With the adoption of Bill C-12 in 2021, Canada embraced a net-zero approach to climate policy, setting a definitive target to achieve net-zero greenhouse gas emissions by 2050. While the goal is clear, the complex pathway toward achieving it remains less defined, particularly concerning how the industrial sector – a major source of Canada’s emissions – will evolve over this time.
A recent Ivey Business School research brief, Potential Pathways to a Net Zero Industrial Sector: Insights for Canadian Businesses by Nouri Najjar, draws on insights from economics, highlighting both the progress made and the challenges that lie ahead.
In the brief, Najjar, Assistant Professor of both Business, Economics, and Public Policy and Sustainability at Ivey, underscores two primary findings regarding Canada's industrial sector's journey to net-zero. Firstly, while there has been a reduction in emission intensity – the amount of CO2 emitted per dollar produced – since 1990, the pace falls significantly short of meeting the 2050 target. Secondly, even substantial changes in the composition of Canada’s industrial sector may not be adequate to achieve net-zero, emphasizing the pivotal role of firms in driving transformative change.
Najjar emphasizes the importance of businesses in this transition, saying, "Firms play a crucial role in driving changes necessary for Canada's industrial sector to meet the net-zero target."
The analysis reveals that while there has been progress, with emission intensity falling by 13 per cent since 1990, total emissions have increased by 37 per cent over the same period. Najjar, stresses urgency is required to keep the accepted goal within sight.
"The pace of decline in industrial emission intensity needs to increase sevenfold for the sector to reach net-zero by 2050. Current trends suggest that significant acceleration is required," he said.
Furthermore, the study underscores the need for a multifaceted approach, considering both compositional changes and technique-related improvements throughout various industrial sectors in Canada.
"Reshuffling economic activity across industries alone will not be enough to achieve net-zero,” said Najjar. "We need a comprehensive strategy that encourages industries to clean up."
The report asserts that any regulation or policy will push the industrial sector toward net-zero in one of two ways. This will happen either by changing the composition of industries active in the sector, or pushing industries to become cleaner by altering how firms operate in each industry. Successful policy needs to increase the relative size of cleaner surviving firms, incentive firms to adopt cleaner processes, or both.
Furthermore, the report highlights what’s at stake for firms on the pathway to a net-zero industrial sector. Early movers that adopt process improvements to lower emission intensities may gain market share, while firms who opt to delay adoption risk being unable to compete with cleaner competitors.
Overall, Canada's journey toward net-zero in the industrial sector presents both challenges and opportunities, but Najjar believes there is reason for optimism. Collaboration between businesses, policymakers, and stakeholders is imperative to drive the necessary transformations and accelerate progress toward achieving net-zero emissions by 2050.
During this critical juncture, clear policies will incentivize firms to more quickly adopt cleaner technologies and processes. This will jump-start the journey toward net-zero, benefiting both the economy and the environment.
“With concerted efforts, Canada can show significant leadership, demonstrating its commitment to a sustainable future for generations to come and creating opportunities for leading Canadian firms,” said Najjar.
