Chapter 3. Towards green growth1

While progress towards green growth has been relatively slow since the last review in 2004, Canada is now building strong policy frameworks and measures to support its green growth transition. It is also establishing new collaborative efforts across federal, provincial and territorial governments. This chapter presents Canada’s progress towards green growth, considering environmentally related taxation, other economic instruments, investments in environmental infrastructure and services, the state of eco-innovation and markets for environmental goods and services, measures to address the social consequences of green growth, and the interaction between environment and international trade and development assistance.

  

1. Laying the ground for green growth transition

Relative to most OECD member countries, Canada’s economic growth is more reliant on the use of both renewable and non-renewable natural capital. Industries such as fossil fuel and mineral extraction, and agriculture, forestry, fishery and hunting accounted for 10% of gross domestic product (GDP) in 2015. In the same year, exports of farm, fishery, energy, metal, mineral and forest products accounted for around 40% of exports (Chapter 1). The fall in oil prices since a peak in 2008 is leading to an economic adjustment, with some shifting of productive factors from resource and related sectors to other parts of the economy. Nevertheless, Canada faces challenges in transitioning to a more environmentally sustainable economic model. Canada still is one of the most energy- and resource-intense economies in the OECD, and greenhouse gas (GHG) emissions have declined only marginally since 2000 (Chapter 1). Large energy-intensive industries, such as the oil sands sector, are expected to remain key contributors to GDP growth.

Since the last Environmental Performance Review (EPR) in 2004, Canada has developed two major policy frameworks that support the transition to green growth: a Federal Sustainable Development Strategy (FSDS) in 2010 and the Pan-Canadian Framework on Clean Growth and Climate Change (PCF) in 2016. The 2012 Air Quality Management System constitutes another important collaborative action framework, which is helping advance federal, provincial and territorial policy (see also Chapters 1and 2). It is too early to evaluate the results of these frameworks, or determine whether they will improve Canada’s green growth performance. Effective and timely implementation, combined with mechanisms for policy evaluation and adjustment and explicit approaches to address social considerations, will help move Canada towards a green growth path. An important next step could be to extend these frameworks to other pressing green growth issues requiring policy action across governments, such as achieving the Aichi targets related to protected areas or shifting towards integrated spatial planning approaches.

1.1. Canada’s Federal Sustainable Development Strategy

At the federal level, the FSDS is the main policy framework guiding sustainable development and green growth. It outlines sustainable development priorities, goals, targets and associated actions to promote clean growth, ensure healthy ecosystems and build safe, secure and sustainable communities. The 2008 Federal Sustainable Development Act requires the Minister of the Environment to develop a whole-of-government strategy every three years. The act also identified 26 federal departments and agencies that prepare their own strategies to comply with, and contribute to, the FSDS. Fifteen additional organisations contribute to the FSDS voluntarily (ECCC, 2016a). A Sustainable Development Office within Environment and Climate Change Canada (ECCC) monitors progress. Individual federal departments were required to develop their own sustainable development strategies already prior to 2008. However, these were lacking an overarching strategy that would guide and make sense of individual pieces (SCESD, 2016).

The first two FSDSs were criticised for being simply a list of relatively unambitious ongoing environmental measures (SCESD, 2016). The 2016-19 FSDS attempts to be more strategic and forward looking. It includes 13 goals linked to the UN Sustainable Development Goals (SDGs), as well as targets and short-term milestones to achieve them. For each goal and target, it identifies responsible ministers, thereby supporting the alignment of sectoral policies and environmental objectives. For example, the Minister of Infrastructure and Communities implements the target related to investment in green infrastructure and the Minister of Innovation, Science and Economic Development shares responsibility with the Minister of Natural Resources for investment in clean energy innovation. Current legislation requires the strategy to focus on environmental objectives. However, planned legislative revisions provide an opportunity to consider socio-economic implications of a green growth transition. This would address issues such as labour markets, skills, low-income households and the competitiveness of firms.

To monitor progress, the FSDS relies on existing and new quantified indicators. They cover trends relating to climate action, clean growth, clean energy, coasts and oceans, lands and forests, lakes and rivers, clean air and clean drinking water. An ambitious set of new indicators is being developed to measure the contribution of the clean technology sector to GDP and jobs, or the benefits of water infrastructure investments on reducing water loss and improving water quality, for example. Such indicators will be important to securing continued support for action in these areas. As these indicators are developed, Canada could consult with the OECD and other bodies to ensure they will be internationally comparable.

The strategy only applies at the federal level. However, provincial and territorial governments, which have wide-ranging responsibilities in Canada (Chapter 2), need to be partners in elements of the strategy. Several sub-national jurisdictions have their own sustainable development strategies or green growth plans, which vary in their approach and comprehensiveness. Quebec’s Sustainable Development Strategy 2015-20, for example, includes economic, environmental and social goals and objectives. Nova Scotia’s approach is more focused on the environment, with linkages to economic objectives.

1.2. Pan-Canadian Framework on Clean Growth and Climate Change

Between 2004 and 2016, the provinces were the primary driving force behind Canada’s climate change policy (Chapter 4). The country lacked an overarching national plan to meet its GHG reduction targets. In December 2016, however, the federal government and 11 of 13 provinces and territories agreed on a Pan-Canadian Framework on Clean Growth and Climate Change (PCF). This framework, which was developed in consultation with Indigenous groups, represented a major achievement in Canadian climate policy. The PCF is designed to achieve Canada’s Nationally Determined Contribution (NDC) to the Paris Climate Change Agreement, which is a 30% reduction in GHG emissions relative to 2005 levels by 2030. The leaders agreed to report regularly and transparently on progress towards the goal. Details on how this will be carried out were still under development at the time of writing. The creation of an independent institution with a strong analytical capacity to monitor and advise governments on implementation of the PCF would help promote effective decision making and reasoned discourse.

The PCF supports green growth through its focus on both economic growth and climate change. It promises to grow the economy, while reducing emissions and building resilience to adapt to a changing climate. The four main pillars of the PCF are: pricing carbon pollution (Section 2.3); complementary climate actions such as phasing out coal-fired power and regulating building and vehicle efficiency; measures to adapt to the impacts of climate change and build resilience; and actions to accelerate innovation, support clean technology and create jobs (GoC, 2016a). Moreover, Canada is one of six countries that have submitted mid-century long-term plans to the UN Framework Convention on Climate Change (UNFCCC).

2. Greening the system of taxes and charges

Weaker economic activity, driven by weakening US demand and lower oil prices, has decreased government revenue. At the same time, an ageing population, mounting infrastructure gaps and the need to strengthen the skills and innovative capacity are raising pressures on public spending. All levels of government are facing some degree of fiscal challenge.

Taxation in Canada is a shared responsibility between the federal government and provincial and territorial governments. The federal and provincial/territorial governments impose personal and corporate income taxes, as well as general sales or value-added taxes (except Alberta and the territories). Provinces, the Northwest Territories and the Yukon collect royalties on fossil fuel and mineral extraction within their jurisdiction.2 Through an equalisation programme, the federal government makes annual transfers to lower-revenue provinces and territories to ensure that Canadians in every province and territory have access to similar public services. The federal government also makes transfers to provinces and territories for specific purposes such as health care, social programmes and infrastructure. Municipality revenue largely comes from property taxes, user fees and charges, transfers from provincial and territorial governments and revenue from the federal Gas Tax Fund.3

There is scope to introduce more environmental taxation in Canada to create a new source of revenue and to drive the shifts in behaviour and investment needed to achieve environmental goals. The country has historically had lower use of environmental taxation than other OECD member countries. In 2014, for example, environmental tax revenues reached 1.1% of GDP, the third lowest value in the OECD (Figure 3.1). Revenues increased slightly in real terms over the period, with a dip in 2007/08, likely as a result of the dampening effects of the global financial crisis and high oil prices on fuel consumption. As in most OECD member countries, taxes on energy use (notably from fuels used for transport) represent the largest source of environmentally related tax revenue. Revenue from other taxes (e.g. waste-related taxes) grew between 2000 and 2014, but remains small (Figure 3.1).

Figure 3.1. Environmentally related tax revenues in Canada remain among the lowest in the OECD
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The 2004 EPR of Canada stated that “market-based instruments are insufficiently used to integrate environmental concerns into sectoral policies. Too much emphasis is given to soft instruments like voluntary guidelines or partnerships”. The introduction of carbon pricing in several provinces and the move towards federal carbon pricing in 2018 under the PCF (Section 2.3) represent a major advancement in greening Canada’s tax system. It will correct currently weak price signals from Canada’s energy tax system, which leaves large amounts of energy use (e.g. for electricity generation, industrial processes and heating) and associated pollution untaxed. However, even with the introduction of carbon pricing, federal and provincial government could make greater use of taxes and other economic instruments to influence vehicle choice and driving behaviour, and to limit resource use and pollution. Further work is also needed at the provincial and territorial level to phase out remaining fossil fuel subsidies, including tax exemptions.

2.1. Taxes on energy use

Canada has a complex system of energy taxation, with taxes applied at the federal and provincial levels, as well as the municipal level in some cases. At the federal level, excise taxes apply only to certain transport fuels. Gasoline, which accounts for half of energy used in transport, is subject to a federal excise tax of CAD 0.10 per litre, which is low in comparison to most other OECD member countries. Diesel (including biodiesel) is taxed at an even lower rate (at CAD 0.04 per litre), despite the greater environmental harm in terms of GHG emissions and certain air pollutants (Figure 3.2). Diesel passenger vehicles represent a relatively small share of the vehicle fleet in Canada in comparison to other OECD member countries. However, their popularity has been growing in recent years. Diesel is also prominently used in northern, remote and Indigenous communities for electricity generation and space heating, which uses are generally not subject to excise taxation.

Provinces levy additional excise taxes on energy products. Excise taxes on energy therefore vary across the country in scope, level and characteristics. In most instances, provincial product-specific tax rates on energy products are higher than the federal excise tax rate (OECD, 2013); some provinces include fuel use in their carbon pricing systems.4 The average gasoline excise tax in 2016, including federal and provincial excise taxes, was CAD 0.34 per litre. The average non-commercial diesel excise tax was CAD 0.26 per litre, and the average commercial diesel excise tax only CAD 0.05 per litre (IEA, 2017a). Planned carbon prices will begin to close the gap between gasoline and diesel, given the higher carbon content of diesel fuel. However, increases in excise tax rates would be needed to accelerate the transition and fully eliminate the differential.

