Government of Canada releases new federal climate plan

The Government of Canada has released the new federal climate plan, entitled “A Healthy Environment and a Healthy Economy – Canada’s strengthened climate plan to create jobs and support people, communities and the planet” (Plan). Building on the 2016 Pan-Canadian Framework, the Plan claims it will “do more to cut pollution in a practical and affordable way than any other climate plan in Canada’s history”1, including to exceed Canada’s 2030 emissions reduction target under the Paris Agreement and achieve net-zero emissions by 2050.

What you need to know

  • The Plan is a key component of the federal government’s commitment in the 2020 Throne Speech to create over one million jobs and restore employment to pre-pandemic levels. It includes 64 new measures and $15 billion in investments (in addition to the $60 billion committed under the Pan-Canadian Framework and the Canada Infrastructure Bank’s $6 billion clean infrastructure fund).
  • The federal backstop carbon price will increase by $15 per tonne starting in 2023 and reach $170 per tonne by 2030. This assumes the Supreme Court of Canada will uphold the constitutionality of the federal Greenhouse Gas Pollution Pricing Act (GGPPA), a decision which is currently pending. According to the Plan, “the majority of Canadian families [will] receive more money back than they pay” as a result of rebate payments, similar to how certain carbon pricing revenue is returned to Canadians under the GGPPA.
  • Other notable elements of the Plan include: i) $2.6 billion for home efficiency retrofits, $2 billion for commercial building retrofits, and $1.5 billion for green and inclusive community buildings; ii) $1.5 billion to increase the production and use of low-carbon fuels (including hydrogen and renewable gas/diesel); iii) $964 million to advance smart renewable energy and grid modernization; iv) a Net-Zero Challenge for large emitters to reach net-zero emissions by 2050; and v) $3.16 billion to plant two billion trees over 10 years.

Highlights of the Plan

Carbon pricing

The federal backstop carbon price will continue beyond 2022, the year in which this price is set to reach $50 per tonne under the GGPPA. Thereafter, under the Plan, the federal backstop price will increase by $15 per tonne starting in 2023 and reach $170 per tonne by 2030. The Plan reiterates the “revenue neutral” principle under the GGPPA, whereby the Government of Canada “will continue to return all fuel charge proceeds back to Canadian families and their communities, ensuring that the majority of households receive more in payments than they face in costs”. These payments will move from annual to quarterly payments beginning in 2022. In addition to households, schools and small/medium businesses can seek funding of up to 25% of eligible costs for projects to improve energy efficiency and productivity.

The Plan outlines illustrative examples for the payment amounts that a family of four can expect to receive in 2025 (with a $95/tonne carbon price in effect) and 2030 ($170/tonne in effect) in four provinces. On the low end of the illustrative scale, a family in Ontario is expected to receive $1,259 in 2025 and $2,018 in 2030; whereas the amounts for a Saskatchewan family, on the high end of that scale, are $2,509 in 2025 and $3,829 in 2030.

To mitigate the risk of carbon leakage and maintain the competitiveness of Canadian companies, the Federal Government plans to explore potential border carbon adjustments and “work with like-minded economies—including the E.U. and Canada’s North American partners—to consider how this approach could fit into the broader strategy to meet climate targets while ensuring a fair environment for businesses”.

Homes and buildings

To encourage more energy efficient homes and buildings, the federal government plans to, among other things:

  • provide $2.6 billion over seven years to help homeowners improve their home energy efficiency (including up to 700,000 grants of up to $5,000 each and up to one million EnerGuide energy assessments);
  • invest $1.5 billion over three years for green and inclusive community buildings, requiring at least 10% of the funding to serve Indigenous communities and populations;
  • invest $2 billion to finance the upfront capital costs of commercial and large-scale building retrofits, as part of the Canada Infrastructure Bank’s recently announced Growth Plan;
  • work with provincial and territorial government to develop a new model retrofit code for existing buildings by 2022, with the goal of having the code in place by 2025; and
  • establish stringent targets for Government of Canada building (i.e., reducing embodied carbon in construction projects by 30% starting in 2025 and ensuring 75% of domestic office floor space will be net-zero carbon buildings starting in 2030) and implement a net-zero ready model building code in the provinces/territories by 2030.

Starting in 2021, the government plans to conduct Canada’s first-ever national infrastructure assessment to help identify needs and priorities in the built environment and undertake long-term planning towards net-zero emissions.

Transportation

To support the global shift toward zero-emission vehicles, the federal government previously set sales targets of 10% by 2025, 30% by 2030 and 100% by 2040. The Plan outlines continued investments in this regard, including:

  • an additional $287 million to continue the Incentives for Zero-Emission Vehicles program until March 2022, providing a rebate of up to $5,000 on a light-duty zero-emission vehicle;
  • an additional $150 million over three years to build charging and refueling stations across the country, as announced in the 2020 Fall Economic Statement; and
  • aiming to align Canada’s light-duty vehicle regulations with the “most stringent performance standards in North America post-2025, whether at the United States federal or state level”.

