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RBC Thought Leadership Jordan Brennan

Aligning the Stars: How to deepen the Canada-U.S. relationship in four critical sectors

Author: Jordan Brennan

As Managing Director, Jordan helps set the research agenda for RBC Thought Leadership. His mandate spans research design, data architecture, and empirical analysis. Previously, Jordan served as Vice-President of Policy and Chief Economist at the Insurance Bureau of Canada and as Chief Economist at Unifor. A Senior Fellow at the C.D. Howe Institute, Jordan has held senior advisory roles with public sector officials and published widely in economics and public policy. He was a Visiting Scholar at Harvard Law School and holds a PhD in Political Economics.

Canada and the United States are bound by the world’s largest bilateral trade relationship—one now under unprecedented strain. In what follows, we focus on four strategically significant industries: critical minerals, energy, automotive, and defence, which sit at the intersection of that relationship. We explore how deepened strategic alignment can enhance North American security, competitiveness, and resilience—and how that could be achieved.

Auto Manufacturing

The Challenge: The Canada-U.S. auto trade is under pressure on several fronts

  • U.S. Section 232 tariffs introduced friction at precisely the moment the industry needed continental coordination.

  • The deep structural threat to the US$100-billion Canada-U.S. auto trade is China, which produced 33 million vehicles in 2025—more than a third of the global total. China’s rising dominance is underwritten by scale, superior technology, development speed, and vehicle affordability. 

  • Four other mega forces compound that challenge:

    • Electrification is stalling in North America, even as Chinese-led propulsion electrification is accelerating everywhere else;

    • Vehicles are becoming software-defined platforms, with value increasingly concentrated in chips, sensors, and software rather than mechanical hardware;

    • Industry 4.0 is transforming manufacturing operations and reducing labour demand;

    • Market maturity, as slowing population dynamics and the rise of shared mobility platforms are changing ownership patterns among urban consumers.1

Collective Strengths

  • The U.S. brings the scale, capital, and market demand. American manufacturing expertise, R&D infrastructure, and domestic policy levers shape where investment flows across the North American system.

  • Canada brings complementary assets: award-winning assembly plants, global calibre parts-makers (e.g., Magna, Linamar), and a tech cluster with capabilities in sensors, AI, lightweight materials, and autonomy. BlackBerry QNX software, for instance, is already embedded in more than 250 million vehicles worldwide.2

    The US$100-billion North American auto trade. Trade balance as share of two-way trade, Average 2023-2025.

  • Both countries have strengths in AI and autonomy, but trail China in battery chemistry, primary extraction and refinement of battery elements, and the manufacturing scale that drives efficiency.

  • Canada’s power grid is clean and more competitively priced than comparable auto jurisdictions like Michigan and Ohio. This is becoming more strategically significant as electrification, onboard computing, and autonomous systems raise the power load per vehicle.

  • Canada’s critical minerals are a hedge against dependence on China. The mining and refining of copper, cobalt, lithium, and graphite would strengthen integrated battery, EV, and smart car supply chains. From mine to finished vehicle, the entire value chain can be completed within North America—much of it within a day’s drive to assembly plants.

  • Batteries are expensive and dangerous to transport (owing to their chemical composition), which makes Canada’s rail, Great Lakes shipping, and cross-border trucking a competitive advantage.

The Obstacles

  • Tariff uncertainty is the most immediate obstacle to growth and innovation. For Canada, the threat is existential. More than 90% of Canadian vehicles are shipped to the U.S. Even with a relatively low effective tariff rate, plant margins would be compressed, changing the calculus for investment committees in Detroit and Tokyo.

  • For the U.S., retaliatory tariffs are damaging but not fatal. Canada’s consumer market is large and lucrative—on a per capita basis, Canadians buy more vehicles than any other country. save the U.S. Canada is not only the largest export market for U.S. vehicles—it’s larger than the next 10 countries combined.

  • Relocating assembly within the U.S. would make vehicles more expensive for American consumers. Canadian aluminum is produced using clean, low-cost hydro and nuclear power and is a critical input for lightweighting vehicles. The Ford F-Series is North America’s top selling vehicle and contains some 850 pounds of aluminum. Canada supplies more than half of the total U.S. aluminum consumption. Reshoring production with tariffed aluminum could cost U.S. auto consumers US$1 to US$2 billion.3 Vehicle affordability has already deteriorated on both sides of the border. The average transaction price for a new vehicle now exceeds $50,000 in the U.S. and $60,000 in Canada, putting new vehicles out of reach for many consumers.4 The result is an aging vehicle fleet, as households stretch replacement cycles or exit the market entirely. Tariffs, onshoring mandates, and the cost premium associated with electrification threaten to compound the affordability challenge.

  • The EV retreat is stranding capital without solving the competitiveness problem. Detroit automakers US$53 billion in write-downs reflects a genuine misread of consumer behaviour and policy stability.5 Industry forecasters project North American vehicle production will remain below the 2016 record of 18 million light vehicles through the end of the decade.6 The pivot back to ICE and hybrid platforms buys time, but Chinese OEMs continue to build technological and scale advantages on the platforms—electrified, software-defined—that will dominate the coming decades.

The Path Forward

  • Trade Policy Reforms. Washington’s goal—repatriating manufacturing—reflects a legitimate industrial concern, but the production the U.S. seeks to recover did not migrate to Canada. Since 2000, both Canada (-1.7 million units) and the U.S. (-2.6M units) saw assembly volumes shrink as the continental assembly footprint migrated to Mexico (+2.2M units). Canada, the U.S., and Mexico could align and strengthen the Rules of Origin and reform Most Favoured National tariff policy, which would incent global OEMs to locate production within the bloc, while jointly levying tariffs on EVs, parts, steel and aluminum from outside the bloc—hedging Chinese dumping. Reforms to the Labour Value Content provisions such as raising the content share and the wage rate would help rebalance investment and production within the bloc, which has long been biased toward Mexico.7

  • Critical Minerals Auto Pact. Cooperation on an end-to-end supply chain would tie Canada’s world-class geology and mining expertise with American capital markets industrial demand. In exchange for duty-free access to the U.S. market, Ottawa and the provinces could formalize free trade for steel, aluminum, and copper, and off-take agreements, stockpiling arrangements, and price floors for cobalt, lithium, graphite, and rare earths—commercially de-risking private investment and converting Canada’s processing infrastructure into implicit U.S. supply chain security with no net new capital cost to either government. Extraction and refinement could utilize Canada’s vast capabilities in clean power.

  • Cooperation in Skills and Research. North American OEMs are pivoting toward extended-range electric vehicles (EREVs) and hybrids as the bridge between ICE and full electrification. Co-investment in testing facilities, SR&ED reform to cover autonomy, connectivity, and cybersecurity mandates, and immigration reform to attract engineering and AI talent would deepen the skills density needed to compete with China.

The Potential Outcome: Canada and the U.S. could be better prepared for an electrified, autonomous, and increasingly software-defined auto future by building on a bilateral partnership that ties Canadian aluminum, clean power, critical minerals, and advanced manufacturing capability to American capital markets, OEM headquarters, and consumer demand. Preserving market access for both parties could help keep vehicle prices competitive for consumers while excluding Chinese content from continental supply chains.

Critical Minerals

The Challenge: China’s Structural Dominance

  • Chinese dominance in the refining and manufacture of critical minerals is the most direct threat to industrial sovereignty in North America. China dominates processing for 19 of the 20 most critical minerals, commanding, on average, 70% of market share. For tech and battery materials like gallium, graphite, and rare earths, its share exceeds 90%.8

  • Questions about the weaponization of supply chain dependence are no longer theoretical. China imposed export controls on gallium, germanium, rare earths, and battery chain technologies during the height of trade tensions with the U.S. In 2025, Ford shut down its Chicago assembly plant for one week following China’s rare earth export restrictions. The U.S. Geological Survey estimates that a 30% supply disruption of gallium could reduce U.S. output by US$600 billion—2% of U.S. GDP.9

Collective Strengths

  • The continental response—who mines, who refines, and who captures the downstream value—will shape North American industrial and defence competitiveness through 2040.

  • Canada and the U.S. are already each other’s largest minerals trading partner—approximately $150 billion in bilateral minerals trade annually.10 Canada is the top source for U.S. critical mineral imports, supplying 20%.11 But the current system is fractured: Canada mines, China refines, and the U.S. manufactures. Closing the gap is the defining industrial policy challenge of the coming decade.

  • Canada has world-class geology across cobalt, copper, gallium, germanium, graphite, lithium, nickel, tungsten and rare earths, with a seven-fold supply potential by 2040.12 Canada also has mature or developing refining infrastructure, including Anglo Teck’s Trail Operation (germanium), Neo Performance Materials’ Rare Earth Metals Facility (gallium), the Sudbury corridor (copper, nickel, cobalt), and the Bécancour mineral processing ecosystem, which connects Quebec’s mines with processing plants and downstream battery manufacturing.

    China has a tight grip on minerals, but Canada offers an alternative. The U.S. demand for minerals is projected to grow significantly into 2035.

  • Canada has clean, affordable power and abundant water. The U.S. has manufacturing scale, dominant capital markets, and the political will to strengthen supply chains.

The Obstacles

  • China has access to nearly unlimited, state-subsidized capital to finance mines and processing plants.

  • The talent and R&D gap with China has widened. China has 39 university degree programs to train engineers and technologists in critical minerals—Canada has none.13

  • For many critical minerals, North American demand is too thin to anchor the market. In 2024, the U.S. accounted for less than 2% of rare earth consumption—far below the threshold needed to make offtake agreements commercially viable.

  • Investment cycles in mining are long. In a world where capital is flowing into short-cycle AI, attracting investment into the refining of low-volume minerals is economically challenging.

  • High labour and environmental standards are strategic advantages in the long run, but they generate permitting timelines that extend well beyond those in China. Processing facilities face additional environmental impact assessments.

  • Supply chains will form around demand, not supply, but most demand will come from renewables and EVs, not defence. Battery chemistry is evolving rapidly, and with it, mineral intensity. Until recently, cobalt was considered essential. Lithium iron phosphate chemistry has since displaced it as the dominant cell technology. Sodium-ion and solid-state could similarly disrupt lithium demand.

  • Canada cannot pursue a strategy across all 34 critical minerals simultaneously. Capital, talent, permitting bandwidth, and infrastructure are finite. A more credible strategy would concentrate investment in minerals where Canada has refining infrastructure already in place and where Canada’s clean power advantage is most decisive. The strategy could also be geared toward minerals with demand that is technology-path-independent and is supported by multiple end uses beyond EV batteries.

  • While states have a role to play in creating and supporting markets, regulatory capture by a few anchor firms is a threat to the public good.

The Path Forward

  • Canada’s supply infrastructure and U.S. demand architecture are symbiotic. A formal Critical Minerals Partnership would tie Canadian geology, clean power, and mining expertise with American capital markets and North American manufacturing demand in a pairing that no other allied combination could match.

  • Long-term demand for critical minerals is expected to be strong. The IEA projects demand growth to 2040 for copper (30%), cobalt (50%), graphite (130%), lithium (350%), nickel (70%), and magnet rare earth elements (65%), driven by renewable energy, EV adoption, grid battery storage, and electricity network expansion. Defence layers on top of these, reinforcing the strategic case to build these supply chains now. Demand aggregation across the U.S., Canada, the European Union, the U.K., Australia, India, Japan and Korea could expand the market beyond 2.5 billion people.14

  • Project Vault works better with Canada. Canada’s federal strategy targets the same six minerals—lithium, graphite, nickel, cobalt, copper, and rare earths—mirroring Project Vault’s key focus areas. Ontario’s $500 million Critical Minerals Processing Fund is building the midstream refining capacity that U.S. OEMs need as a Vault counterparty. Explicit Canadian rules-of-origin eligibility under Vault—so that minerals refined at these facilities qualify as U.S. domestic supply—would convert existing Canadian processing facilities into implicit U.S. industrial capability with no net new capital cost to either government.

  • Allied demand aggregation works better if the U.S.-Canada bilateral partnership is the foundation. The Forum on Resource Geostrategic Engagement (FORGE) could be recast along NATO-like lines, wherein allies commit to procuring refined minerals from other allies as part of their NATO spending targets.15

  • China’s price manipulation is the shared threat that makes bilateral price stabilization essential. Use of a contract-for-difference (CFD), price floors, and volume guarantees could be applied bilaterally to Canadian processors, which would insulate North America’s supply chains against Chinese price manipulation.

  • Sustained investments in R&D, processing chemistry, and engineering talent are needed. Joint investment, shared technical training programs, and co-location of processing and end-use manufacturing could help build the skills density that neither country could develop on its own.16

The Potential Outcome: A North American supply chain could lead to reduced dependence on Chinese refining, tying Canadian geology and mining with American financing and manufacturing demand, deepening supply chain resilience and strategic capabilities simultaneously.

Oil and Gas

The Challenge: Security, Affordability, and Optionality

  • In 2024, Canada exported $170 billion worth of hydrocarbons to the U.S.—crude oil, natural gas, natural gas liquids, and refined products—accounting for 22% of Canadian exports. Canada supplies more than 60% of U.S. crude oil imports and virtually all natural gas imports. Two-way energy trade sits at $215 billion, underpinned by over 100 transboundary pipelines and transmission lines.17

  • Three imperatives define the relationship:

    • Energy security and sovereignty: Canada’s export dependence on a single buyer exposes both countries to disruption risk—political, logistical, or geopolitical. For oil, future demand growth is in Asia. For natural gas, demand growth is both Asian and North American.

