Net zero will take unprecedented government collaboration to “build enough fast enough”

All levels of government in Canada will need unprecedented collaboration to build the major energy projects needed for net-zero emissions by 2050, says the co-chair of a study on whether Canada can “build enough fast enough.”

Dr. Monica Gattinger, PhD (photo at right), said governments will have to work together to ensure clarity, predictability and timeliness of policies and regulations, to gain investor confidence and attract sufficient investment for energy projects.

One of the big challenges the study identified “is a lack of federal-provincial alignment and a shared vision around the country’s energy and climate future,” said Gattinger, professor of political studies and Positive Energy Chair Professor at the University of Ottawa.

“Better collaboration, coordination and delegation where possible is a big part of how we can get our act together to build things more quickly in this country,” she told Research Money.

Gattinger, the director of uOttawa’s Institute for Science, Society and Policy, co-chaired the study, “Energy Projects and Net Zero by 2050: Can we build enough fast enough?” with the Positive Energy program’s executive-in-residence Michael Cleland. He worked as an energy executive in the private sector and is a former assistant deputy minister of the energy sector at Natural Resources Canada.

The study focused on the influence of the public sector project decision-making process on investor confidence and the capacity to attract capital for major energy projects. The research examined public decision-making in 18 energy projects located across the country over the last 20 years. The study included more than 30 interviews with senior leaders in companies, trade associations, Indigenous organizations, and the finance and investment community.

 A key study finding was that the entire policy and regulatory system shapes project timelines.

 However, getting enough energy projects built fast enough to achieve net zero is about a lot more than just the regulatory process and that challenge, Gattinger said. While regulation is one factor, a host of issues are involved, including project design, engaging with communities, construction, investment and financing, and permitting.

“It’s really important to not think that solving challenges in the regulatory space are going to address everything when it comes to the challenges,” Gattinger said.

Also, she added, while a lot of attention is currently on the timeliness of project decision-making, “it’s very important [to remember] that it’s not just about timeliness. It’s also about clarity of policy and regulation and of predictability of policy and regulatory frameworks” – all needed to secure investment.

The study underscored that “governments are going to need to collaborate and coordinate more than they have ever done before for us to build enough fast enough,” Gattinger said.

“Perfect alignment is unlikely, given the political and economic and demographic realities of the country. But there are lots of areas of shared interests where governments can work together.”

For example, she pointed to federal-provincial cooperation on: developing and deploying small modular nuclear reactors; carbon capture, utilization and storage technology; and developing clean hydrogen as a fuel for transportation and power generation.

On the other hand, Ottawa, Alberta and Saskatchewan are at loggerheads over the federal government’s proposed cap on oil and gas industry emissions, federal clean electricity regulations, and the national price on carbon.

But Gattinger noted that all government jurisdictions share an interest in building investor confidence and public confidence in project decision-making. “Beneath a lot of the very high-level conflict that we see playing out in the media, at the officials’ level there’s often quite a lot of collaboration and coordination that’s taking place.”

Canada lacks investment environment required to build enough fast enough

Transforming Canada’s energy system and broader economy over the next two-plus decades is a “daunting task,” the study said. Doing so entails:

• replacing or retrofitting the roughly 20 per cent of the electric power system that emits greenhouse gases.
• doubling or tripling the countrywide power system as a whole.
• replacing, decarbonizing or retrofitting the three-quarters of energy end use that fuels transport or provides heat to industry and communities.
• developing new energy infrastructure and markets for new energy sources like hydrogen.
• decarbonizing the country’s oil and gas industry.

In a 2022 report, McKinsey estimated Canada needs at least $1.6 trillion of capital expenditures to transform its energy system and broader economy to net zero by 2050, with half a trillion needed before 2030.

“There was broad consensus among interviewees that Canada currently lacks the investment environment it will need to build enough fast enough,” according to the Positive Energy study.

Gattinger said researchers heard repeatedly from interviewees that political involvement in decision-making for big energy projects “can be a very substantial source of unpredictability and uncertainty, and not create the conditions needed to build fast enough.”

Positive Energy has previously done in-depth studies looking at the history and evolution of independent regulators, including for big energy projects. Those studies have shown there has been an evolution toward greater political involvement in project decision-making, including by cabinets and individual ministers.

“It’s not only at the final stage of whether or not a project goes forward but all the way through, from the pre-planning space all the way through to a final decision or recommendation coming from a regulator,” Gattinger noted. “It’s our view that there are real costs to that shift – that it has created a more unpredictable and uncertain investment environment for projects.”

The main reason the National Energy Board was created as an independent regulator is that project proponents used to have to go to Parliament to get a certificate to build a new pipeline, Gattinger said.

“But we’re back to duking it out on individual projects in the political sphere with political decision-making that, for obvious reasons, is going to bring into consideration all sorts of shorter-term political imperatives that creating an independent regulator with a longer-term view is meant to solve.”

When it comes to big energy projects, governments need to narrow their scope of involvement, “deliberately tie their own hands,” and insulate themselves from the pressures to intervene in individual project decisions, the study recommended.

Gattinger said the role of policymakers should be to set the broader policy environment and structure of regulatory systems, and then let regulators who are the independent experts do the technical analysis and rigorous assessment, and recommend whether or not projects should proceed.

In federal impact assessment of major energy projects, the lack of clear delineation, coordination and streamlining between federal and provincial roles, conflicting mandates among regulatory and permitting agencies, and too little intragovernmental coordination reduce the attractiveness of Canada for investors, according to the study.