Figure 3.2. Federal tax rates on petrol and diesel for road use are relatively low
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Energy used for electricity production or residential and commercial space heating is generally not taxed federally (apart from the federal value-added tax). Neither is the consumption of electricity taxed federally (except where electricity is used in the operation of a vehicle). Electricity prices in Canada are, on average, among the lowest in the OECD, even though there is significant price variation across provinces (Chapter 4). This is largely a result of electricity being provided by provincially-owned utilities, with regulated prices, in the majority of provinces, as well as a strong desire to keep electricity rates low for households and businesses. Low electricity prices are a key competitive advantage. However, they should be based on the cost of production and reflect a return on capital and the cost of externalities such as air pollution and GHG emissions resulting from generation. Most provinces tax propane (used for heating, appliances and some vehicles). But a number of provinces do not tax natural gas, coal and coke (OECD, 2013). Taxes on heating fuels reflective of environmental externalities help drive fuel switching and build greater thermal efficiency. The move towards carbon pricing will change the taxation of fuels as provinces are expected to include fuels within their systems.

2.2. Taxes on energy production5

Taxes and royalties paid for energy production in Canada have fluctuated over time, particularly with the drop in oil prices. Oil and gas extraction pays the largest share of tax, followed by petroleum and coal product manufacturing and sales taxes from electric utilities (Figure 3.3). Total taxes paid by energy industries averaged about CAD 8.6 billion per year between 2008 and 2012 (NRCan, 2014).

Figure 3.3. Taxes and royalties paid by energy industries fluctuate from year to year
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The oil and gas sector also contributes to government revenues (mainly provincial) through Crown royalties (which provide a share of the value of oil and gas extracted to the government) and land sales (which oil and gas companies pay to governments in order to acquire resource rights on specific properties). Revenue from royalties and land sales averaged about CAD 16.5 billion per year between 2008 and 2012 (Figure 3.3). Although oil sands production now exceeds conventional oil and gas production in Canada, the latter still accounts for the majority of royalty and land sale revenue. In Alberta, however, where oil sands production takes place, the majority of royalty revenue is now from oil sands. Alberta is also expected to reform its climate change regulations covering the oil sands sector at the end of 2017, which will increase the carbon levy imposed oil sands producers that have higher GHG emissions per barrel of oil produced relative to an established benchmark (Box 3.4).

2.3. Carbon pricing

Between 2004 and 2016, Canada made slow progress in extending and increasing effective carbon prices across sectors. In 2012, it had among the lowest effective carbon rates on CO2 from energy use in the OECD (OECD, 2013). This reflects weak energy taxation, as well as lack of direct carbon pricing mechanisms in most provinces at the time. As in other OECD member countries, the effective carbon rate in Canada was highest in road transport (where nearly all carbon emissions are covered). An effective carbon rate covered only a small share of CO2 emissions from industry, and at much lower levels than in road transport (although the sector does represent a large share of CO2 emissions). Emissions from electricity generation were almost not covered at all in 2012 (Figure 3.4).

Figure 3.4. Canada had relatively low effective carbon rates across sectors in 2012
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By mid-2017, the four most populous provinces representing 86% of Canada’s population and 81% of emissions had carbon pricing regimes in place (British Columbia, Quebec, Alberta and Ontario). British Columbia introduced a carbon tax in 2008 with revenue recycling to reduce corporate and personal income taxes. The OECD heralded the BC reform as text-book climate policy. The tax was introduced at CAD 10 and gradually increased to CAD 30 in 2012. Quebec introduced a cap-and-trade system in 2013, which was linked to that of the US state of California in 2014 – one of the first sub-national cross-border linkages in the world. Ontario’s cap-and-trade system, which began in 2017, will be linked to that of Quebec and California by 2018. Alberta uses a hybrid system with an economy-wide carbon price of CAD 20 per tonne as of 2017 (set to rise to CAD 30 per tonne in 2018) combined with a trading-scheme for large emitters (Box 3.4). Table 4.1 in Chapter 4 summarises the main characteristics of these pricing mechanisms. Most remaining provinces and territories have expressed support for implementing carbon pricing under the framework of the PCF (GoC, 2016a).6

The introduction of Canada-wide carbon pricing is one of the key elements of the PCF. The PCF sets a federal benchmark for provincial/territorial implementation of carbon pricing: for jurisdictions with a price-based system, such as a carbon tax, the benchmark is set at CAD 10 per tonne in 2018 with a commitment for it to rise by CAD 10 annually to CAD 50 per tonne by 2022. Provinces with cap-and-trade regimes will need a 2030 target equal to or greater than Canada’s national 2030 target (30% below 2005 levels) with declining annual caps to at least 2022 that correspond with projected emission reductions resulting from the carbon price that year in price-based systems. If provinces and territories do not meet the benchmark, the federal government will introduce a price-based system with revenues returned to the jurisdiction (GoC, 2016a). Discussions about the exact design of the federal benchmark are ongoing. A discussion document, released by the federal government in May 2017, proposes a combination of a carbon levy with an output-based pricing system for large emitters. The latter intends to address competitiveness and carbon leakage risks for emissions-intensive, trade-exposed sectors (ECCC, 2017).

Full implementation of carbon pricing under the PCF will help the country catch up with other OECD member countries. In 2012, less than half of Canadian CO2 emissions were covered by an effective carbon rate (OECD, 2016e). The government estimates that the PCF would expand the coverage to 70-80%, a share similar to that of leading OECD peers (e.g. Germany, the Netherlands, Switzerland or the United Kingdom; see OECD, 2016e for country-level detail). The price increase of the federal benchmark to CAD 50 in 2022 is welcome. However, the level of the average effective carbon price on Canadian emissions would likely remain moderate in international comparison. The highest effective carbon price in most OECD member countries in 2012 was already twice as high as the highest effective carbon price that is projected for Canada in 2022.7

The move towards federal carbon pricing is a significant achievement for Canada, given divisive debates over the past decade on carbon pricing and policies needed to meet commitments on GHG reductions. However, there are signs of challenges ahead. Saskatchewan has threatened to take the federal government to court if it imposes carbon pricing in the province. The province fears that emissions-intensive, trade-exposed sectors in that province – such as oil and gas and potash – would lose ground to international competitors if carbon pricing were implemented. While Manitoba has committed to carbon pricing, it has not yet signed on to the PCF given unresolved grievances with the federal government relating to health care funding. British Columbia, which has carbon pricing in place and signed on to the PCF, insists on reviewing pan-Canadian progress in 2020 prior to raising its carbon tax above the current CAD 30 per tonne. The province is concerned that provisions in the carbon pricing benchmark for cap-and-trade systems are not as stringent as those imposed on price-based systems. As a result, federal, provincial and territorial leaders agreed on an expert assessment that would compare the stringency and effectiveness of the different carbon pricing systems across Canada by early 2022 (GoC, 2016a). Such an assessment should be done by an independent third party with strong analytical capacity. An interim report will be completed in 2020. As an early deliverable, the review will assess approaches and best practices to address the competitiveness of emissions-intensive, trade-exposed sectors.

As the federal benchmark price increases, frictions may arise, creating the pressure for convergence of the different pricing systems. For example, businesses in carbon tax systems may push for access to low-cost reductions similar to neighbouring provinces; investors in cap-and-trade systems may be interested in the price certainty provided in carbon tax jurisdictions; and firms operating in multiple provinces may push for reduced transaction costs. The next challenge for the federal, provincial and territorial governments will therefore be to work towards stronger co-ordination or, eventually, convergence of systems in order to have similar carbon prices and coverage applying in all jurisdictions. This would reduce transaction costs, improve efficiency and level the playing field for business. There are various ways to achieve this. One possibility is a pan-Canadian offset system where entities can purchase offsets from projects throughout the country that meet agreed upon criteria. Another option is to facilitate trading among sub-national cap-and-trade systems (including at the sector level). Entities in carbon tax jurisdictions could be allowed to purchase permits from cap-and-trade systems to reduce their total emissions used in calculating tax payments. A third possibility is to align price ceilings and floors in cap-and-trade systems to carbon taxes in other Canadian jurisdictions. Maintaining the consensus established in the PCF will be the initial priority. However, it will be important to leave the door open to convergence down the road.

The linkage of Quebec and Ontario to California may also become an issue. Canada will need to reach an agreement with the United States to ensure that credits purchased from California will count towards Canada’s national GHG inventory to avoid double counting. Current uncertainty about US climate policy is a challenge for Canada for several reasons. The United States is the destination for about 70% of Canada’s exports; it is a major source of competition to Canadian businesses; and Canada has aligned environmental policies such as vehicle standards with those of the US government.

Across successive governments over the past two decades, Canada has agonised how moving forward with climate policy could affect the country’s competitiveness. This is despite the growing empirical evidence that suggests that carbon pricing does not lead to significant competitiveness impacts (Arlinghaus, 2015; Flues and Lutz, 2015). Anxiety is heightened by uncertainty about the direction of US policy. However, competitiveness concerns need not slow plans for carbon pricing. Carbon pricing can be designed to minimise the risk to emission-intensive exporters. Revenue can be recycled into tax cuts in other areas such as corporate or personal taxation, for example. Some of the tradable emissions permits could also be allocated freely. As well, output-based subsidies, and technology and infrastructure investments, could make it easier and less costly to reduce emissions. In fact, provincial regimes all use at least one of these approaches to limit competitiveness risks (see Table 4.1 and Box 3.4 for description of Alberta’s output-based allocation approach for large emitters). In the near term, these kinds of measures can be essential to political and public acceptability. Over time, however, they would ideally be reduced. In the long run, carbon pricing will also help support economic growth by driving innovation and technology deployment that can improve competitiveness, and by avoiding costly lock-in of emissions-intensive infrastructure.

2.4. Transportation taxes

Taxes on vehicles

At the federal level in Canada, there is an excise tax on fuel-inefficient passenger vehicles called the “Green Levy”, which replaced a heavy vehicle tax in 2007. The tax applies to passenger vehicles only, with exemptions for pickup trucks, vans for ten or more passengers, ambulances and hearses. The tax is based on a vehicle’s average weighted fuel consumption (55% for cities and 45% for highways), and affects vehicles with a rating of 13 or more litres per 100 km. The tax starts at CAD 1 000 per vehicle and escalates to CAD 4 000 for vehicles with a rating of 16 or more litres per 100 kilometres (CRA, 2007). In practice, the tax mainly applies to luxury vehicles, race cars and large sport utility vehicles (SUVs).

