Part 5 in a series on Canada’s 2030 Emissions Reduction Plan

Update: On the day this article was published, Mark Carney was sworn in as Canada’s 24th Prime Minister, and his first act was to eliminate the Federal Fuel Surcharge and the Canada Carbon Rebate described below.

You can read about that here.

While Canada is one of the world’s largest greenhouse gas emitters, we do have a plan a national plan to cut our emissions. In fact, we have a law that requires our federal government to set 5-year targets and make plans to hit those targets.

So what is the plan? Is it any good, and how are things going so far?

Our most current version of the plan is the 2030 Emissions Reductions Plan. It’s a 240-page document published in March 2022 that lays out everything our federal government is doing to achieve our near-term target of cutting greenhouse gas emissions by 40 to 45% by 2030.

The plan was further updated with the 2023 Progress Report on the Emissions Reduction Plan – another 227-page document. On top of that, the Commissioner of the Environment and Sustainable Development – an independent officer of the Auditor General – produces regular reports to parliament on the plan and the government’s progress in achieving its goals. The commissioner has produced two annual reports on the plan in November 2023 and 2024 and is committed to releasing new assessments annually.

Then there’s the independent think tanks and climate organizations like the Canadian Climate Institute and the Pembina Institute, who also periodically produce their own assessments.

All that to say – if you want to understand Canada’s plan – and you should – it’s a lot of reading. The good news is I’ve done it for you, and I’ll in a series of posts, I’ll do my best to break it down for you, dear reader.

You’ll need a map

As I said – there is a lot to cover in the plan – but the structure of the plan is pretty straightforward and breaks down into five chapters:

Chapter 1: Introduction – The intro sets the context of what Canada’s emissions profile looks like and covers a history of what has been done to date.  I covered that in my first few posts in this series here, here and here.

Chapter 2:  Road to 2030 for Canada’s Economy: This is the meat of the plan and describes all the federal measures to cut emissions and sustain the economy. The plans themselves are organized by nine major economic sectors – this part is mostly about how emissions will be cut in each sector

• Economy-wide
• Buildings
• Electricity
• Heavy Industry
• Oil and Gas
• Transportation
• Agriculture
• Waste
• Nature Based Solutions

Then, there are three sections describing actions to support the economy through:

• Cleantech and climate innovation
• Sustainable finance
• Sustainable jobs, skills and communities

It’s a lot to digest, so I’ll break down each individual economic sector in its own post and then cover the other stuff like innovation, jobs and finance.

This first post is about the federal plan to cut greenhouse gas emissions that are economy-wide – meaning they work to reduce emissions, regardless of the economic sector.

Chapter 3: Projections – This chapter explains the projections of how the plans are expected to reduce emissions through 2030.

I covered the projections already, but remember these two points:

• The projections are optimistic, and the Commissioner of the Environment says that there is some double counting in the way plans are expected to cut emissions.

• Even with an optimistic view, the federal plan does not get us to the 2030 target.  To reach the target, existing measures need to be made more rigorous or/and new measures need to be implemented that will reduce emissions by 2030. And to be fair, it’s not just the federal government that needs to add measures – provincial and municipal governments, institutions, businesses, and individuals all need to do their parts.

Chapter 4:  Collaborating on Climate Change Mitigation: This part describes how the federal government is collaborating with provinces, indigenous communities and other countries internationally to cut emissions. So, yeah – climate change is a shared problem requiring a great deal of cooperation – but right now, I’m trying to understand what my federal government is doing. I’m not going to spend a lot of time here.

Chapter 5: Looking ahead to 2050. The final chapter lays out the logic that this 2030 ERP is the first step in a series of 5-year plans that are all designed to build on each other to reach net zero by 2050. Got it.

So now that you’re oriented – let’s bite off our first chunk of this ERP: what are the programs Canada developed to cut our emissions across all economic sectors?

Canada’s Plan for Economy-Wide Emissions Reductions

Canada’s 2030 ERP describes 5 main approaches that will cut emissions broadly. These are:

1. Putting a price on carbon pollution
2. Produce more “clean fuels “
3. “Support the transition to the clean economy” – ie: Government grants
4. A “holistic” approach to methane
5. A “carbon management” strategy – ie: carbon capture

On top of those five economy-wide initiatives, the 2030 ERP lists one additional bonus measure, “Greening Government” – which describes the plans for the federal government to cut its emissions from its own operations. It’s not exactly an economy-wide tactic, but it kind of doesn’t fit anywhere else.

