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Decarbonizing Heavy Industry: The Low-Carbon Transition of Canada’s Emission-Intensive and Trade-Exposed Industries Report of the Standing Senate Committee on Energy, the Environment and Natural Resources The Honourable Rosa Galvez, Chair The Honourable Michael L. MacDonald, Deputy Chair SENATE SÉNAT CANADA April 2018 For more information please contact us: by email: [email protected] by mail : Standing Senate Committee on Energy, the Environment and Natural Resources Senate, Ottawa, Ontario, Canada, K1A 0A4 This report can be downloaded at: www.senate-senat.ca/enev The Senate is on Twitter: @SenateCA, follow the committee using the hashtag #ENEV Ce rapport est également disponible en français. 3 TABLE OF CONTENTS MEMBERS OF THE COMMITTEE .................................................................. 5 ORDER OF REFERENCE ............................................................................ 6 ACRONYMS ............................................................................................ 8 EXECUTIVE SUMMARY ............................................................................. 9 ADDRESSING CLIMATE CHANGE ............................................................. 11 Canada’s Emission Commitment ........................................................ 12 EMISSION-INTENSIVE AND TRADE-EXPOSED INDUSTRIES ......................... 19 Large Industrial Emitters .................................................................. 21 EITE AND THE NEW CLEAN ECONOMY ...................................................... 25 The Canadian Advantage .................................................................. 26 CARBON LEAKAGES AND COMPETITIVENESS RISKS................................... 28 POLICY OPTIONS: WHAT THE COMMITTEE HEARD ..................................... 30 Carbon Pricing ................................................................................. 31 Clean Fuel Standard ......................................................................... 39 Green Procurement and Infrastructure ................................................ 41 Clean Technologies and Long Term Decarbonization ............................. 42 MOVING FORWARD ............................................................................... 47 APPENDIX A – LIST OF WITNESSES ......................................................... 49 APPENDIX B – FACT FINDING MISSIONS –LIST OF WITNESSES ................... 59 Decarbonizing Heavy Industry: The Low-Carbon Transition of Canada’s Emission-Intensive and Trade-Exposed Industries 33 4 Decarbonizing Heavy Industry: The Low-Carbon Transition of Canada’s 5 Emission-Intensive and Trade-Exposed Industries MEMBERS OF THE COMMITTEE The Honourable Rosa Galvez, Chair The Honourable Michael L. MacDonald, Deputy Chair The Honourable Senators: Jane Cordy Renée Dupuis Paul J. Massicotte Percy Mockler Richard Neufeld Dennis Glen Patterson David Richards Judith Seidman Howard Wetston Ex officio members: The Honourable Peter Harder, P.C. (or Diane Bellemare), or (Grant Mitchell) The Honourable Larry W. Smith (or Yonah Martin) The Honourable Yuen Pau Woo (or Raymonde Saint-Germain) The Honourable Joseph A. Day (or Terry M. Mercer) The Committee would like to recognize the following Senators who are no longer serving members of the committee whose contribution to the study was invaluable: The Honourable Senators: Douglas Black, Tony Dean, Joan Fraser (retired), Diane F. Griffin, Daniel Lang (retired), Elaine McCoy, Grant Mitchell, Pierrette Ringuette Other Senators who have participated from time to time in the study: The Honourable Senators: Salma Ataullahjan, Diane Bellemare, Lynn Beyak, Joseph A. Day, Michael Duffy, Nicole Eaton, Tobias C. Enverga (deceased), Stephen Greene, Janis Johnson (retired), Yonah Martin, Paul E. McIntyre, Don Meredith (retired), Ratna Omidvar, Nancy Greene Raine, Bob Runciman (retired) and Scott Tannas. Parliamentry Information and Research Service, Lilbrary of Parliament: Sam Banks and Marc LeBlanc, Analysts Senate Committees Directorate: Maxime Fortin, Committee Clerk Brigitte Martineau, Administrative Assistant Decarbonizing Heavy Industry: The Low-Carbon Transition of Canada’s Emission-Intensive and Trade-Exposed Industries 5 6 ORDER OF REFERENCE Extract from the Journals of the Senate, Thursday, March 10, 2016: The Honourable Senator Neufeld moved, seconded by the Honourable Senator Frum: That the Standing Senate Committee on Energy, the Environment and Natural Resources be authorized to examine and report on the effects of transitioning to a low carbon economy, as required to meet the Government of Canada’s announced targets for greenhouse gas emission reductions. Recognizing the role of energy production, distribution and consumption in Canada, the committee