Insights & Analysis

December 4, 2020

Canada’s net zero goal: To achieve it, we must first define it

In 2019, the federal government committed to reaching net zero emissions by 2050. More recently, Ottawa has taken steps to formally enshrine that commitment into federal law. The proposed legislation, known as Bill C-12, establishes the nation’s commitment to net zero in law in the following ways:

  • The Minister of Environment will be required to set emissions reduction targets every five years beginning in 2030 and send a progress report to Parliament for each target.
  • The proposed legislation requires that an emissions reduction plan, a progress report, and an assessment report be tabled in each House of Parliament with respect to each target period.
  • The Minister of Finance will also be required to provide an annual report regarding actions taken to mitigate the government’s financial risk and capitalize on opportunities related to climate change.

Bill C-12 also states that it will engage the public and seek advice from an advisory committee. Bill C-12, in its entirety, can be found here.

One might wonder how progress—or lack thereof—will be enforced. And, likewise, how effective such legislation will be in actually achieving net zero emissions. While these are important questions, there is an even more fundamental one: what does net zero emissions mean?

This concept is not as straightforward as it sounds and how, exactly, Canada defines net zero will have immense consequences. It will affect individuals, jobs, and industries within Canada, and impact progress itself. In this analysis, we tackle these questions: Where did net zero come from? What does it mean for Canada? And what still needs to be clarified?  

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Where did the idea come from?

Global climate change commitments have been around since the 1990s. But the concept of net zero is more recent. In a 2018 report, the United Nations Intergovernmental Panel on Climate Change (IPCC) said it was necessary to limit further temperature rise to 1.5C in order to avoid the most devastating impacts of climate change due to storms, floods, droughts, forest fires, and the like. To do this, the report said, required getting global emissions to net zero emissions by 2050.

The IPCC even provided a definition of net zero:

Net Zero, as defined by the Intergovernmental Panel on Climate Change

where a balance is achieved between anthropogenic emissions by sources and removals by sinks of greenhouse gases

This pronouncement spurred many individual countries to declare national targets to reach net zero emissions. These countries include Sweden by 2045; the UK, France, New Zealand, Japan, and South Korea by 2050; and China by 2060, to name a few. Many countries have also made these targets legally binding or plan to do so. It is worth noting, however, that some, like Canada, do not have any legal consequences for failing to meet their announced commitments.

Why “net” instead of zero emissions?

The use of the word “net” is intentional and important. It is a recognition that all activities that emit carbon will not and should not be eliminated by 2050; in the absence of major technological innovation, this would mean serious consequences and hardship for individuals and industries.

For instance, decreasing emissions will require a shift away from burning fossil fuels, a major source of emissions. But for many activities, there are few, if any, cost-effective solutions to wholly replace the use of fossil fuels in the foreseeable future.

As of now, the use of fossil fuels is still necessary for individuals across the globe to continue to heat their homes in the winter, charge their electronics, and explore new parts of the world. It is likewise necessary for businesses to continue to produce the products we use every day, run operations, and serve their customers. In other words, we could reach zero emissions by arresting all activities that emit carbon, but it would come at an unbearable cost of lost jobs and income, prosperity, quality of life, and of leaving millions behind, unable to access or afford basic needs.

Therefore, net zero is not about eliminating all emissions. Instead, net zero means that for every ton of CO2 that is emitted into the atmosphere due to human activity, an equal amount must be removed. Net emissions can therefore be reduced through things like improving energy efficiency, electrifying production processes, increased use of renewable energy, and something known as “offsetting” emissions.

Carbon offsetting is when an individual or company that emits carbon reduces or removes emissions elsewhere. For instance, an individual who takes a flight to Cuba could invest in a renewable wind farm, so the two activities cancel each other and the net impact to the environment is zero. To use a personal analogy, your consumption of higher calorie meals over the holidays may be “offset” by an increase in physical activity to burn off those calories.

Emissions can be removed through natural or technological processes. One example is planting more trees, a powerhouse for removing carbon. Trees, sometimes referred to as a “carbon sink”, basically “consume” carbon while releasing oxygen. Another is the use of technologies like carbon, capture, and storage which quite literally “captures” carbon emitted from the burning of fossil fuels and other industrial processes. It can be pumped underground or used as a manufacturing input to produce items as diverse as carbon fibre, soap, or hydrogen fuels.

This means there are two important components for reaching net zero, as seen in the diagram below:

  1. Decreasing emissions from existing sources.
  2. Increasing activities that remove emissions.
Achieving net zero by 2050, graph by BCA
Chart: Created by BCA

What does net zero mean from a national perspective?

Net zero is ultimately a global objective; international emissions are lowered and those that remain are offset by actions to remove carbon from the atmosphere. While it may seem straightforward from this perspective, it becomes a little more nebulous at a national level.