    • Consumer affordability: Energy price volatility, whether caused by conflict in the Persian Gulf, tariff friction, or infrastructure constraints, passes through to households and industry on both sides of the border.

    • Value Maximization: The WCS-WTI price differential—historically US$10-25 per barrel—represents a structural transfer of value from Canadian producers to American refiners, driven by Alberta’s landlocked geography and insufficient export optionality.18

  • The crisis in the Persian Gulf has tightened heavy crude markets, elevated prices, and sharply illustrated the vulnerability of relying on politically unstable supply. The U.S. and Asian allies are assessing alternatives. Canada is the obvious answer.

Collective Strengths

  • Canada is the world’s fourth-largest oil producer, pumping 5.8 million barrels per day. The oilsands are a distinctive asset: long-lived, capital-intensive, and—unlike U.S. shale—resilient to short-cycle price volatility. U.S. crude production is plateauing: the EIA’s long-run reference case projects peak production in 2030, followed by decline in the 2030s. As the shale boom recedes, Canadian imports become more strategically important.19

  • North American heavy crude demand is structural. U.S. Midwest and Gulf Coast refineries are configured to process heavy, sour Canadian bitumen—the same configuration increasingly common in India and China. U.S. refineries with heavy conversion capacity will require a replacement source. Venezuelan production remains constrained by security, risk, and infrastructure. Canada is the only proximate heavy supplier at scale.20

  • The Trans Mountain Expansion (TMX) has begun to transform Canada’s strategic position. Since it came online in 2024, TMX has tripled capacity to 890,000 bpd to tidewater. The WCS-WTI discount narrowed and stabilized from nearly US$30 per barrel in 2022 to approximately US$10 by 2025. Each additional barrel shipped to Asia rather than into the continental market compresses the differential, improving producer netbacks.21

    Canada's customer base for crude expands helping narrow the spread and volatility. Canada's crude oil exports and price.

  • On natural gas, Canada’s Montney formation in northeastern British Columbia is one of the largest natural gas resource plays in the world, and LNG Canada’s Kitimat facility, which shipped its first cargo on in June 2025, has opened Canada’s first large-scale Pacific LNG export route.

The Obstacles

  • Oil prices: low and volatile prices challenge greenfield expansion and pipeline infrastructure; high prices trigger demand destruction and accelerate the energy transition. Sustained greenfield expansion will require policy stability and expanded export infrastructure.

  • Greenfield investment in the oilsands is limited. Growth from existing facilities is achievable but requires a policy environment that fosters growth and does not disadvantage Canada relative to other jurisdictions. A resolution of the Gulf crisis—returning Saudi, Iraqi, and potentially Iranian heavy sour supply to the market—would loosen the premium that currently benefits Canadian barrels in Asia. Venezuelan production, if rehabilitated under a U.S. policy shift, would compete more directly with Canadian heavy than U.S. shale.22

  • On gas, substitution is a constraint that does not apply to oil. Asian buyers can switch from LNG to coal, nuclear, or renewables. LNG Canada’s competitive position in Asia depends on carbon policy coherence, shipping costs relative to Qatari and Australian exporters, and whether Canadian gas can price below coal.

  • The Pathways Alliance—Canada’s five largest oilsands producers—has committed $16.5 billion for carbon capture and sequestration through 2030. The tension between energy security and climate policy has led to policy volatility on emission management, which compounds the technical and financial challenges associated with CCS projects.

The Path Forward

  • Optionality benefits both countries. The strategic logic for oil and gas runs in opposite directions, and both countries’ energy policy could reflect that asymmetry. For Canadian oil, diversification into Asia is the value-maximizing move: every additional barrel shipped via TMX to Asian buyers narrows the WCS-WTI discount and increases netbacks for Canadian producers. Pushing more heavy oil into the continental U.S. market has the opposite effect. For natural gas, the calculus is reversed: AI-driven electricity demand has elevated Henry Hub pricing, making the U.S. a premium gas market. LNG Canada’s Pacific route remains strategically important for Canada’s long-run diversification. The U.S., likewise, could continue to seek optionality for its refineries, securing Canadian supply while finding new import sources.

  • A formal Energy Security Partnership. One with harmonized pipeline permitting and regulatory timelines, joint strategic reserve coordination, bilateral CCS and methane abatement collaboration, and a common framework for infrastructure investment that treats Canadian production as implicit U.S. supply security without requiring government capital from either side. This could be expanded to include the G7 and NATO allies.

  • Oil is a market that works. The continental oil and gas system—hundreds of pipelines, integrated refining, established commercial flows—functions efficiently when policy does not distort it. Tariffs on Canadian energy raise prices for U.S. consumers, widen the WCS discount, and reduce producer revenue without repatriating any production. The U.S. refining system—particularly the heavy conversion capacity—was built for Canadian oil. Disrupting that relationship would require billions in retooling at U.S. refineries or sourcing heavier barrels from less stable suppliers.

  • Gas is complementary, not competing. Henry Hub natural gas prices have spiked with AI-driven electricity consumption in the U.S., making gas sales to the U.S. market economically attractive for Canadian producers. The Montney gas basin and U.S. demand growth reinforce each other. Investment in Montney production infrastructure by U.S. and Canadian investors alike expands the continental gas supply that both countries need for power generation, industrial use, and LNG export.  

The Potential Outcome: A bilateral energy partnership could link Canada’s world-class oil and gas resources, pipeline infrastructure, and Pacific tidewater access with U.S. refining capacity, capital markets, and continental demand to deliver affordable, secure energy to consumers while expanding strategic optionality in global markets for both.

Defence

The Challenge: Heightened threat environment, fraying alliances

  • World military expenditure reached US$2.9 trillion in 2025—the ninth consecutive annual increase. The U.S., China and Russia accounted for roughly half of that—unchanged from 2000. However, the relative share changed dramatically: in 2000, Russia and China combined to spend a tenth of U.S. expenditure; today, they spend more than half that of the U.S.23

  • Russia’s invasion of Ukraine broke the security calculus for Europe. NATO responded with a historic commitment: at the 2025 Hague Summit, all 32 allies met the 2% GDP target for the first time since the 2014 Wales pledge. And NATO Allies agreed to a new benchmark of 5% of GDP by 2035.24

  • Russian and Chinese exercises and probes around the Arctic illustrate the rising threat level for North America.25 The Canada–U.S. defence partnership faces four frictions:

    • Defence Expenditure: Canada increased its military spending by nearly 70% from 2022 to 2025—hitting the 2% NATO target for the first time since the 1980s.26 Despite pledging to reach 5% of GDP by 2035, Canada has yet to produce a roadmap Washington finds convincing, prompting the U.S. to suspend the Permanent Joint Board on Defence.27

    • F-35 Procurement: Canada’s review of the program comes amid deepening trade tensions. The U.S. frames the delay not merely as a procurement decision but as a test of whether Canada intends to remain operationally relevant in an era of fifth-generation air and missile defence. The trade tensions also call into question whether Canada will continue to buy the most sophisticated U.S. hardware. 

    • The Golden Dome: Designed to provide continental defence, the Congressional Budget Office has pegged the cost at US$1.2 trillion over 20 years.28 Canada’s role remains undetermined.

      NATO defence spending trails Russia's as a share of GDP. Military expenditure as a share of gross domestic product.

Collective Strengths

  • In addition to unmatched platform scale, capital depth, and technological sophistication, the U.S. possesses a dynamic defence innovation economy, R&D density, and an advanced defence industrial base.

  • Canada brings world-class capabilities in domains critical to modern defence, including avionics, aircraft maintenance repair and overhaul, marine sensors, electronic warfare, UAV’s, and training and simulation—all of which are designated as priority sovereign capabilities in Ottawa’s Defence Industrial Strategy (DIS).29 In space, Canada has a six-decade legacy spanning Earth observation, satellite communications, and positioning-navigation-and-timing systems. Canada contributes heavily to the early-warning capabilities via the northern radar networks and operates a portion of the North Warning System (NWS), and maintains Forward Operating Locations in the Arctic.30 Nearly half of Canadian defence output is exported, with 70% to U.S. and Five Eyes partners, underscoring deep interconnection into global markets.31

The Obstacles

  • Over 90% of Canadian defence firms are SMEs. The absence of large defence primes depresses capital formation, posing challenges to the ambition to scale up Canada’s industrial base. Canada’s venture capital pool—roughly $12 billion—is less than 5% of the U.S. equivalent. Collateral assets in defence (specialized facilities, restricted IP) are often illiquid, with persistent mismatch between up-front investment requirements and revenue timing.32

  • Protectionist procurement policies: Both Canada and the U.S. are pushing to buy domestically, increasing trade frictions. For Canada, directing contracts to domestic firms where industrial capacity does not yet exist at scale could increase costs and extend timelines. Outside of space, ocean, and some aircraft, the target of 70% Canadian content in defence acquisitions by 2035 (up from ~40% today) requires building industrial infrastructure that cannot be created quickly.

  • Arctic sovereignty is another tension. Russia and China pose threats to the Arctic, and despite American pressure to invest in Arctic defence, the region remains exposed (current investments in Arctic defence notwithstanding).

  • The U.S.’s defence industrial base is production-constrained, not merely capital-constrained. The conflict in Ukraine and Iran have exposed munitions stockpile gaps while ‘Buy American’ provisions and export controls have restricted supply chain integration with allies.33

The Path Forward

  • Develop distinct but interoperable industrial bases. Canada has set itself on a clear, distinct path to diversify its defence industry from the U.S. and develop its own sovereign manufacturing capacity. This will create divergent capabilities and more Canadian autonomy. However, it will be important for key capabilities, particularly those important to joint commands, to maintain technological and operational interoperability for the long-term functioning of North America’s defence framework.

  • Deepen in areas of mutual operational necessity. NORAD modernization is foundational. Canada’s ~$40 billion, 20-year investment—over-the-horizon radar (including the $6.5 billion Arctic system being co-developed with Australia), space-based surveillance, command and control, and northern infrastructure—signals deep commitment to the partnership. Canada could negotiate its participation in a future Golden Dome: Canadian sensors, Arctic radar infrastructure, and airspace access are genuine contributions that warrant cost-sharing terms, Canadian IP rights over jointly developed systems, and a defined Canadian role in intercept decision-making.34

  • Explore cooperation on space and drone technology. Recent conflicts demonstrate that uncrewed systems are redefining warfare. At the same time, space is a strategic domain that’s increasingly contested. Ukraine has become the “Silicon Valley” of defence innovation and recent NATO exercises have shown the effectiveness of these capabilities against outdated militaries. This phase of rearmament will not take the same form as previous ones. Canada must update its military equipment and infrastructure writ large, and the U.S. is facing depleted stockpiles and asymmetric threats. Therefore, both must re-prioritize what defence technology they need to develop and procure, creating opportunities for collaboration to avoid duplication in areas of shared security interests.

  • Deepen partnership on critical minerals. Canada’s geology, if twinned with refining capacity, could hedge reliance on adversarial powers. Formalizing supply agreements for NATO’s defence-critical minerals—with off-take arrangements, price stabilization mechanisms, and Rules of Origin eligibility that treat Canadian-refined inputs as U.S. domestic supply—would strengthen both countries’ industrial resilience.

  • Diversify on platforms and partnerships. Canada’s $530 million European Space Agency investment, its participation in the European Union’s SAFE initiative, and its emerging bilateral arrangement with Australia reflects Ottawa’s efforts to diversify its defence industrial base. European partners will expect access to Canadian procurement as the price of access to European markets.

The Potential Outcome: The Canada–U.S. defence relationship has historically rested on an implicit bargain: Canada provides geographic depth, on the ground, under the ocean, on the ocean, in the air and in space; the U.S. provides an umbrella of security and protection, reinforced by unmatched platform scale, capital depth, technological sophistication, and R&D expenditure. Ensuring that bargain holds requires Canada to close the gap between financial commitment and operational credibility—delivering on NORAD modernization, resolving the F-35 decision , and building a genuinely capable domestic industrial base. For the U.S., a more reliable long-term partner will be secured by respecting Canadian sovereignty.

Acknowledgments

The authors would like to thank the external experts consulted for this report, some of whom are listed below.

Peter Dawe, BDC

Steve Carlisle, General Motors (Retired)

Robert Johnston, University of Calgary

Frank McKenna, TD Securities and former Canadian Ambassador to the United States

Michael Robinet, S&P Global Mobility

[1] Brennan, J. 2026. Steering Through Uncertainty: Four Future Paths for Canada’s Auto Industry. Toronto: RBC Thought Leadership.

[2] Brennan (2026), Steering Through Uncertainty.

[3] Canada exports ~US$11 billion in aluminum to the U.S., with more than one-third demanded by the transportation sector. At tariff rate at 50%, the impact on auto assembly alone could exceed $1 billion. When auto parts are layered in, the tariff cost moves higher. For economic analysis of tariffed Canadian aluminium, see Aluminum Association. 2025. Powering Up American Aluminum: A Roadmap for Next Generation Supply Chain Resilience. Arlington, VA: The Aluminum Association; Business Data Lab. 2025. How to Undermine U.S. Manufacturing: Debunking Aluminum Tariff Myths. Ottawa: Business Data Lab.; and Livingston, Brian. 2025. Canada’s Aluminum Production and US Tariffs. Intelligence Memos. Toronto: C.D. Howe Institute. September 2.

[4] Brennan (2006). Steering Through Uncertainty.

[5] Markman, J. 2026. ‘How Legacy Automakers Torched $53 Billion on EVs They’ll Never Sell’, Forbes, February 9.

[6] Robinet, M. 2026. New Automotive Geo-economics. S&P Global Mobility. Presented at PMA, May 2026.