With the high purchase prices of these vehicles, the tax is unlikely to alter purchasing decisions. Further, the tax does not capture many vehicles that are among the worst emitters in their category as they fall just below the threshold of 13 litres per 100 km. The exemption of pickup trucks is also problematic, as these cars represent some of the best-selling vehicles in Canada (Box 3.1). Low petrol and diesel prices (see previous section) further dilute incentives to purchase fuel-efficient vehicles. Carbon pricing is not expected to result in a significant additional incentive in the near-term given the relatively small and gradual impact on fuel prices. In the past, the federal government provided between CAD 1 000-2 000 towards the purchase or lease of fuel-efficient vehicles, but this practice ended in 2010 (ESDC, 2011).

Box 3.1. Pickup trucks and SUVs are becoming increasingly popular in Canada

Canada’s transportation sector is responsible for around 24% of GHG emissions in Canada. It is also a major contributor to local air pollution. While passenger car emissions are declining, emissions from passenger light trucks, such as pickup trucks and SUVs, and freight trucks are growing (Figure 3.5). In 2015, four of the top ten-selling vehicles in Canada were pickup trucks and two were SUVs (Chase, 2016). Since 1990, the number of light trucks has increased more than three times beyond the overall increase in the fleet of passenger cars. Pickup trucks and large SUVs used to be primarily for work-related purposes. In recent years, however, the trend has been towards luxury pickup trucks and SUVs for personal use.

Figure 3.5. Passenger light trucks are a growing source of transportation emissions
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Provincial governments charge for vehicle registration, but in most provinces, the charge is not linked to the emissions or energy use performance of the vehicle. The system of transportation taxation is due for a review considering new developments in provincial carbon pricing, the proposed federal clean fuel standard (Chapter 4), possible changes in US vehicle GHG standards, and emerging transportation technology. There is scope to reform transport taxes to optimise incentives for individuals and businesses to make more environmentally beneficial choices in vehicles and driving behaviour. This would also provide an opportunity to identify and address overlapping requirements or distortionary interactions.

Road congestion

The use of congestion pricing and road tolls in Canada remains limited. Some provinces and municipalities have introduced different forms of congestion pricing or road tolls to limit congestion or to finance infrastructure investments. Tolls have been introduced on one Ontario highway (407), and on select bridges in Quebec, Nova Scotia and British Columbia. In the city of Calgary, Alberta, parking prices vary across 27 discrete areas to shift parking from congested areas to those with underused spaces (see also Box 4.5 in Chapter 4). The city of Toronto also proposed new tolls on two main highways into the city to help fund infrastructure investments, but the Ontario provincial government rejected the proposal. Canada should pursue opportunities to expand congestion pricing, wherever possible, to reduce congestion, lower pollution and finance infrastructure investments. Opportunities for congestion pricing exist in Vancouver and Montreal on bridges and tunnels, and in Calgary and Toronto for high-occupancy toll lanes (Ecofiscal Commission, 2015). Canadian governments at the municipal, provincial and federal levels should work together to expand the use of congestion pricing, starting with pilot projects.

Company cars

Canada is the best performing country in the OECD when it comes to adequately taxing the benefit provided from company cars for personal use, so as to ensure that employees bear the cost of driving unrelated to the job. Only 8% of Canada’s registered private vehicles are company cars, a share much smaller than in other OECD member countries such as France (32%) or Sweden (48%). Canada’s tax system captures the highest proportion of the benefits of company cars. The taxable benefit of the personal use of company cars is calculated based on a percentage of their capital cost (2% per month) combined with distance travelled (charge per kilometre driven for personal use). Canada does not, however, differentiate its tax treatment based on a company car’s environmental impact. Belgium, Norway and the United Kingdom consider the environmental impact of the car in their tax treatment, using CO2 ratings, fuel type or cylinder capacity (Harding, 2014a).

2.5. Economic instruments to limit resource use and pollution

Canada has made progress in using economic instruments to limit resource use and pollution. However, there remains significant scope for further action, including in the area of adequate water and waste pricing, promotion of biodiversity conservation and sustainable use, and reduction of air and water pollution. The level of taxation on resources consumption and pollution often remains too low to bring about behavioural change. Economic instruments can offer a cost-effective opportunity to improve environmental outcomes, particularly in areas at risk due to resource scarcity or pollution. However, governments in Canada are reluctant to impose additional costs on businesses and households for fear they will lower attractiveness for investment or lead to public backlash.

Air pollution

Canada has one of highest ratios of NOx, SOx or particulate matter emissions to GDP in the OECD (Chapter 1). The 2004 Environmental Performance Review (EPR) of Canada recommended further reductions in air emissions using the most cost-effective available policy measures, including emissions trading and charges. The federal government and most provinces have taken a regulatory approach to air pollution, including under the federal-provincial-territorial Air Quality Management System (Chapter 1). Ontario, however, has a cap-and-trade system in place for NOx and SO2 for the electricity sector and in seven industrial sectors. For its part, Alberta has a baseline-and-credit system in place for NOx and SO2 from thermal power generation. The systems have contributed to a 56% and 41% reduction of SOx emissions and a 53% and 13% reduction of NOx emissions in Ontario and Alberta, respectively. Still, the two provinces continue to be the highest emitters in Canada of both pollutants. Plans to close coal plants and improve energy efficiency driven by carbon pricing and other measures will help reduce air pollutants further. However, additional action will be needed, particularly in urban and industrial centres where emissions are increasing or air quality is ofconcern.

Waste

Waste pricing is limited in Canada, although provinces and territories have legislated extender producer responsibility schemes, under which levies are applied to certain products (e.g. beverage containers) (Chapter 1). Quebec has a comprehensive scheme to improve re-use and recycling rates, charging a “royalty” on material placed in landfills. Manitoba, and several municipalities (including Toronto), also have waste disposal fees (Giroux, 2014). Still, several actions could help reduce the relatively high levels of waste per capita in Canada and stimulate waste reuse. Waste disposal fees could be expanded, for example, while currently low landfill fees could be increased. If taxes or pricing for the landfill alternative were higher, for example, neighbouring municipalities would be encouraged to use excess capacity at Edmonton’s new state-of-the-art waste management facility (see Chapter 4). These practices could be combined with better measurement of waste generation, and tax incentives for use of recycled materials or repairing used goods.

Water and wastewater

Water pricing in Canada does not come close to reflecting the environmental cost of water use. Nor does the country raise the revenue needed to replace deteriorating water infrastructure (FCM, 2016). In addition, irrigation water fees are set based on the land area irrigated, instead of the volume of water used. This provides no incentive to introduce more efficient water irrigation technologies (ECCC, 2013). Some signs of progress include a shift towards pricing tied to the volume of water use and full cost-recovery pricing in some water and sanitation utilities. In addition, water trading has been introduced in some regions with water scarcity (e.g. Alberta’s South Saskatchewan River basin).

For the most part, Canada relies on regulations to address water pollution. Notable exceptions include British Columbia’s charge for agricultural inputs and discharge, and Quebec’s industrial wastewater and water effluent charge. Some water quality trading initiatives also take place in Ontario, such as the Lake Simcoe Phosphorus Offset Program. Greater use of water pollution pricing in Canada could be informed by experience in Europe, such as the Netherlands’ levy on water pollution.

Biodiversity conservation and sustainable use

Frameworks for biodiversity offsets are largely in place at the federal level and in several provinces, yet their application has been limited to date. The 2002 Species at Risk Act provides for biodiversity offsets; and amendments to the Fisheries Act in 2012 opened the door for offsets in relation to projects that impact negatively on fish. In 2012, ECCC released an Operational Framework for the use of Conservation Allowances, to help guide increased interest in using the tool (OECD, 2016a).

Several pilot projects similar to payment for ecosystem services are in place in Canadian provinces. The Alternative Land Use Services programme, for example, provides payments to participating landowners in six provinces to reward positive contributions to clean air, water and biodiversity through land management practices.

While few taxes are used for biodiversity purposes, there are licensing fees for commercial fish harvesters tied partially to the value of their catch. However, the Auditor General of Canada has recommended a review of these fees to better reflect the market value of the catch (OAG, 2008). There are also stumpage fees charged for the right to harvest timber on land owned by provincial or federal governments. The United States has contended the fees are too low relative to the market-based fees paid by their firms on private land.

2.6. Removing environmentally harmful subsidies

Support to fossil fuel production and consumption

As a member of the G7, Canada committed in May 2016 to “the elimination of inefficient fossil fuel subsidies” by 2025, and reiterated this commitment at the June 2016 North American Leaders Summit. Canada’s fossil fuel support was reduced by almost half between 2005 and 2014 (Figure 3.6). This was driven by a significant reduction in consumer support, largely attributable to Ontario’s removal of its sales-tax exemptions for energy products. Over the same period, producer support increased (Figure 3.6). This is despite a number of federal tax reforms of how certain capital expenses for fossil fuel extraction are treated. In the 2007 federal budget, Canada began to phase-out the accelerated capital cost allowance tax benefit for oil sands production. Budget 2011 announced changes to align tax deduction rates for intangible costs in the oil sands sector with rates in the conventional oil and gas sector. Budget 2012 announced the phase-out of the Atlantic Investment Tax Credit for investments in the oil and gas and mining sectors. Budget 2013 announced the phase-out of the accelerated capital cost allowance for mining and reduction in the deduction rate for pre-production mine development expenses. Budget 2016 allowed the accelerated capital cost allowance for facilities that liquefy natural gas to expire scheduled in 2025. And Budget 2017 modified the tax treatment of successful oil and gas exploratory drilling and removed the tax preference for small oil and gas companies exploration expenses (Finance Canada, 2017).

Figure 3.6. Fossil fuel support has decreased, but both consumption and production support remains
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According to the OECD Inventory of Support Measures for Fossil Fuels, some CAD 3.6 billion in fossil fuel subsidies remained in place in 2014, targeting mostly oil and natural gas fuels (Figure 3.6). Provincial and territorial fossil fuel support makes up the majority of remaining support in the OECD inventory. These include measures such as Alberta’s Crown Royalty Reductions and provincial tax credits for drilling; tax exemptions for fuel use in farming, fishing and other activities; as well as energy cost rebates for low-income households. Provincial and territorial governments will need to be brought into discussions on reducing fossil fuel subsidies in order to meet Canada’s 2025 commitment.

