Jatin Nathwani is a professor at the University of Waterloo’s Department of Management Science and Engineering.
Odds are high that the federal carbon tax won’t survive much longer, but for people concerned about climate change, it’s no reason to panic. Carbon pricing is a source of needless acrimony and a distraction from the primary goal of reducing carbon emissions to address the threat of climate change. In one fell swoop, its elimination would detoxify the currently charged political debate without jeopardizing the objective of meeting “net-zero” targets. There are many credible alternatives to a carbon tax that can drive meaningful, sustainable change toward a low-carbon economy while ensuring Canada meets its international obligations under the Paris Accord.
Over the past 150 years, fossil fuels have been the dominant source of primary fuels, with the transition moving from solid fuels (wood and coal) to liquids (oil) and to gas. Availability, convenience, cost, geographic proximity and efficiency of production and economic creation has determined its widespread use. This is about to change: electrons, not molecules, now hold the promise of fundamental new wealth creation. We are on the cusp of a massive shift in patterns of energy use, with excellent prospects of improved economic productivity without dependence on fossil fuels.
Rapid electrification of the global economy is at the core of this emerging energy transition, combining digital technologies, intelligent use of data and the integration of physical assets. The grip of the oil and gas sector on the three main end-use sectors – transport, buildings and industry – is declining. Within a decade or two, its role will be a mere shadow of its current dominance.
Electrification of mobility (cars, trucks, mass transit, bikes, scooters and three-wheelers) is under way on a massive scale globally, with no turning back. While progress is more pronounced in places like Norway, the EU and China, Canada’s federal and provincial governments are not far behind in supporting this direction with incentives and investments.
The transport sector is one of the largest consumers of oil and emitters of greenhouse gases. Electric mobility solutions are highly efficient, providing five to six times more service (distance travelled per equivalent energy) than gasoline-powered cars. The life cycle cost of electric vehicles is lower, and the benefits to consumers are clear. The higher upfront cost – approximately $10,000 or so – poses a barrier to adoption. Instead of simple government rebates, low-cost loans or lease options offered by the government and private sector, banks can drive adoption on a large scale; the tangible savings pay off the loans.
Buildings and space heating is another major source of carbon emissions through the use of natural gas. Heat pumps, powered by electricity, are four to six times more efficient than conventional boilers and cost-effective on a life cycle basis. Again, they come with a higher upfront cost (around $10,000) that creates a barrier to adoption. Like EV adoption, government incentives in the form of low-cost loans (or lease payments), repaid through energy cost savings, can drive adoption. Rapid deployment of heat pumps in the EU is an example. Although influenced by the threat of natural gas supply disruption from Russia, the policy support has created a compelling pathway for electricity to displace natural gas.
The industrial sector (manufacturing, steel, cement, plastics, fertilizers) is another major source of emissions: inefficiencies in combustion is both wasteful and a significant source of carbon emissions. Solutions such as electric arc furnaces and green hydrogen for high-temperature process heat requirements are being adopted worldwide and may be suitable in specific Canadian contexts. The government has the flexibility and the capacity to incentivize the industrial sector to spur new investments in low-carbon solutions. Thus, a combination of regulations and adjustments to taxation can be instrumental in the adoption of clean energy solutions without provoking a needless consumer or political backlash against carbon pricing.
Canada’s national advantage in the power sector is well-established, and the sector is well-placed to deliver low-carbon electricity to meet new demand from electric mobility, heat pumps in buildings, industrial applications and data centres.
Ontario’s recent commitment to nuclear expansion and existing plans for hydro expansion in Quebec, B.C. and Newfoundland and Labrador are all positive signals. The federal government can spur massive new investments in generation (hydro, nuclear, wind, solar and geothermal) and facilitate accelerated pathways for transmission and interconnections across provinces through financing support and regulatory processes that are “fit-for-purpose.”
The time has come for an integrated, whole-of-Canada approach, with the power sector as an important driver of economic productivity. It is possible to achieve a decarbonization of the economy without a carbon tax. The oil and gas sector has made an enormous contribution to the Canadian economy, but over the next two decades, its role will decline as we embrace other forms of energy.