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
energy 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 first component of
the decarbonization case study, the Baseline Study. In this
report we examine the nature of energy efficiency and trends
in industrial carbon-based emissions. It culminates in the development
of a baseline carbon emission scenario. A second report, the
Economic Study, examines specific energy efficiency opportunities
available to industry and challenges faced in their adoption.
Alternative carbon emission scenarios are developed, economic
implications assessed and policy recommendations developed.
1.1 Definitions
and Concepts
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 Economic 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.
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 a background
section we 1) discuss basic concepts relating to energy efficiency,
2) review trends in Canadian industrial energy use and greenhouse
gas emissions, and 3) provide an overview of current policy
relating to industrial energy efficiency. We then go on to describe
our method for developing the baseline forecast, discussing
in some detail the energy-economy model CIMS, which is used
both for this forecast and subsequent alternative forecasting
and economic analyses described in the Economic Study. We conclude
this report with a presentation of the baseline forecast, disaggregated
by industry sub-sector.