In her first Fall Economic Statement (FES) as Finance Minister in 2020, Chrystia Freeland introduced a new fiscal “guardrail.” It aimed to anchor government spending to labour market outcomes. The “guardrail” would inform the government when to scale back post-COVID stimulative spending. When the job market recovered much faster than expected, the anchor quickly disappeared. 

In Budget 2022, the declining debt-to-GDP ratio was reintroduced as the government’s fiscal anchor. But in 2022-2023 the ratio went up, not down. This is likely to be again the case for 2023-2024.  

In last November’s FES, the federal government announced it will now be focused on the following fiscal objectives in preparing for Budget 2024: 

• Maintaining the 2023-24 deficit at or below the Budget 2023 projection of $40.1 billion.
  
• Lowering the debt-to-GDP ratio in 2024-25, relative to the 2023 FES and keeping it on a declining track thereafter.
  
• Maintaining a declining deficit-to-GDP ratio in 2024-25 and keeping deficits below 1 per cent of GDP in 2026-27 and future years.

Fiscal implications of meeting the one per cent GDP target in 2026-2027

According to FES 2023, nominal Canadian GDP is forecasted to be $3.2 trillion for 2026, which would imply a deficit figure that would not exceed $32 billion to meet the 1 per cent target set out by the government. 

To assess whether the 1 per cent of GDP deficit figure is a realistic fiscal target for 2026, we offer ten observations: 

1. Between 2017 and 2022, the federal government ran deficits averaging 1.4 per cent of GDP when adjusted for swings in economic activity.
   
   
2. From budget 2016-2017 (the first budget of the Trudeau government) to budget 2023-2024, spending projections have gone from $291 billion for 2016-2017 to $496 billion for 2023-2024, or from 14.6 percent of GDP to 17.3 percent of GDP.
   
   
3. In the 2016-2017 budget, the gap between revenues and expenditures projections for 2016-2017 was 0.2 percent of GDP (revenues at 14.4 percent of GDP versus expenditures at 14.6 per cent of GDP). This differential grew to 1.4 percent of GDP for 2023-2024 in the 2023-2024 budget (revenues at 15.9 per cent versus expenditures at 17.3 percent).
   
   
4. In the post-Second World War era, the federal government has managed to record a deficit of less than 1 per cent of GDP only twice when spending exceeded the 17 per cent threshold. That was between 1996 and 1998 at the very start of a decade-long period of fiscal consolidation. In fact, deficits have averaged more than 4 per cent of GDP in years when spending has surpassed 18 per cent of GDP.
   
   
5. Spending projections by this government have been extremely unreliable over the five-year forecast horizon. While the government keeps showing a declining deficit both in nominal value and in debt-to-GDP terms, the reality is more complicated.

Spending Projections (Billions $)

As this table shows, $319.8 billion of new spending was added to the fiscal framework over four fiscal years from the April 2022 budget to the November 2023 fall economic statement.  In less than two years spending projections increased considerably.

This amount would be much larger if we look back further in time.

For example, in Budget 2019, the government forecasted $429 billion in overall spending for 2024-2025. However, in last November’s fall economic statement the projected spending for 2024-2025 changed to $522 billion — a difference of $93 billion.

6. The government is facing significant spending pressures going forward. First, the Liberal/NDP supply and confidence agreement includes a commitment to a national pharmacare program with an annual price tag that could be as high as $18 billion. Second, Canada is facing significant demographic headwinds which will have an impact on Old Age Security and health care costs. To this list we can add real pressures on defence spending, the energy transition and industrial policy, public R&D, as well as Indigenous reconciliation. It is unlikely the government can ignore any of these big policy issues. In addition, let’s not forget the production tax credit provided to automakers for new EV manufacturing. Once production ramps up in a few years, billions of dollars will be paid out on these credits.
   
   All things being equal, the relative costs of government will be higher as we move forward.
   
   
7. Debt servicing charges will continue to be prohibitive for some time. Debt servicing is already taking 10.2 per cent of the government’s overall revenues. It is worth noting this is for past debt. This fiscal year the government is projected to spend more than $46 billion just to service its debt. To put that in perspective, debt servicing this year is just $3 billion less than the amount the government is sending to provinces and territories in health care transfers.
   
   
8. The economic forecast is gloomy. Canada has avoided a recession so far in large part due to population growth through immigration. But a recession is still a possibility. The economic limitations ahead are not trivial: real GDP per capita is set to decline for the sixth consecutive quarter and productivity continues to be an Achilles heel for Canada. The likelihood of higher revenues for the federal government as a function of better-than-expected economic growth is not a high probability for the five-year economic forecast horizon.
   
   
9. Canadians should know that the government’s ability to meet its new promise to keep deficits below 1 per cent of GDP in 2026-27 and future years would require a significant change of course and difficult decisions.  Right now, the deficit is 1.4 per cent of GDP. Assuming the government does not introduce new taxes, and economic growth remains low as estimated by the Bank of Canada and international organizations, a 0.4 per cent reduction implies spending cuts of at least $12 billion per year, or around $50 billion over four years. Keep in mind that since the Trudeau government came into office, expenses have grown more than 5 per cent per year.
   