When we think specifically about Canada reaching net zero, one question that arises is: which emissions (and offsets) are Canada’s, and which are the responsibility (or credit) of others? At a global level, this question is irrelevant. But nationally, it is consequential: for progress, for equity, and for accountability.

Increased globalization of business creates a layer of complexity. It is not uncommon for the production process to span multiple countries while consumption takes place in yet another. Here are a couple of scenarios which highlight the complexity of setting a national target:  

  1. A Canadian company imports natural gas from the US and sells the final product for use in Canada. Who is responsible and for which emissions?
  2. A Canadian company reduces net global emissions by exporting a lower-emissions fuel, such as LNG, to displace coal-fired electricity production in another country. Which country gets credit for the reduction of emissions?  

Canada’s working definition of net zero in Bill C-12 offers no answers:

Net zero, as defined by the Government of Canada

anthropogenic emissions of greenhouse gasses into the atmosphere are balanced by anthropogenic removals of greenhouse gases from the atmosphere over a specified period.

Who is responsible?

Who is responsible for the emissions, and offsets, in each of the two scenarios above? Based on the federal government’s definition, it is far from clear.

It is possible “our economy” is defined as the processes and activity that take place on Canadian soil. If this is the case, in Scenario A, emissions from the production process would not count towards Canada’s emissions totals, whereas emissions from consumption would. In Scenario B, Canada would not get any credit for the reduction in global emissions.

Scenario A could lead to an adverse effect. From an emissions standpoint, it would be better to import rather than produce fossil fuels that are consumed in Canada. This outcome is one component of an issue known as carbon leakage where companies decrease production in Canada—as the result of higher costs and/or more regulation associated with policies aimed to achieve net zero—and demand and production are picked up by companies located in other parts of the globe. Emissions on Canadian soil decrease as more is imported but could be unchanged or even increase globally if shifted to higher-emitting operations elsewhere.

This would defeat the ultimate purpose of a net zero target to decrease global emissions. What’s more, it would decrease investment in Canada—and with it jobs and incomes. It could also increase costs to Canadian consumers, all for little, and possibly even negative, benefit to the environment.

In scenario B, Canadian businesses would be directly responsible for reducing global emissions but would get no credit for their actions, even if they result in more progress towards net zero than could be achieved through domestic investments. It could be more efficient, cost-effective, and environmentally beneficial to focus on reducing emissions from “low-hanging fruit” opportunities around the world. But focusing solely on emissions that take place on Canadian soil misses those opportunities, increasing costs and potentially resulting in slower emissions reduction on a global level

Using just these two example scenarios, the lack of clarity from the existing definition becomes apparent and its consequences clear.

Questions that need to be addressed

What is meant by “our economy”?

Which emissions count as a part of “our economy” and which do not? The federal government will need to consider which emissions Canada has the greatest control over, and responsibility for, in making this distinction. It must also consider the potential for carbon leakage.

Which offsets count?

Which types of offsets will count toward a reduction in net emissions? What can and should be included is still largely up for debate by countries and organizations across the globe. For instance, will offsets made outside of a company’s direct value chain count? Likewise, will activities to offset emissions internationally be counted? Some countries have chosen to include international offsets (Sweden and Denmark) while others have not (UK and France). While excluding foreign offsets may seem the most ‘stringent’ it also overlooks bigger and better opportunities, increasing the cost of global progress. This international perspective is addressed within Article 6 of the Paris Agreement which aims to create a market for carbon to maximize international progress; however, it has yet to be finalized.

Is international aviation and shipping captured?

Will international travel by Canadian airlines and shipping companies be captured? Similarly, some companies have included international travel in their accounting of emissions while others have not. This is an issue worth reviewing multilaterally. If all countries choose to exclude international travel, then all countries could theoretically reach individual net zero targets while the globe does not.

How do we measure carbon sinks?

The key natural sink opportunity to consider in Canada is its forests. From what we understand, existing natural carbon sinks will not be captured (which fits with the IPCC’s definition above), however, changes to carbon sinks (i.e., growth and increase) will be captured. What is still unclear, however, is if this only includes changes due to human activity and, if so, how this will be measured and separated from naturally occurring changes. Forest management provides a potentially large opportunity for removing carbon but only if it is counted and incentivized.

These outstanding questions should not be taken lightly. The answers to them will define the future of our prosperity and economies. While the federal government seems to be going full steam ahead in its ambition to achieve net zero, it cannot do so without first defining what net zero actually means. Applying the IPCC’s global definition leaves too many unanswered questions and makes it unclear what target the federal government is trying to achieve.

Moreover, the pace and breadth of change set forth by a net zero commitment mean the risks of unintended consequences run especially high. While the risk of missing the target is grave on a global scale, the risk of unintended consequences for competitiveness, jobs, opportunities, and livelihoods in Canada is just as dire. It is incumbent upon the government to create a clear definition that maximizes Canada’s global contribution to emissions reduction while limiting harmful consequences to Canadians.

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