Support for agricultural production

Canada has lowered subsidies to agriculture production since 2004. Producer support, measured as a percentage of gross farm receipts, has consistently been below the OECD average. However, a relatively large share (70%) takes the form of the most distorting support, such as price supports that encourage production.8 The OECD has consistently recommended that Canada shift the policy focus from price support towards facilitating the adoption of innovation to contribute to the long-term competitiveness and sustainability of the sector (OECD, 2016b). Such a shift would present an opportunity to encourage an acceleration of environmental innovation to reduce water use and GHG emissions and other pollutants from the sector, and to promote ecosystem and habitat protection and restoration. While subsidy-based environmental programmes have been in place for decades (e.g. to support farmers adopting riparian buffers or efficient irrigation), environment is only now becoming a national priority considered alongside other issues facing the sector. In a 22 July 2016 statement on developing the next Agriculture Policy Framework for Canada, federal, provincial and territorial agriculture ministers identified environmental sustainability and climate change as one of the priorities.

3. Environmental expenditure and investment

Both public and private environmental expenditures have increased in Canada over the past decade. Significant gaps, however, remain to build the environmental infrastructure for a green growth development path. Infrastructure is one of the key elements of any green growth strategy. It provides significant opportunity to improve environmental performance, boost economic growth and ensure resiliency to climate change. Canada has recently embarked on a significant infrastructure investment programme to address deteriorating assets and build new ones to support environmental, social and economic goals. This presents an opportunity to pursue a more strategic approach to project selection than in the past, and to better align project criteria and design with environmental objectives. The new Infrastructure Bank could improve co-ordination and standardisation of approaches to leveraging private sector investment for green infrastructure across Canada.

3.1. Environmental expenditures

Public expenditure

It is difficult to establish a comprehensive national picture of environmental spending in Canada, since environmental responsibilities are spread across multiple federal departments, as well as provincial and municipal governments. Indications are, however, that public spending on the environment has increased over the past decade. Overall spending by agencies under the Environment Minister’s portfolio has increased by 38% since 2005 (in nominal terms). By contrast, spending on environmental protection and mitigation by Natural Resources Canada seems to have decreased since 2005 (LAC, 2005; PWGSC, 2016). Parks Canada received most resources among the agencies and programmes under the Environment Minister’s portfolio, followed by weather services, internal services and biodiversity wildlife and habitat (Figure 3.7). The 2017 federal budget provided an additional CAD 405 million over five years for promoting national parks, completing the national trail system, protecting marine and freshwater ecosystems and implementing the Air Quality Management System. In addition, the budget provided CAD 650 million over five years to implement PCF-related commitments, such as phasing out coal-fired electricity and developing a clean fuel standard for buildings, transportation and industry (Finance Canada, 2017).

Figure 3.7. Parks Canada has the largest expenditure among environmental agencies and programmes
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Business expenditure

Business capital expenditures related to environmental protection increased by 14% between 2010 and 2012 (in real terms). Pollution abatement, which accounts for nearly half of capital expenditure, increased by 32% over that period (Figure 3.8). Capital investments in renewable energy technologies rose 20%. Operating expenses mainly target waste management and sewerage services. Canada’s oil and gas industry was responsible for 43% of total business environmental expenditures, while the mining and quarrying industry accounted for 12% (Statistics Canada, 2015a).

Figure 3.8. Business capital spending for environmental protection focuses on pollution abatement
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3.2. Investment in environment-related infrastructure

State of Canada’s environmental infrastructure

The coverage and quality of Canada’s infrastructure is generally good in international comparison, given its large geographic size (OECD, 2016c). However, one-third of municipal infrastructure – which represents 57% of Canada’s core public infrastructure – is estimated to be in fair, poor or very poor condition (Figure 3.9). It would cost an estimated CAD 141 billion to replace infrastructure in poor or very poor condition. Moreover, reinvestment rates are too low across all infrastructure categories to avoid further deterioration. Some of the biggest gaps are in areas where careful investment can also help meet environmental goals, such as public transit, buildings, roads and wastewater. Significant investment will also be needed to support a decarbonisation of energy generation, electrification of the economy and energy efficiency improvements, which will be needed to achieve Canada’s climate mitigation goals.

Figure 3.9. Canada has a large proportion of infrastructure in need of repair or replacement
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Renewable energy

Over 2005-14, investment in renewable energy (excluding large hydro) increased steadily from USD 1 billion to USD 5.4 billion (BNEF, 2017). Investment has dropped since, however, and Canada slipped from the top ten investing countries in 2015 (BNEF and UNEP, 2016). Wind became the predominant non-hydro renewable source, increasing from 1 567 GWh in 2005 (0.2% of total primary energy supply) to 22 538 GWh (3.4%) in 2014 (IEA, 2017b). The federal government estimates investment needs in electricity infrastructure at CAD 350 billion until 2030. An additional CAD 16 billion is needed to be consistent with a low-carbon development path (GoC, 2016b). While there is no federal target for renewable energy development, other than a commitment to phase out coal (which is expected to help Canada achieve 90% non-emitting electricity by 2030), most provinces have their own renewable targets that are helping to drive increased investment (see Chapter 4).9 The federal government also encourages renewable development by providing higher fiscal depreciation rates within its corporate income tax regime. Ontario has a feed-in-tariff for renewable energy sources (OECD, 2017a).

Transportation and electrification

Investment in inland transportation infrastructure more than doubled between 2005 and 2013. However, the deficit in transportation infrastructure is still estimated at CAD 22 billion. The deficit in transit infrastructure is estimated at CAD 23 billion, which does not take into account investments needed to address unmet current or future demand (FCM, 2016). Ontario, Quebec and British Columbia have all expanded their charging infrastructure for electric vehicles.10 In 2016-17, the federal government announced an additional CAD 182 million to support expansion of existing, and development of next-generation, infrastructure technology. However, Canada still lags behind other countries in electric vehicle purchases. In 2015, EV plug-ins represented 0.37% of the light duty vehicle market in Canada compared with 1.3% in Europe and 18.7% in Norway (EV Volumes, 2017). In addition to encouraging the electrification of the transportation sector, sustainable transportation will also require a shift from building more roads to promoting alternatives such as public transit, bicycle- and pedestrian-friendly cities, and reducing demand for transport.

Energy efficiency

Despite improvements, Canada remains one of the most energy-intense economies in the OECD (Chapter 1). GHG mitigation policies therefore need to target the demand side of the equation, as well as large emitters. Canadian households consumed an average of 11 000 KWh of electricity per year in 2010, high in comparison to France (7 350 KWh), the United Kingdom (4 510 KWh) and Germany (5 760 KWh) (GoC, 2016b). Between 2002 and 2012, energy efficiency improvements in Canada increased GDP by about 1%, or CAD 16 billion, per year and added approximately 2.5% to overall employment (EMMC, 2014). Further investments in residential, commercial, industrial and transportation efficiency will be needed to achieve long-term decarbonisation.

Water and wastewater

Much investment in water, wastewater and stormwater infrastructure has relied on federal funding over the past decade, largely due to lack of municipal financial capacity. The cost of replacing assets in very poor or poor condition is estimated at CAD 61 billion (FCM, 2016). In 2012, the federal government passed the Wastewater System Effluent Regulations (WSER), which require wastewater treatment facilities to meet effluent quality standards equivalent to secondary level of treatment (Chapter 5). Meeting the requirements is estimated to cost about CAD 6 billion over the next three decades (FCM, 2016). Full-cost pricing and demand management will be important to help municipalities make the necessary investment, in addition to implementing commitments made from federal and provincial governments for additional infrastructure financing.

3.3. Government infrastructure investments

Sub-national governments (i.e. provinces, territories and municipalities) account for over 95% of public infrastructure investment. The federal government has, however, been a major investor in recent years through transfers to sub-national governments, as part of an effort to address infrastructure gaps and support economic growth. In Budgets 2016 and 2017, the federal government announced more than CAD 90 billion in new funding over 12 years (building on existing infrastructure programmes of over CAD 90 billion) (Figure 3.10). This includes significant support for public transit (CAD 29 billion) and green infrastructure supporting GHG reductions, clean air and clean water (CAD 27 billion). A Low Carbon Economy Fund was also established that provides CAD 2 billion over five years to support provincial and territorial actions that reduce GHG emissions (Finance Canada, 2016a, 2017). Other federal infrastructure investments also have an environmental dimension.11

Figure 3.10. Canada’s long-term infrastructure plan will help provide stable funding
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While funding has increased substantially, Canadian federal, provincial, territorial and municipal governments have not always followed a strategic, co-ordinated and comprehensive approach to project selection and design. Projects have traditionally been selected through a bottom-up process where municipalities identify priority, shovel-ready projects that line up with provincial or federal funding envelopes. There has been limited strategic thinking at the national or regional level in terms of projects that best align with multiple economic, environmental and social priorities. There has also been limited exploration of innovative approaches, such as the use of natural infrastructure in place of, or as a complement to, grey infrastructure. The federal government plans to taking a more outcomes-based approach to infrastructure funding for future funding announced under the Investing in Canada Plan in the federal Budgets of 2016 and 2017.

The Federation of Canadian Municipalities (FCM) has proposed greater alignment of transit, green and social infrastructure components of federal funding. This would allow more flexibility in stacking different pools of funding to move key projects forward and the inclusion of projects such as wetland acquisition and preservation as climate-resilient infrastructure. Greater alignment and flexibility could encourage innovative projects that achieve multiple objectives, such as energy-efficient social housing or greening of public transit systems (FCM, 2017). To that end, Canada could draw on approaches from other OECD member countries. Australia, for example, develops a national priority list of infrastructure projects that have strategic merit to help governments make integrated decisions (IA, 2017). Working with provinces, territories and municipalities to develop a pipeline of bankable projects and delivery models attractive to private investors would also help improve the efficiency and effectiveness of public funding. The data initiative on Canadian infrastructure announced in the 2017 federal budget will be a helpful starting point to better decision making.

