1. Introduction
The National Round Table on the Environment and
the Economy (NRTEE) has launched a program to examine ecological
fiscal reform (EFR) in Canada. EFR is the systematic alignment
of fiscal policy with other policy tools for the achievement
of simultaneous economic and environmental objectives. After
an initial phase, the EFR program is examining how to develop
and promote fiscal policy that consistently and systematically
reduces energy-based carbon emissions, without increasing other
pollutants, both in absolute terms and as a ratio of gross domestic
product (GDP) in Canada.
The current study explores the role of fiscal
policy in promoting the long-term energy efficiency of Canada’s
industrial sector, with a view to accelerating energy efficiency
in a way that leads to long-term reductions in energy-based
carbon emissions. It is one of three parallel case studies,
which seek to deliver pragmatic, policy-relevant recommendations
on how fiscal policy can promote the development of renewables,
hydrogen, and industrial energy efficiency, in a way that promotes
the general program objective. The other objective of the studies
is to test out approaches, processes, and methodologies that
link issues of energy, climate change, technology development,
and fiscal policy, with a view to generating lessons and findings
in a way that informs policy development in this area.
This report encompasses the second component of
the decarbonization case study, the Economic Study. The first
component, the Baseline Study, examined the nature of energy
efficiency and trends in Canadian industrial carbon-based emissions,
and culminated in the development of a baseline carbon emission
scenario. The Economic Study builds on this first study by specifically
looking at energy efficiency opportunities and the role that
EFR could play in promoting a decarbonized energy system.
1.1 Definitions
and Concepts
A number of definitions described in the Baseline
Study report also apply in this report. We repeat them here.
Industry
Scope
For the purposes of the case study, industry is
defined as establishments engaged in manufacturing and mining
activities. Mining activities are those related to extracting
naturally occurring minerals. These can be solids, such as coal
and ores; liquids, such as crude petroleum; and gases, such
as natural gas. Manufacturing activities involve the physical
or chemical transformation of materials or substances into new
products. These products may be finished, in the sense that
they are ready to be used or consumed, or semi-finished, in
the sense of becoming a raw material for an establishment to
use in further manufacturing.1
Industry in this case study does not include establishments
involved in electrical generation, agriculture, or in providing
services.2
Decarbonization
In this document and accompanying Baseline Study,
the term “decarbonization” refers to the reduction
of energy-based carbon emissions, both in absolute terms and
as a ratio of output, in Canada without an increase of other
pollutants.3 Carbon emissions in the
numerical analysis are encompassed by a broader measurement
of greenhouse gas (GHG) emissions.
Distinction
between Policy and Action
In designing policies and assessing their impact
and costs, it is useful to firmly distinguish an action from
policy. An action is a change in equipment acquisition, equipment
use rate, lifestyle or resource management practice that changes
net carbon emissions from what they otherwise would be. This
study focuses on energy efficiency actions from changes in technology
acquisition, but considers these actions in relation to other
actions to decarbonize. We can estimate the cost of an action
individually or as part of a package (portfolio) of actions.
The cost is the incremental change in costs (positive or negative)
from undertaking the action(s). A policy, or policy instrument,
is defined here as an effort by public authorities to bring
about an action. In the modelling component of this case study
we are careful to distinguish between the two terms. Without
this distinction, it is impossible to identify the impacts of
individual policies or packages of policies and actions to reduce
GHG emissions.4
Direct,
Indirect and Total GHG Emissions
In describing current and future carbon-based
emissions for only one part of the economy (the industry sector)
it is useful to use the concepts of direct and indirect emissions.
The term direct emissions is used to describe emissions that
are produced by a source controlled by an entity (in terms of
this project, industry), while the term indirect emissions describes
emissions that result from that entity’s activity, but
are produced by a source external to the entity.
When considering the impact of actions, it is
important to consider the combined impact on both indirect and
direct emissions, since considering only direct emissions would
actually show an increase in emissions for an action like cogeneration,
while considering direct and indirect emissions together would
tend to show lower total emissions (depending on the carbon-intensity
of utility electricity generation).
1.2
Outline of this Report
This report is structured as follows. In section
2, we explore specific energy efficiency opportunities available
to industry and challenges faced in their adoption. This informs
the methodology for developing alternative carbon emission forecasts,
which we present, along with the forecasts, in section 3. These
directly serve as the basis for an economic analysis in section
4 where we examine the cost implications of the alternative
scenarios and how policy can be directed to achieve the carbon
emission reductions identified in these scenarios. We conclude
by forwarding policy recommendations.