[7] See Helper, S. and T. Tucker. 2026. ‘Challenges and Opportunities for the North American Auto Industry in the 2026 USMCA Renegotiation’, March 4. Washington: Brookings Institution; U.S. International Trade Commission. 2025. USMCA Automotive Rules of Origin: Economic Impact and Operation, 2025 Report. Publication no. 5642. Washington: USITC.

[8] IEA. 2025. Global Critical Minerals Outlook. Paris: International Energy Agency.

[9] Baskaran includes this claim in her testimony to the House Natural Resources Subcommittee—a claim we have not been able to independently verify. See: Baskaran, G. 2026. ‘Unleashing America’s Mineral Potential: The Critical Minerals Commodity Supply Chain’, Testimony before the House of Natural Resources Subcommittee on Oversight and Investigations. Washington: Centre for Strategic & International Studies.   

[10] Natural Resources Canada. 2025. Canada-U.S. Minerals Data Dashboard.

[11] Baskaran, G. 2025. ‘Canadian Tariffs Will Undermine U.S. Minerals Security’, Center for Strategic & International Studies, January 29.

[12] Merwat, S. 2026. Mine & Refine: Bridging Canada’s Critical Minerals Capital Gap. Toronto: RBC Thought Leadership.

[13] Merwat, S. 2025. The New Great Game: How the face for critical minerals is shaping tech supremacy. Toronto: RBC Thought Leadership.

[14] See Baskaran (2026).

[15] See Baskaran (2026) for a suite of policy recommendations which integrate extraction, processing, refining, and manufacturing with demand anchors.

[16] Merwat, S. 2026. Critical Minerals Processing: The West’s refining challenge and the technologies closing the gap. Toronto: RBC Thought Leadership.

[17] Canada Energy Regulator. 2025. Market Snapshot: Overview of 2024 Canada-US Energy Trade. Available online at: https://www.cer-rec.gc.ca/en/data-analysis/energy-markets/market-snapshots/2025/market-snapshot-overview-of-2024-canada-us-energy-trade.html. 

[18] Part of the differential reflects quality and transportation cost, but another part is derived from insufficient export diversification. See Alberta Energy Regulator. 2025. Alberta Energy Outlook ST98. Calgary: Government of Alberta.

[19] Energy Information Administration. 2026. Annual Energy Outlook. Washington: U.S. Department of Energy.

[20] Merwat, S. 2026. Six charts that analyze Canadian-U.S. oil ties amid new geopolitical developments in oil markets. Toronto: RBC Thought Leadership.

[21] Johnston, R. 2026. ‘Asia’s Oil Demand Outlook and Geopolitics’, Presented to PwC Canada/School of Public Policy Asia Oil Outlook, May 7.

[22] See the Oil Sands Alliance’s explainer on the Pathways Project: https://oilsandsalliance.ca/pathways-project/.

[23] Author’s calculations based on data from SIPRI Military Expenditures Database (constant 2024 $USD). 

[24] NATO. 2025. Defence Expenditures and NATO’s 5% Commitment. Brussels: North Atlantic Treaty Organization. Available at: https://www.nato.int/en/what-we-do/introduction-to-nato/defence-expenditures-and-natos-5-commitment.

[25] Bingen, K.A. 2026. ‘Orbits of Influence: Emerging Threats to U.S. Space Security and Foreign Policy Implications’. Statement before the House Foreign Affairs Subcommittee on Europe. Washington: Center for Strategic and International Studies, April 29.

[26] NATO data indicates that Canadian defence spending rose from US$26 billion in 2022 to US$44 billion in 2025—an increase of 69% (using current prices and exchange rates). SIRPI data indicates that Canada spent 2.06% of GDP on defence in 1987. 

[27] Some interpret the suspension of the PJBD as a response to Canada’s decision to review the F-35 program (and not as a response to Canada’s planned military expenditures, despite advertisements to the contrary).

[28] May 2026 report from the Congressional Budget Office: https://www.cbo.gov/system/files/2026-05/62379-golden-dome.pdf.

[29] Department of National Defence. 2026. Canada’s Defence Industrial Strategy: Security, Sovereignty and Prosperity. Ottawa: Government of Canada.

[30] See NORAD Backgrounder: https://www.canada.ca/en/department-national-defence/news/2022/06/north-american-aerospace-defense-command-norad.html

[31] See Canada’s (2026) Defence Industrial Strategy.

[32] Ashcroft, T. 2026. Frontline Investments: How to Advance Defence Finance in Canada. Toronto: RBC Thought Leadership.

[33] See reporting from the Associated Press, ‘US Will Need Years to Replenish Stockpiles of Advanced Weapons Used in Iran War, New Analysis Finds’, May 27. Available online at: https://www.usnews.com/news/business/articles/2026-05-27/us-will-need-years-to-replenish-stockpiles-of-advanced-weapons-used-in-iran-war-new-analysis-finds

[34] Department of National Defence. 2025. Fact Sheet: Funding for Continental Defence and NORAD Modernization. Ottawa: Government of Canada. Available at: https://www.canada.ca/en/department-national-defence/services/operations/allies-partners/norad/facesheet-funding-norad-modernization.html.

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

Key findings

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

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

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

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

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

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

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

Electrification

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

Software

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

Market

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

China

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

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

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

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

Canada’s OEM Industry Profile

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

The road ahead

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

Key assumptions

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

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

  • Tariffs limit Chinese access to the North American market

  • The total cost of EV ownership continues to decline

  • Pledged EV investments proceed on a longer timeline

  • Advancements in AI and autonomy boost value per vehicle

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

Life in the ‘Fast Lane’

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

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

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

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

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

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

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

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

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

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

Strategic tensions

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

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

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

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

What needs to happen

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

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

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

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

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

The transition to EVs is underway worldwide

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

Key assumptions

  • CUSMA survives but is diluted

  • EV adoption continues but is slower than expected

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

  • The U.S. continues to exclude Chinese vehicles 

  • Critical minerals and clean power lead to select mandate renewals

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

Drifting into the ‘Slow Lane’

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

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

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

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

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

Top Auto Assembly Jurisdictions: 2024 vs 1999

2024 = 92 million units assembled globally

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

1999 = 56 million units assembled globally

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

Sources: OICA; UN World Development Indicators

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

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

Canadian auto sector retains less value than its North American peers

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

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

Strategic tensions

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

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

What needs to happen

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

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

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

Key assumptions

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

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

  • Modest tariffs are maintained on Chinese imports

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

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

Taking the ‘On-Ramp’

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

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

Only Americans buy more than Canadians, per capita

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

Canada is a prized market for global carmakers

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

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

Canadians have a penchant for heavier, higher value cars

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

Clean power offers Canadian auto sector a competitive advantage

Strategic tensions

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

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

What needs to happen

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

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

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

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

Key assumptions

  • The auto provisions of CUSMA are scrapped or severely weakened

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

  • By 2040, most vehicles sold in Canada are BEVs

  • Canadian industrial policy is transformed from proactive to reactive

Taking the ‘Off-Ramp’

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

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

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

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

Canada's auto sector lost productive capacity during expansion phases

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

Auto sector job losses and wage stagnation persist in Canada

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

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

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

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

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

Strategic tensions

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

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

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

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

What needs to happen

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

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

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

Key considerations

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

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

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

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

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

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

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Contributors

Jordan Brennan, Managing Director

John Intini, Senior Director, Editorial

Yadullah Hussain, Managing Editor

Lavanya Kaleeswaran, Director, Digital Marketing and Production

Caprice Biasoni, Design Lead

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

Tim Hollander, Toyota Canada

Brian Kingston, Canadian Vehicle Manufacturers Association

Scott MacKenzie, Toyota Canada

David Paterson, Government of Ontario

Brendan Sweeney, Pacific Manufacturing Association of Canada

Don Walker (Retired), Magna

Advanced Manufacturing Council. 2024. 2024 Advanced Manufacturing Council: Final Report. Toronto: Government of Ontario.

Cain, T. 2026. ‘How many vehicles—and which—were made in Canada in 2025?’, Driving, March 5.

Car Guide. 2026. ‘The 10 Best Selling Vehicles in Canada in 2025’, January 17.

Dykes, J.G., D. Anastakis. 2021. ‘Automotive Industry’, Canadian Encyclopedia.

Giswold, Jill. 2024. Tallying Government Support for EV Investment in Canada. Ottawa: Office of the Parliamentary Budget Officer.

Helper, S. and T. Tucker. 2026. ‘Challenges and opportunities for North American auto industry in the 2026 USMCA renegotiation’, March 4. Washington: Brookings. 

International Energy Outlook. 2025. Global EV Outlook 2025: Expanding sales in diverse markets. Paris: IEA.

Statistics Canada. 2025a. ‘Number of Canadian commuters increases for fourth straight year in 2025’, The Daily, August 26.

McKinsey & Company. 2026. The automotive software and electronics market through 2035.

Statistics Canada. 2025b. ‘Vehicle registrations, 2024’, The Daily, October 17 26.

Statistics Canada. 2026. ‘New motor vehicle registrations, fourth quarter 2025’, The Daily, March 12.

Tanguary, Ray. 2018. Drive to Win: Automotive Advisor Report. Toronto: Government of Ontario.

Williams, G. 2026. Why are Chinese EV’s so Cheap?  New York: Rhodium Group.

Key Findings

  • Canada is back on the radar of global investors. Last year, foreign direct investment in Canada reached nearly $100 billion, the highest level since 2015.

  • Global capital flows are shifting significantly. Geopolitical disruptions, most recently the conflict in Iran, are leading major investors and companies to rebalance their portfolios.

  • A $1.8 trillion investment opportunity over the next 10 years could make Canada the G7’s growth leader. RBC Thought Leadership’s research and analysis indicates that there is an immense opportunity in six export-oriented, R&D-intensive, and strategically significant industries:

    • Oil and Gas: $705 billion. New oil pipelines and LNG terminals could elevate Canada to energy superpower status, diversifying trade, providing energy security to allies, and fostering carbon capture and sequestration technologies.

    • Electricity: $670 billion. A transformative expansion of power across nuclear, hydro, and renewables, coupled with grid modernization, would ensure a reliable, affordable, non-emitting system while strengthening Canada’s competitiveness in a power-hungry heavy industry.

    • Agriculture and Food Processing: $205 billion. Enhanced support for R&D could unleash a multi-decade, export-led growth cycle that strengthens domestic food sovereignty and enables food security to allied countries.

    • Metals and Minerals: $200 billion. With NATO partners eyeing alternatives to a China-dominant critical mineral supply chain, Canada could hedge this concentration risk, power the West’s energy transition, and strengthen defence and advanced manufacturing supply chains.

    • Defence: $19 billion. Canada plans to nearly triple defence spending to 5% of GDP by 2035, which could generate $100 billion for Canadian companies and transform Canada from a defence equipment importer into a contributor to allied military capabilities, particularly in emerging areas like Arctic surveillance and space-based defence systems.

    • Space: $12 billion. Canada’s economic ambitions should extend out of this world. Investments in the space industry would advance the country’s excellence in satellite communications, space robotics, earth observation, and aerospace engineering, creating new opportunities in defence, high-tech and advanced manufacturing.

  • Canada is emerging from an unprecedented capital recession. The renewed interest comes after a decade of weak business investment, stalling productivity, and stagnating living standards. Between 2015 and 2024, more than $1 trillion of investment exited Canada—the largest capital exodus in Canadian history. For every dollar of inward FDI, two dollars exited.

  • To unlock investment, Canada needs a new capital formation framework. The non-financial corporate sector is sitting on more than $1 trillion in cash on its balance sheet. Its deployment could crowd in additional pools of capital: institutional, risk, foreign, and state capital. Our proposed capital formation framework includes four pillars, each targeting an incremental layer in the capital stack:

    • A brownfield to greenfield asset recycling program

    • Scale-enabling procurement

    • Reforms to the corporate income tax and foreign investment regimes

    • Leveraging of state capital

  • Canada’s new playbook must include Indigenous economic partnership, which not only helps to secure project approvals, but can accelerate project timelines. Partnerships work best when they are embedded early and aligned with community needs.

Canada is back on the capital radar.

Following a decade defined by record levels of capital flight and weak business investment, Canada is increasingly catching the attention of global investors and companies looking to rebalance their portfolios amid global uncertainty. Last year, foreign direct investment in Canada hit nearly $100 billion, the highest it’s been since 2015 and the first time in a decade when inflow exceeded outflow.

The opportunity is immense. If Canada can capitalize on this moment, it could lead the G7 in economic growth and industrial dynamism. RBC Thought Leadership’s research and analysis indicate that Canada requires $1.8 trillion in investment over the coming decade to galvanize growth in six export-oriented, R&D-intensive and strategically significant industries:1 Oil and Gas, Metals and Minerals, Electricity, Agriculture and Food Processing, Defence, and Space.

For an economy worth $3 trillion annually—and given that we are focused on six industries that, collectively, represent less than 10% of GDP—the $1.8 trillion figure is substantial. However, it is attainable over the next decade, especially given the pools of capital to draw upon. Between pension funds and asset managers, Canada is sitting on nearly US$10 trillion in capital. And while estimates vary, the global capital pool sits somewhere between US$150 to US$200 trillion.2

Simply put: There is more than enough capital to power the country’s growth ambitions.

