the 2020s: how can Canada help feed the world’s growing population, while simultaneously slashing our carbon emissions to meet our nation’s Net Zero goals?

Disruptors hosts John Stackhouse and Trinh Theresa Do visited farms and production facilities across the country, and spoke with an array of experts working up and down the food supply chain, including farmers, academics, scientists, and restaurateurs.

We’ll take you from the field, to the processing facility, to the dinner table, to learn how we can harness new technologies and processes to improve efficiency, cut emissions, and reduce food waste. Solving this challenge could be Canada’s moonshot—and a defining moment for our country.



92 to Zero is the latest report in RBC Economics and Thought Leadership’s climate series, building from the team’s flagship report, The $2 Trillion Transition.For decades, RBC has engaged with Indigenous communities and we continue to work with them on our journey toward progress and reconciliation. The Royal Commission on Aboriginal Peoples was a clarion call that led to The Cost of Doing Nothing and subsequent work, including A Chosen Journey. Through our Climate Blueprint we are committed to sustainability and accelerating the transition to Net Zero. In these initiatives, we are listening and learning and using our platform to amplify Indigenous voices.

It’s now clear that the national priorities of Net Zero and reconciliation with Indigenous Peoples are inextricably linked. In the same spirit, we expect RBC’s reconciliation journey will increasingly intersect with our climate priorities.

92 to Zero highlights the incredible value that Indigenous capital, knowledge and decision-making can bring to a Net Zero transition. We’ve recently launched a national initiative of “listening circles” led by former Assembly of First Nations national chief Phil Fontaine that this report will help inform and inspire—and lead to more from us in the years ahead.

Now, each of us must act to break down the ongoing systematic barriers that prevent the full realization of Indigenous capital, supporting reconciliation and climate action. We hope this report will propel us further down that path.

We acknowledge that RBC resides on the traditional and contemporary treaty, and unceded territories of Turtle Island (North America) that are home to many First Nations, Inuit, and Métis peoples.

Key Findings

  • Canada’s road to Net Zero will rely heavily on vital sources of capital held by Indigenous nations. RBC estimates Canada needs roughly $2 trillion in capital over the next 25 years, much of it from Indigenous sources—or unlocked by Indigenous partnerships, including ownership.
  • An Indigenous-led approach to the climate transition, and economic opportunities toward Net Zero, will be essential to economic reconciliation.
  • Specifically, to achieve Net Zero and economic reconciliation, Canada needs to leverage four forms of Indigenous capital:

Natural Capital: Indigenous lands hold vast resources essential to green energy systems, and will be essential to the clean tech revolution. At least 56% of advanced critical mineral projects, 35% of top solar sites and 44% of the better wind sites involve Indigenous territory.

Financial Capital: The growing wealth of Indigenous communities includes an estimated $20 billion in trust assets and up to $100 billion in outstanding land and other claims. This capital will be critical to “crowding in” billions of dollars in private and public clean energy investment for Net Zero initiatives.

Intellectual Capital: Incorporating Indigenous values and traditional knowledge in the transition will lead to more sustainable and profitable outcomes. It can establish Canada as a leader in regenerative techniques, the preservation of biodiversity, and nature based carbon solutions—a powerful advantage as Canada competes with other countries for capital to finance the energy investment.

Human Capital: Emerging young Indigenous leaders and entrepreneurs will be critical generators of the innovative thinking needed to fuel the green transition. And as the fastest growing youth cohort, Indigenous Canadians can help power a Net Zero workforce that will include valuable jobs in skilled trades, advanced technology, business ventures and more.

What is 92?

To redress the legacy of residential schools and advance the process of Canadian reconciliation, the 2015 Truth and Reconciliation Commission issued 94 calls to action. The 92nd dealt specifically with business and reconciliation.

We acknowledge that RBC resides on the traditional and contemporary treaty, and unceded territories of Turtle Island (North America) that are home to many First Nations, Inuit, and Métis peoples.

Indigenous communities can unlock green economic growth

For many Indigenous Peoples in Canada, braiding is a sacred act. It brings together seemingly disparate sinews, with the goal of building a stronger, more unified whole. Strands of hair, breakable on their own, become more resilient when braided together. Blades of sweet grass are woven and burned with sage, cedar, and tobacco, the ceremony strengthening the community, which in turn cares for the plant.

Similarly, to meet the generational challenge of climate change, Canada must weave together the critical strands of Indigenous capital to secure a durable Net Zero strategy.

This new approach is about much more than money. It includes natural capital—vast portions of critical mineral, solar and wind developments depend on access to Indigenous lands—along with growing Indigenous wealth (financial capital), traditional Indigenous knowledge (intellectual capital) and powerful Indigenous entrepreneurship and talent (human capital). Each is required to strengthen the whole.

To unleash this capital, Canada will need new tools for clean energy development. That means establishing stronger corporate commitments and incentives for Indigenous partnership, greater sharing of project benefits, and financeable models of Indigenous equity participation. It means developing investment criteria that incorporates Indigenous perspectives and more intentional development of Indigenous entrepreneurs and youth leadership.

Above all else, it means establishing a new approach to partnership, one that reinforces the role of Indigenous rights, leadership, decision-making and consent.

These concrete actions will pull growing sources of Indigenous capital toward Net Zero. They’ll also mobilize critical private capital, by building a foundation of predictable development, better environmental outcomes, and expansive social impact.

Meaningful partnerships can’t be rushed. But the demands of the Net Zero transition are immediate—and there’s only one opportunity to get it right.

The onus now is on everyone to move forward together.

Natural Capital: The path to Net Zero winds through Indigenous land

Canada comes to the global climate challenge with a unique set of advantages. Its landscape includes vast quantities of both conventional and renewable energy resources—assets that, while enviable, bring challenges. Even as the country continues to rely on oil and gas, and works to more sustainably produce it, it’ll need to begin harnessing the resources to power the clean economy of the future.

And these resources are attached largely to Indigenous lands. RBC research shows at least 56% of advanced critical minerals projects involve Indigenous territory. Top opportunities for renewables development also overlap with Indigenous lands, including at least 35% of top solar sites and 44% of better wind sites. And Indigenous rights exist over many other territories that will require engagement.

To include these assets in its Net Zero strategy, Canada will need a new model for Indigenous partnerships—one that begins with meaningful engagement and consent.

Indigenous land contains key resources

  • At least 56% of the $60 billion in new critical mineral advanced projects involve Indigenous lands, including 26% within 20 kilometres of Indigenous reserves, settlement lands, and other title-like areas, and another 30% on unceded territories where Indigenous rights are asserted.
  • At least 35% of the top sites for the required $30 billion in solar development are near title-like lands.
  • And at least 44% of the better sites for the needed $135 billion in wind development are near title-like lands.

Indigenous communities have ‘a say’, but not decision-making power

Greater legal and political recognition of land rights has empowered Indigenous voices at the negotiating table for development projects, particularly in unceded and modern treaty territories.

These advancements follow decades of government policy that removed Indigenous Peoples from decision-making and deprived them of long-held land and treaty rights. This created a cycle of underinvestment, poverty, and trauma that persists in many communities today.