“Governments at all levels have, over the years, reformed many of the country’s regulatory systems in ways that see a much larger role for politicians (ministers, cabinet) in individual applications, including final approval and conditions on projects,” the study said. “If this continues, the systems will grind to a halt.”

Need to improve intra-governmental coordination

Another thing the study pointed to is the urgent need to improve intra-governmental coordination on major energy projects.

The study noted that Canada used to have a Major Projects Management Office whose purpose was to coordinate various government departments and agencies involved in proposed major projects, to ensure they moved smoothly through the government’s decision-making processes.

The study suggested the government needs to return to a one-window approach, “an office that would be responsible for trying to ensure that you’ve got the left hand knowing what the right hand is doing, moving an individual project through the decision-making process in a coordinated and in a timely fashion, and with some teeth to it,” Gattinger said.

It would be a public service office – not headed by a minister but by senior government officials, perhaps at the deputy minister level, she said. “They would be able to reach in to a government department and say, ‘What’s going on here? We’ve got to move this forward.’”

The B.C. government recently created a Clean Energy and Major Projects Office to serve as the main point of contact for proponents looking to bring clean energy projects to B.C., as well as for major projects currently underway in the province.

Gattinger said the B.C. office’s mandate encompasses not just the regulatory processes for major projects, but also looks how government is supporting individual projects, such as with investment tax credits or other subsidies. “So you’ve got this coordinated approach to government supports and regulatory decision-making for an individual project.”

“And if you’re a proponent and you’re having to deal with multiple windows across the government, you’ve got a single window that helps to coordinate and to shepherd a project through government decision-making.”

uOttawa’s Positive Energy study also warned: “Abandoning carbon pricing will set back the movement to lower-carbon technologies.”

“Carbon pricing in Canada needs to be projected into the future (as is the federal carbon tax), it needs to become more uniform across the country, it needs to be ever-more broad-based and it needs to incorporate a comprehensible system of [carbon] offsets,” the study said.

“We certainly heard through the study that uncertainty over future carbon price is a huge issue, because that’s what project economics are being calculated on – not solely but certainly in part,” Gattinger said.

She pointed out that the current disagreement between the federal government and some provinces over carbon pricing focuses on Ottawa’s retail consumer carbon tax, rather than the industrial carbon price that applies to industrial emitters.

Ottawa’s commitment to “carbon contracts for difference,” which essentially provides companies a guaranteed future price of carbon, will be crucial going forward in encouraging companies to invest in major projects and also to reassure potential investors, Gattinger said.

Although Conservative leader Pierre Poilievre has vowed to scrap the consumer “carbon tax” if his party wins the next federal election, he hasn’t addressed the industrial pricing on carbon.

 Industrial carbon pricing is the single biggest driver for reducing Canada’s greenhouse gas emissions, according to new analysis by the Canadian Climate Institute. By 2030, industrial carbon pricing is projected to contribute between 23 and 39 per cent (or 53 million tonnes to 90 million tonnes) of all avoided emissions from all policies implemented to date.

Some areas where progress could be made quickly

The Positive Energy study’s recommendations fall into two sets of “packages,” both within and beyond the regulatory system for major energy projects.   

Action within the regulatory system is complex but tractable and should focus on governments providing policy direction for projects while regulators focus on assessments, the study said. Other actions within the regulatory system include: improving intergovernmental relations and better delineating federal and provincial roles; implementing organization culture change where needed to support the need for new projects; and strengthening intra-governmental coordination.

Efforts and actions needed beyond the regulatory system include:

• the critical need for predictability and clarity of policy, strategy and vision across jurisdictions.
• planning the energy future, with an emphasis on who pays for what, how and when. Governments need to take action on several areas where planning is essential – including energy delivery, electric power systems, the role of Indigenous communities, and costs – “but must do so without overturning a largely market-based system.”
• building the capacity of public, private and civil society organizations to contribute to achieving net zero.

Gattinger said there are a few areas in the study’s recommendations where progress could be made quickly. For example, the federal government could delegate more responsibility to provinces for assessing and deciding on major energy projects, she said. “More can be done to coordinate across levels of government in that way.”

Federal cabinet or individual ministers could agree to put guardrails around their involvement in major energy projects, “if there was the political will to do that,” Gattinger said.

There is a lot that could be done to improve internal government coordination, she added, through a major projects management office or something similar, “to really strengthen that coordination within single levels of government.”

Another important part of building enough fast enough, according to the study, is that “Relationships with Indigenous communities are a very big part of the solution.”

Gattinger said the study found that a transformation in the relationship between Indigenous communities and project proponents over the last several years has led to much more constructive engagement and partnerships that have enabled projects to go forward – “so they wind up in service rather than in court.”

To keep that project momentum going and encourage new projects, the federal government needs to implement a national Indigenous loan guarantee program, she said. Some provinces, such as Alberta with its Indigenous Opportunities Fund, and Ontario have such programs.

Ottawa has said for nearly two years that it’s committed to launching a national program, but has yet to introduce legislation to do so. Many stakeholders in Canada’s energy sector, including many Indigenous communities, are hoping to see the program announced in the upcoming federal budget.

As a next step, the study urged governments and other organizations to collaborate on a process to convene the key players needed to find solutions in each area of reform, with the aim of developing a detailed action and implementation plan “so that Canada can achieve meaningful and durable progress on the goal of net zero.”

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