With that in mind, we imagine two future scenarios: Trend Growth and Step Change. The Trend Growth scenario paints a picture of Canada 10 years out if current policies and investment patterns remain unchanged. The Step Change conceives a decade of purposeful national strategy, federal-provincial coordination and targeted investment.3

The latter, which represents a 65% capital injection boost from the Trend Growth scenario, shapes a new and prosperous Canada. One that could include two new oil pipelines, increasing production capacity by a third; an expansion of power generation across all sources, including nuclear; $300 billion in defence spending that strengthens advanced manufacturing and better enables Canada to contribute to NATO’s collective defence; the transformation of the mining sector into a linchpin of Canada’s industrial and geopolitical strategy; and sovereign launch capability just as space becomes the next economic frontier. 

Business investment and real GDP per capita reach historic lows

All of this would follow a 10-year capital recession. Over the past decade, Canada’s net outflow of investment exceeded $1 trillion, the most significant capital exodus in modern Canadian history. For every dollar invested in Canada from abroad, two dollars exited. Canada accounted for nearly 10% of global outward foreign direct investment over the past decade, having exported more capital than any country on Earth save the U.S. and China. Canada now ranks last among G7 nations in investment in both machinery and equipment (M&E) and intellectual property (IP). Only about 30% of Canadian capital formation goes into these productivity-enhancing categories—half the U.S. share.4

Canada has net $1T invested abroad

The unifying view of the experts we consulted—from pension funds to policymakers, manufacturers to miners—is that Canada doesn’t lack for capital. Instead, the barriers are execution, predictability, and risk tolerance. What’s needed is more boldness and commercial ambition. Growth requires tradeoffs in three interlocking areas:

  • Raise risk tolerance in the Canadian ecosystem and dismantle burdensome regulatory, permitting and project delivery barriers while respecting the rights of Indigenous people and protecting the environment.

  • Inject process certainty: Investors are adept at navigating risk but flee when hemmed in by vague rules and shifting frameworks.

  • Reward risk-taking and entrepreneurship to stimulate innovation and growth.

None of this will be easy. While Canada’s stock has been climbing, global competition for capital is intense. Canada isn’t the only nation in build mode. But it does have all the traits of an economic leader: a deep talent pool, abundant natural resources, political stability, and the rule of law.

The question is not whether Canada can grow—but how.

Oil and Gas

ScenarioTrend GrowthStep Change
Capital Required$430 Billion$705 Billion
No significant attempt to grow oil or liquefied natural gas productionTwo new oil pipelines increase output by one third
Investments incrementally expand outputThree new LNG export terminals
Expansion of carbon capture capacity

Canada’s oil and gas industry sits at a strategic crossroads. Canadian producers appear poised for growth: the International Energy Agency (IEA) forecasts that under current policy, global oil and natural gas demand will continue to increase through 2050.5 The demand for oil is driven in part by growth in developing markets, aviation, and petrochemicals. LNG capacity is surging to unprecedented levels—300 billion cubic metres of new export capacity is scheduled to hit the market by 2030—bolstering global LNG supply by about 50%, some two-thirds of which originate in the U.S. and Qatar.

Energy security has become a top geo-political concern. And that was before the war in Iran curtailed supply, sent prices soaring, and exposed the dependence of many advanced economies on the Middle East. The long-term impact of the supply shock remains to be seen. It’s also too early to conclude that demand for Canadian oil and gas will remain strong for the foreseeable future. And not just for energy purposes, but as feedstock into critical industries like pharmaceuticals and fertilizers. Venezuela remains a wildcard. It’s unclear if investment will flow into that country at the scale required to meaningfully augment its production and export capabilities. Strategically, this leaves the U.S. exposed, despite being the largest global producer of oil. With 46 billion barrels of recoverable oil, the reserve-to-production ratio means that the U.S. has less than seven years of proven reserves on current consumption patterns.

The operating environment in Canada, however, is constrained. Pipelines are near full capacity and several mega projects have been delayed or cancelled over the past decade. The Canada-Alberta MoU signals a policy inflection: for capital markets, it reduces political sequencing risk—historically one of the largest contributors to Canada’s cost of capital. In conjunction with Prime Minister Mark Carney’s commercial diplomacy, including LNG exports to the Indo-Pacific and accompanying trade infrastructure, the message to global capital is that Canada’s policy environment is more open to development.

Canadian natural gas and LNG are also in expansion mode. Strong interest from Asian and European countries seeking energy security and coal-to-gas transition offer a clear growth pathway. Canada’s West Coast is well-positioned to supply this demand—if export capacity, permitting, and Indigenous partnership are aligned.6 With the U.S. rushing into the LNG space, future growth will depend on predictable and accelerated permitting, environmental assessment efficiency, and policy harmonization across jurisdictions.

Oil & Gas (2024)

VariableValue
Employment148,000
Revenue$248B
Exports$115B
GDP$97B
Source: Statistics Canada

From a capital perspective, oilsands majors have emphasized capital discipline and shareholder returns, having deleveraged their balance sheets. The bulk of capital in the industry comes from operating cash flows and retained earnings. Canada’s oil and gas players hold tens of billion in cash on their collective balance sheets and generate tens of billions more in free cash flow. The industry is well capitalized to internally finance growth, but the debt and equity markets would readily respond to catalyzing investments. Between the heavy capital requirements of the industry—drilling programs, bitumen mining, processing plants, refineries, and pipelines—mere maintenance opex is extraordinarily expensive. The industry has been reticent to undertake the heavy capital investments required to expand productive capacity because it is so sensitive to policy and the uncertainty around pipeline approvals, not to mention commodity price volatility.

Capital tends to flow in the industry when policy certainty creates the extended investment horizon necessary for retained earnings to be channeled into durable, productivity-enhancing assets. Absent that, capital will tend to be returned to shareholders in the form of dividends and stock repurchases.

Capex per barrel collapsed—falling from US$75 per barrel in 2014 to US$20 per barrel in 2024 (adjusted for inflation). Production is more than twice as high today as it was in 2000, yet companies are investing less than they did a quarter of a century ago. As a result, Canadian energy infrastructure faces capacity constraints relative to resource potential.

Clean technology integration represents both a capital requirement and strategic necessity. Large-scale carbon capture and sequestration (CCS) projects like Pathways Alliance and methane emission reduction programs are important factors in securing market access and political support. IEA modelling indicates that decarbonizing the oil and gas sector will require adoption of tried, tested and affordable methane abatement technologies (e.g., leak detection and control devices) and heavy investment (US$100+ billion) in CCS technology to reach net zero. Without these investments, Canadian producers risk losing access to carbon-conscious markets.

Until key aspects of the Canada-Alberta MoU are realized, pipeline capacity will remain the defining bottleneck in Canada’s oil future. Climate policy, including industrial carbon pricing, remain in flux. The debate about the Oil Tanker Moratorium Act adds an additional layer of uncertainty. In the meantime, Canada’s export dependency on the U.S. will continue to pose sovereignty and resilience risks. Without new pathways to tidewater, diversification towards Asia will be aspirational.

Oil capital expenditure has dropped over the past decade

Trend Growth Scenario: Constrained Oil Growth, Rapid LNG Growth ($430 Billion)

Capital is required to maintain and incrementally expand the current infrastructure and production patterns. Canada remains a strong player in international markets but continues to underplay its hand geo-politically.

  • Oil production grows 10%, rising to nearly six million barrels per day (bpd) in 2030 before plateauing. Canada remains reliant on U.S. buyers.

  • No new export oil pipelines: the system relies on improved efficiency within existing infrastructure.

  • For LNG, production grows with the completion of announced expansion projects (Woodfibre LNG and Cedar LNG), but Canada does not feed Indo-Pacific demand. No new greenfield terminals are added beyond what is already funded.

  • Limited CCS deployment constrains market access in Europe and Asia and deepens domestic divisions over hydrocarbon development.

Step Change Scenario: Energy Superpower ($705 Billion)

Canada becomes a nation capable of providing energy security to allies, supporting global emissions reductions, and galvanizing national economic growth through long-term, capital-intensive investments.

  • Two new export pipelines anchor this scenario:

    • West Coast tidewater line to Prince Rupert or Kitimat could add one million-plus bpd.

    • U.S.-bound pipeline connecting Alberta to Gulf Coast refiners could add 800,000 bpd – which could be added in phases through existing systems or through a new large diameter pipeline expansion project.

  • Oil production grows to 7.1 million bpd by 2035. 

  • Large-scale carbon capture and sequestration (CCS) package becomes integral to Canada’s strategy, enabling expanding production. Emissions reductions were incorporated directly into our growth model:

    • Pathways, which would sequester up to 22 metric tonnes per year (Mt/year).

    • Additional projects could sequester oil sands emissions of similar scale (e.g., Alberta Carbon Grid or Origins).

  • Three new major LNG projects add 3.8 billion cubic feet per day (bcfd) to Canada’s LNG export capacity: LNG Canada Phase 2, Ksi Lisims LNG, and Tilbury LNG expansion.

Combined, these investments create a fundamentally different energy system. Canada contributes to the long-term energy needs of the U.S. and underwrites energy security for partners in Asia and Europe. Canada regains influence in the global oil and LNG markets, diversifying its trading partners and strengthening sovereignty. Indigenous equity partnerships are embedded in mega projects, aligned with community needs, facilitating accelerated project timelines. Upstream emissions are managed through large-scale CCS.

Electricity

ScenarioTrend GrowthStep Change
Capital Required$400 Billion$670 Billion
Completion of projects underwayExpand wind and nuclear power to enable economy-wide electrification
Grid maintenanceGrid expansion and modernization

Canada’s electricity system is built on roughly 80% non-emitting power anchored by hydro and nuclear. However, the coming decades will test every part of the grid. Electrification of vehicles, buildings, industry, and data centres mean demand could double by 2050. To keep the grid reliable and affordable, Canada must massively expand and modernize a system that was built more than half a century ago. Policy momentum is building in this area, with a new pan-Canadian electricity strategy under development.

Electricity planning is shifting from a provincial utility logic to one that ties national infrastructure with industrial strategy. Hyperscale data centre commitments and applications are transforming load forecasting from incremental upgrades to step-change demand modelling. Electricity is increasingly viewed from the lens of industrial capability and economic resilience rather than power need and climate management alone. And there are areas for enhanced regional cooperation on generation and transmissions—think interties—with an important coordinating, financing and regulatory role for Ottawa.  

Modernizing Canada’s variegated systems will be expensive. The power sector differs from other industries—split between public utilities and private operators, all under the rubric of heavy regulation. It’s a balance sheet-driven sector where capital flows are highly structured. Investment tends to be financed through long-term debt, not equity. The risk-and-return profile is not only tied to market prices; instead, regulatory approval, the rate-setting framework, cost-recovery mechanisms, and occasionally, risk-sharing arrangements, attract long-horizon, liability-driven investors like pension funds and insurers who are attracted by the security and stability of returns.

Utilities Sector (2024)

VariableValue
Employment140,000
Revenue$51B
Exports$4.6B
GDP$46B
Source: Statistics Canada

Investment flows into multi-decade generation, transmission, and distribution networks, grid modernization, storage, and digital control systems. Unlike other heavy industries, productivity improvements tend not to be derived from labour efficiency, but from capital deepening—larger, more resilient, more flexible systems that lower costs and enable downstream economic activity.

At the generation level, each resource plays a distinct role in Canada’s system.

  • Nuclear is undergoing a revival. Ontario’s refurbishment anchors baseload supply, and the Darlington small modular reactor (SMR) will be the first grid-scale project in the Western world. Large-scale nuclear comes with significant cost and scheduling risks. A recent study found that of the two dozen project types, nuclear waste and nuclear power came in first and third, respectively, in terms of cost-overruns. Ontario’s refurbishment program, however, was delivered ahead of schedule and under budget—making it one of the most successful major infrastructure projects in Canadian history.

  • Hydro remains the backbone of power across Canada, but the storyline has shifted. Historically thought of as ‘endless surplus,’ hydro is becoming a balancing source of power as grid and demand requirements evolve. Drought conditions in Quebec, B.C., and Manitoba have exposed the fragility of relying solely on hydro power, too. The future of hydro is less about mega-projects and more about offering flexibility, the strategic use of interties, and providing inertia for the grid.

  • Wind makes up the largest share of new generation. On an incremental basis, wind is the lowest-cost source of new power. The challenge is intermittency and inertia. Integrating large volumes of renewable supply requires storage, grid stability, and flexibility.

  • Natural gas will likely remain a reliability backstop in various regions.

    Rapidly expanding electricity demand also puts strain on the grid and related infrastructure. Transmission and distribution of assets spanning 850,000 kilometres require massive upgrades, regional interconnection, and enhanced digitization. Canada’s patchwork of 10 provincial grids complicates this process. The long-horizon nature of investment planning is complicated by the multiplicity of demand drivers, which are politically, technologically, and culturally contingent.   

Canada is poised to expand its electricty grid

Trend Growth Scenario: Remaining Within The Grid ($400 Billion)

Canada completes what’s already approved, funded, or under construction and generates 20% more power across all sources.

  • Canada brings 63 GW of incremental capacity online across wind, solar, natural gas, and battery storage based on projects already planned and announced.

  • Two major nuclear additions in Ontario: Darlington SMR (online in 2035) and Bruce C Project (in 2041).

  • On the grid side, we assume routine reinvestment and incremental upgrade of Canada’s existing transmission and distribution lines, aligned with limited further progress on nation-wide decarbonization.

The baseline pathway does not materially alter the underlying structure of the system. With climate policy either stalled or in reverse, the policy incentives to decarbonize are less compelling. Global and domestic efforts to reduce emissions remains limited. Electrification proceeds in this scenario, but slowly.

Step Change Scenario: Industrially Competitive Net Zero Grid ($670 Billion)

Canada transforms and radically augments its energy system across generation, transmission, and distribution, including policy measures that drive decarbonization and electrification-led economic growth.