1. A Price on Carbon Pollution

If there is any part of the government’s plan that has received a lot of attention, it is the “price on pollution” (as the government calls it) or the “carbon tax” (as opponents call it)

The plan describes carbon pricing as the “cornerstone of Canada’s approach to climate action”, pointing out that “It is much harder to cut pollution if it is free to pollute.”

Economists see carbon pricing as one of the most efficient ways for governments to cut greenhouse gas emissions across the entire economy. This method is effective and low-cost compared to other policies. By putting a price on emissions, it encourages the creation of new technologies and services and motivates Canadians and businesses to adopt cost-effective solutions.

Since 2019, with the passing of the Greenhouse Gas Pollution Pricing Act, all parts of Canada have at least a minimum price on greenhouse gas emissions. I’ve covered how Canada’s carbon pricing works pretty thoroughly in another article – but let’s recap the four most important elements of the policy here:

The Price: The price of carbon pollution started at $20 per tonne of emissions in 2019 – and rose at a predictable rate of $10 per year to reach $50 in 2022. Starting in 2023, the price started increasing by $15 per year and will continue until it reaches $170 per tonne in 2030. As I write this in February 2025, the price is $80 per tonne and is set to increase to $95 per tonne on April 1st. The price schedule is laid out until 2030 to create predictability and certainty for businesses and investors in clean technologies and services.

The Fuel Surcharge: This is the aspect of the program that is the most high profile. The Fuel Surcharge adds a predictable amount of “tax” to fuels like gasoline, diesel, oil, and natural gas. The surcharge is calculated based on the amount of greenhouse gases released when these fuels are combusted, multiplied by the current price per tonne of emissions.

Return of Proceeds: The Federal Fuel Surcharge program returns about 90% of proceeds directly to households, delivered quarterly by cheque or direct bank deposit through the Canada Carbon Rebate payments (formerly known as Climate Action Incentive payments).

Federal officials say this system makes life affordable by returning money to families and that eight out of ten households get more money back than they spend on the fuel charge. Canada’s Auditor General published these conclusions in a 2022 report to parliament and famously, Alberta Premier Danielle Smith is on record stating that her household received more in rebates in 2021 than she paid in fuel surcharges.

The Industrial Price: The industrial component of the federal plan, the Output-Based Pricing System (OBPS), applies to businesses with larger carbon footprints, such as oil producers, chemical manufacturers, automakers and coal or gas power plants.

The OBPS applies automatically to companies that produce more than 50,000 tonnes of CO2e emissions annually.  Companies with emissions between 10,000 tonnes and 50,000 tonnes can also choose to opt into the program.

In 2021, there were 562 companies that reported emissions above 50,000 tonnes, and about 1,000 more who reported emissions between 10,000 and 50,000 tonnes. It’s a relatively small number of companies, but these are mostly large industrial facilities that are Canada’s largest emitters.

It’s called an output-based system because instead of paying the carbon price on the fuel for their operations, these businesses pay based on the total emissions they produce in providing products or services (ie: their output). This recognizes that large industrial emitters create emissions that can go beyond just their fossil fuel use.

The money collected under the OBPS does not get refunded to consumers. Instead, these funds may be used for other climate-related initiatives or to support the transition to a lower-carbon economy in the industries and regions where the funds are collected. 

What is next for the “Price on Pollution”?

In their plan – the federal government alludes to various things they are working on to help ensure that carbon pricing cannot be undone in the future. The plans include:

• New legislative approaches. But they don’t really say what new laws or regulations they are considering.
  
• Developing Canada’s system for selling carbon offset credits. If there is a thriving market to validate and sell credits for the carbon that you prevented from being released, more companies will be motivated to invest in the technology to cut emissions. There need to be regulations that establish the standards for such an efficient and effective market.
  
• Expanding carbon contracts for difference. These are agreements with private companies and investors where the government guarantees the minimum price of carbon offsets in low-carbon projects. This helps remove the risk of investment in these projects – but it also means that the government is contractually obligated to pay for these credits if there is no other market in which to sell them. That would put any future government in a bind if they were planning to undo the existing system.
  
• Supporting Border Carbon Adjustments globally. In global trade, countries that have instituted a carbon price are keen to protect their industries from competition from markets that don’t. Many of these countries are interested in imposing tariffs on goods that are imported from countries that don’t have carbon pricing as a way to level the competitive playing field. If the global community adopted such tariffs broadly, it would be difficult for Canada to abandon its carbon price system because it would then become subject to penalties for an “unfair trade practice” in relation to those who do.

As Canada goes into a federal election, likely this spring – it seems like a virtual certainty that our policy on carbon pricing will change. While there isn’t a lot of talk about changing the industrial price, the fuel tax has become a hot-button issue among voters.