In addition, the Plan includes initiatives and regulatory changes for transit electrification and heavy duty transport, including a planned federal regulation to reduce off-road vehicle and equipment emissions (e.g., forklifts, diesel generators) starting in 2021, aligning Canada’s heavy-duty vehicle standards with the most stringent U.S. federal or state standards post-2025, and working with sector participants to accelerate the decarbonization of medium and heavy duty vehicle transportation.

Clean power

The Government of Canada plans to invest an additional $964 million over four years to advance smart renewable energy and grid modernization projects, including to increase renewable generation capacity and deploy innovative technologies such as electricity storage. An additional $300 million will be allocated over five years to help remote and Indigenous communities reduce diesel fuel reliance, so that they have the opportunity to be powered by clean, reliable energy by 2030.

Notably, the government will “explore the role of a clean electricity performance standard”, in the context of its commitment to work with governments, utilities and industry to ensure that Canada’s power generation sector achieves net-zero before 2050. The Plan also highlights the importance of batteries and other clean technologies for Canada’s economy and mining sector in particular, which provides a national competitive advantage in supplying sectors such as electric vehicles and aerospace.

Resource development and heavy industry

The Plan recognizes the challenge and importance of significantly decarbonizing Canada’s industries. In this regard, the Government will launch a Net-Zero Challenge for large industrial emitters to help transition their facilities to net-zero by 2050, as well as invest $3 billion in a new Net-Zero Accelerator Fund (delivered through the Strategic Innovation Fund) to expedite decarbonization projects with large emitters, support clean tech development for aerospace and automobile manufacturing, and support a Canadian battery innovation and industrial ecosystem.

In addition, the Plan includes a $750 million Emissions Reduction Fund that will provide repayable funding to eligible onshore and offshore oil and gas companies (with forgiveness of up to 50% of the funding based on emissions reductions achieved) and a commitment to phase out all “inefficient fossil fuel subsidies” by 2025 in accordance with Canada’s G20 commitment.

With respect to methane emissions in particular, the Plan proposes to establish new targets for 2030 and 2035 based on international best practices (e.g., the Climate and Clean Air Coalition targets a 45% reduction by 2025 and 60-75% by 2030), which will be implemented through amended federal regulations. The government will review the effectiveness of existing federal regulations to ensure that Canada’s current 2025 target of 40-45% reduction is met.

Clean fuels

In light of a rising carbon price, the long awaited federal Clean Fuel Standard (CFS) will cover only liquid fossil fuels. This is a significantly narrowing in scope from the 2016 CFS design, which was proposed to apply to liquid, gaseous and solid fuels. The CFS is expected to take a lifecycle carbon intensity approach, meaning that it will regulate emissions associated with all stages of fuel production and use.

To complement the CFS, the government plans to invest $1.5 billion in a Low-carbon and Zero-emissions Fuels Fund to increase the production and use of low-carbon fuels (e.g., hydrogen, biocrude, renewable natural gas/diesel, cellulosic ethanol) and to introduce a Canadian hydrogen strategy by the end of the year.

Clean technology

To support Canada’s growing clean tech sector, the federal government will, among other things, allocate an additional $750 million over five years to Sustainable Development Technology Canada (which funds pre-commercial clean tech to successfully demonstrate feasibility and supports early commercialization efforts) and work with investors/stakeholders in developing tax measures to ensure a competitive environment for the commercialization of clean technologies.

Resilient communities

The Plan will see the investment of up to $3.16 billion to plant two billion trees across Canada over ten years in partnership with governments and community stakeholders, $631 million to restore and enhance wetlands, grasslands and agricultural lands to boost carbon sequestration, and $98 million for a new Natural Climate Change Solutions for Agriculture Fund. The federal government will also continue the ongoing efforts to establish a growing number of Indigenous Protected and Conserved Areas and Indigenous Guardian programs.

The federal government expects to develop Canada’s first National Adaptation Strategy in partnership with other governments and Indigenous peoples, so as to define a national framework for ensuring and assessing climate resilience.

Next steps

The Plan notes the importance of domestic consultation and internal engagement as specific policies and programs are refined and for ensuring that the Plan delivers its intended benefits and objectives. Going forward, the Plan is expected to feature prominently as part of Canada’s climate leadership through global forums, including the next UN Climate Change Conference, the G7 and G20 summits, and the World Circular Economy Forum.

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1 https://pm.gc.ca/en/news/news-releases/2020/12/11/prime-minister-announces-canadas-strengthened-climate-plan-protect

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