  • Canada builds 119 GW of new generation capacity—nearly double the trend growth scenario.

  • New nuclear projects include the Peace River (Alberta), Point Lepreau (New Brunswick), Wesleyville (Ontario), and Saskatchewan SMR nuclear projects.

  • Canada significantly ramps up its wind power beyond projects already in place. Grid expansion of 240,000 kilometres—double the trend scenario—with major costs from modernizing and digitizing the grid, including system reinforcements and new connections.

The expanded system is cleaner, more flexible and self-sufficient. It is responsive to economy-wide electrification and the major demand drivers that are likely to unfold in the coming decades, including:

  • Population growth and associated electricity demand at the household level (think electronics, heat pumps, etc.). This trend is in flux, as Canada’s immigration system is under increasing scrutiny.

  • Electric vehicle adoption, which has stalled with the removal of incentives, but may rebound with Ottawa’s new automotive strategy. Stricter tailpipe emissions standards, renewed EV rebates, and charging infrastructure aim to hit 75% EV sales share by 2035. This trend may extend beyond electrification of passenger cars into freight and heavy-duty transport, adding further load to the grid.

  • Data centres are a wildcard, creating both risks and uncertainty across the sector. Utilities are already signaling demand well beyond what outlooks have modelled:

    • Alberta provides a striking example: grid connection requests jumped from 6 GW to nearly 20 GW by September 2025–prompting the province to implement a two-phase integration program to maintain grid reliability and affordability.

    • Hydro Quebec expects data centres to account for 15% of net new electricity demand by 2032.

    • Ontario’s IESO projects data centres will account for more than 10% of new electricity demand through 2035.

  • Another wildcard: battery technology advancements, which are difficult to forecast, but the cost curve is trending lower.

This scenario supports a larger domestic population that consumes more clean electricity at home and utilizes clean power at work. Through interties and power corridors, Canada expands its grid horizontally, transporting electricity from power-generating regions to power-consuming regions, including abroad.

Power system stability, affordability and flexibility serve as a strategic advantage for Canada globally, helping Canada win new investment mandates in advanced manufacturing and frontier technology, while still working towards the goal of a net-zero grid by 2050.

Metals & Minerals

ScenarioTrend GrowthStep Change
Capital Required$140 Billion$200 Billion
Maintain industry’s long-term growth rateDevelop new early- and late-stage mining projects

Mining has historically been a cyclical industry governed by market forces. But with recent developments in Washington and Beijing, the ever-expanding critical minerals segment of the industry is being steered increasingly by geo-political strategy. Canada, the U.S. and other NATO partners increasingly view mining through the lens of sovereignty, security, and strategic infrastructure.7 In doing so, they are beginning to mirror China’s playbook. Over two decades, China used industrial policy, state-backed finance, and non-market mechanisms to secure control over minerals essential to defence, advanced manufacturing, and clean technology, especially at the level of processing, refining, and secondary manufacture.

The Canada-led Critical Minerals Production Alliance announced more than two dozen new investments and partnerships, mobilizing some $6 billion in projects and designating critical minerals as ‘essential’ under the country’s Defence Production Act. Offtake agreements, price floors, and stockpiling are some of the non-market mechanisms being employed to mobilize private capital. 

The U.S. is going even further with Project Vault—a public-private partnership to finance and stockpile the minerals needed for advanced manufacturing and frontier tech. The White House is using a suite of de-risking instruments such as loan guarantees, offtake agreements, and direct equity stakes in mineral development companies to catalyze the development of lithium, copper, cobalt, and rare earths, among others. Almost overnight, Western governments have gone from observers of mining industry dynamics to market makers.

Mining Industry (2024)

VariableValue
Employment128,000
Revenue$85B
Exports$35B
GDP$32B
Source: Statistics Canada

For Canada, long-standing challenges come into sharper relief. Despite favourable geology, world-class mining finance and engineering expertise, growth has been held back by:

  • A lengthy, complex, and unpredictable permitting process.

  • Insufficient enabling infrastructure (roads, transmission lines, processing facilities).

  • Shortage of specialized mining talent, especially around operational execution.

  • Risk capital. Junior miners have struggled to raise funds from institutional investors as market sentiment pivoted to cannabis, then crypto, and increasingly AI.

To compete in this new era, Canada’s mining industry must move beyond market-driven dynamics into strategic national development. Indigenous equity frameworks are increasingly embedded at early stages, compressing the consultation cycle.

Global demand for metals set to rise over the next 25 years

Trend Growth Scenario: Mining as Usual ($140 Billion)

Canadian mining remains on its long-term historical trajectory. Policy ambition remains high, but the obstacles to capital formation—permitting uncertainty, infrastructure gaps, talent shortages—are not meaningfully resolved. The regulatory environment does not improve fast enough to accelerate capital. Output grows slowly, tracking 0.5% annual GDP growth.

  • New mines struggle to reach final investment decisions.

  • Capital flows remain concentrated in base and precious metals.

  • Canada’s critical mineral potential remains under-developed, owing to dependence on market forces. 

These trends are sufficient to sustain operations and replace depreciating assets but not reshape Canada’s competitive position in global supply chains. Canada preserves its mining base, but supply chain dependence on foreign refining and processing persists. Canada retains relative strength in the wider mining industry but does not become a major player in the geopolitical race for critical mineral sovereignty, losing strategic clout with NATO partners in the process. 

Step Change Scenario: Critical Minerals Dominance ($200 Billion)

Market forces continue to govern the exploitation of base and precious metals, but critical minerals have become a national priority. Ottawa leads coordinated federal-provincial action and advances several de-risking mechanisms.

The Step Change scenario reflects three fundamental facts about the global mining industry:

  • Many critical mineral projects are not commercially viableif left to market forces. Between small market size, absence of a global market price, or infrastructure barriers, global miners have no incentive to develop many critical mineral and rare earth resources.

  • Canada possesses dozens of strategically significant deposits,but they will require public-private cooperation to fully develop.

  • The U.S. and other allies are moving aggressively;Canada risks being left behind in the global race to build a critical mineral supply chain.

Canada develops a series of projects, both early and late stage, across a range of precious and base metals and critical minerals. Canada becomes a leader in the Critical Minerals Production Alliance, developing its reserves of copper, lithium, graphite, nickel, cobalt, and rare earths. To hedge processing and secondary manufacturing dependence on China, Canada partners with NATO and other allies in the creation of a critical minerals refining supply chain, leveraging existing smelting capacity.

Canada catalyzes:

  • Development of all late-stage projects, including the Eagle’s Nest nickel mine in Ontario’s Ring of Fire and the Casino copper mine in Yukon, among others.

  • Early-stage projects across the range of metals and minerals. Canada is a reliable supplier of critical minerals to NATO partners. Canada strengthens national and international supply chains while building domestic processing capacity. Mining is transformed from a natural resource industry into a linchpin of Canada’s industrial and geo-political strategy.

Defence

ScenarioTrend GrowthStep Change
Capital Required$10 Billion$19 Billion
Canada meets its 2% NATO spending targetCore defence spending increases to 3.5% of GDP by 2035

Geopolitical currents are changing rapidly. Uncertainty around the cohesion and stability of NATO has called into question Canada’s military capabilities. After decades of under-investment, Ottawa is sending the strongest demand signal in a generation. The federal government is making historic investments as part of its commitment to raise defence spending to 5% of GDP. Ottawa’s Defence Industrial Strategy serves as the beginning of a new blueprint, combining industrial capacity with strategic positioning.

An expansion of the funding envelope is being met with a change in thinking among the Canadian Armed Forces (CAF), which is shifting away from platform-centric thinking to a capability-centric approach. Uncrewed and autonomous systems—drones—provide an illustrative example of this shift. Drones sit at the intersection of defence, space, AI, and cyber and are quickly graduating from niche sub-sector to foundational capability. Canada’s Drone Surge initiative and the Canadian Army’s MINERVA program exemplify this evolution: government defines the mission or outcome and calls upon industry to provide the solution. Drones also capture the dual-use spirit of Canada’s defence-space strategy since they are already proven in commercial environments while offering scalable military applications when procurement timelines and risk-sharing mechanisms align. When it comes to Arctic sovereignty—a renewed focus for Ottawa—drones provide the persistence and responsiveness that complement space-based assets while maintaining a domestically sustainable capability.

Despite the renewed focus on funding, a series of interlocking challenges afflict the defence industry:

Defence Industry (2022)

VariableValue
Employment36,000
Revenue$14B
Exports$7B
GDP$9.6B
R&D Spend$440M
Source: ISED

  • Low and uncertain government spending has meant that domestic firms lack an anchor customer.

  • Canada’s procurement process can be slow, complex, and politicized. Multi-agency oversight, lengthy bid cycles and administrative complexities discourage investment and constrains innovation.

  • Export opportunities for Canadian companies can be limited in foreign markets because of regulatory, political and economic barriers designed to favour the host country’s sovereign industry over foreign competitors.

  • The persistent problem of scale, with many Canadian SME’s dependent on American conglomerates.

  • The defence supply chain remains fragile in the post-pandemic era, with backlogs and technical bottlenecks squeezing Tier 2 and 3 suppliers.

  • A shortage of skills means companies struggle to find engineers, scientists and technicians.

Capital dynamics in defence are driven by government procurement, long-term contracts, and public R&D funding signals that also attract venture capital and strategic equity for early-stage investment and to structure debt for more advanced companies. Capital flows fund research and development, specialized equipment, manufacturing facilities, and technological infrastructure and operations. Given the nature of the sector, government demand can scale industrial capacity for long-term contracts and derisk private investments.

Budget 2025 expanded the funding framework with new measures for dual-use technologies, critical minerals, AI, and sovereign space-launch capability. The procurement focus is clear:

  • Fighter jets, maritime patrol aircraft, under-ice submarines, and long-range rocket artillery.

  • Revitalization of Canada’s military and dual-use infrastructure, including Arctic installations, the strategy emphasizes air and maritime surveillance.

  • These latter capabilities depend on space, satellite communications, and cyber systems to connect and secure Canada’s digital defence systems.

All of this is nested in a still-emergent industrial policy with strong ‘Buy Canadian’ ambitions. There are forceful tailwinds for the industry, but momentum has yet to pick up.

Canada lags most NATO peers in defence spending

Trend Growth Scenario: Force Amplification ($10 Billion)

Canada spends 2% of GDP annually into 2035. This produces predictable demand.

  • Ottawa’s ‘Buy Canadian’ policy tilts procurement volumes towards domestic content.

  • The defence ecosystem gets a boost across the value chain, beginning with R&D, but expanding into facilities, and specialized machinery and equipment, resulting in enhanced capabilities.

Bottom line: Canada rebuilds its military incrementally, with expanded hardware in a few key areas. This enables Canada to better surveil the Arctic, patrol the coasts, and support our NATO allies. However, in a world where the integrity of the NATO alliance is in question, or abolished completely, Canada’s defence capabilities remain under-developed.

Step Change Scenario: Canadian Arms Flex ($19 Billion)

Canada reaches its full NATO target of 5% of GDP by 2035, including:

  • A linear rise in core defence assets.

  • A greater share of spending is allocated to capital equipment and military hardware.

  • Large domestic procurement for next-generation aircraft, ships, cyber defence architecture, and Arctic infrastructure.

Over the coming decade, this adds $300 billion to total defence spending. If Ottawa sustains its commitment to source at least 70% domestically over the coming decade (up from 30% presently), then Canadian producers stand to gain $100 billion in incremental revenue (this excludes spending on dual-use infrastructure). This is not just more spending. Defence is R&D-intensive, which has knock-on effects across IP production, with spillover benefits across advanced manufacturing, better enabling Canada to contribute to NATO’s collective defence.

Canada builds both sides of the defence-space axis, too. Defence spending revitalizes Canada’s industrial base. Space catalyzes dual-use technology. And Canada becomes a meaningful contributor to allied space and defence capabilities, which is not only an emergent ‘border’ to be defended, but a frontier consumer market as well.

Space

ScenarioTrend GrowthStep Change
Capital Required$5 Billion$12 Billion
Industry grows at historical rate (1% annually)Canadian space sector doubles its global market share, rising to 2% by 2035

Space represents a unique convergence of strategic necessity and capital formation opportunity. As a strategic industry, space capabilities underpin national sovereignty through Arctic surveillance, defence communications, and climate monitoring but it also functions as a productivity layer across other industries—Earth observation and geospatial analytics enhance efficiency in agriculture, mining, energy, infrastructure, and insurance, making it essential to any capital-deepening strategy. The space-AI nexus also creates a powerful demand driver and intellectual property engine, where space data combined with artificial intelligence can strengthen automation capabilities, climate resilience, and defence readiness.

Canada has recognized excellence in satellite communications, space robotics, earth observation and aerospace engineering. As the third nation in space, with a long and decorated history, under-investment at the federal level combined with the failure to develop sovereign space-launch capability has constrained industry growth. That era may now be coming to an end, driven in part by the reconvergence of defence and space technologies.

Space Industry (2023)

VariableValue
Employment13,900
Revenue$5.1B
Exports$2.2B
GDP$3.4B
R&D Spend$650M
Source: Canadian Space Agency

There’s a two-pronged revolution underway and Canada has yet to find solid ground.

  • In the U.S., a policy-driven transformation of the business model unfolded over the past 15 years, with private industry increasingly in the driver’s seat when it comes to capital deployment and innovation.