The Conservatives have worked very hard to position the consumer “carbon tax” as a central issue in the upcoming election and have vowed to cancel it.

The leading candidates to be the new Liberal leader have also all expressed intentions to modify or eliminate the current consumer carbon tax, a significant shift from the party’s previous stance.

The key question, of course, is, if you cancel the carbon tax, what are you going to replace it with that is both effective and inexpensive to taxpayers?

2. Produce more “Clean Fuels”

The best way to cut greenhouse gas emissions is to transition away from using fossil fuels for energy in favour of electricity that is generated from non-emitting sources – like hydro, solar, wind and even nuclear.

As much as we’d like to see that happen instantly, as a practical matter, it will take time, and our societies will need to rely on fossil fuels through the transition. So Canada’s plan to cut emissions includes measures to make fossil fuels “less fossil-ey.”

Low carbon intensity fuels – or clean fuels – have significantly lower emissions over their lifecycle than conventional fuels. Examples include ethanol, biodiesel, advanced biofuels such as renewable diesel, liquid synthetic fuels, renewable natural gas, and low-carbon intensity hydrogen.

What makes these fuels clean?  Most “clean fuels” are made from plant mass.  While burning these fuels still releases CO2 into the atmosphere, when the plant mass from which it was made regrows, the new plant mass will re-absorb the CO2 that was released – creating a closed loop of emissions release and reabsorption.

The other main way to make fuel production “clean” is to add carbon capture, utilization and storage (CCUS) measures to the production process.  This aims to capture any carbon released during the production process and then either store it permanently or use the CO2 for other purposes – primarily enhancing oil recovery¹

The barriers preventing clean fuel production in Canada from reaching its full potential include investment uncertainty, up-front capital costs and commercial readiness.  

As of 2023 – low carbon intensity fuels make up less than 6% of Canada’s total energy supply.   Canada’s 2030 ERP aims to increase the production and use of “clean fuels” through four main tactics:

1. Clean Fuel Regulations

In July 2022, Canada finalized new rules to reduce the carbon intensity of the fossil fuels like gasoline and oil we produce and use in this country.

Remember that it requires a lot of energy to produce fossil fuels, so like any other industry, if oil and gas producers can reduce the amount of oil and gas they use in their production process – they will help cut national emissions.

The Clean Fuel Regulations (CFR) require producers and importers to decrease the carbon intensity of these fuels by 3.5 grams of CO2 equivalent per megajoule (gCO2e/MJ) in 2023, with incremental increases leading to a 14 gCO2e/MJ reduction by 2030. For perspective – the baseline carbon intensity of gas and diesel is over 90g of CO2e /MJ – so these regulations represent about a 15% reduction in intensity by 2030

The regulations also set out the rules for a credit market in the fuel sector. Producers and importers of gasoline and diesel can buy offset credits to comply with the reduction requirements. They can also create offset credits by taking actions that reduce the carbon intensity of their products below the regulated levels. Those extra credits can banked for use in later years or sold for profit.

The impact of these regulations is significant – they are forecasted to cut GHG emissions by 26 to 31 million tonnes of CO2 equivalent (MtCO2e) annually by 2030 – representing 7% of Canada’s target for 2030.

2. The Clean Fuels Fund

To encourage investment in producing cleaner fuels, Canada established the Clean Fuels Fund – a $1.5 billion fund designed to help businesses build clean fuel production facilities.  It was announced in budget 2021 and officially launched in June 2021.  Budget 2024 introduced further support, including $776.3 million over six years to bolster the clean fuels sector.

3. The Energy Innovation Program

The Energy Innovation Program (EIP) is a federal program designed to support research, development, and demonstration projects that advance clean energy technologies.

Launched in April 2016, the EIP received an initial allocation of $211.6 million over four years.  Following its renewal in Budget 2017, the program secured ongoing funding of $52.9 million per year to continue advancing clean energy technologies. The program supports a broad range of technologies, but a lot of the money appears to have gone into researching carbon capture utilization and storage.

4. A Hydrogen Strategy for Canada

Hydrogen, if produced with renewable electricity, can be a non-emitting clean fuel. While there may be a lot of theoretical promise in using hydrogen in the future, the technology and its supporting infrastructure are very much in its infancy right now. But Canada, with its hydropower advantage and expertise in producing and transporting liquid natural gas, could become a major hydrogen producer if the market develops in the future.

That’s why, in December 2020, the federal government released the Hydrogen Strategy for Canada. It is a comprehensive plan to position Canada as a global leader in hydrogen production, use, and export, aiming to harness hydrogen as a clean energy source to reduce greenhouse gas (GHG) emissions, create economic opportunities, and achieve Canada’s climate targets.