How Indigenous Peoples were isolated from decision-making

Early cooperation between distinct and sovereign settler and Indigenous groups created mutually beneficial trade and strategic military alliances that aided European survival on the land. But over time, official government policies of land dispossession, paternalistic suppression, and cultural assimilation took hold. The government never fully honoured original agreements and it removed Indigenous Peoples from the decision-making table.

It’s now clear that the national priorities of Net Zero and reconciliation with Indigenous Peoples are inextricably linked. In the same spirit, we expect RBC’s reconciliation journey will increasingly intersect with our climate priorities.

92 to Zero highlights the incredible value that Indigenous capital, knowledge and decision-making can bring to a Net Zero transition. We’ve recently launched a national initiative of “listening circles” led by former Assembly of First Nations national chief Phil Fontaine that this report will help inform and inspire—and lead to more from us in the years ahead.

Now, each of us must act to break down the ongoing systematic barriers that prevent the full realization of Indigenous capital, supporting reconciliation and climate action. We hope this report will propel us further down that path.

We acknowledge that RBC resides on the traditional and contemporary treaty, and unceded territories of Turtle Island (North America) that are home to many First Nations, Inuit, and Métis peoples.

 

As Indigenous communities regain rights and sovereignty, business methods are inching closer to the true spirit of initial cooperative agreements between Indigenous and settler societies, or

Treaties, that guided the sharing of land and living together in parallel.

But conflicts continue to erupt, including public demonstrations against development companies. While the courts have signaled a growing willingness to set precedent for consultation, they’ve also established that Indigenous rights are not absolute.

Government often navigates difficult decisions in the overall national interest. But this maxim has led to problematic policy and flawed corporate approaches to Indigenous engagement. Too often, Indigenous Peoples have been given only checkbox approval on planned projects that don’t respect their community values, governance, timelines, or consensus-building processes.

Resulting clashes have led to cancelled projects, runaway costs and timelines, and rushed planning phases that fail to leverage extensive Indigenous knowledge of land stewardship.

An oppositional approach is one way to pursue energy development. But it’s not the optimal one. Resulting court challenges, broken social trust, delays, and investment uncertainty pose a sizeable threat to Canada’s climate ambitions.

Striking true partnership

Some Indigenous leaders have told Canada’s business community they’re thinking about this in the wrong way. Rather than represent a project risk, Indigenous Peoples could bring something unique to the table. They can potentially improve certainty and returns, offer deep location-specific knowledge and better environmental and social outcomes. And as the rights of Indigenous

Peoples continue to draw international attention, their reintegration into clean energy development could emerge as a competitive strength.

“I think a lot of proponents are going to have to shift their mindset from thinking of Indigenous people as a risk to a possible source of capital and an enhancement to their project.”

Mark Podlasly
Director Economic Policy
First Nations Major Projects Coalition

To realize it, Indigenous communities must be engaged as true partners. That means including their voices, values, knowledge and decision-making from the earliest stages of a project. Sufficient time needs to be allotted for this process, similar to the months or years afforded for Western development work.

Meaningful engagement and consent is an ongoing exercise of building trust, sharing information, and acting to realign the terms of the partnership based on evolving priorities. It also includes the possibility of saying no—some projects will not align with community values, and they may have to be rerouted or in some cases abandoned.

The power of Indigenous equity

Indigenous equity ownership of new energy projects is rising. Equity improves the risk profile of projects, both through ongoing information sharing and the ability of both parties to shape their direction.

Equity participation can build intergenerational wealth and guide land stewardship. This aligns with the long-term sustainable world view of many nations and in particular, the Haudenosaunee (Iroquois) Seventh Generation Principle, where decisions are partly determined by the impact they’ll have on the next seven generations.

By contrast, near-term commitments in many of today’s impact benefit agreements (around Indigenous procurement, employment, community investment or royalties) are increasingly out of sync with the priorities of Indigenous communities, especially in light of the valuable sources of capital they control.

Equity is not a universal solution. Some communities may not have the risk appetite or expertise to manage equity investment. Infrastructure development is complicated and risky, and project finance lenders may be wary of significant partners that lack major construction or operational experience. Certain projects that focus on transition fuels or non-dominant abatement technologies—like oil, natural gas, or carbon capture, utilization, and storage—could carry long-term risks.

And equity isn’t always an option for the Indigenous communities that want it. Even communities that have revenue-generating activities may find a portion of the equity contribution is unfinanceable by private lenders. For communities that lack any revenue-generating activities, the equity option is even further out of reach. Project proponents, financial institutions, and governments need to eliminate this equity financing gap. Greater capacity building and advisory services are then needed to support communities in making informed choices between different partnership arrangements, and negotiating the best terms.

“Our nation is not new to industrial development […] essentially we’ve sat on the sidelines and witnessed the destruction of our territory, our environment, and our cultural resources to being active partners within a process where we had a seat at the table.”

Chief Crystal Smith
Haisla First Nations Chair
First Nations LNG Alliance

Financial Capital: Indigenous leadership will help fuel the $2 trillion transition

Large Canadian firms with $8 trillion in global assets have committed to Net Zero, yet annual spending on green projects is still far short of the $80 billion per year required. Indigenous financial wealth isn’t at the scale needed to lead financing of the $2 trillion Net Zero transition. But with more than $20 billion in trust assets and up to $100 billion in outstanding land and other claims, it can nevertheless make a significant impact.

The bigger opportunity rests in the power of Indigenous financial capital and consent to crowd in the larger private funding needed for Net Zero—by derisking projects, boosting returns, improving environmental outcomes, and increasing social acceptance. Mobilizing investors to support Indigenous-aligned responsible investment will accelerate this process while also enhancing economic reconciliation.

Indigenous assets cycle back into communities

Greater recognition and application of Indigenous land rights have added to the financial wealth of Indigenous communities. These additions stem partly from land claim settlements or compensation for past violations of treaty or other rights. With over 250 specific claims awaiting negotiation and over 160 currently under review, as well as ongoing litigation and land claims, further increases in these assets can be anticipated.

Distinct from individual wealth, these assets are for the benefit of the community, supporting spending on physical, social or cultural infrastructure, economic development, or disbursements to members. They are increasingly being used to decarbonize local communities, including Net Zero projects in the built environment, renewable energy developments or transmission lines that bring cleaner electricity to diesel-reliant remote communities, or equity stakes in sustainable projects such as transition fuel facilities or wind and solar farms.

The Senákw project on Squamish Nation reserve land in Vancouver—a 12-tower, mixed-use development—is the largest First Nations economic development project in Canadian history and Canada’s first large-scale net zero housing development . To be developed in partnership with a private developer, the Nation is contributing the land. Costing $3 billion to construct, it could generate $8-12 billion in revenue for the Nation over the leasehold life

While growing, Indigenous financial assets remain undersized, a result of the historic non-recognition of Indigenous rights and suppression of the Indigenous economy. There’s also significant variation in the financial wealth held by communities based on treaty status (unceded, modern, or historic), location (urban or remote) and proximity to major resource projects. For example, the Squamish, Musqueam, and Tsleil-Waututh nations have major developments on their traditional unceded territories around and within modern day Vancouver. By contrast, a limited sample of 500 First Nations from 2015 to 2016 showed 50% had revenues below $3 million, whereas the top nation earned almost $100 million.