  • The second locus of transformation is Europe and is just getting started. With the Russian’s invasion of Ukraine and the NATO commitment to increase defence spending, there’s a reconvergence between space and national defence. Traditional space companies are crowding into defence contracts while defence conglomerates expand their space capabilities. ‘Dual use’ space technologies are now the norm.8

Like defence, capital flows when government demand de-risks private investment, enabling firms to deepen technological capability and scale industrial capacity for long-term contracts that would not exist under purely commercial market arrangements. The financing model in Canada is challenged. In space, the fastest path to scale is not government-owned hardware—its government acting as an anchor customer for commercially owned, commercially operated (COCO) services—data, communications, surveillance, analytics, launches—under multi-year, performance-based contracts. When done properly, these contracts function as financeable, near-sovereign revenue streams that lower the cost of capital and unlock large pools of private investment, allowing Canadian firms to scale at home and export globally.

Despite past achievements and present strengths,the industry remains challenged structurally and policy wise.

Space budget among 10 OECD space forum countries

Trend Growth Scenario: Space Remains Under-Leveraged ($5 Billion)

  • Annual sales decline 1% per year.

  • The industry shrinks to $4.5 billion by 2035.

Bottom line: Canada fails to arrest the decline of space. This is primarily a policy-driven choice, not a failure on the part of space companies to innovate and grow. As a result, Canada’s defence capabilities in space remain stunted and core civilian applications atrophy.Bottom line: Canada fails to arrest the decline of space. This is primarily a policy-driven choice, not a failure on the part of space companies to innovate and grow. As a result, Canada’s defence capabilities in space remain stunted and core civilian applications atrophy.

Step Change Scenario: Canadian Space Launches ($12 Billion)

Space is imagined as an essential component of national security and economic competitiveness.

  • Doubling its global market share from 1% to 2%.

  • Building sovereign launch capacity, underpinned by an increase in satellite launch cadence, in keeping with funding commitments in Budget 2025.

  • Deepening dual-use integration with defence.

  • Modernizing procurement around speed, commercial partnering, and risk-sharing.

  • On the space-defence axis, government earmarks a modest share of incremental defence spending growth for dual-use space, procured primarily via COCO service contracts—creating predictable revenues that crowd-in private capital at scale.

McKinsey forecasts that the global space market will reach US$755 billion by 2035.9 Canada captures twice its current share of the market, leading to a 4x boost to sales revenue. And Canada builds both sides of the defence-space axis. Defence spending revitalizes Canada’s industrial base. Space catalyzes dual-use technology, enabling Canada to become a meaningful contributor to allied space and defence capability.

Agriculture and Food Processing

ScenarioTrend GrowthStep Change
Capital Required$155 Billion$205 Billion
Historical growth trends persist in the futureExport-led growth drives Canada to regain its international agri-food export ranking
R&D and IP investments increase, strengthening innovation and productivity

Half a century ago, Canada’s agriculture sector underwent an R&D-fueled innovation and growth boom. The prairie provinces emerged as a global breadbasket, leading in grains and oilseeds, but also in pulses and beef feedlot production. An investment surge in the 1970s and 1980s reshaped farming and coincided with the introduction of new machinery, improved crop varieties, farm chemicals, advanced genetics, and on-farm management systems.

The momentum around R&D, innovation, and growth faded in recent decades. Agricultural productivity growth slowed from roughly 2% in the 1990-2000s to 1.4% more recently.10 Canada’s position as an agri-food exporter has weakened, too. Investment in food and beverage manufacturing, the largest industry in the wider manufacturing sector, was flat from the mid-1990s through the mid-2010s, though it has shown signs of rebounding in the past decade.

Agriculture and Food Processing (2024)

VariableValue
Employment695,000
Revenue$337B
Exports$60B
GDP$78B
Source: Statistics Canada

We have seen a brief wave of expansion in food processing since 2018—a $770 million Maple Leaf poultry plant, for example, and a $250 million flour milling facility by Parrish & Heimbecker. RBC estimates that the industry has invested $7.5 billion in expanding its manufacturing capacity in recent years, leading to a 20% boost.

Farming operations depend on a mix of cash flow, retained earnings, and bank debt to finance growth, using land, equipment and inventory as collateral. Food processors, some of which are global in scope, can leverage their corporate balance sheets to finance growth, in addition to cash flows, and have access to capital markets. Capital is deployed into productive investment through machinery and equipment, precision agriculture technologies, storage facilities, processing plants, and increasingly, R&D into seeds and biologics.

An interlocking set of stumbling blocks hold the sector back:

  • An innovation engine under strain. Canada’s agriculture R&D has declined in real terms and as a share of GDP. Public support for agricultural knowledge and innovation—once leading the charts at 3% to 4% of industry revenue—has fallen below the OECD average, eroding the pipeline for the next canola and limiting the commercialization of precision tools, seeds, and data systems.

  • Capital intensity. Capital constraints can deter the adoption of costly high-tech equipment such as drones, crop sensors, and the GPS monitoring systems used in precision agriculture.

  • A wave of succession and widening skills gap. The average farm operator is 56. Transition to the next generation is looming. And the number of operators below that age has declined by more than 50% since 2001.11 At the same time, farms are becoming more tech-driven and data-intensive, demanding operators with technical, analytical, and system-management skills. Labour and skills shortage require varying levels of solutions from targeted immigration (in the short-term) to more integrated educational discipline and smarter ag tech (over the long-term).

  • Export market concentration. Some 60% of Canada’s agriculture and processed food exports are shipped to the U.S., creating an unhealthy concentration risk. America’s status as a mature market (i.e., ageing population, slow growth) also tempers the possibility of future export growth, especially when compared to emerging markets.

Canada still has enormous capacity—fertile land, abundant water, advanced genetics, and a globally competitive supply chain. Unlocking the next era of growth depends on whether Canada can generate a new investment wave and rebuild its innovation eco-system. Canada will need to win on two fronts: use production inputs more efficiently and move up the value chain, capturing more of global food processing capacity. This would mean adoption of innovative ag tech to advance crop yield research, livestock management, greenhouse operations, and expansion of domestic manufacturing capacity—realizing efficiency gains on farm and in factory.  

Capital formation in agriculture is slowly trending up

Trend Growth Scenario: Status Quo ($155 Billion)

    • Public and private investment flows into R&D and IP at historic levels.

    • On-farm investments in structures, machinery and equipment maintain capital intensity.

    • Food processing facilities replace or refresh machinery and equipment.

The consequences of this scenario:

  • Productivity continues to grow slowly, remaining well below historic highs. Farm Credit Canada estimates up to $30 billion in foregone industry income over the next decade due to unrealized efficiency gains.12

  • Canada’s position in the global agri-food trade continues its slow erosion. Canada was the fifth largest exporter in the early 2000s, but has slipped to seventh today (and could fall to ninth within 10 years).13

This scenario does not entail collapse, but it is managed stagnation. Canada maintains its current footprint but misses the next global wave in ag-tech, automation, and value-added processing.

Step Change Scenario: R&D-Led Productivity Surge ($205 Billion)

Canada unleashes another multi-decade growth cycle. We imagine a 1970s-style investment boom, built on the back of strengthened support for R&D and IP. More public and private capital flows into research and IP generation, which brings technological advancement and capital deepening, incrementally improving farm efficiency and facilitating the adoption of new technologies. In this scenario, the growth rate in food processing is driven by foreign demand for Canadian food exports.

  • Canada regains its international agri-food market share, rising from seventh to fifth, reinforcing its status as an agri-food superpower.

  • Public and private R&D-related spending would need to increase by 50% just to match GDP-adjusted levels from the 1980s. However, returns on the R&D investment could be 10x to 20x.14

  • Canada undertakes a deliberate, coordinated effort to trigger a new investment and innovation cycle across the industry. Capital spending surges, underpinned by large-scale adoption of emergent ag technologies, including crop genetics, more efficient machinery, and enhanced production systems.

Whether it is for allocating more funding towards research, upgrading equipment for increased efficiency, or adopting new practices, meaningfully augmenting productivity will require another phase of capital deepening. Our growth scenario also imagines Canada expanding and deepening export markets, especially for processed foods. As noted in recent RBC research, Canada could capture a large piece of the global agri-food trade, reclaiming its global ranking.15 For food manufacturing, this means exports climb above current levels. The result is not only food sovereignty, but the provision of food security to allied and friendly countries, reinforcing Canada’s standing as an industrial leader and trusted partner.

A New Capital Framework for Canada

For decades, Canada’s capital framework was built along familiar lines of private enterprise operating in relatively free markets with increasingly open borders, all governed through multilateral institutions. Comparative advantage and cost efficiency dictated capital flow. The new age we are entering is defined by fragmentation and a larger role for the state, with industrial capability, sovereignty, and geopolitical alignment adding to the traditional calculus of profit and loss.

Canada does not lack capital, but the systems to deploy it are maladapted to the new age. Capital is not flowing to where it is needed at the speed or scale required–it’s a capital mismatch. A modern capital formation framework for Canada must focus on better integrating capital pools with investable assets.

The proximal source of capital to finance growth is the companies themselves. Canada’s non-financial corporate sector, which holds more than $1.1 trillion in currency, deposits, and debt securities on its balance sheet, is the first layer in the capital stack. While insufficient to fuel our step change scenario, the deployment of corporate Canada’s spare cash could create a cascading effect, crowding in additional pools of capital.

The framework we propose focuses on four additional pools of capital: institutional, risk, foreign, and state.

Capital Framework for Canada
Capital SourceRole in the
Capital Stream		Stage of RiskCore ConstraintWhat’s LackingUnlock Mechanism
Institutional
Pensions, asset managers		Long-horizon, liability-matching assetsInfrastructure, mature assetsInvest in assets—not projects Unable to absorb development or early-stage riskPipeline of bankable, de-risked projectsAsset recycling framework
Risk
VC/PE		Innovation, scaling, commercialization,Start-up,
scale-up		Weak transition from scale to maturityLate-stage growth capital, anchor customersCommercial-enabling procurement
Foreign
Sovereign wealth		Supplement domestic capital, scale enablement, global integrationAll stagesPolicy clarity, speed, returnsPredictable investment regime, fast approvals, competitive ROICorporate income tax + Investment Canada Act reforms
State
FPT, Public FI’s		Demand creation, risk absorption, strategic projectsEarly-stage, development, strategicFragmented deployment vehicles, executionScalable deployment vehicles, speed, FPT coordinationLeverage public demand and state balance sheet

  • Large pools of institutional capital—pension funds, global asset managers, insurers—are positioned to invest in long-duration, de-risked, assets with predictable cash flows. Canada produces too few of these assets. Instead, many opportunities exist at earlier stages of development—projects burdened by regulatory uncertainty, permitting delays, or commercialization risk. Institutional capital is not designed for these opportunities.

  • Canada’s risk capital ecosystem performs relatively well at the early stages. Venture capital and private equity support a steady pipeline of innovation, but not enough companies make the transition from startup to scale. The country lacks late-stage growth capital, as well as the demand signals—procurement, anchor customers, deep domestic markets—needed to support commercialization. As a result, successful companies remain stranded at mid-size, unable to grow domestically.

  • Foreign capital remains an underleveraged source of growth. Global investors prioritize jurisdictions that offer policy clarity, speed, and competitive returns. Canada possesses the core endowments required to compete for global investment but consistently underperforms on execution. Lengthy approval timelines and policy volatility increase uncertainty and the cost of capital.

  • State capital could be deployed at scale, not to replace private capital but to catalyze it. In a more fragmented global political economy, governments are playing a bigger role in directing capital flows through procurement, equity stakes, and other de-risking mechanisms. Canada has deployment vehicles—there is a spate of Crown corporations and public financial institutions; but co-ordination and execution hinder the deployment of state capital and the crowding in of private investment.

To address the misalignment problem, we explore an interlocking set of mechanisms that would attract and unlock investment. These options are designed to improve investor certainty, reduce execution risk, and raise after-tax returns without materially adding pressure to Canada’s already-strained public finances. Critically, each option is politically implementable in the near-term.

Institutional Capital

Brownfield-to-greenfield asset recycling framework

Canada has significant public capital tied up in mature, low-risk public assets—ports, utilities, pipelines, roads and other core infrastructure. These assets could (and often do) generate stable, predictable cash flows, making them well suited for long-term institutional investors. Yet, they remain on public balance sheets, limiting fiscal flexibility at a time when many governments across Canada are already running deficits. At the same time, policy uncertainty dissuades investment in critical infrastructure projects. As a result, institutional capital remains sidelined while projects in the national interest remain under-capitalized.

An asset recycling frameworkcould address these challenges, not by reducing the public balance sheet but by mobilizing it. Governments at all levels own assets—from pipelines to airports, power utilities to bridges—that can be monetized. Under a brownfield-to-greenfield model, governments could lease or divest mature assets, converting dormant public wealth into productive economic flows, and reinvest the proceeds in new infrastructure. When required, federal incentive payments could be used to encourage provincial and municipal participation. The benefits are clear:

  • For government, fiscal capacity is created without raising taxes or issuing public debt. Instead, governments rotate capital from mature assets to high impact infrastructure.

  • For citizens, new infrastructure is created without taxes being raised.

This model does not introduce new costs, but it does reallocate who pays, which is where the (unavoidable) trade-offs enter. Shifting the burden from general taxpayer to direct user fee can create political friction. This is despite its economic logic, which can improve fairness (since costs align with usage) and enhance efficiency (since pricing disciplines demand while supporting maintenance). Governance is key to both program success and public support. 

Public capital is most valuable at the high-risk, early-stage of development, while private capital is well suited to long-lived, de-risked assets. An asset recycling frameworkcould help governments achieve fiscal balance while generating the velocity that is part of the dynamism of a market economy. Australia’s asset-recycling program illustrates the potential: $2.3 billion in federal incentives catalyzed $15 billion in incremental infrastructure investment over five years, accelerating infrastructure development without increasing public debt.