In addition, there could be clearer guidance on project criteria and design across all infrastructure projects, considering multiple environmental objectives, including climate change adaptation and biodiversity conservation. In 2016, the House of Commons approved a private member’s motion to require all projects receiving over CAD 500 000 in federal funding to analyse their impact on GHG emissions. Proposed projects should also give priority to climate change mitigation where appropriate (Parl, 2016). In May 2017, the Minister of Infrastructure and Communities publicly announced that local, provincial and territorial governments would apply a “green lens” on proposed infrastructure projects, focusing in particular on GHG emission reductions and enhanced climate resilience to reduce the cost of severe weather on communities. Details on specific criteria and methodology for implementing these requirements have not yet been announced. Potential considerations include, for example, what impact a “green lens” or the analysis of GHG emissions may have on project design or decision making, how it will relate to existing environmental impact assessment and strategic environmental assessment requirements, and where it is appropriate to give priority funding to certain projects.

3.4. Leveraging private sector investment

Canada’s use of public-private partnerships has increased substantially over the past decade. Prior to 2000, they were used almost exclusively in the health and transportation sector, but have since shifted to water and wastewater, as well as airports and solid waste disposal. The federal government created PPP Canada in 2008 to help finance deals at the federal, provincial and municipal levels. It is now seeking to develop additional opportunities to leverage private sector capital. A key mechanism will be the newly created Canada Infrastructure Bank (Box 3.2).

Canada is increasingly using green bonds, which have been issued by the governments of Ontario and Quebec, TD Bank and Telus/Westbank, and Export Development Canada.12 The total Canadian green bond market was CAD 2.9 billion for bonds labelled green and another estimated CAD 30 billion for climate-aligned investments (such as hydroelectricity) (CBI, HSBC and SP, 2016). The new Infrastructure Bank could play a role in consolidating or co-ordinating green bonds in Canada. This could help establish common standards and definitions, encouraging a larger pool of bankable projects.

Box 3.2. Canada seeks to leverage private capital through new Canada Infrastructure Bank

Seeking to multiply its infrastructure investments by attracting private capital, the government of Canada is creating a Canada Infrastructure Bank. The Bank would use federal support to attract private sector and institutional investment to new revenue-generating infrastructure projects that are in the public interest. It would provide an additional option for federal, provincial, territorial and municipal project sponsors to advance projects that could be suitable candidates for revenue generation. It will operate at “arm’s-length” from the government, meaning that day to day decisions will not require government approval. However, it will remain accountable for the allocation of funding. The concept of the Bank arose from recommendations by the Advisory Council on Economic Growth, appointed by Canada’s Finance Minister.

The Canada Infrastructure Bank will invest at least CAD 35 billion in large infrastructure projects using a wide range of financial instruments, including debt and equity. Of this amount, CAD 15 billion is sourced from announced infrastructure funding. The remaining CAD 20 billion will be for investments where the Bank will hold assets in the form of equity or debt. The 2017 federal budget committed to invest at least CAD 5 billion each in public transit and green infrastructure.

The advantage of having one organisation focused on leveraging private sector capital is that it can provide a single point of contact for private investors, develop a hub of skills and expertise that would be difficult to replicate across multiple organisations, and more effectively structure, negotiate and implement infrastructure projects that are attractive investment opportunities.

Source: ACEG (2016); Finance Canada (2016a).

4. Promoting eco-innovation and green markets

Although Canada has a relatively strong innovation framework, the pace of eco-innovation has been slow relative to leading OECD member countries. Canada’s share of the global clean technology market shrank from 2.2% to 1.3% over 2005-14 (AA, 2016). One key barrier to accelerated growth has been limited domestic demand for eco-innovations. Clean technology firms also find it difficult to obtain the financing they need to grow. Carbon pricing and new procurement policies will help boost demand for eco-innovations in Canada, while a new emphasis on public investment in research and development (R&D) and skills development should help increase supply.

4.1. Eco-innovation

Overall innovation performance and policy

Canada’s innovation framework benefits from a good skills foundation, a high-quality university-centred research system and one of the world’s most generous R&D tax regimes. However, gross domestic expenditure is low compared to the OECD average (see Basic Statistics) and in decline (OECD, 2016d). Several major firms perform well in terms of R&D investment, but overall business investment is low, particularly among small and medium-sized enterprises (SMEs). The link between scientific research and commercialisation and business is often weak. Shifting from R&D tax credits towards competitive and transparent grants, which are better suited to the needs of young firms, could be one way to foster co‐operation in innovation (Jenkins, 2011; OECD, 2015). The federal government has started to move in this direction. Its 2012 budget reduced the rate for refundable investment tax credits from 20% to 15% (Finance Canada, 2012). In March 2017, the government announced the Innovation and Skills Plan, which makes a number of commitments across six key focus areas, including clean technology, to foster growth and create jobs.13

Performance of eco-innovation

Governments are the main source of funding for environmentally related research in Canada. Environment-related R&D accounts for about 4% of total government R&D outlays, in line with the OECD average. Nearly 8% of government R&D outlays target the energy sector, which is high compared to most other OECD member countries (Figure 3.11). The large majority of energy-related R&D targets fossil fuel energy. This reflects major investment in carbon capture and storage (CCS) projects (Chapter 4) as well as in research aimed at mitigating the environmental impacts of oil and gas extraction. Support for renewable energy and energy efficiency has increased slightly since 2004, but it remains one of the lowest in the OECD as a percentage of total public energy R&D.

Figure 3.11. A high share of public R&D spending targets the energy sector
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Private sector involvement in environmental R&D has generally been limited to date. However, some innovative collaborative projects could serve as a model for further expansion. The Canadian Oil Sands Innovation Alliance (COSIA), for example, brings together oil sands producers focused on accelerating the pace of improvement in environmental performance (Box 3.3). The Bio-pathways Partnership Network for Canada’s forestry sector provides a forum for member companies to partner on initiatives of common benefit. Together, they collaborate to further the use of wood fibre to produce bio-chemicals, bioenergy, and bio-materials (FPAC, 2016). The federal government, in partnership with provinces and territories, could play a convening role and potentially offer some financial contribution to encourage other sectors of the economy – such as freight transport and chemicals – to undertake similar collaborative approaches, potentially involving academia as well. This would be one way to increase private sector engagement in important eco-innovation challenges.

The number of patent applications in environmentally related technologies originating from Canada increased since the turn of the century. The rate of increase, however, was not as fast as in the United States, Korea, Japan, Germany, France and the United Kingdom (OECD, 2017b). In 2013, about 10% of Canada’s patent applications were related to the environment, similar to the OECD average. Environmental-related patents per capita are below the OECD average. The greatest growth occurred in patents for environmental management technologies (particularly related to water and wastewater treatment and oil spill clean-up) and energy-related climate change mitigation technologies (Figure 3.11). Canada has been a leader in water and wastewater technologies for a number of years. However, companies are now also emerging in energy efficiency, energy storage, smart grid, green concrete, precision agriculture, plastic recycling and mine sustainability (CTG, 2017).

Box 3.3. Canadian oil sands innovation alliance pools private capital to support R&D

Growing public and international concern about the environmental performance of Canada’s oil sands sector led stakeholders to recognise their collective interest in improving the environmental performance of all oil sands facilities. In 2012, the private Canadian Oil Sands Innovation Alliance (COSIA) was established to capture, develop and share the most innovative approaches and best thinking to improve environmental performance in the sector. Since its inception, COSIA member companies have shared 936 technologies and other innovations that cost almost USD 1.33 billion to develop. This required a significant cultural shift from competition to collaboration.

COSIA consists of 13 founding oil sands producing companies, and more than 30 associate members. These include potential innovation suppliers or partners such as General Electric, IBM and Lockheed Martin, as well as the University of Alberta and organisations such as the National Research Council. COSIA acts as a potential source of financing for smaller innovators. It issues challenges for any company to submit ideas for solutions to specific environmental priorities. The organisation has four environmental priority areas: tailings, water, land and GHG emissions.

Source: COSIA (2016).

Eco-innovation policy

Canada’s federal government recently announced a significant increase in public funding to foster eco-innovation and clean technology development. As part of the global Mission Innovation initiative, Canada committed to double investments in clean energy research, development and demonstration (RD&D) by 2020 from 2015 levels.14 The increase will be supported by investments in the new Innovation and Skills Plan, as well as commitments under the PCF to build early stage innovation for clean technology and accelerate their commercialisation and diffusion (GoC, 2016a). The 2017 budget committed to CAD 1.4 billion to support clean technology producers with new equity financing, working capital and project financing, in addition to creating specific initiatives. The new Impact Canada Fund, for example, aims to tackle “big challenges” in Canada such as reducing the reliance of remote communities on diesel fuel and developing smart cities (Finance Canada, 2017).

The financial boost can be expected to stimulate eco-innovation and clean technology supply. However, the various federal, provincial and territorial organisations involved in supporting clean technology innovation may also need to co-ordinate their activities more effectively. To achieve this, the federal government proposed establishing the Clean Growth Hub as part of broader efforts to streamline innovation support mechanisms under the newly-established Innovation Canada single-window platform. The hub would bring together key federal departments and partners that support clean technology innovation to simplify client services, improve programme co-ordination and enable monitoring and reporting on results. In addition, a working group with representation at the federal-provincial-territorial levels has been established under the PCF to support co-ordination and implementation of clean technology commitments across the country. This will help reduce overlap and identify gaps. Innovation programmes should be accessible to all technology fields relevant for the green growth transition, including energy efficiency, the circular economy and product innovation. There also seems to be a need for public support institutions to tolerate greater risks.

The introduction of Canada-wide carbon pricing, and greater use of labelling and procurement policies, will boost demand for eco-innovation and clean technologies. In a welcome step, the federal government has committed to reform procurement practices to align with green objectives and to encourage federal departments to act as test-beds for late-stage green innovations (ECCC, 2016a).15 As well, it has put a new focus on greening government operations, committing to reduce GHG emissions from federal buildings and vehicle fleets by 40% below 2005 levels by 2030. The Centre for Greening Government tracks government GHG emissions and co-ordinates efforts across government. Green procurement initiatives at the provincial, territorial and municipal level are at various stages of evolution. Overall, however, provincial governments could make better use of procurement. This would ensure that firms have strong domestic demand for clean technologies and products. Labelling programmes include the ENERGY STAR for consumer products in the top 15% to 30% of their class for energy performance, and the EnerGuide Rating System for homes (NRCan, 2015).