shall be authorized to: (a)identify and report on the impact transitioning to a low carbon economy will have on energy end users, including Canadian households and businesses; (b)identify and report on the most viable way the following sectors — electricity, oil and gas, transportation, buildings and trade-exposed energy intensive industries — can contribute to a low carbon economy in meeting Canada’s emission targets; (c)examine and report on cross-sector issues and undertake case studies, if necessary, on specific programs or initiatives aimed at reducing greenhouse gas emissions; (d)identify areas of concern and make any necessary recommendations to the federal government that will help achieve greenhouse gas emission targets in a manner that is sustainable, affordable, efficient, equitable and achievable. That the committee submit interim reports on identified sectors, cross-sector issues and case studies and submit its final report no later than September 30, 2017, and that the committee retain all powers necessary to publicize its findings until 180 days after the tabling of the final report. After debate, The question being put on the motion, it was adopted. Charles Robert Clerk of the Senate Decarbonizing Heavy Industry: The Low-Carbon Transition of Canada’s Emission-Intensive and Trade-Exposed Industries 6 Decarbonizing Heavy Industry: The Low-Carbon Transition of Canada’s 7 Emission-Intensive and Trade-Exposed Industries Extract from the Journals of the Senate, Tuesday, September 26, 2017: The Honourable Senator Neufeld moved, seconded by the Honourable Senator Martin: That, notwithstanding the order of the Senate adopted on Thursday, March 10, 2016, the date for the final report of the Standing Senate Committee on Energy, the Environment and Natural Resources in relation to its study on the transition to a low carbon economy be extended from September 30, 2017 to June 30, 2018. The question being put on the motion, it was adopted. Nicole Proulx Clerk of the Senate Decarbonizing Heavy Industry: The Low-Carbon Transition of Canada’s Emission-Intensive and Trade-Exposed Industries 7 8 ACRONYMS bbl Barrel CCS Carbon capture and sequestration CO2 Carbon dioxide CO2 eq Carbon dioxide equivalents ECCC Environment and Climate Change Canada EITE Emission-intensive and trade-exposed GDP Gross domestic product GHG Greenhouse gas GJ Gigajoule Mt CO2 eq Megatonne (1 million tonnes) of carbon dioxide equivalent NRCan Natural Resources Canada TSM Towards Sustainable Mining UNFCCC United Nations Framework Convention on Climate Change Decarbonizing Heavy Industry: The Low-Carbon Transition of Canada’s Emission-Intensive and Trade-Exposed Industries 8 Decarbonizing Heavy Industry: The Low-Carbon Transition of Canada’s 9 Emission-Intensive and Trade-Exposed Industries EXECUTIVE SUMMARY The Standing Senate Committee on Energy, large amounts of energy to operate and are the Environment and Natural Resources is large emitters of carbon emissions. Since studying what it will cost ordinary Canadians industries compete with international firms and businesses to meet Canada’s at home and abroad, they are highly greenhouse gas (GHG) emission reduction vulnerable to carbon pricing programs and targets. It is examining the effects Canada’s other emission reduction requirements that GHG reduction targets will have on five place them at a competitive disadvantage sectors of the Canadian economy: among foreign competitors that are not electricity, transportation, oil and gas, bound by similar emission restrictions. buildings and emission-intensive trade- exposed industries that are mostly heavy Overall, the carbon footprint of Canada’s industries that compete in international heavy industries is among the smallest in markets. the world due to the country’s clean electricity generation and abundant supply Emission-intensive trade-exposed industries of natural gas as a feedstock for industrial (or heavy industries) are the subject of the processes. This stands in contrast to that of committee’s current study of the low-carbon Canada’s major foreign competitors which transition and it represents the committee’s rely on coal for electricity and industrial third interim report. The committee released feedstock. its first interim report on the electricity sector in March 2017 and its second interim Carbon pricing is a central component of report on transportation in June 2017. Canada’s plan to achieve its Paris Agreement emission reduction In a final report, the committee will make commitments of 30% below 2005 levels by recommendations to the federal 2030. It marks new fiscal territory for many government that will help achieve Canada’s Canadian governments. Witnesses emission reduction commitments in a representing industries within
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