To ensure the asset recycling framework is effective, it could include:

  • Clear eligibility criteria focused on mature, revenue-generating assets.

  • Ring-fencing the proceeds of divestitures for new infrastructure investment (not general revenue).

  • Transparent valuation and governance standards.

This build-prove-privatize model would attract private capital and enable productivity-enhancing investment in core infrastructure without straining public finances.

Risk Capital

Scale-enabling procurement that fosters innovation

The scale mismatch in Canada is most pronounced among mid-size firms. Large pools of institutional capital like pension funds require projects to meet minimum size, maturity, and cash-flow thresholds. Yet, many Canadian projects and enterprises are either too small or too early-stage to qualify.

Commercial-enabling procurement can help bridge this gap, but the model must evolve from an administrative function to an industrial policy tool. Rather than buying platforms, government should purchase capabilities through outcome-based contracts. Government would act as anchor customer, channeling public demand to create revenue certainty for projects and companies that struggle to access capital because of commercialization risk.16 Smart procurement would crowd-in private capital, harness competition, transfer risk, and encourage innovation, creating a capital formation cascade.

Multi-year production runs, fleet standardization, and lifecycle sustainment contracts could convert one-off purchases into durable industrial capability. Sustainment and upgrades generate recurring revenue streams, skilled employment stability, and domestic IP control. Canada could continue to experience persistent capital leakage long after the initial procurement decision. Here the financial architecture matters: anchor contracts enable project finance and asset-backed lending, while long-term off-take agreements materially lower weighted average cost of capital by making debt viable earlier in the development lifecycle. This ‘butterfly effect’ could transform procurement into broad-based capital formation, graduating Canadian firms from perpetual Tier-2 suppliers to globally competitive prime contractors.

NASA’s Commercial Crew and Cargo Program (C3PO) provides an illustrative example. Historically, NASA designed, owned, and operated its assets using cost-plus contacts with heavy bureaucratic oversight and limited commercial reuse. After 2005, NASA flipped the model—transforming the playbook from ‘build and own’ to ‘buy and use.’ NASA became an anchor customer, purchasing services from private companies that design and own multi-customer assets. Launch costs fell 10-fold, with reusable rockets, autonomous docking, and space tourism some of the notable innovations.

Applied in Canada, the model could:

  • Act as a strategic demand signal. Build on the anchor customer model to provide sustained demand through long-term contracts, reducing commercial uncertainty, and incentivizing the significant capex required for frontier technology development. Advance purchase commitments with guaranteed minimum volumes could help crowd-in risk capital.

  • Performance-based contracting. Transition from cost-plus to fixed-price service delivery for mature assets, using competitive tendering that rewards enhanced capability while managing cost overrun risks. Deploy performance metrics tied to capability and delivery timing, with corresponding rewards (favourable pricing, bonuses) and penalties (fines for delays).

  • Administrative streamlining. Reduce bureaucratic burden on contractors, allowing them to focus scarce resources on capability development, productivity improvements, and serviceability. To accelerate programs, consider developing a transaction authority that sits outside the traditional procurement system that can award follow-on production contracts without having to compete for it (assuming success at delivering needed capabilities on budget).

The result would be aligned incentives, a clearer commercialization pathway for small and medium-sized firms, and a more dynamic eco-system of companies with the enhanced ability to service domestic needs while competing internationally.

Foreign Capital

Improve investor returns and certainty by reforming the CIT and ICA regimes

Global investors assess jurisdictions based on openness to investment and their structural competitiveness. Hospitality to foreign investment and tax policy are critical inputs in the decision matrix.

Canada’s framework for reviewing foreign investment—the Investment Canada Act (ICA)—is a source of friction in attracting global capital. Ensuring national security and a net benefit to Canada are sound goals, but the application of the framework can create uncertainty, opacity, and extended timelines. The reactive and discretionary nature of the system creates unpredictability, which acts as a deterrent to foreign investment. Reform would improve investor certainty while boosting after-tax returns.

  • The system for screening and approving foreign investment can be made more rules-based and strategically aligned by distinguishing between sectors that are commercially or strategically sensitive and sectors where capital is actively welcomed. Reforms could preserve national security while enhancing the attractiveness of Canada as an investment destination by:

    • Introducing fast-track pathways for low-risk investments such as minority stakes, investments from trusted allies or projects in cleared sectors.

    • Creating strategic investment corridors with preferred allies, aligning policy, capital and industrial strategy in areas like mining, energy, and advanced manufacturing.

These changes would shift the ICA from a perceived barrier to a predictable facilitator for foreign investment that simultaneously safeguards national interests while welcoming global capital.

Canada also requires a more competitive corporate income tax regime. Since 2018, when the U.S. and others reformed their systems, Canada lost its corporate tax advantage. That’s why leading tax experts are calling for ‘big bang’ tax reform that incentivizes investment rather than creating ever-more layers of distortionary tax credits. We see two options to boost after-tax returns on capital that are worth further study:

  • Canada could tax distributed profits while exempting retained earnings. Estonia and Latvia offer full exemption for retained business profits, for example, and have been successful at attracting foreign direct investment. Assuming this option could be made compliant with international tax treaties and OECD minimum tax rules, Canada could:

    • Tax profits that are distributed—dividends, buy-backs, and deemed distributions.

    • Exempt profits that are retained within the business, incentivizing reinvestment in R&D, IP formation, machinery and equipment, and business expansion.

    • Importantly, this approach could be made revenue-neutral for governments by eliminating the impact of other inefficient and distortionary tax incentives, which would become redundant.17

Despite being revenue-neutral for government, this reform would make Canada a more attractive destination for investment by meaningfully lowering the marginal effective tax rate. It would also directly and materially reward firms that channel capital into productive activities in Canada.

  • A suite of reforms which would improve Canada’s tax competitiveness by:

    • Lowering the federal CIT rate. Reduce statutory corporate income tax rates to enhance Canada’s competitiveness relative to other jurisdictions, particularly following recent U.S. tax reforms.

    • Full expensing of capital investments. Allow businesses to immediately deduct the full cost of machinery, equipment, and intellectual property investments rather than depreciating them over time. This would provide immediate cash flow benefits and reduce the cost of capital for growth-oriented investments.

    • Enhanced capital gains treatment. Increase capital gains exemption limits for business investments and expand business rollover allowances to facilitate reinvestment and business succession planning, while maintaining fairness.

This comprehensive approach would make a strong statement about Canada’s commitment to being a preferred destination for global capital while maintaining revenue sustainability and international tax compliance.

State Capital

Leverage public demand to crowd in private capital

Canada faces a persistent challenge in financing projects and technologies that are commercially viable over the long term but fail to clear private investment hurdles in the near term. These are typically first-of-a-kind (FOAK) technologies or strategic assets—small modular nuclear reactors, critical minerals, rare earth processing, carbon capture—where long lead times, uncertain demand, or price volatility crate a gap between risk tolerance and Canada’s strategic interests.

The issue is not the absence of capital but of risk-bearing capacity. Private investors unwilling to absorb early-stage uncertainty when timelines stretch over decades and revenue streams remain unclear. The result is underinvestment precisely in the industries that are most critical to Canada’s industrial and geopolitical positioning.

A more active deployment of state capital can help close this gap—not by displacing private investment, but by reshaping the risk-return profile to crowd it in. A range of instruments can be utilized:

  • Public-equity stakes in early-stage or systemically important projects or firms, allowing the state to absorb initial risk while preserving upside participation.

  • Price floors to reduce commodity volatility and support project viability, particularly in shallow or immature markets such as rare earth mining and processing.

  • Long-term offtake agreements that provide revenue certainty, enabling project developers to secure debt or equity financing against contract demand for long horizon projects.

  • Strategic stockpiling to stabilize markets and signal sustained public demand in priority sectors.18

These tools are already deployed in peer jurisdictions, particularly in critical minerals and energy, where governments act as market makers rather than market observers. An outstanding question is not whether to use these tools— but how to deploy them at sufficient speed and scale.

This capital formation framework is about restoring Canada’s investability by reducing uncertainty, creating scale where capital mandates require it, transferring early-stage risk away from private investors and improving after-tax returns on productive investment.

By lowering the risk-adjusted cost of capital across strategic industries—oil and gas, electricity, mining, defence, space, and agriculture and food processing—Canada can convert its latent advantages into bankable projects.

But this great opportunity won’t last. In an era of intensified competition, capital will flow to countries that make investments viable. Canada needs to move quickly–turning ambition into action.

Capital Gains: How Canada can unlock the $1.8 trillion it needs for growth - download the report

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Contributors

Lead Authors:

Jordan Brennan, Managing Director, RBC Thought Leadership
Farhad Panahov, Economist, RBC Thought Leadership

John Intini, Senior Director, Editorial, RBC Thought Leadership

Yadullah Hussain, Managing Editor, RBC Thought Leadership

Lavanya Kaleeswaran, Director, Digital Marketing and Production, RBC Thought Leadership

Caprice Biasoni, Design Lead, RBC Thought Leadership

A.  Methodology and Data Sources

Oil and Gas

For the oil and gas industry, the capital required includes:

  • Brownfield investment to incrementally increase conventional oil and the oil sands output;

  • Greenfield investment to develop new oil sands production capabilities;

  • New oil pipeline infrastructure to strengthen export capacity;

  • New investment in natural gas extraction;

  • New LNG export facilities;

  • Investments for carbon capture projects.

Our Trend Growth Scenario for oil borrows production forecasts from RBC Capital Markets.

  • Production grows from 5.1 million barrels per day (Mb/d) in 2024 to 5.9 Mb/d by 2030, then plateaus. The incremental output is proportionately split between conventional oil and the oil sands.

  • Pipeline optimization and improved efficiency enables more oil to flow through existing infrastructure. We assume either the Enbridge Mainline adds 300,000 barrels per day or the Trans Mountain—via pump stations—adds 245,000 barrels per day beyond 2027. We assume no major greenfield production sites are built; increased output is sourced from current sites.

  • Capital spending figures come from the Canadian Association of Petroleum Producers and the Canadian Energy Regulator. To calculate an annual capex estimate for the coming decade, we took the average capex spent per barrel of oil production from 2017 to 2023 for conventional oil ($38.80) and for the oil sands ($9.90).

  • Our Trend Growth Scenario for natural gas includes completion of the Woodfibre and Cedar LNG facilities. Drawn from Natural Resources Canada, the combined cost is estimated to be $11.5 billion. This enables an additional 0.7 bcf/d of new export capacity.

In our Step Change Scenario, we assume two new oil pipelines are approved:

  • Keystone XL adds 0.83 Mb/d and a pipeline from Alberta to British Columbia (loosely inspired by Northen Gateway) adds 1 Mb/d in capacity. To generate an estimated cost for each pipeline, we took the cost-per-kilometre for the original Northern Gate pipeline (provided by the National Energy Board) and adjusted it for inflation and cost overruns. We estimate that each pipeline costs approximately $30 billion. We assume that pipeline construction begins in 2028 and will take four years to complete. This adds ~1.2 Mb/d in oil sand production capacity. This estimate includes a 70:30 split between bitumen and condensate in the pipelines themselves.

  • The added pipeline capacity enables greenfield investment in oil sands at a cost of ~$56,000 per barrel per day. This enables total Canadian oil production to grow to 7.1 Mb/d by 2035.

  • Our Step Change Scenario includes three additional LNG export terminal projects: LNG Canada Phase 2, Tilbury, and Ksi Lisims. The estimated costs are drawn from publicly available sources. Collectively, these export terminals require ~$55 billion in capital spending. These terminals add 3.75 Bcf/d of export capacity. We assumed $10 per barrel of oil equivalent (BOE) in capex cost for the added natural gas extraction.

  • Our step change scenario imagines heavy investment into carbon capture and sequestration (CCS) infrastructure. We assume major projects go forward, including the Pathways Alliance’s Phase 1, at a cost of $24 billion. We assume two additional projects of a similar scale go forward. We loosely estimate the total investment for CCS projects amounts to $80 billion over 10 years, based on publicly available estimates. We source project-level CCS data from the BloombergNEF Carbon Capture Capacity Database and include approximate costs from various sources, including news articles.

Electricity

For the electricity sector, the capital required includes:

  • Initial project costs to build power plants that are already in various stages of development or have been announced;

  • The costs to replace or upgrade the power grid, including transmissions and distribution lines, enabling new connections and reinforcing systems.

Our Trend Growth Scenario sees projects in various stages of development proceed to the construction phase.

  • Electric capacity grows by ~69 GW across all energy sources. We account for projects where permitting processes have started, where projects have secured financing, and where projects are already in construction phase, and power projects that have been announced. We rely on the S&P CapIQ power projects database. The data provides capacity and construction cost measures for projects by technology type.

  • We also include the Bruce C and Darlington SMR nuclear projects in our trend growth scenario. Combined, they provide 6 GW of new capacity. OPG estimates the cost of the Darlington SMR at ~$21 billion. For Bruce C, we rely on MIT’s Center For Advanced Nuclear Systems to cost AP1000 reactors, which come in at US$8,300-$10,375 per kW.

  • We use an illustrative deployment schedule of large-scale nuclear from Ontario’s integrated energy plan, evenly allocating construction costs over time. For projects where deployment is expected to take place beyond 2035, we assume a portion of the cost by 2035.

