Regional variability and its impact on the decarbonization of emissions-intensive, trade-exposed industries in Canada

ABSTRACT

Emissions-intensive, trade-exposed (EITE) industries must decarbonize to limit global warming to 1.5°C. This study explores how policy stringency and regional variability impact EITE industrial decarbonization. It uses Canada as a case study due to its heterogeneous industrial sector and high regional resource variability. The study has two scenarios: one with global climate action where the world pushes to limit warming to 1.5°C, and one where Canada acts to achieve net-zero emissions by 2050 and the rest of the world lags. The scenarios differ in three ways: the global price of oil, the pace of technological change for low emission technologies, and domestic climate policy. In the global action scenario, a carbon price of $430USD₂₀₂₀ was needed to achieve 75% decarbonization of EITE industries by 2050. In our global inaction scenario, EITE industries only decarbonize 25%, as domestic climate policy considered international competition and the risk of industrial shutdown. If competitiveness concerns persist as simulated in this scenario, Canada is highly unlikely to achieve deep industrial decarbonization by 2050. The results also show that regional variability plays a significant role in low emissions technology adoption. While all regions will need targeted innovation and commercialization support as well as market uptake mechanisms, we find that relative advantages and disadvantages in terms of resource availability and industrial mix play an important role in how regional decarbonization occurs. For instance, regions with inexpensive local fossil fuels and ready geology suitable for CO₂ storage have a high uptake of carbon capture and storage. Regions with access to abundant hydroelectricity rely more on electrification as a decarbonization pathway. Regions with no relative resource advantages are at greater risk for industrial shutdown due to the higher cost of decarbonization.

Key policy insights

• Achieving national deep decarbonization of EITE industries in Canada or elsewhere is highly unlikely without global climate action due to competitiveness concerns.

• Policymakers interested in addressing competitiveness concerns might do so either through policy mechanisms that support the uptake of low emission technologies, mechanisms that penalize regions without decarbonization policy, or both.

• Policymakers should consider relative regional advantages and disadvantages to EITE decarbonization by designing policies that account for industrial heterogeneity and regional resource availability.

KEYWORDS:

• Emissions-intensive, trade-exposed industries
• climate policy
• energy-economy modelling
• regional variability

Acknowledgement

The authors gratefully acknowledge Mitacs and Navius research for funding this study through the Mitacs Accelerate internship.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The federal backstop applies to all provinces that do not have an equivalent EITE climate policy.

2 We iteratively increased the emissions intensity benchmarks by 0.25% from the current OBPS benchmarks.

3 The structure of the sector refers to the share of each product in the overall production of EITE industries.

4 The process emissions reductions pathway often relies on technologies that use low carbon fuels such as hydrogen, electricity, and biomass. Therefore, the emissions reductions attributed to this pathway often result in an underrepresentation of other pathways.

5 The CCS technology used in this study is post-combustion capture with chemical absorption. This technology has a high technology readiness level and is already used in commercial applications around the world (IEA, 2020a).

Additional information

Funding

This work was supported by a Mitacs Accelerate internship in partnership with Navius Research Inc. [grant number Mitacs Accelerate].