Formally recognizing the value of Indigenous partnership

Indigenous leaders can provide the greatest long-term certainty around infrastructure development. And Western developers and scientists are starting to recognize the value of Indigenous knowledge in project design.

Governments and leading project sponsors need to financially recognize the value Indigenous partners bring to the table. Fair compensation will lead to a growing Indigenous financial asset base that can be invested back into community wellbeing and position nations for Net Zero investment. That means finding new valuation models that go beyond lands leased or rights-of-way. Right now, communities that seek an equity share after the risky construction phase often purchase a stake in a more valuable project—but at a higher cost. This is despite their active participation in helping to de-risk it from the beginning. In terms of traditional knowledge, communities are often reimbursed for their time or monetary outlays, but not necessarily for their intellectual property as ‘consultants on the land’. Appropriately classifying these features as accretive to project returns may lead to their monetization, helping to close the Indigenous financial asset and equity financing gap.

Indigenous-aligned responsible investment

Successful Indigenous communities are investing in financial products consistent with their cultural values and using activist strategies to push companies to do better. They’re scaling their impact and building capacity through partnerships with like-minded investors. The National Aboriginal Trust Officers Association (NATOA), a resource and training organization, and Share, a responsible investment organization, have created the Reconciliation and Responsible Investment Initiative. It seeks to mobilize Canadian investors to “… use their voices and their capital to promote positive economic outcomes for Indigenous peoples including through employment, support for Indigenous entrepreneurs, increased partnerships with Indigenous communities and respect for Indigenous rights and title”10.

There’s a growing understanding that Indigenous entrepreneurs and communities could be a valuable focus for impact investing approaches. Also, that Indigenous factors, like Indigenous project co-development or Indigenous say in corporate governance, may be important to the overall performance of companies and projects. But while intentions are on the rise, the tools and regulatory framework to mobilize finance remain in the early stages.

  • The ESG standards increasingly being deployed across capital markets have largely omitted Indigenous priorities and perspectives, and were developed without Indigenous input.
  • Too often, Indigenous issues are considered an “S” factor in ESG modelling, which overlooks the singular legal foundations of Indigenous participation, as well as the unique environmental nature of Indigenous-led or -guided development.
  • The $1.3 trillion dedicated sustainable equity fund market has no funds with an explicit focus on Indigenous issues.
  • Investor demand has been insufficient to establish investment products aligned with Indigenous priorities.
  • Concrete business commitments to Indigenous issues are not significant enough—or disclosed and verifiable—to build diversified products.

As the investment environment changes, corporate and investor inaction on climate and Indigenous priorities becomes increasingly salient to the bottom line.

“Investors are going to need to see this as not as some sort of forecasted or predicted risk. They’re actually going to need to see climate change as having material impact on assets that they own..”

Joseph Bastien
Share
Reconciliation and Responsible Investment Initiative

Intellectual Capital: The power of Indigenous land stewardship and knowledge

Indigenous capital is more than natural and financial capital. Recognition of the value of Indigenous voices and knowledge can be a powerful driver of both economic reconciliation—and growth.

Generations of traditional Indigenous knowledge have shaped an approach to land management that ensures the long-term sustainability of ecosystems. Each community specializes in preserving the delicate interrelationships between people, plants, and animals in its traditional territory. This approach is holistic, anchored in the interconnectedness of the environment, well-being and culture. It’s about the principle of reciprocity and sustainability. It is not rigid, but evolving.

As Canada seeks to build a prosperous economy while also minimizing environmental damage, preserving biodiversity, and developing nature-based carbon sinks for climate management, Indigenous knowledge and ways of knowing will become critical competitive advantages.

Leveraging these assets can also extend economic opportunities to Indigenous Peoples that haven’t traditionally benefitted from land rights.

But it’ll mean embracing a different world view.

Two-eyed seeing leads to better outcomes

Etuaptmumk, or two-eyed seeing, is a Mi’kmaq principle that calls for seeing from one eye with the strength of Indigenous stewardship, knowledge, and ways of knowing, and from the other with the strength of Western tools and systems. Bringing both perspectives together can create thoughtful, and more profitable Net Zero solutions.

Uniting place-based Indigenous knowledge with Western scientific methods improves the outcomes of environmental studies for development projects. By itself, the traditional scientific approach may only offer a narrow window into the local environment and require advanced extrapolation—for instance, on the baseline migratory patterns of fish or how to restore a reclaimed project site to its original ecosystem from decades ago. Indigenous knowledge, acquired over centuries of climatic variation, can augment or contextualize this information, producing more robust conclusions. Similarly, Western methods can complement traditional knowledge. For example, tracking devices on at-risk local species can expand information on and understanding of their movements.

“[Mi’kmaq Ecological Knowledge] is a cumulative body of knowledge that is passed on from generation to generation, Elder to child and is dynamic. MEK draws upon the ever changing natural world—as ecological knowledge changes over time, and new experiences bring forward new understandings regarding the Earth’s ecology, the Mi’kmaq will continue to learn, grow and share, just as they have done for over ten thousand years.”

Mi’kmaq Ecological Knowledge Study Protocol
Assembly of Nova Scotia Mi’kmaq Chiefse

Federal laws now require incorporation of Indigenous knowledge in the environmental assessment process, with interim guidance saying that traditional knowledge should be viewed as providing a framework “as complementary and influential information alongside Western science”.

But Indigenous knowledge does not yet have an equal place in environmental studies. Whereas Western science is afforded months, or even years, to do its work, assessment processes now often only have a short timeline for Indigenous input near the end. Indigenous communities often do not have this information readily available as it must be collected from knowledge-holders in the community, and they may be reluctant to share if trust is not strong. Others may want to produce their own traditional knowledge-based studies.

Human Capital: A new generation of leaders is driving innovation

Stronger say over local project development, growing wealth, and recognition of the value of Indigenous knowledge is empowering a new generation of Indigenous Peoples and entrepreneurs. The Indigenous economy, estimated at over $30 billion per year in 2016, is outpacing growth in the overall national economy and is poised to grow to $100 billion by 2024.

Driving change is a growing group of young, educated Indigenous leaders. These leaders are advancing new models of economic reconciliation and development. Supported by stronger land rights and growing capital, they’re pursuing an Indigenous-led approach to sustainable economic development that connects investment and community prosperity. They’re building networks with other Indigenous leaders past and present and often acting through increasingly influential Indigenous-led business and advocacy organizations, such as the Canadian Council for Aboriginal Business, First Nations Major Projects Coalition (FNMPC), Indigenous Resource Council, or National Aboriginal Capital Corporations Association (NACCA).