4.2. Markets for environmental goods and services

According to a survey conducted by Statistics Canada, business revenues related to the sales of environmental goods and services (EGSs) reached CAD 4.1 billion in 2012, with goods accounting for 44% and services accounting for 56%. Environmental consulting services accounts for most revenue, followed by remediation and emergency services, and goods related to renewable energy production and wastewater treatment (Figure 3.12). While revenue from environmental services grew 33% between 2010 and 2012, revenue from environmental goods fell by 19%. EGS businesses have exports worth CAD 748 million, mainly to the US market (Statistics Canada, 2015b).

Figure 3.12. Canada receives more revenue from environmental services than from goods
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The survey is limited in scope and coverage, with a narrow sub-set of technologies and sectors. In particular, it does not include small businesses (it only captures businesses with a minimum revenue of CAD 750 000). The actual size of Canada’s EGS sector is thus likely to be larger. While not directly comparable, an analysis of Canada’s “clean technology industry” that includes SMEs estimated revenues at CAD 13.3 billion in 2015, with exports of CAD 6.7 billion and employment of 55 200 people (AA, 2017). In 2016, the federal government committed to expand the Statistics Canada survey on EGS to a broader range of technologies. Statistics Canada will also define Canada’s clean technology sector, establish a 2015 baseline on the industry by 2018 and track the contribution of the sector to GDP and employment (ECCC, 2016a). The 2017 federal budget provided CAD 14.5 million over four years for the development of a clean technology data strategy.

Canadian clean technology companies face challenges in obtaining financing for commercialisation and growth to scale of environmentally related inventions. This is due to a variety of reasons, such as company size, perceived technology risk, capital intensity, lack of investor knowledge and length of time to pay out (AA, 2016; CCTL, 2016). Clean technology continues to receive lower levels of venture capital investment than other sectors such as information communications technology (ICT) and Life Sciences. The lack of demand for clean technologies in Canada has also been a challenge for eco-innovation. Green technologies have much lower adoption rates by Canadian companies than other technologies. Cost, lack of relevance, lack of regulatory pressure and lack of knowledge have been identified as key barriers (WGCTIJ, 2016).

5. The social consequences of the transition towards green growth

Transitioning towards green growth can have both positive and negative impacts on society. The challenge for governments is to implement policies that help businesses and individuals capture opportunities, provide support for those most affected by environmental damage and minimise negative impacts on vulnerable households or businesses. Canada lacks a co-ordinated and consistent approach across governments towards green growth, but there is movement towards the types of policies needed. These include well-designed carbon pricing systems, support for Indigenous community adaptation to climate change and the skills element of the federal Innovation and Skills Plan. However, there is scope to expand the involvement of Indigenous communities in green growth. Green skills needs could be more systematically integrated into skills and training policies across federal and provincial governments.

5.1. Distributional impacts of environmental policies

Most provincial carbon pricing policies have mechanisms to minimise the impacts on vulnerable households and businesses (Table 3.1). Quebec chose to link its cap-and-trade system to California to lower the carbon price and costs faced by households and businesses, while also allocating free allowances to industrial emitters. British Columbia, on the other hand, used its carbon tax revenue to reduce corporate and personal income taxes. Ontario and Quebec use parts of the revenue from their cap-and-trade system to fund programmes encouraging the uptake of electric vehicles, expanding public transit, or increasing the energy efficiency in buildings, for example. Alberta’s new carbon levy includes a rebate for low- and middle-income households; its policy for large industrial emitters is expected to incentivise emission reductions, while helping protect competitiveness (Box 3.4). Alberta has also agreed to compensate coal-fired power producers that will need to shut down before the end of their useful life to meet the government’s commitment to phase out coal-fired power by 2030.

While it makes sense to introduce rebates or other measures to minimise the impact on low-income households, providing everyone with rebates or limited price increases can dilute price signals that encourage more environmentally-friendly behaviour and purchasing decisions. Similarly, while it is important to address competitiveness risks, support should target trade-exposed sectors for which no effective abatement technologies are available, preserve the price signal and be transitional rather than permanent. For example, a 2014 study found no compelling evidence to justify the exemption for agriculture from British Columbia’s carbon tax (Rivers and Schaufele, 2014). The economic benefits of using tax or auction revenue to reduce corporate and personal income taxes should also be considered.

Table 3.1. Mechanisms used to address distributional impacts from carbon pricing by province

Province

Instrument

Estimated impacts

Mechanisms to address

Quebec

Cap-and-trade

Households: costs below 2.3% of household income

Industry: costs below 4% of industry contribution to GDP, but potentially greater impact on aluminium sector

  • linking to California to lower price

  • free allowances for industrial emitters (reduced annually by 1% to 2%)

  • stability reserve that acts as a price ceiling, offsets as compliance option

  • use of auction revenue for transit, home energy retrofits, company energy efficiency programmes and clean technology.

British Columbia

Carbon tax (currently frozen at CAD 30/tonne)

Households: tax shown to be progressive, with negative impact on below-median income households smaller than above-median income households.

Economy: Per capita GDP growth outpaced other Canadian provinces between 2008 and 2013.

  • revenue-neutral carbon tax with revenue recycled to reduce personal and corporate income taxes

  • personal tax measures aimed at low-income households

  • exemptions for agricultural subsectors

  • no increases in carbon tax in 2013-18.

Alberta

Carbon levy (CAD 20/tonne in 2017, CAD 30/tonne in 2018) and carbon competitiveness regulation

Households: additional CAD 6 to CAD 8.75 per month, petrol prices increase by about 6.7 cents per litre, natural gas prices by 1.50 cents per Gj, likely increase in electricity prices of less than 2 cents per kWh.

Business: reduced average cost compared with tax at same price. Most oil sands firms will face costs of less than CAD 1 per barrel.

  • carbon rebates to lower and middle-income Albertans (6 in 10 households)

  • Alberta’s small business corporate income tax rate reduced from 3% to 2%

  • exemptions for fuel used in industrial processes, by First Nations, by farmers, by inter-jurisdictional flights and fuel sold for export, as well as for biofuels

  • transition to product- and sector-based performance standard for large industrial emitters at the end of 2017, with a price of CAD 30/tonne and rebates tied to output-based allocations of emissions rights.

Ontario

Cap-and-trade

Households: additional cost of CAD 13 per month (CAD 5 for residence and CAD 8 for driving) in 2017.

Businesses: reduced investment for large industrial emitters and manufacturing, but overall increase in investment across the economy of (0.06% in 2020).

Energy prices: increase in natural gas prices of 3.3 cents/m3; propane 4 cents/m3; petrol 4.3 cents/litre; diesel 5 cents/litre; electricity prices stable.

  • linking with Quebec and California cap-and-trade to lower carbon price and costs

  • preventing any net increase in electricity prices as a result of cap-and-trade

  • introducing an electricity rebate for eligible low-income consumers, small businesses and farms

  • transitional free allowances to large industrial emitters

  • investing auction revenue in new technologies and processes that will help businesses and households reduce emissions.

Source: Elgie and McClay (2013); Barrington-Leigh et al. (2014); Rivers and Schaufele (2014); Beck et al. (2015); Tombe (2015); GoO (2016); MDDELCC (2016); Sawyer and Peters (2016).

Box 3.4. Alberta is designing carbon pricing to avoid competitive risks

The Canadian province of Alberta has higher, and faster growing, GHG emissions than any other province or territory. This is largely a result of its oil and gas sector, and particularly the extraction of oil sands. A relatively large proportion of Alberta’s economy (18%) is emissions-intensive and trade-exposed. This creates a risk that business activity moves to other jurisdictions (many of which have less ambitious climate policy). At the same time, the drop in oil prices since 2014 has had a significant impact on the province’s economy, with delays and cancellations of oil and gas projects, rising unemployment and decreasing government revenue.

In this challenging context, the province has become one of the first fossil-fuel based economies in the world to implement ambitious carbon pricing. The province uses a hybrid system that combines an economy-wide carbon price of CAD 20 per tonne of CO2 as of 2017 (set to rise to CAD 30 in 2018) with a trading scheme for large emitters. Alberta’s Climate Leadership Plan, supported by an expert Climate Leadership Panel, concluded that climate policy is in fact consistent with long-term competitiveness in Alberta’s oil and gas sector. It reasoned that climate policy encourages innovation to reduce costs through reduced input fuels, increased efficiency and reduced fugitive losses. For industrial sectors, the panel recommended replacing the existing GHG regulation that expires at the end of 2017 with what it calls a Carbon Competitiveness Regulation (CCR). Under the existing approach, industrial facilities above an emissions threshold must reduce emissions intensity by 20% below an established historical per-barrel facility-specific benchmark in 2017, paying USD 30 per tonne for emissions that exceed the standard (or purchasing offsets or emission credits). This approach meant that companies were only paying for a portion of their emissions, and it penalised good performers with low facility-specific benchmarks. The panel’s proposed new approach, which is expected to be adopted, would price all emissions from industrial facilities (with the price increasing at 2% above inflation each year). Further, the benchmark would be sector-wide, improving incentives for good performers.

The panel’s proposed sector-specific, output-based allocations of emissions rights help protect competitiveness. They do this by reducing the average cost for firms and considering each sector’s ability to reduce emissions and the degree of international competition. Facilities that perform above the benchmark for their sector would actually be better off as a result of the policy. The rest will pay more than what they receive back. The approach creates a strong incentive to improve emissions intensity, without imposing a significant financial burden that could impact the province’s attractiveness for new investment. The panel also recommended decreasing allocations by 1% to 2% per year to reflect expected improvements in energy efficiency.

Source: CLP (2015).

5.2. Capturing opportunities through skills development

Until recently, Canada has not linked green skills needs with its broader skills policy agenda. There are generally three main skills requirements to support green growth transition: upgrading skills and adjusting qualifications across occupations and industries; creating occupations from emerging economic activities; and retraining workers impacted by structural changes. Addressing these requirements does not necessarily demand new skills policies. Rather, it calls for an integration of green skills needs into broader training and skills development (OECD/Cedefop, 2014).