We’re very much in the early stages of this long-term strategy. So far, Canada has:

• Invested in hydrogen development projects through initiatives like the Clean Fuels Fund.

• Developed partnerships with international hydrogen markets (e.g., Germany).

• Supported hydrogen infrastructure development and pilot projects, such as hydrogen-powered buses and refuelling stations.

It’s a long-term bet whether hydrogen will ever reach the potential some think it has. Canada is taking the early steps to make sure it is in the game if it does.

What’s next for Clean Fuels?

As far as new plans go for Clean Fuels, the federal government has indicated it is working on exploring the feasibility of a bioenergy strategy to optimize how Canada uses its agricultural, forestry and municipal waste resources to generate net-zero energy in the medium and long term.

3. Supporting the Transition to a Clean Economy

Much of the technology that we need to cut greenhouse gases exists today – but it needs to be implemented broadly. This stream of Canada’s plan is about addressing barriers to the adoption of technologies that can reduce emissions.

Generally, that means money in government grants and incentives. The 2030 ERP claims that between 2016 and 2021, the government allocated $100 billion of spending across a range of different funds and programs to encourage the adoption of emissions-reducing technology.² They don’t detail how they came to that number – by my reconning below, the “spending” in this area is probably closer to $135 billion today.

Note that when we say “spending,” we are mixing apples and oranges. Some of these funds are “spending” in the traditional sense – the government gives grants to organizations. In other cases, the government is making debt and equity investments in businesses alongside private investors. In theory, invested money is not necessarily spent, but it is at risk of being lost if those investments don’t work out. In the case of tax credits – governments will forego or refund tax revenues, but in exchange, a private investor has to make a proportionally larger investment which benefits our economy.

4. A “Holistic” Approach to Methane

The Intergovernmental Panel on Climate Change lists methane as a particularly potent greenhouse gas – it does not persist in the atmosphere as long as CO2, but it traps a lot more heat. Methane contributes about 86 times more to warming than a tonne of CO2 over a 20-year period, and it accounts for about 13% of Canada’s total GHG emissions. 

Because most of these emissions are concentrated in three key sectors—oil and gas, agriculture, and waste—tackling methane emissions can be a more straightforward and cost-effective way to achieve significant emissions reductions.

To this end, the Government of Canada released Canada’s Methane Strategy in September 2022 with the objective of reducing domestic methane emissions by more than 35% by 2030, compared to 2020 levels. Canada’s methane strategy includes regulations, funding, and support for clean technology innovation, as well as international engagement.

Some of the highlights of the strategy include:

• New methane regulations for the oil and gas sector: In December 2023, Canada published new draft regulations to reduce methane emissions in the oil and gas by at least 75% reduction of oil and gas methane emissions by 2030 from 2012 levels. The final regulations are expected to be published later in 2025 and come into force in 2027

• Emissions Reduction Fund: In 2020, Canada allocated $750 million to create the Emissions Reduction Fund to support methane reductions in the oil and gas sector.
  
• New Regulations for landfills: Canada is developing new regulations to increase the recovery and destruction of methane from large municipal solid waste landfills by about 50% by 2030 from 2019 levels. In June 2024, Environment and Climate Change Canada published the proposed Regulations Respecting the Reduction in the Release of Methane (Waste Sector), aiming to decrease methane emissions from Canadian landfills by 50% below 2019 levels by 2030.

• Food Waste Reduction Challenge: In Canada, over 46% of food is wasted annually, with 41% of this being avoidable. As it decomposes in landfills, this food becomes an important source of preventable methane emissions. Canada’s Food Waste Reduction Challenge was a $20 million program to encourage innovative solutions to decrease food waste.

In addition to these programs, Canada’s methane strategy highlights a bunch of other programs that will help to mitigate methane emissions – along with all emissions – like measures to develop emissions trading markets, research funding for clean technology innovation and grant funding for clean agricultural technology adoption.

5. Canada’s Carbon Management Strategy

In September 2023, as part of their update to the 2030 ERP, the Government of Canada unveiled a new Carbon Management Strategy.

This strategy encompasses a range of approaches to capture and securely store or reuse carbon dioxide (CO2). Basically, this is mostly about developing carbon capture, utilization and storage in Canada.

According to the IPCC and the International Energy Agency, reaching net-zero emissions is impossible without the rapid and expansive deployment of these technologies, which need to scale up by nearly 200 times by 2050.