Many are heads of major economic ventures and are building a new model for the upcoming generation, which still sees limited Indigenous representation in corporate Canada. In 2020, only 0.3% of corporate board seats were held by Indigenous persons, despite their 4.9% share of the population.

Corporate Canada is increasingly seeking Indigenous perspectives and representation. As it does, it will be important that it doesn’t hoard Indigenous talent, especially from remote communities. Corporations that have a clear social purpose and use innovative models to share Indigenous talent with their communities are more likely to be successful.

Local talent can be a competitive advantage

The Net Zero projects brought by Indigenous leaders to their communities will have a powerful pool of human capital to draw from. And many communities are interested in economic partnerships that include long-term employment benefits. This means higher-value Indigenous employment and skills development that outlives the project, and includes opportunities at all levels including planning, design, construction, management, and operations.

This is also in the interest of project sponsors. For one, it’s a sign of the true partnership Indigenous leaders will be looking for when selecting collaborators. Additionally, in a world of acute labour shortages and fragile, cost-pushing global supply chains, a network of trusted local employees and suppliers delivers value. Building these networks takes time. But Canada’s energy system transition will be an intergenerational project.

The Net Zero transition can benefit from an Indigenous workforce that’s younger than for Canada as a whole. Indigenous youth are the fastest-growing population cohort, with their numbers expanding four times quicker than the non-Indigenous population. Indigenous people are increasingly pursuing postsecondary qualification, especially women, 52% of whom had a postsecondary qualification in 2016. Indigenous youth value their languages, identity and culture, and are confident in their foundational skills—including critical thinking, communication, or collaboration, which are all central to the future of work. The already strong employment of Indigenous people in Canada’s resource economy and skilled trades occupations, and greater proximity to remote areas, means an easier transition to the skills needed for green infrastructure and clean energy.

Meanwhile, Indigenous entrepreneurs are developing new businesses at nine times the Canadian average with 50,000 Indigenous-owned businesses across diverse Canadian sectors. Many of these businesses are promoting Indigenous values and knowledge, from Cheekbone Beauty—founded by Jenn Harper, an Anishinaabe woman whose line of high quality sustainable cosmetics is giving back to the community—to the SIKU mobile app, an Inuit-led social network to help hunters share real-time knowledge of ice conditions and animal behaviour.

Moving forward with reconciliation also means not hiding from the past or the impact that endures in so many Indigenous communities. All Canadians, including Canadian business, have a greater role to play in reconciliation, including supporting new approaches to education and pathways to employment, as we explored in our 2021 report, Building Bandwidth. Whether it’s apprenticeship and co-op opportunities for Indigenous students or capital for young entrepreneurs, a skills-centric approach to the climate transition will be critical.

“I think about the advancements [that Indigenous groups have] and it’s a small group thinking outside the box, thinking about innovation. What we need to figure out and address is how to bring everyone with us and continue to strengthen capacity in our communities.”

Chief David Jimmie
CEO at Squiala First Nation,
President Stó:lō Nation Chiefs Council

Capacity planning and supports are needed. Indigenous-led organizations are providing some of that—in addition to NATOA, First Nations Major Projects Coalition (FNMPC) and others, AFOA Canada provides capacity development in Indigenous management, finance, and governance. The Indigenous Leadership Development Institute Inc. (ILDII) builds leadership capacity in Indigenous people with specific training. But greater access and new partnerships will be critical.

More financial innovations are helping address the longstanding capital gaps between Indigenous communities and the rest of the country. It would take about $83 billion in capital to close the financing gap based on 2013 estimates. But Indigenous entrepreneurs still face barriers that other Canadian entrepreneurs don’t. Limits from the Indian Act and government underinvestment in assets continues to constrain the use of homes or other sources of collateral for conventional lending.

Innovative approaches can often work around this, but the complexity can scare off some lenders, or cause significant risk aversion in Indigenous lending. And with the need to access multiple government, Indigenous organizations, and private programs to obtain financing, application processes and timelines can be complex and time consuming.

A Way Forward

In her book, Braiding Sweetgrass, Robin Wall Kimmerer describes the propagation of sweet grass as growing not from the wind or animals but by underground root systems called rhizomes. Having long survived unseen, the Indigenous community is now emerging with strength and taking hold of prosperity grounded in recognition of the essential strands that nourished it: natural, human, financial, and intellectual capital.

To get to Net Zero, Canada will need to bring this Indigenous capital together with non-Indigenous capital through positive intent and deliberate action. If this is done right, it can promote reconciliation and a prosperous Net Zero future for everyone.

Here are some key questions Canadians need to address:

  • What are the steps of engagement that project proponents must develop with Indigenous communities to achieve and maintain consent for development, given evolving definitions of consent and community-specific priorities?
  • How can Indigenous communities proactively communicate their internal governance structures, preferred engagement processes, and general posture or conditions for clean energy and infrastructure development?
  • How can better equity participation models be developed to encompass the wide range of assets, ambitions and priorities across Indigenous communities?
  • How can non-Indigenous and Indigenous-led financial institutions and governments fill gaps in the project financing needed to ensure meaningful Indigenous ownership?
  • How can international ESG standards and metrics be adapted to incorporate Indigenous perspectives and Canada-specific context, including legal rights framework?
  • What are the best practices for meaningfully hearing and integrating Indigenous knowledge and perspectives in project decision-making processes as well as broader economic development strategies?
  • How can Indigenous communities be supported in projecting the labour supply, skills, or supplier network needed to actively participate in economic development opportunities?

For more, go to rbc.com/climate.

Download the Report

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Contributors:

  • John Stackhouse, Senior Vice President
  • Cynthia Leach, Assistant Chief Economist
  • Alanna La Rose, Manager, Strategic Partnerships
  • Colin Guldimann, Economist
  • Darren Chow, Senior Manager, Digital Design
  • Naomi Powell, Managing Editor, Economics and Thought Leadership

The New Climate Bargain is the latest report in RBC Economics and Thought Leadership’s climate series, building from the team’s flagship report, The $2 Trillion Transition, which was launched in October 2021. This climate series is designed to inform and inspire Canadian prosperity, while advancing RBC’s ongoing commitment to speak up for smart climate solutions, a key pillar of RBC’s Climate Blueprint.

 

Climate change, meet energy security

Russia’s invasion of Ukraine is a cataclysmic moment for global energy markets. As governments and consumers grapple with energy shortages and high gas and power bills, climate change policies are being thrust into competition with energy security.

The old energy order is giving way to a new, disorderly one as Europe and Asia seek alternate supplies to replace Russian exports. Moscow’s ploy to exploit Europe’s energy vulnerability will not be forgotten in a hurry, and has accelerated two contradictory responses: rapid decarbonization and a scramble to raise fossil fuel production at least in the short term.

The dichotomy underscores a hard truth: short of major additional action, oil and gas will likely remain critical and contentious energy sources for longer than some think.

This poses some critical questions for the West:

Should Canada and the U.S. raise production significantly in the short term to cool prices?

How does higher output square with their ambitious emissions reduction plans?

If governments fail to balance climate action and energy security, will high energy costs and emissions erode public trust?