The new federal Innovation and Skills Plan creates a significant opportunity to integrate skills needs particular to the green growth transition into Canada’s broader skills development agenda. The plan could also help Canada better link its skills development efforts to needs for clean tech development and innovation. Canada faces the general challenge that education systems and choices are not always well-linked to labour market needs (OECD, 2016c). Clean tech SMEs face skills gaps in sales, marketing, business development, product management and financial management (WGCTIJ, 2016). There is also a shortage of clean tech investor expertise needed to evaluate and identify high-potential projects. Additionally, there is a broader need to integrate green skills into post-secondary education. The working group recommended labour market, employment and skills ministers to explore the development of “clean growth talent plans” to help guide policy development (WGCTIJ, 2016). Green talent plans should include an analysis of the skills needed at all levels, from construction workers installing energy-efficient equipment to clean technology entrepreneurs and business programmes.

5.3. Indigenous communities and green growth

Indigenous peoples are particularly important to a successful green growth transition. They are disproportionately impacted by environmental degradation, given their population in northern and remote regions, their dependence on the environment for livelihoods and culture, and their lower ability to invest in climate change adaptation or emergency response measures (CIER, 2006). At the same time, Canada’s Indigenous peoples play a significant role in protecting Canada’s environment, given their special relationship with nature.

Included in the 2016-19 FSDS is a commitment to work with Canadians, other levels of government, Indigenous communities and stakeholders to develop local and provincial and territorial climate change adaptation plans, while continuing to develop the Adaptation Platform and the Northern Adaptation Strategy (ECCC, 2016a). The PCF aims to reduce the reliance of Indigenous, northern and remote communities on diesel for heat and electricity generation. It seeks to develop more stringent building standards for Indigenous communities and increase support to address Indigenous health impacts of climate change. It also targets improved climate change monitoring and support for adaptation in Indigenous communities (GoC, 2016a). Fulfilling these commitments in a timely manner will be important to demonstrate that the green growth transition has tangible benefits for its most vulnerable populations. There are encouraging examples of income and employment opportunities for Indigenous communities, such as in the area of renewable power generation and in protected areas management (Box 3.5). In addition, Health Canada’s Climate Change and Health Adaptation Program is supporting First Nations and Inuit communities to develop tools and skills necessary to develop adaptation plans to minimise health impacts and seize green growth opportunities.

Canada’s Indigenous peoples have a growing voice in opposition to developments that carry risks of environmental damage. Mining, oil and gas, and electricity development increasingly encroaches on the traditional lands of Indigenous peoples, creating concerns about both environmental and social impacts, as well as interest in job opportunities and income. In 2012, over 600 resource projects worth more than USD 650 billion were either under construction or planned within ten years; many are within a 100 km radius of Indigenous communities (Marketwire, 2012). Governments have a legal duty to consult and Canada now endorses the UN Declaration on the Rights of Indigenous Peoples (UNDRIP). The Prime Minister has committed to a renewed, nation-to-nation relationship with Indigenous peoples, based on the recognition of rights, respect, co-operation and partnership. Uncertainty – and the potential for conflict – remains, however, in relation to the interpretation of the requirement for free, prior and informed consent (Chapter 2).

Box 3.5. Canada’s First Nations expanding green opportunities

Renewable energy: In Northern Ontario, the Henvey Inlet First Nation has partnered with a private developer on a 300-megawatt wind farm. The project (under federal and provincial review at the time of writing) is expected to earn around CAD 10 million per year for the 900-member community as a result of a 50% equity stake in the project. Funding will be used for health, education and improved infrastructure, helping to improve quality of life in the small community. The project is also expected to provide an average of 300 jobs during construction, as well as 20 direct permanent jobs during operation. Provincial price incentives have played a key role in attracting private interest. These include Ontario’s feed-in-tariff for renewable energy and an “adder” for Indigenous participation that increases with the proportion of involvement.

Protected area management: On 1 April 2017, the Ahousaht First Nation took over management of Maquinna Provincial Park near Tofino, British Columbia, as part of an agreement with the provincial government. The management plan foresees the creation of between 15 to 20 jobs for the Ahousaht community associated with tourist activities at hot springs located within the park. The First Nations chiefs in the area are interested in extending the approach to the entire Clayoquot Sound region, helping them to diversify the economy, increase local employment and improve the connection of people to the land.

Source: GE (2014); Henvey Inlet Wind (2016); Hudson (2017).

6. The international dimension of green growth: Environment, trade and development

The international dimension of green growth is particularly important for Canada. International environmental agreements have helped drive domestic environmental action. Trade dynamics – particularly in relation to the United States – have shaped environmental regulation and discussions on climate policy. Canada has retreated from two major environmental agreements since 2004 – the Kyoto Protocol and the UN Convention to Combat Desertification. However, the renewed commitment by the government elected in 2015 to engage with and implement multilateral environmental agreements is encouraging. Canada developed a federal plan to meet its commitment under the Paris Agreement, committed to meet the 2020 Aichi target related to protected areas and re-joined the UN Convention to Combat Desertification. The country is also playing an important role in international forums like the Climate and Clean Air Coalition, the Arctic Council Task Force on Black Carbon and Methane, the Global Methane Initiative and the Carbon Pricing Leadership Coalition.

6.1. Development co-operation

Canada’s overall official development assistance (ODA) increased between 2004 and 2010. However, it has since declined, falling further below the average country effort of peers in the OECD Development Assistance Committee (DAC) (OECD, 2016c). Still, Canada has significantly increased the proportion of ODA that is environmentally related – from 6.2% to 31.6% between 2007/08 and 2013/14 (Figure 3.13). Some of this increase is due to climate finance and commitments leading up to Rio +20; some to better reporting and attention paid to the Rio markers. In 2015, Canada announced new climate financing of CAD 2.65 billion over five years (GoC, 2016c). The creation of the new Development Finance Institution in Canada to support sustainable development and poverty reduction in developing countries offers the opportunity to further boost environmentally related financing.

Figure 3.13. The proportion of environmentally related ODA has increased
picture

 http://dx.doi.org/10.1787/888933565697

Since 2004, the government of Canada has taken steps to better mainstream environmental considerations into development co-operation through its Environmental Integration Process.16 Global Affairs Canada has incorporated environmental sustainability as a cross-cutting theme to be integrated into all of Canada’s international development programmes and policies. Reporting on mainstreaming has improved with the implementation of the Rio markers system. Canada assesses all of its development assistance activities for potential environmental sustainability risks and opportunities, particularly in relation to climate change, land degradation, access to clean water and sanitation, and urbanisation. For example, a detailed strategic environmental assessment of the 2009 Food Security Strategy found that the strategy was likely to cause direct or indirect environmental impacts through land degradation, impacts on water quality and quantity, and reduced genetic diversity. It was recommended that food security programming follow sustainable practices, promoting environmentally beneficial approaches such as conservation agriculture, drip irrigation and integrated pest management (GAC, 2014a).

In 2015, the federal government launched a review of Canada’s international assistance approach. This aimed to develop a new framework for helping the poorest and most vulnerable countries, and supporting fragile states, while advancing implementation of the UN 2030 Agenda on Sustainable Development. Clean economic growth, climate change, and water have been identified as key areas of focus. The new framework is to be launched in 2017.

6.2. Trade and the environment

North American partnerships

Collaboration on environmental policies in North America is important to Canada. More than 70% of exports are destined for the United States, and Mexico is a growing competitor in the US market. Therefore, environmental policy alignment and collaboration can help ensure a level playing field. The North American Agreement on Environmental Cooperation (NAAEC), which came into force in 1994 along with the North American Free Trade Agreement (NAFTA), requires that each party – Canada, the United States and Mexico – ensure its laws provide for high levels of environmental protection and enforce those laws effectively. It also established the Commission for Environmental Cooperation, comprised of cabinet-level representatives from each of the three countries, to promote trilateral co‐operation and address common environmental issues and concerns (ECCC, 2016b). A number of additional North American agreements and initiatives are in place, and Canada has aligned several major environmental policies with the United States, such as light- and heavy-duty vehicle regulations (see Chapter 4).

While a number of new partnerships have recently been established,17 it is unclear following the November 2016 presidential election whether the United States remains committed to implementing them fully. In February 2017, the US House of Representatives voted to overturn a rule that sought to reduce methane emissions from the US oil and gas industry on federal lands (Daly, 2017). This rule is one element of the US plan for implementing the joint Canada-US agreement, made in March 2016, to simultaneously reduce methane emissions from the oil and gas sector by 40% to 45% below 2012 levels by 2025. The US Senate, however, subsequently rejected the bid. Canada announced proposed regulations to implement the commitment in May 2017; related regulations are under development in Alberta. As announced, the federal regulations would come into force between 2020 and 2023.

Trade agreements

Canada is among OECD leaders in incorporating environmental considerations and obligations into its free trade agreements (FTAs). Many of its agreements established specific mechanisms to resolve conflicts on environment-related matters, or institutions entrusted with identifying or developing environmental co-operation, for example in areas where the parties can share knowledge and experience (Box 3.6). Canada’s approach to environment in FTAs has evolved over the years. While environment provisions were initially included in a parallel environment agreement, they have been included in a substantive environment chapter in recent agreements. Canada is also actively engaged in the negotiations of the World Trade Organization’s (WTO) Environmental Goods Agreement. Canada also implemented the 2012 Asia-Pacific Economic Co-operation (APEC) Leaders’ commitment to reduce applied tariffs to 5% or less by 2015 on the agreed list of 54 environmental goods.

Box 3.6. Canada and Chile co-operate on sustainable development of minerals and metals

In 2008, the Prime Minister of Canada and President of Chile signed a declaration covering five memoranda of understanding (MOU) to strengthen co-operation between the two countries. One MOU in the area of co-operation for the sustainable development of minerals and metals aims to promote eco-innovation and green technologies. The MOU focuses on knowledge-sharing on environmental and natural-resource technologies and the exchange of best practices in areas such as corporate social responsibility, natural-resource governance and community engagement. For example, the Canadian Embassy in Chile has since published an adaptation of Canada’s Mining Tool Kit for Aboriginal communities in Spanish to support a more informed and proactive dialogue between Chile’s government, companies and communities.

Source: GoC (2012).

Canada is one of the few OECD member countries with enacted legislation that makes it obligatory to assess potential environmental impacts of a trade agreement. Under the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, Global Affairs Canada is required to undertake environmental assessments of trade negotiations. To facilitate the process, a handbook and framework were prepared to guide federal government officials in their assessment, inter-departmental co-ordination and external consultations. The assessments help negotiators understand and integrate environmental considerations into the agreements, and address public concerns. A final environmental assessment is also prepared based on the negotiated outcome.

