Canada is a very energy-intensive economy for many reasons including its size, climate and structure of its economy. Larry Hughes and Ayesha Herian from Dalhousie University write on The Policy Options website about the challenges the country has in decoupling GHG emissions and its economic growth.
The correlation between GDP and greenhouse gas emissions
Since 1956 our GDPs and emissions have mostly increased apace. If we are to meet our 2030 emissions-reduction target, they must be “decoupled.”
For much of the post-Second World War period, the growth of many national economies was closely correlated with an increase in greenhouse gas (GHG) emissions. The strong coupling of economic growth and GHG emissions has been a major contributor to human-induced climate change.
During this period, Canada was no exception. Between 1956 and 1995, Canada’s economy (represented by gross domestic product, or GDP) and GHG emissions exhibited a strong coupling, increasing by over 300 percent and 160 percent, respectively, according to Statistics Canada data.
In November 2016, the federal government ratified the Paris Agreement on Climate Change, thereby pledging to meet Canada’s Intended Nationally Determined Contribution (INDC), a 30 percent reduction in GHG emissions, from 735 megatonnes (Mt) in 2005 to 515 Mt in 2030.
For Canada to achieve its INDC, each province will have to reduce its emissions by 30 percent from the level in 2005, by 2030. The provinces will also have to decouple their economies from their emissions, since no province wants to sacrifice its economy to achieve its emissions target.
Ideally, a province will want to achieve a perfect decoupling, growing its GDP at a rate at least equal to the rate at which its emissions are declining. This implies that by 2030 not only should each province’s emissions be 30 percent below 2005 levels, its GDP should also be at least 30 percent higher.
Despite the wide range of emissions-reduction policies and regulations presently in place at the provincial level, the latest numbers from Canada’s 2017 National Inventory Report (NIR) indicate that, as of 2015, Canada is not on track to either meet its INDC or to decouple its emissions from the economy. As figure 1 shows, Canada’s GDP 2015, relative to the value in 2005, had increased by almost 18 percent, while its emissions over the same period had declined by about 2.5 percent. Since 2005, Canada has shown no sign of either meeting its 2030 emissions target or decoupling its emissions and GDP. The decline in GDP and emissions in 2008 and 2009 proved to be short-lived; since 2009, there has been a very strong correlation between the increase in GDP and the increase in emissions.
Canada’s emissions and its GDP are the sum of the provincial emissions and GDPs. To understand what has happened at the provincial level, we must examine each province separately. (Unless otherwise stated, GDP and GHG are expressed relative to 2005 levels.)
Provinces whose GDP increases exceed the national increase
In 2015, the increase in GDP of each of the four western provinces (Manitoba, Saskatchewan, Alberta, and British Columbia) exceeded that achieved nationally, and, with the exception of British Columbia, the change in each province’s emissions also exceeded the national level (figure 2).
Since 2009, Alberta’s economy and emissions have been strongly coupled together, with the continued expansion of the petroleum industry and support industries, including transportation, construction and real estate. The fall in the price of crude oil in 2014 had a significant impact on Alberta’s economy, but not to the same extent on GHG emissions, since construction projects and oil production continued into 2015.
Although it has the second-highest emissions growth and the fourth-largest GDP growth of any province, Saskatchewan experienced only a minor decline in its GDP in 2015 and no change in emissions. This is due in large part to the diversification of its primarily resource-based economy and industrial base, which rely heavily on emissions-intensive energy sources.
Manitoba’s GDP has grown steadily since 2005, largely because of an increase in agriculture production and a number of major power projects. Since Manitoba is less dependent on the extraction and sale of fossil fuels, its emissions have remained close to 2005 levels.
British Columbia, despite having been the first province to introduce a carbon tax in 2008, has not seen the anticipated decline in emissions, although its emissions per capita have declined. An increasing reliance on low-emissions industries, notably construction and real estate, has meant its economy has grown, but not at the expense of increasing emissions.
There is no sign of decoupling in any of these provinces; even the fall in the price of crude oil, which resulted in a considerable reduction in Alberta’s GDP, amounted to only a minor decline in emissions.
Provinces whose GDP increases were less than half of the national increase
Like their western counterparts, three of the four Atlantic Provinces (Newfoundland and Labrador, Nova Scotia, and New Brunswick) have shown little progress in decoupling their GDPs from their emissions. Yet their trajectories are very different: In 2015, GDP growth in all three provinces was the lowest in the country, and less than half that experienced nationally (figure 3).
The erratic patterns of Newfoundland and Labrador’s GDP and emissions reflects the weakness of its economy, high unemployment and its reliance on royalties from the extraction of crude oil for about one-third of its revenue. By 2015, the slight rise in its GHG emissions was due to electrical generation and road transportation, which was offset by declines in petroleum refining and fugitive emissions.