However, carbon capture and storage policies are controversial for some. Critics worry that they prolong fossil fuel use by suggesting a technological fix that detracts from investments in renewable energy and necessary systemic changes for a sustainable transition. They also highlight the high costs and unproven economic viability of CCUS, questioning the efficient use of public funds compared to cheaper emission reduction alternatives. Additionally, the infrastructure required for CCUS poses safety and environmental risks, such as potential leaks and groundwater contamination, raising community concerns.

Canada’s strategy is to develop carbon management by implementing supports such as the Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit, Canada’s GHG Offset Credit System, and direct support for technology research, development, and deployment (RD&D). Through these efforts, Canada hopes to come out at the forefront of global carbon management innovations.

It’s not clear that anything really new was announced along with Canada’s Carbon Management Strategy. It seems that the strategy pulled together all of the things being done to support carbon management (mostly carbon capture) and sought to demonstrate how all these things are supposed to work together.

Perhaps more importantly, the Carbon Management Strategy signals Canada’s embrace of carbon capture and sends a soothing signal to Canada’s fossil fuel producers – that there may be a future where they can continue to produce oil and gas despite stricter emissions standards in the sector.

Bonus Tactic: Greening of Government

While not strictly an economy-wide measure to cut emissions, in this part of the plan, the federal government details their actions to cut emissions from their own operations – probably because it does not fit anywhere else.

Our federal government is the owner and manager of the largest fixed asset portfolio in Canada—with 32,000 buildings, 20,000 engineered assets such as bridges and dams, as well as 40,000 vehicles. The Government of Canada is also the largest public purchaser in Canada and can use its buying power to stimulate market demand for low-carbon products and Canada’s clean technology sector.

The Government of Canada has committed to ensuring its operations will be net-zero emissions by 2050 including government-owned and leased real property, fleets, and procurement of goods and services. 

Canada produces their own government greenhouse gas emissions inventory. As of their latest analysis, as of 2023-24, their direct (scope 1 and scope 2) emissions are down 42% vs. the base year 2005-06. That’s a better rate of reduction than for our national emissions and reflects well on the government’s commitment.

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So, what do you think?

Most people want more to be done to address climate change – if you’ve read this far, you now know what our federal government is doing to cut emissions on an economy-wide basis. And, hopefully, you are in a better position to form a point of view on those plans.

Having a point of view on this stuff is important. We are currently in the midst of some very important changes in our country. We will soon have new leaders who will undoubtedly make changes to these plans. You play an important role in choosing those new leaders – not just through your individual vote, but also in how your thoughts and ideas influence the votes of the people you know.

So, what are your thoughts and ideas on Canada’s “economy-wide” emission reduction plans?

Here are some questions you might want to consider:

On Carbon Pricing: It looks like no matter who gets elected, Canada’s policy on carbon pricing will change – that’s a very big deal because it is the baseline policy of Canada’s entire ERP:

• How do you feel about the proposals to change the carbon pricing of the various parties?
  
• Do you think these new proposals will be more effective and/or less costly than what we have today?

Producing Cleaner Fuels:  Our society does not have unlimited resources, and Canada is putting about $2.2 billion over several years primarily into reducing the emissions that come from producing fossil fuels. For perspective, Canada’s current annual federal budget is about $450 billion – so the effort to make fossil fuels less polluting represents about 0.5% of annual spending.

• If we ultimately need to end the use of fossil fuels, is it reasonable to try to make fossil fuels a bit less polluting in the near term, or should all our efforts go toward speeding the transition?

Investing in Carbon Capture: Reading through these plans, it’s clear that supporting carbon capture, utilization, and storage plays a big role in Canada’s climate strategy. While it’s difficult to determine a global spending number, the amount our federal government is investing in CCUS is easily in the tens of billions of dollars. Most expert says we will need carbon capture to deal with the hard-to-abate emissions in order to get to net zero. Critics say that carbon capture gives fossil fuel proponents an excuse to delay transitioning and that no one has yet demonstrated that carbon captured and stored efficiently, safely and at a cost that would make large-scale deployment feasible.

• Do you think Canada should be supporting CCUS as much as it does, or could those funds be put to better use in cutting emissions?

The bottom line: the most important thing you can do is form your thoughts:

• Do you support these plans?
• If not, what would you like our policymakers to do?
• How will you make yourself heard?

1. The largest current use of industrially captured CO2 is to enhance oil recovery. CO2 is injected into depleted oil fields, which reduces the viscosity of the remaining oil, making it easier to extract. ↩︎
2. I should mention that it was at this point in my research that I realized something fundamentally true about government “plans” – they tend to focus mostly on what has already been done. In business, a plan is always about what we are going to do in the future. At the risk of stating the obvious – I think in politics, it is probably too risky to be too clear about what you are committing to do in the future. ↩︎