Corporate social responsibility

Canada was one of the original adherents to the 1976 OECD Declaration on International Investment and Multinational Enterprises and its guidelines. In 2009, Canada also developed a Corporate Social Responsibility (CSR) Strategy specific to its extractive sector operating abroad, including oil, gas and mining. The strategy, updated in 2014, promotes and advances international CSR standards and guidance, fosters networks and partnerships, and assists dispute resolution between project-affected stakeholders and Canadian companies. Companies found to not be embodying CSR best practices and not engaging in good faith with the government’s dispute resolution mechanisms face denial or withdrawal of trade advocacy and economic support from the government. This action has already been taken in one case that involved an environmental issue (GAC, 2014b).

Canada voluntarily implements the OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due diligence, first adopted in 2003 and then revised in 2016.18 Export Development Canada (EDC) is a vocal proponent of special export credit terms and conditions for environmental technologies, agreeing to the specific sector understanding with international Export Credit Group members for renewable energy, climate change mitigation and adaptation and water projects and terms that restrict support to coal-fired electricity generation projects. EDC has also adopted the Equator Principles, a financial industry benchmark for determining, assessing and managing social and environmental risk in project financing (EDC, 2016).

Recommendations on green growth

Policy frameworks to support green growth

  • Ensure effective and timely implementation of the Federal Sustainable Development Strategy and the Pan-Canadian Framework on Clean Growth and Climate Change, combined with mechanisms for policy evaluation and adjustment, while more explicitly addressing the social component of sustainable development; ensure that sectoral policies, notably energy policies, are well aligned with both frameworks.

Green taxes and other market-based instruments

  • Resist pressure to halt or alter carbon pricing plans due to competitiveness concerns, instead focusing on measures to mitigate those concerns through policy design, revenue recycling and programming targeted at vulnerable sectors; include carbon pricing impacts on businesses, work forces and households in commissioned expert assessments.

  • Review the taxation of energy use, taking into account the gradual roll-out of nation-wide carbon pricing, and adjust as necessary to ensure that energy prices adequately reflect the societal costs of GHG and air pollutant emissions; gradually reduce the petrol-diesel gap and increase diesel taxes for commercial and residential use; reform the tax on fuel-inefficient vehicles to optimise incentives for the purchase of lower emission vehicles across all categories.

  • Continue to review and adjust tax, royalty and subsidy regimes that encourage fossil fuel production in order to meet Canada’s commitment to rationalise and phase-out inefficient fossil fuel subsidies that encourage wasteful consumption by 2025; provincial governments in particular need to make further progress; ensure that Crown royalty and land sale payments are not more favourable for unconventional development than for conventional.

Investing in environmental infrastructure and services

  • Pursue a more strategic approach to project selection for infrastructure investment and develop priority lists for infrastructure projects that deliver multiple objectives in partnership between the federal government and provinces, territories and municipalities; ensure cost-benefit analysis of infrastructure projects consider environmental externalities, such as GHG emissions; use the Canada Infrastructure Bank to ensure greater co-ordination and standardisation in green bonds and other tools aimed at leveraging private sector investment in environmental infrastructure.

Promoting eco-innovation and green markets

  • Provide stable and higher public investment in R&D; shift away from indirect tax credits towards competitive and transparent grants; ensure that energy-related R&D focuses on reducing and mitigating environmental impacts from fossil fuel activities, rather than encouraging increased oil and gas production; ensure innovation programming extends to renewable energy and energy efficiency and the circular economy.

  • Foster domestic demand for clean technology and eco-innovations through public procurement, fiscal incentives and information sharing; improve federal-provincial-territorial collaboration to improve access to financing for Canadian clean technology firms; encourage a greater private sector role in research, development and technology adoption.

The social consequences of the transition towards green growth

  • Ensure that measures to mitigate the distributional impacts of green growth policies preserve the price signal reflecting negative externalities and are narrowly targeted towards vulnerable households.

  • Position Canadians to capture the benefits of green growth by better integrating green skills needs into existing and new skills and training policies, addressing both skilled trades and academic disciplines.

  • Fulfil commitments to Indigenous communities to work with them to reduce their vulnerability to climate change and poor water quality, while supporting and encouraging efforts to capture income and job opportunities for them from green growth in areas such as renewable energy and protected area management.

The international dimension of green growth: Environment, trade and development

  • Maintain Canada’s engagement in international environmental agreements and expand environmentally related development assistance, while pursuing new agreements and partnerships as part of trade agreements with the aim of promoting a level playing field for business, expanding knowledge-sharing and improving environmental outcomes.

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Notes

← 1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

← 2. The federal government collects these revenues in Nunavut, where devolution has not yet been completed.

← 3. The Gas Tax Fund is legislated as a permanent source of federal infrastructure funding for municipalities. It provides about CAD 2 billion annually, indexed at 2% a year, with increases applied in CAD 100 million increments. The 2017 federal budget announced that the Gas Tax Fund is projected to grow from CAD 2.1 billion in 2016/17 to CAD 2.3 billion in 2021/22.

← 4. The British Columbia carbon tax base includes emissions from everyone who combusts fossil fuel in the province, for example. Alberta includes petrol, diesel, natural gas and propane under its carbon levy. Quebec includes the distribution of fossil fuels emitting above the annual threshold of 25 000 tCO2eq in their cap-and-trade system. Energy use in industrial sectors is also included in the systems. The OECD estimated that in 2012, Alberta taxed gasoline at CAD 0.09, compared to CAD 0.20 in British Columbia and CAD 0.15 in Ontario. Some provinces tax diesel at a lower rate than gasoline; some tax biofuels at a lower rate than gasoline and diesel (OECD, 2013).

← 5. Taxes and royalties paid for energy production are not incorporated into OECD calculations of environmentally related taxes.

← 6. In November 2016, Nova Scotia announced that it would introduce its own cap-and-trade system in 2018 (not linked to Quebec and Ontario); New Brunswick has committed to put in place carbon pricing by 2018; Newfoundland and Labrador has adopted enablinglegislation for carbon pricing, but has not yet provided a timeline for implementation. Manitoba agrees in principle to carbon pricing, but has not yet signed the PCF.

← 7. In 2012, the majority of OECD member countries applied an effective carbon rate of at least EUR 150 per tonne of CO2 on at least 10% of national emissions (rates on road sector emissions are usually highest). By comparison, Canada would, in 2022, apply an effective carbon rate of about EUR 75/tonne to 10-15% of emissions; another 50-60% of emissions would be subject to an effective carbon rate of about EUR 40/tonne. The 2022 effective carbon rate in Canada for non-road sectors is in the order of magnitude of those applied in Italy and Finland in 2012. In the road sector, Canada’s 2022 rate would remain low compared to the 2012 levels of other OECD member countries. These rough calculations are based on the OECD (2016e) calculations for effective carbon rates in the OECD for 2012. They exclude provincial product-specific taxes on energy use. The simulation is based on the assumption that the coverage of the national carbon price in Canada would be about 70%, that the composition of CO2 emissions remains constant (as in 2012) and that federal excise taxes on energy use remain constant (as in 2012).

← 8. Market price support for milk accounts for the largest share of Canada’s support. Prices received by farmers are on average 7% higher than those observed in world markets (OECD, 2016b).

← 9. For example, Alberta has committed to 30% renewable electricity by 2030, British Columbia requires 93% ofelectricity to come from clean sources, Nova Scotia is moving to 40% renewables by 2020.

← 10. In British Columbia, provincial, municipal and federal investments have led to almost 600 public charging stations installed, the government of Ontario has pledged to build 500 new public charging stations, and Quebec has over 1 000 free and fee-based electric charging stations across the province.

← 11. For example, the CAD 2 billion over 11 years provided for rural and northern communities will in part support their transition from diesel to renewable sources of energy. In addition, the “Smart Cities Challenge” announced by the government of Canada is expected to provide financing of CAD 300 million over ten years for municipalities that create ambitious plans to improve the quality of life of urban residents, including through green buildings and smart road and energy systems (Finance Canada, 2016a, 2017). The Green Municipal Fund also helps finance innovative municipal green infrastructure priorities, providing CAD 700 million to projects across the country since 2000 (Finance Canada, 2016b).

← 12. Export Development Canada (EDC), a federal Crown corporation, issued green bonds of USD 300 million in 2014 and 2015 to promote investment in environmental infrastructure. The proceeds are used to support eligible projects in areas such as renewable energy, waste and water management, and public transportation.

← 13. The Innovation and Skills Plan’s six key areas are: clean technology, clean resources (such as renewable energy), advanced manufacturing, agri-food, digital industries and health/bio-sciences. The plan includes the establishmentof a new organisation, called Innovation Canada, to lead implementation of the plan’s innovation component and become a one-stop shop for innovators to access government innovation programmes. The 2016 and 2017 federal budgets supported the plan with investments of CAD 2 billion for renewal and expansion of infrastructure at universities and colleges and CAD 800 million over four years to strengthen innovation networks and clusters (ISEDC, 2017).

← 14. Mission Innovation is a global initiative of 22 countries and the European Union to accelerate global clean energy innovation. Participating countries have committed to double their governments’ clean energy R&D investments over five years, while encouraging greater levels of private sector investment in transformative clean energy technologies. See http://mission-innovation.net.

← 15. The 2017 federal budget created a new procurement programme, Innovative Solutions Canada, which allocates a portion of funding from federal departments and agencies to early-stage research in exchange for access to the latest, most innovative products and services. The programme is designed to allow other Canadian jurisdictions to join over time.

← 16. Under the Canadian Environmental Assessment Act and the 2010 Cabinet Directive on Strategic Environmental Assessment, Global Affairs Canada, like other federal departments, is obliged to integrate environmental considerations into development activities and those undertaken by development partners (GAC, 2014a).

← 17. These include a Memorandum of Understanding Concerning Climate Change and Energy Collaborationand an associated action plan (signed in February 2016) and the North American Climate, Clean Energy and Environment Partnership (announced in June 2016 at the North American Leaders Summit). The partnership includes activities related to advancing clean and secure power, driving down short-lived climate pollutants, promoting clean and efficient transportation, protecting nature and advancing science and showing global leadership in addressing climate change (GoC, 2016b).

← 18. The agreement commits members to adhere to international environmental and social best practices in relation to the provision of export credits and to report on the environmental and social impacts of transactions.