Canada can still reach its 2050 Net Zero targets, but it may not be a linear journey.The Canadian government has called for more oil and gas production to help ease the global crisis in the short run, while maintaining a firm commitment to competitive and decarbonized oil and gas in the long run.

Our research shows both goals are within reach—but at significant cost. Canada can still reach its 2050 Net Zero targets, but it may not be a linear journey. There isn’t a moment to lose. Policy action over the next 24 months must chart Canada’s climate-and-energy path to Net Zero by 2050.

Key findings

Canada’s oil and gas sector can support near-term energy security while advancing climate action, but will need regulatory certainty and support at all levels of government.

Oil sands and conventional producers could raise production by up to 500,000 barrels per day from 2021 levels.


This could add 9 million tonnes of greenhouse gases per year, costing at least $1.5 billion annually to abate—but bringing potential net benefits of $10.5 billion annually. Critically, if Canadian barrels displace those of other producers, there would be no additional global emissions.

Meeting climate targets despite new production will demand significant investment in methane reductions, as well as electrification and carbon capture across industries.

Cutting emissions 40% from current levels in the oil sands by 2030 will likely require $45 billion to $65 billion in capital spending between 2024 and 2030, peaking at about $9 billion per year mid-decade.

Full upstream decarbonization with carbon capture, utilization and storage (CCUS), a critical emissions-reduction technology, will require oil prices averaging roughly US$50 WTI through 2050.

A deliberate approach to deploying decarbonization technology in the oil sands is needed to avoid over-investing in costly solutions. CCUS should be viewed as just one tool at Canada’s disposal.






CHAPTER 1

Oil is here for the long haul

The journey to decarbonization was never going to be smooth. But it’s turning out to be a highly disruptive economic and political event.

While energy security and climate change have long been on a collision course, Moscow’s aggression has brought the conflict to a head. Early indications suggest at least 3 million barrels per day of Russian oil could be shut in as buyers stay on the sidelines. In the longer term, a bigger portion of Russia’s 11.7 million bpd production could be challenged in the face of oil majors’ exits and as Moscow becomes an international pariah.

The Russian invasion has prompted calls to cut oil and gas demand by accelerating investments in clean energy technologies, a move that could blunt bad actors’ ability to hold energy markets hostage. But most countries would struggle to switch their energy sources rapidly over the next decade.

For example, zero-emission vehicles (ZEVs) accounted for just 5.6% of Canadian light vehicle registrations in 20211. Given this modest starting point, it would take a Herculean effort to reach the ZEV mandates set out in Ottawa’s recently announced Emissions Reduction Plan (ERP). The mandate requires at least 60% of all new light-duty vehicle sales be ZEVs in 2030. Even if Canada meets that ambitious target, 84% of light vehicles will still run on gasoline by the end of the decade

Russia’s actions in Ukraine have shocked energy markets but it’s still too early to know if the world will double-down on investments in renewable energy or lean on fossil fuels to manage the shortages. Most likely, both will see a wave of new investment.

Early estimates suggest global oil and gas capital expenditures will increase 11.6% year-on-year to US$533 billion in 2022. They’ll rise another 4% in 2023, before returning to pre-pandemic levels in 2024, according to Fitch Solutions.

So far, high fossil fuel prices have done little to curtail demand, at least in North America. While renewable energy investments are expected to rev up too, in Canada, there’s a renewed push for more oil production and a call for more pipelines. In the U.S., shale basins and Middle East oilfields are preparing to bring back mothballed rigs.

And the world may be falling back into old consumption patterns. Germany plans to build LNG terminals even as it accelerates investments in renewables, while the IEA has recommended a temporary switch to coal and oil-fired electricity to wean the European Union off Russian gas. Both would add to, rather than cut, emissions.

The hurried response is aimed at protecting consumers from price spikes. Persistently high energy prices are cascading across energy-intensive industries, raising prices of staple commodities and denting the budgets of vulnerable households and small businesses. In such an environment, energy accessibility and affordability usually trump climate considerations for consumers.

There are already signs that government resolve is weakening: Germany, California, and British Columbia, usually climate leaders, are offering subsidies to offset high gasoline and power prices.

So far, high fossil fuel prices have done little to curtail demand, at least in North America. Consumers have room to absorb higher prices, since US gasoline costs are still nearly a full percentage point lower as a share of personal consumption expenditures than early in the 2000s, and Canadians have amassed major savings stockpiles during the pandemic.

While there is regulatory and investor pressure on energy suppliers to rein in direct emissions (Scope 1) and indirect emissions from purchased electricity (Scope 2), governments have tiptoed around the equally significant challenge of altering consumer behaviour.

Globally, explicit and implicit fossil-fuel subsidies primarily focused on the consumer stood at US$5.9 trillion in 2020, or about 6.8% of GDP. And they’re expected to rise to 7.4% of GDP by 2025, according to the International Monetary Fund. Consumer behaviour trends also suggest preference continues to take precedence over climate considerations: sales of SUVs soared 10% and accounted for 45% of all car sales last year, adding 120 million tonnes of CO2 annually.

Taken together, these indicators suggest oil demand will rise rather than fall in this decade. The IEA’s short-term forecast pegs demand for oil at 104 million barrels per day in 2026, compared to around 99.7 million this year. Production growth over the next few years will be led by the United States, Saudi Arabia, UAE, Iraq and Brazil.

Absent greater action, rising investment in clean energy doesn’t necessarily mean a decline in traditional energy sources.Canada’s contribution to higher output is also baked into the pie. The Canada Energy Regulator expects domestic production, led by the oil sands, to peak at 5.8 million bpd by 2032, before falling to 4.8 million bpd in 2050, assuming action to reduce GHG emissions continues at its current pace. If that’s the case, emissions would mostly rise, despite improvements in oil sands efficiency (which has fallen by a third since 1990.)

Surging global energy demand

Energy demand over the past four decades has grown around 1.75% annually.
With global population set to rise by another 2 billion people by 2050, expect that demand to surge again. As a base case, the IEA projects energy demand will grow 1% annually over the next three decades.

 

While renewable energy consumption is forecast to lead growth with a 3.2% annual increase between 2020 and 2050, oil demand is expected to rise by 0.5% and natural gas by 1.3% annually. Absent greater action, rising investment in clean energy doesn’t necessarily mean a decline in traditional energy sources.

Still, a bullish scenario for oil markets is far from certain. The IEA’s less optimistic scenario pencils in a 25% decline in oil demand, with prices averaging US$64 per barrel. However, if a greater push emerges to get to Net Zero, prices drop as low as US$24. Net Zero production will be a prerequisite to sell into that shrinking oil market.

The trouble is, this base case for fossil fuel demand is at odds with climate goals.

To have a 50% chance of meeting a 1.5°C warming target (the stretch goal for the Paris Agreement), the world will need to leave 60% of the world’s remaining oil and gas, and 90% of its coal in the ground2.That’s twice as much as a 2° scenario, and suggests we’ll need to hit peak global production soon—certainly within the decade.