We compare this capacity buildout to the Canada Energy Regulator’s (CER) Energy Futures 2026 projections. Our trend growth scenario is largely in line with new capacity requirements under CER’s ‘Current Measures’ scenario, which assumes a limited additional policy-driven push towards electrification and greening of the grid.

Investments for grid maintenance and enhancement are from BloombergNEF’s projections. These include investments in both transmissions and distribution power lines, and grid substations, as related to replacing aging assets, building new connections, and conducting system reinforcement.

While BloombergNEF’s scenarios do not directly correlate to scenarios developed by CER (‘Economic Transition Scenario’ (ETS) used for our trend growth), they also assume no further policy support for the energy transition beyond existing measures, similar to CER’s ‘Current Measures’.

In our Step Change Scenario, we incorporate the additional capacity needed for Canada to remain on the net-zero track as projected in CER’s ‘Net-Zero’ scenario. We also include four additional nuclear projects—Wesleyville, Saskatchewan SMR, Point Lepreau and Peace River—which add an additional ~13 GW at an estimated cost of $149 billion, of which $43 billion is allocated by 2035. Under the step change scenario, total capacity grows by 98 GW.

TechnologyCER ‘Current Measures growth 2025-35 (MW)CER ‘Net-Zero’ growth 2025-35 (MW)Projects in development (MW)Announced projects (MW)Additional capacity in Step-Change scenario
Solar10,82610,1759,4614,003–
Wind36,12858,52617,7453,49337,288
Hydro6,3186,3381,0166,111–
Natural Gas9825,0397,0754,438–
Battery4,8425,4135,7133,455–
Nuclear2,1122,1126,000–13,175

Similar to the Trend Growth Scenario, we use BloombergNEF’s projections for investments related to grid infrastructure. The Net Zero Scenario describes a challenging yet achievable stretch to get on track for net zero by 2050. While it doesn’t directly map onto CER’s ‘Net-Zero’ scenario, it offers a directional pathway.

ProjectCaseCapacity
(MW)		Cost ($B)EstimationTimeline
Darlington SMRBase1,20020.9OPG192029-3520
Bruce CBase4,80058.3MIT CANES212031-4122
Peace RiverGrowth4,40039.3Derived estimate232029-4224
Point LepreauGrowth3005.2Derived estimate252030-3426
Sask. SMRGrowth3155.5Derived estimate272030-3428
WesleyvilleGrowth8,16099.1MIT CANES2033-4729

Mining

Capital requirements for mining sector includes a combination of:

  • Capex needed for general operations;

  • Costs of construction of new greenfield projects.

We use a combined approach: general economic modelling to estimate capital spending for the Trend Growth Scenario; and a bottom-up, project-based approach that draws on data from S&P Capital IQ for the Step Change Scenario.

In our Trend Growth Scenario, we utilize the Cobb-Douglass production function using trends over past 10 years, assuming the relationship between investment and output matches historical patterns. The Cobb-Douglas production function quantifies the interaction between labour, capital and productivity in relationship to GDP. We use Statistics Canada Table 36-10-0217-01 to establish the relationship between multifactor productivity (MFP), capital (K) and labour (L) inputs, and real GDP, expressed as follows:

RealGDP=MFP∗Kα∗L((1−α))Real GDP=MFP*K^α*L^((1-α))

First, we derive a general value for elasticity the factor α, which is ~0.7 on average during 2012-2021. We use the following tables for data on mining and quarrying (except oil and gas) – NAICS 212:

Once the model is set, we apply a 10-year CAGR rate for real GDP, labour, and productivity to extend projections under the Trend Growth Scenario. Real GDP grows at page of 0.6% annually into 2035, which implies ~$139 billion total investment flows into the industry over the next decade, based on historical depreciation rate of ~16%.

Investments here are in reference to fixed non-residential capital flows. This includes construction of industrial buildings such as plants, machinery and equipment, and intellectual property products that are the result of R&D and similar activities.

In our Step Change Scenario, we stack the cost of constructing more mines in Canada across a range of metals and minerals: gold, zinc, iron ore, potash, U3O8, copper, lithium, graphite, nickel, rare earth elements (primarily lanthanides), and cobalt. We obtained a dataset of 1,000+ projects currently operating or in various stages of development. To model the Step Change Scenario, we took a bottom-up approach by examining:

  • More than 1,000 active and inactive mining sites across Canada;

  • 50+ late-stage projects across base metals (zine and copper, for example), precious metals (gold, silver), and critical minerals (lithium, graphite);

  • 100+ early-stage opportunities with known costs or reserves.

We refer to projects in their pre-feasibility stage (reserves development, advanced exploration, prefeasibility and scoping) as ‘early stage’ projects, and those already in feasibility stage or where construction has started as ‘late stage’ projects.

As mining projects move further along the development pathway, more information becomes available. As such, we narrow the focus to 228 active projects with information on initial capital costs or production capacity estimates. Some 95% of late-stage projects have information available.

For projects where only production capacity information is available, we apply an estimated average cost per production capacity for the respective metals or minerals. The Step Change Scenario sees development of all late-stage projects, as well as 10% of early-stage projects proceed to completion over 10 years.

MetalTotal countActive projectsEarly Stage: Projects with cost or capacity infoLate Stage: Projects with cost or capacity info
Gold4462966924
Silver32172–
Zinc915187
Copper16396243
Lithium3232127
U3O8472173
Graphite221452
Nickel6939115
Potash13742
Lanthanides141362
Iron Ore5334119
Diamonds1152–
Platinum521–
Cobal3311
Total1,00163016365

Defence

Capital requirements for the defence industry are comprised of a mix of R&D and machinery & equipment, all tethered to different assumptions of government defence spending. According to data from Innovation, Science and Economic Development Canada’s (ISED) State of Canada’s Defence Industry report, the industry generates revenues from domestic sales and exports, with an equal split between the two. And sales to the federal government make up ~two-thirds of domestic revenues.

We assume spending on capital equipment by the federal government is the primary source of the revenue for the domestic industry, and one that varies between the scenarios. We assume other revenues expand at a nominal GDP growth rate of 3.5%.

Historically, M&E and R&D spending have made up ~5.5% of revenue. We harness this ratio to derive the capital expenditure needed by the industry to meet new revenue trajectory.

In our Trend Growth Scenario, we assume Canada reaches only 2% of NATO spending. Spending is allocated across personnel (50%), operations and readiness (25%), capital equipment (20%), and infrastructure (5%), which is the historical mix, with the ‘Buy Canadian’ provision boosting the Canadian content share from 30% to 50% by 2035 (in a linear rise). The federal government has signaled that, historically, some 70% of defence spending was allocated to foreign producers, leaving 30% for the domestic market. Ottawa wants to invert that ratio over the coming decade, tilting the balance 70/30 towards Canadian firms.

In our Step Change Scenario, the primary difference is that Canada is on trajectory to meet 5% NATO spending requirement, of which 3.5% is spend on core defence goods. We assume the spending mix remains the same. Personnel spending remains similar to the Trend Growth Scenario, and readiness and infrastructure spending grow proportionally at the historical allocation mix of 25% and 5%, respectively. The remainder of defence spending focuses on acquiring new (or replacing ageing) capital equipment, which offers increased revenue for the industry, requiring further investment to meet the higher demand.

Space

Data on the Canadian space economy is limited. The Canadian Space Agency (CSA) publishes an annual State of the Canadian Space Sector Report, including revenue, gross domestic product, employment and exports. Company-level data is available for publicly traded firms. Our method blended data from both sources to model sales revenue, GDP and capital expenditure across the Trend Growth and Step Change scenarios.

The calculations were made through a series of steps.

  • To forecast sales revenue and GDP to 2035 in the Trend Growth Scenario, we derived the longest possible compound annual historical growth rate using CSA data (2014-2022), which we assume will govern the future growth of sales revenue (-0.8%) and GDP (1%) going forward.

  • To forecast sales revenue under the Step Change Scenario, we assume Canada doubles its global market share by 2035, rising from ~1.1% of the global market in 2022 to 2% by 2035. In partnership with McKinsey & Company, the World Economic Forum projects the global space market will grow to $755B USD by 2035, putting Canada’s share at CA$21B. This scenario thus sees the space market grow 4x in 10 years.

  • To infer the capital required under the two scenarios, we used data for publicly traded space firms. From 2020-2024, Canada’s publicly traded space firms had a capex-to-revenue ratio of 36% (on a weighted average basis). That figure was skewed by heavy investments from a few key firms that are unlikely to be repeated in the future, even under the Step Change Scenario. To better anchor the capex-to-revenue ratio, we included a few mature aerospace companies, which have lower capital requirements. On a weighted-average basis, this brought the capex-to-revenue ratio down to ~10%.

  • Across the Trend Growth and Step Change scenarios, we multiplied annual sales revenue by 10% to determine the annual capex, aggregating the figures over 2025-2035 to determine the total capital required

Agriculture and Food Processing

For the agriculture industry, the capital required includes:

  • Public and private sector support for agricultural knowledge and innovation through expenditure on R&D and IP;

  • Among food processing and manufacturing, capital expenditures on non-residential construction, machinery and equipment to optimize processes at the plant-level;

  • Among large commercial farmers, capital deepening through the adoption of ag-tech solutions.

With data from USDA, we explore Canada’s agricultural productivity across multi-decade periods. The trend suggests productivity growth peaked in 1990s-2000s and declined thereafter. From Statistics Canada’s Table 36-10-0096-01 we chart investment trends over the same period. We compare real investment flows over time as well as investment flows relative to the industry’s GDP. We observe high investment rates (both in real terms and as share of GDP) in the mid-1970s and mid-1980s, which are associated with leading productivity gains in the decades that followed. From the OECD’s Agricultural policy monitoring database we track public support for research and development activities dating back to 1986. The trends show declining spending in real terms, as share of industry revenue, and relative to agricultural GDP.

In our Trend Growth Scenario, we extend the average investment trends of the past 10 years. This suggests ~$10 billion annual investment in non-residential construction, machinery and equipment purchases and ~$1.3 billion combined industry IP investments and public support for R&D.

Our Step Change Scenario assumes Canada repeats the investment surge witnessed in the 1970s-1980s, which could raise productivity through more innovation, stronger advanced tech and practice adoption, and investments into efficiency gains. Industry capex increases to ~$13.8 billion annually to match peak levels in 1970s, and combined public and private R&D-related investments rise to $1.6 billion, matching peak levels in 1980s.

Combined total rises to ~$18.9 billion if instead investment levels are calibrated on proportional size to industry GDP – where industry capex investment stood at ~34% (vs 21% currently) as the share of industry GDP on average during 1973-1982, and combined public and private R&D spending was 4.2% (vs 2.7%) during 1986-1995.

For the food manufacturing industry, we tailor the Trend Growth and Step Change scenarios to Canada’s share of global exports aligned with pathways developed in Food first: How agriculture can lead a new era for Canadian exports. Canada’s current market share of global agriculture and agri-food exports stands at 3.7%, and by 2035, global agriculture and agri-food export market (HS codes 1-24) is projected to grow by 0.6% annually. In our Trend Growth scenario for the food manufacturing industry, we assume Canada only maintains it current global standing. This implies 0.8% annual growth in exports of food manufacturing products. Our Step Change scenario for food manufacturing industry assumes Canada increases its export market share by 50%, capturing about US$66 billion by 2035.

In both scenarios, to estimate overall production levels (Statistics Canada table 36-10-0488-01) we combine projected exports with domestic consumption. Domestic consumption is based on historic per capita levels – ~$2500 of real output (adjusted to 2025 price levels) per person, and by 2035, Canada’s population is expected to reach 44.3 million. Overall, food manufacturing production is projected to grow from an estimated $144 billion in 2025 to $155 and $173 billion by 2035 for Trend Growth and Step Change scenarios, respectively. We use a recent spike in investments since 2018, which led to 20% increase in estimated real output, compared to the historic average of 1.9 investment per output ratio during 2007-2017 to derive capital requirements for production capacity increase aligned with our Trend Growth and Step Change scenarios.

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C.  Acknowledgements

The authors would like to thank the following people, whose insights informed our thinking and writing, as well as the numerous experts who wished to remain anonymous:

Agnico Eagle Mines: Alden Greenhouse

Arrell Food Institute at the University of Guelph: Evan Fraser

Bennett Jones: John Baird

Bombardier: Francis Richer De la Flèche

Brookfield Asset Management: Cyrus Madon

Bruce Power: James Scongack

Canada Pension Plan Investment Board: Andrew Alley, Bruce Hogg, Tara Perkins

Canadian Climate Institute: Kate Harland

Canadian Food Innovation Network: Richa Gupta

Export Development Canada: Sven List

MDA Space: Guillaume Lavoie, Patrick Nihill

NASA: Alex MacDonald (Alumni)

NordSpace: Rahul Goel

Ontario Ministry of Agriculture: Steve Duff

Ontario Teachers’ Pension Plan: Jonathan Hausman

Prospectors & Developers Association of Canada: Jeff Killeen

RBC: Tracy Antoine, Daniel Chornous, Louis Derlis, Chinyere Eni, Andrew Hay, Ken Herbert, Sara Gelgor, Stuart Kedwell, Robert Kwan, Eric Lascalles, James McGarragle, Lorna McKercher, Rob Nicholson, Greg Pardy, Chris Redgate, Hugh Samson, Michael Scott, Michael Siperco

Space Canada: Brian Gallant

Teck Resources: Jeff Hanman, Dale Steeves

The Simpson Centre for Food and Agricultural Policy: Sabrina Gulab

University of Calgary: Robert Johnston, Jack Mintz, Trevor Tombe

Volatus Aerospace: Greg Colacitti, Glen Lynch, Abhi Singhvi