Nova Scotia and New Brunswick are the only provinces to have already met their 2030 INDC targets, with emissions reductions of 30.2 percent and 30.5 percent, respectively. They are also the provinces with the lowest GDP increases. Both provinces demonstrate the negative effects of a decline in emissions when emissions are strongly coupled to GDP.
About 70 percent of the decline in New Brunswick’s emissions was due to a shift in NB Power’s energy mix, as the province opted for lower-emissions energy sources. Most notably, the province scaled back operation of its largest coal-fired thermal generation station and restarted the Point Lepreau nuclear reactor.
In Nova Scotia, slightly over 50 percent of the decline in its emissions was due to changes in its electricity sector, and to the combination of regulations requiring Nova Scotia Power to reduce its consumption of emissions-intensive coal and to increase its use of renewable electricity sources. The remaining decline in emissions was the result of the closing of two large energy-intensive paper mills and the province’s only refinery, as well as a decline in demand for transportation. These occurrences had a significant impact on its GDP.
Provinces exhibiting decoupling
While none of the seven provinces described above have demonstrated any meaningful sign of decoupling, the three remaining provinces (Quebec, Prince Edward Island and Ontario) have experienced varying degrees of success in reducing emissions while achieving GDP growth close to national levels.
Public awareness of climate change, galvanized by events such as the 1998 ice storm, prompted Quebec to become one of the first jurisdictions in North America to introduce climate change programs such as the Green Fund and Climate Change Action Plan, which set ambitious GHG emissions-reduction targets and instituted a levy based on the carbon content of fossil fuels. These policies enabled Quebec’s industries to become more competitive by reducing their dependence on foreign oil products, as they opted instead for less expensive and less carbon-intensive energy sources such as electricity and natural gas, thereby reducing the province’s emissions and improving its economy.
About three-quarters of Prince Edward Island’s electricity supply is met by NB Power (the remainder is from on-Island wind farms). Most of the province’s GHG emissions come from transportation and the built environment, and are sensitive to changes that affect these two sectors. Emissions reductions in the built environment can be attributed to energy efficiency programs and the shift from heating oil to electric heat-pumps. Contributions to Prince Edward Island’s GDP growth include fishing (reflecting a good lobster season) and tourism, which experienced a record year in 2015 (aided by lower values in the Canadian dollar).
Since 2005, Ontario has introduced a number of emissions-reduction policies, including the 2007 Climate Change Action Plan, the 2009 Green Energy Act, and the 2016 Climate Change Action Plan. The province has also introduced a feed-in tariff, which guarantees prices to small renewable energy producers (such as homeowners, communities and businesses), and it has provided other financial incentives to encourage the transition to renewable energy and green infrastructure. The rapid decline in Ontario’s emissions between 2005 and 2009 was the result of policies it adopted in 2001, to phase out the generation of electricity from coal in favour of natural gas and renewables. The primary impetus for this decision was to address public health concerns, rather than to mitigate the impact of climate change. After 2010, emissions declined in the industrial and manufacturing sectors, while the growth of service-based industries contributed to the increase in the province’s GDP since the 2009 contraction.
From now to 2030
All provinces experienced change in their emissions and GDPs between 2005 and 2015; however, not all experienced decoupling. At one extreme, Nova Scotia and New Brunswick greatly reduced their emissions but experienced limited GDP growth, while at the other, Alberta and Saskatchewan had significant growth in both emissions and GDP.
With the exception of Nova Scotia and New Brunswick, all provinces will need to reduce their emissions if they are to meet their individual INDC targets. For most provinces, the size of this problem cannot be overstated. For example, Alberta’s emissions grew by 4.1 Mt/year, increasing to 233 Mt in 2005 and to 274 Mt in 2015; if Alberta is to reach its 30 percent reduction by 2030, it will need to reduce emissions by 7.4 Mt/year. In contrast, Ontario’s emissions fell by 3.8 Mt/year between 2005 and 2015, requiring it to achieve annual reductions of 1.5 Mt/year between 2015 and 2030 (table 1).
There is no one-size-fits-all approach to emissions reduction. Emissions can be reduced by accident (Ontario’s phase-out of coal) or by design (Quebec’s regulations targeting the use of oil in industrial processes). In some instances, reductions can have economic consequences (Nova Scotia’s mill and refinery closures) or create future risks (Ontario’s decision to replace coal with natural gas).
Maintaining or improving provincial GDPs across the country while reducing emissions will require each province to find, retain and, in some instances, reshape industries so they fit into a low-emissions economy. The worldwide search for such industries, the small pool of them in Canada and Canada’s continued reliance on resource extraction will only exacerbate the challenges Canada will face if it is to decouple its emissions and economy by 2030.