Compared to 1.5°, 2° could be even more destructive for the planet, with twice as many plants and animals seeing their habitats diminish, large swathes of sea coral becoming extinct, and millions more people facing heatwaves, floods, and water scarcity3.

Against that bleak backdrop, Western oil production should not continue unrestricted no matter how acute the energy security imperatives. To resolve that tension, new Western production must displace other sources, to stabilize global emissions (including Scope 3 emissions that include an organization’s upstream and downstream emissions), and policymakers must redouble efforts to drive down oil demand.

Canada has the tools and technologies needed to rapidly deploy renewable power, electrify buildings and transport infrastructure, and, in some cases, industry. But managing the impact of intermittent renewables and the high cost of some alternatives will require careful planning, too.

But displacing development of fossil fuel resources elsewhere will be more challenging. Western economies need to be on the same page, targeting a growing Western share of oil production and falling overall oil demand. And they’ll need to agree to pay a premium for oil from climate-compliant producers.

Canada and the U.S. should pursue a North America energy security alliance that secures both conventional energy, and the underlying resources for energy transition. Elements of such a strategy include long-term contracts with U.S. refineries that provide certainty for Canadian oil producers to invest in decarbonization, maintenance of existing pipelines and support for power transmission lines.

Canada must ensure it receives consideration for its stability and energy decarbonization efforts. Long-term contracts could seek to put a floor on oil prices at levels that support decarbonization investments in Canada, and reduce the impact of extremely high oil prices for US consumers.

CHAPTER 2

Canada’s role in ensuring energy security

Energy is a critical sector for Canada. Oil and gas extraction and support activities, refining, distribution and transportation, could account for close to 10% of Canadian GDP in 2022. In addition to directly employing 178,500 Canadians, the industry supported 415,000 indirect jobs in 2020.

Resource-rich provincial governments benefit from royalties, which are expected to total at least $18 billion in 2022, up 50% from 2021 due to high energy prices and fully paid-down projects. 4

Given its sizeable resources, Canada can play a critical role in ensuring global energy security—that both addresses short-term energy shortages and burnishes Canada’s status as a soft power whose resource wealth can neutralize non-democratic forces. The challenge is to do so without threatening our climate goals.

First, the good news. Canada can boost oil and gas exports to the U.S., which, in turn will raise the U.S.’s ability to expand energy supplies to the rest of the world.

We estimate that Canada can raise production by as much as 500,000 barrels per day through a combination of oil sands and conventional oil production to overcome supply deficits over the next year.

While Canada’s exports are already at near record levels with an average of 3.76 million bpd in 2021, U.S.-destined pipeline capacity stands at more than 4 million bpd.

Over the past few years, Canadian pipeline operators have invested in decongesting their systems to optimize capacity, but further notable increases may require new lines, according to industry.

But under a realistic production forecast, that may not be necessary. The Canada Energy Regulator’s latest forecast of 5.3 million bpd of pipeline and rail capacity by 2050 should be sufficient to handle Canadian production.

Around 1 million bpd of total rail loading capacity suggests that, in a pinch, current oil export capacity can support near-term expansion. However, railway companies will be challenged to supply specialized rail cars and juggle demand from agriculture, food and minerals producers already struggling with supply chain challenges in order to accommodate higher oil shipments.

Canadian takeaway capacity is sufficient

Source: Canadian Association of Petroleum Producers, Canada Energy Regulator

The bad news: rising production could challenge Canada’s recently-announced ERP target to cut oil and gas sector emissions by 42% as new production adds as many as 9 million tonnes of additional emissions.

Laying the Foundation for Emissions Cuts

Required under Canada’s Net Zero legislation, the Emissions Reduction Plan (ERP) and the subsequent federal budget marked a tone-shift for climate policy. The document outlined emissions targets at the sectoral level, and provided significant new funding for transportation, carbon capture, and nature-based climate solutions.

But when it comes to the all-important energy sector, it was short on details. Mindful of a war in Ukraine and a full-blown global energy crisis that is still unfolding, the ERP underscored the dilemma of setting aspirational climate goals at a time of structural disruption in energy markets.

The ERP assumes rising Canadian oil production. But recent announcements pay more attention to new projects’ emissions rather than their economic benefits. The message from Ottawa is, increasingly, that only the lowest-carbon operations will be given social license to produce.

It will be a challenge, but we believe Canada can accelerate oil production and achieve its stated goal of reducing greenhouse gas emissions by 40 to 45% by the end of the decade.

There are no guarantees. The industry may not respond to the call to raise production without resetting emissions targets and obtaining social licence. Investors have prioritized dividends and buybacks over ploughing back profits to generate more barrels, while labour shortages and stringent ESG targets are further discouraging a push to raise production.

Should oil prices rise further, that may not be the case. But to secure more energy supplies, Canadian policymakers should signal greater comfort with a short-term rise in oil emissions—as long as emissions start to fall in other areas, or oil production starts coming offline beyond 2030.

At the same time, policy makers can pull other levers to ensure we remain close to our 2030 emissions targets. Rising oil sector emissions can be offset with cuts elsewhere, such as by accelerating renewable power infrastructure and building decarbonization, and improving energy efficiency. The economic benefit of rising oil production can help offset the cost of accelerating other sectors’ decarbonization, especially buildings and electricity, where supply chain bottlenecks may be less severe than transportation.

Overall, there’s no need for near-term energy security challenges to threaten the world’s commitment to Net Zero. But cross-sector trade-offs won’t work in the long term. Canadian oil producers will need to cut not just industry-average emissions, but overall emissions in each type of production. Making the long term investments needed to do so requires clarity, and there’s no better clarifying moment than an energy crisis.

CHAPTER 3

The need for CCUS

While supporting near-term energy security and meeting future climate targets will be challenging, our report $2 Trillion Transition: Canada’s Road to Net Zero found that technologies to achieve deep cuts are readily available for transportation, buildings and electricity.

The ERP already targets 42% emissions cuts in the oil and gas sector, nearly 40% of which come from the oil sands, where cuts are costly and technically difficult. This will be challenging to achieve, given the industry’s reliance on capital-intensive carbon capture projects for deep cuts.

Development of the recently-approved Bay du Nord oil field off the coast of Newfoundland, which may only start producing oil in the late-2020s, could add some 4.5 million tonnes over the life of the project.

But conventional oil and natural gas producers appear well placed to cut emissions over the next decade. For one, their emissions are lower per barrel, due to lower energy input. For another, about 40% of upstream natural gas emissions, and two-thirds of conventional oil emissions come from methane releases and leaks. These are slated for a 75% reduction by 2030 via widespread leak detection and vapour recovery units, making up nearly the entire contribution of cuts in the ERP.

More effort to electrify facilities near B.C.’s clean electricity grid to address combustion could deepen cuts and make room within the sector for rising production. In the medium term, with greater effort by utilities to bring electricity to more parts of B.C. and Alberta’s oil and gas fields, deeper decarbonization is possible.

Types of bitumen production

Mining: Shovel-Ready
Only a fifth of the oil sands deposit can be extracted by mining. Massive shovels scoop out the bitumen and ship it on large trucks to cleaning facilities where it is separated from sand, water and clay, or tailings. The waste material is sent to tailings ponds.
Current production (2020): 1.49 million bpd

Production forecast (2030): 1.70 million bpd
The separated oil is processed in two ways:

 

Synthetic Crude Oil
Synthetic crude oil (SCO): Once stripped of the waste, the bitumen is converted to a sweet, synthetic crude oil (SCO), in upgraders, or complex heavy oil refineries. While the process adds to the oil’s emissions at the upstream stage, the lighter, sulphur-free end product can be sold to a conventional refinery.

Average emissions intensity (2014-18): 95 kg/bbl

Froth treatment
Mined dilbit or paraffinic froth treatment (PFT): Two new oil sands projects, Imperial Oil’s Kearl Oil Sands Project and Suncor Energy-led Fort Hills, use the PFT method. The process removes the bitumen’s heaviest components and is diluted with lighter blends to produce dilbit. PFT uses a paraffinic solvent as diluent, producing a clean end product that can be transported without the need to upgrade, thereby reducing upstream emissions.

Average emissions intensity (2014-18): 46 kg CO2/bbl

If Canada is serious about cutting oil sands emissions by 2030, the first move is to bring down emissions intensity—the CO2 emitted per barrel—with production efficiencies. But this isn’t likely to bring emissions on track to meet our climate goals.

Without new facilities dragging down average carbon emissions5, oil sands emissions per barrel could improve about 6 to 7% by 2030. Some of these improvements would come at high costs6. Others are only economical for new facilities, or those not yet past the prototype stage.

 

Over the long term, breakthrough technologies that provide low- or no-carbon steam, like hydrogen boilers and small modular nuclear reactors, could revolutionize oil sands production, as both provide zero-carbon sources of heat and power. Unlike conventional producers, who consistently need to drill new wells, and move emissions-controlling equipment each time, the stationary nature and slow decline rate of oil sands may improve the economics of costlier equipment like reactors.

Until then, carbon capture is the key technology for cutting emissions deeply. The IEA and UN’s Intergovernmental Panel on Climate Change have both identified CCUS as a technology that can help cut emissions with conducive policies, public support and innovation.

Most CCUS projects to date, in Canada and elsewhere, have been heavily subsidized by tax credits or government investments. But the technology is not without significant drawbacks: it’s pricey, slow to build, adds costs, relies on complex engineering, and sometimes fails to capture or store emissions effectively. The technology also needs to be tested in large- scale settings. As yet, there are no major plants that capture CO2 from the combustion of natural gas, which is the primary application for the oil sands. And with just 40 million tonnes per year of existing capturing capacity globally, a near-term buildout of 20 to 30 million tonnes in Canada appears ambitious.

What’s more: CCUS projects don’t inherently have financial returns. The product they make, CO2, has minimal market value, so returns need to be engineered from government policy, like carbon pricing or fuel standards. And in many cases, the avoided taxes or regulatory payments are highly uncertain.

Accordingly, most CCUS projects to date, in Canada and elsewhere, have been heavily subsidized by tax credits or government investments. Or have required corporations to voluntarily pay very high carbon prices. To justify government investment, we need to be sure oil sands production at scale is competitive in the long run.

To justify government investment, we need to be sure oil sands production at scale is competitive in the long run.

 

Emissions Catchers: Carbon Capture Utilization & Storage Projects in Canada

CCUS projects in operation, under construction and proposed

CHAPTER 4

Can Net Zero oil sands compete in global markets?

The Oil Sands Pathways Initiative, an industry group aimed at getting the oil sands to Net Zero, is targeting targeting 22 million tonnes (Mt) in emissions cuts by 2030. To accelerate investment in CCUS, the recent federal budget announced a refundable investment tax credit totaling a little less than 50% of project costs to 2030. This is a significant step in the right direction, and should help spur studies of, and investment in, the best CCUS sites.7

 

But for widespread deployment—government modelling implies some 15 to 18 Mt of installed capacity by 2030—more effort from provinces will be needed. This could include a top-up on the credit, but also improvements to non-financial parts of CCUS projects like permitting, liability, and storage rights. The government’s commitment to explore carbon pricing certainty could also help de-risk cash flows from CCUS projects.

And to make an equal contribution to Canada’s 2030 target, we think the overall ambition needs to grow, deploying around 30 Mt of carbon capture in the next eight years.

 

Doing so would require between $45 and $65 billion in total capital spending between 2024 and 2030, totaling $9 billion per year at its peak. This would be a significant draw relative to the industry’s current investment levels. Assuming the government continues to absorb half the bill, total taxpayer costs would be significant, too.

While previous rounds of high oil prices have led to investment booms, the short-term landscape has changed. After a turbulent few years, oil sector investors prefer to see firms focus on dividends and share buybacks rather than invest in expensive carbon capture projects.

The long-term outlook also challenges major investments in oil sands projects, especially as most forecasts have oil demand falling in the coming decades, as drivers switch to electric vehicles. A major push for decarbonization to reduce demand for Russian oil and gas in Europe may accelerate this trend.

In that context, Canada’s challenge rests in removing carbon emissions from the oil sands without making them uneconomical to extract.

 

We estimate full decarbonization of the oil sands8 could cost between $6 and $14 per barrel for mined bitumen and $17 and $23 for in situ bitumen. Overall, WTI would have to average about US$50 over the life of the project to meet investor expectations. While that has largely been the case since 2005, uncertain future demand means that may be a high bar.

That said, oil sands wells decline more slowly than conventional ones, making them more suitable for site-specific and immobile CCUS. If CCUS remains a key technology for decarbonizing oil, that may be a structural advantage for oil sands producers. Ignoring sunk capital costs, steam assisted gravity drainage (SAGD) facilities with CCUS could run profitably at prices as low as US$40.

These relatively high abatement costs mean Canadian producers should take a pragmatic approach to CCUS. Deploying investments gradually through the 2020s and 2030s would allow for cost efficiencies and leave room for future technologies to potentially lower costs. A slower approach is at loggerheads with deep emissions cuts this decade, but a measured, realistic approach to decarbonizing heavy oil production will be critical to maintain Canada’s economic competitiveness in the sector.

In the long term, given a majority of emissions from oil consumption come from burning the fuel, industry will need to invest in developing uses for bitumen that don’t require combustion. IEA forecasts put non-combustion demand near 15 million barrels per day in 2050, for things such as lubricants, waxes and asphalt. Opportunities to take the heaviest parts of Canadian barrels and make value-added products like carbon fibre are in the early stages of innovation, but could be a key for diversification and transition in the oil sands.

Of course, this may yet be challenged by emissions reduction mandates levied by government and the significant uncertainty around future oil and carbon prices. We’ll need a coordinated effort by industry and government to address these challenges.

CHAPTER 5

Managing volatility in the investment cycle

The oil sector is highly cyclical, which makes long term investments difficult especially when coupled with the uncertainty of returns for decarbonization projects. For one, it’s likely oil production and emissions will fluctuate through 2050 as prices encourage or discourage investment. Investing billions of dollars in CCUS during periods of price weakness will be challenging, and boom-and-bust weary investors may be reluctant to fund large-scale, long horizon projects even when prices are high.

At the same time, record cash flow of an estimated US$150 billion for Canadian oil and gas producers this year, and expectations that high prices will persist for some time, make allocating public funds to decarbonize the oil sector a greater political challenge amid high corporate profits.

Against this backdrop, a key goal for Canada should be to help smooth volatile investment cycles in the oil patch, and ensure consistent investment in the industry’s decarbonization. Federal and provincial governments should spread out the significant windfall revenues they accrue during high price periods to help sustain investment when the industry is struggling. And firms should commit to funding decarbonization even if oil prices falter.

The Canada Growth Fund is an important shift in the government’s approach, promising new investment structures and formalized involvement in emissions-cutting projects. While co-investing with industry in abatement projects improves financial returns, there are still significant roadblocks to large decarbonization projects. Policy uncertainty, permitting and regulatory snarls, sub-surface rights for carbon storage and liability if it leaks, and the risks associated with early stage technologies can still delay investment.

To deliberately deploy enough investment to meet rapidly approaching targets in the sector, an energy-focused stream within the Growth Fund needs to bring the right stakeholders around a single table to streamline and expedite project approvals.

Resource-rich provinces, the energy and financial industries, regulators, utilities and outside experts can partner with the Growth Fund to jointly address these roadblocks.

To reduce uncertainty, investment in oil and gas decarbonization during low price periods could see higher public contributions than during periods when industry cash flow is high, demonstrating government support when times are tougher.

Crucially, it must have some independence from the political cycle. Rather than additional budgetary allotments, public funding should be directly segregated from existing royalties and federal corporate taxes to ensure funding stability.

Canada Growth Fund’s energy stream: Who does what?

  • Federal government: can ear-mark windfall corporate tax revenues from high commodity prices to major industrial decarbonization in the Growth Fund, and provide long-term carbon pricing guarantee contracts to de-risk cash flows from specific CCUS projects.
  • Provincial government: should earmark a portion of the royalties for decarbonization of provincial economies, and commit to proactively reducing the free allocation of credits in provincial pricing systems to support the backstop carbon price.
  • Provincial and federal regulators: would need to work with ministries industry, and local stakeholders to fast-track permitting and approvals for strategic decarbonization projects.
  • Indigenous groups: which are at the forefront of both climate change and resource management, should be equity partners and have a voice in how resources are deployed.
  • Private sector financial institutions: will be key partners to help industry use leverage to hit desired rates of return. Non-recourse financing supported by carbon pricing guarantees from the federal government should be explored.
  • Utilities: will be key partners to help industry use leverage to hit desired rates of return. Non-recourse financing supported by carbon pricing guarantees from the federal government should be explored.
  • Industry: will allocate capital as projects are approved, but will also provide expertise on how to direct investment. They must commit to making decarbonization a priority throughout the investment cycle.

 

Key ideas to move forward

To ensure energy and climate security, the federal government and key provinces, the private sector and Indigenous communities will need to take critical steps in the near future. Some ideas:

 
ACTIVELY PARTICIPATE IN OIL MARKET STABILITY

Avoid emissions policy that restricts or cuts near-term domestic production at a time when Western Canadian oil is addressing current market disruptions. Beyond 2030, significant efforts should be made to curtail and even wind down projects that are not aligned with Canada’s Net Zero goals. Decarbonization technologies and processes should be embedded in business models of all new projects.

Leverage the Canada Growth Fund to smooth investment cycles in the oil and gas space. Spending could incorporate larger public contributions in periods of lower oil prices and more private funding at high prices.

Ensure any emissions cap is forward-looking. Seek greater effort in natural gas and conventional production than oil sands, and aim for falling emissions over the medium term.

 
ACCELERATE & DIVERSIFY EMISSION CUTS
Offset slower progress on oil emissions with other decarbonization efforts, including building retrofits, ZEV subsidies, and electrical transmission infrastructure.
Develop new abatement technologies that maintain cost efficiencies. The Canadian Innovation and Investment Agency, introduced in Budget 2022, should also include a stream for the most promising early-stage abatement technologies and non-combustion uses for oil.
Diversify energy investment. While oil and gas will be key fuels for climate transition, electricity and new energy technologies such as hydrogen are gaining momentum. Canada’s energy firms should aspire to broaden their asset portfolio and develop expertise in low-carbon and sustainable technologies that would complement fossil fuel exports.

 
TAP INTO INDIGENOUS EXPERTISE

Continue to ensure Indigenous groups are key partners in new energy systems. Equity participation in new infrastructure and energy projects would foster support from partners with local expertise, speeding development. Ensuring Indigenous communities receive upside and ownership, as well as the economic benefit of projects, are key pathways to advance meaningful economic reconciliation and inclusion.

 
FORGE ENERGY ALLIANCES
Resolve key energy trade issues with the United States at the highest political level to overcome state and provincial hurdles. Develop a North American energy alliance with a high-level summit that broadly aligns U.S. and Canada on market access issues including cross-border pipelines, alignment of fuel standards and border carbon adjustments.
Work with international partners to create demand certainty. Aim for long-term oil contracts with the U.S. and Europe to price in environmental efforts, governance and geopolitical stability to ensure the most stable producers remain key suppliers of Net Zero oil. Similarly, cultivate deeper energy ties with Asian economies such as Japan, South Korea and Taiwan to bring energy market stability. Greater trade ties could also open the door for export-focused liquefied natural gas and hydrogen joint ventures with Asian countries.

1. https://ihsmarkit.com/research-analysis/automotive-insights-canadian-ev-information-analysis-q4-21.html
2. https://www.nature.com/articles/s41586-021-03821-8
3. https://climate.nasa.gov/news/2865/a-degree-of-concern-why-global-temperatures-matter/
4. https://www.arcenergyinstitute.com/meet-the-new-boom-different-from-the-last-boom/
5. e.g., new mines built with paraffinic froth treatment, new or expansion SAGD facilities with solvents or lower SORs; derived from IHS markit estimates
6. e.g., petroleum coke boiler replacements, which industry may avoid in favour of CCUS if project economics improve
7. Costs of CCUS are highly process- and site-specific, meaning the tax credit may be sufficient for some projects, such as capture on hydrogen production facilities, and not others such as steam generation in oil sands facilities.
8. Large scale deployment of CCUS, methane-sparing processes, and offsetting residual emissions using highly credible nature based offsets or technological carbon dioxide removal
9. https://www.rbc.com/en/wp-content/uploads/sites/4/2025/03/220307-Energy-Charts.pdf

Contributors

  • Yadullah Hussain, Managing Editor, Climate and Energy, Thought Leadership Strategy
  • Colin Guldimann, Economist
  • Naomi Powell, Managing Editor, Economics and Thought Leadership
  • Darren Chow, Senior Manager, Digital Media
  • Zeba Khan, Manager of Publishing, Economics and Thought Leadership
  • Aidan Smith-Edgell, Research Associate, Economics and Thought Leadership