   
10. Unforeseen events are always a big risk for fiscal planners. Over the last few years, we have experienced a global pandemic, extreme weather events, two wars and various geopolitical threats. Fiscal prudence is essential to help Canada prepare for the unexpected.

Conclusion

The Trudeau-Freeland record on fiscal guardrails or anchors speaks for itself. Since 2020, the federal government has never met a fiscal target it imposed on itself.

For the reasons enumerated above, it is very improbable it will meet its new anchor of 1 per cent deficit-to-GDP in 2026 and future years.

The post Analyzing the federal government’s fiscal anchors appeared first on Business Council of Canada.

Political and public policy discourse in Canada is seized with debates on various approaches to the transition away from burning fossil fuels towards alternative sources of energy. There are different views on the timeline of doing so, and how to balance reliability, affordability and sustainability as we adapt our energy systems.

Yet whether it is reducing emissions by 2030 or reaching net zero by 2050, nuclear power will need to play a bigger role in the Canadian and global energy mix of the future. Uniquely, it provides non-emitting baseload power, can be located almost anywhere, is able to generate industrial heat, and is incredibly energy dense with low resource and land requirements. This is very good news for Canada, a country that is poised to capitalize on the global renaissance in nuclear energy, both as a producer and as a consumer.

Canada has world-class deposits of high grade uranium; is home to a globally significant provider of uranium fuel in Saskatchewan-based Cameco; enjoys a comprehensive domestic nuclear supply chain; is already the sixth largest producer of nuclear power in the world; and is one of a handful of countries with intellectual property in nuclear reactor technology, through its CANDU design. Emerging third (Gen III+) and fourth (Gen IV) generation nuclear technologies have additional promise for Canada’s geography and economic base, promising low carbon, off grid heat and power for remote communities, mines, oilsands, and energy intensive industries such as petrochemicals and fertilizers. 

In addition to these practical considerations, Canada has two intangible advantages. One is that nuclear power currently has support from the federal government (Liberals) and the opposition (Conservatives), several provincial governments (in particular Ontario, New Brunswick, Saskatchewan and Alberta), and a majority of Canadians – 57 per cent according to a January 2023 poll by Angus Reid. Notably, that support is at 70 per cent in Ontario, where the majority of Canadian nuclear power is produced. In a fast-moving and growing sector, this is a huge advantage, as other would-be competitors in Europe and Australia continue to debate the merits of nuclear.

The second advantage is that Canada is a trusted supplier of uranium fuel and nuclear technology, with a highly respected, independent and quasi-judicial nuclear regulator. While agreements with nuclear leaders and geopolitical superpowers Russia, China and even the United States may have political overtones, Canada is generally seen as a reliable, trustworthy and more neutral supplier. That can translate into a competitive advantage for Canada as well as enhanced energy security for its allies.   

The Business Council of Canada supports the further development of Canada’s nuclear supply chain and encourages policymakers to work with the private sector to maximize opportunities and competitiveness in the global nuclear industry. This report explores some of the trends in nuclear energy that Canada could take advantage of with the right combination of policy, ambition and investment. 

The nuclear renaissance

Nuclear energy is a very important source of power, representing 10 per cent of global electricity production, and almost 20 per cent of that produced in advanced economies. It experienced strong growth in the 1970s and 1980s as a response to a succession of energy crises resulting from oil price spikes in 1973 and 1979. However, the incidents at Three Mile Island in 1979 and Chernobyl in 1986 provoked anti-nuclear movements, increased regulatory burdens, and dampened public interest in nuclear energy. The Fukushima incident in 2011 spurred further phaseouts of nuclear energy, especially in Germany and Japan, although the latter has since reversed course. Nuclear power capacity started to plateau in North America and western Europe around 1990, although growth continued in Asia, particularly in China.

Three drivers have led to changing fortunes for nuclear energy in the past few years, leading to what’s often described as a nuclear “renaissance”: energy transition, energy security and technology.  

1. Energy transition

As nations and utilities seek to diversify away from greenhouse gas (GHG)-emitting coal and natural gas for power generation, major alternatives that have emerged include hydroelectricity, wind, solar and nuclear. The advantages of nuclear power have been on full display: it boasts the lowest GHG emissions of all energy technologies, 24/7 availability, operational flexibility, a small land footprint and the ability to decarbonize hard-to-abate activities such as cement and petrochemical production.

Its climate benefits were on full display in Ontario’s successful coal phase-out program in the early 2000s, which stands out as one of the world’s largest and most successful GHG and pollution reduction policies. To achieve its clean energy transformation, Ontario added 35 TWh of low GHG-emitting sources of generation to its supply mix; 91 per cent of that new energy supply was derived from nuclear power generation. As Canada and the world transition to a cleaner electricity grid, nuclear energy is set to play a leading role.

2. Energy security

The security aspects of nuclear energy took on additional significance in the wake of Russia’s invasion of Ukraine in February 2022. Europe, imposing sanctions on Russian pipeline gas, has desperately sought alternatives, and spikes in prices for LNG globally have made nuclear energy appear more cost competitive, less volatile, and less reliant on authoritarian regimes.

Whereas renewable energy depends heavily on goods manufactured in China and critical minerals sourced from unstable or authoritarian countries, and global oil supply depends to a large extent on OPEC+, the nuclear energy supply chain can be sourced from western and democratic countries and allies. In Canada, the nuclear supply chain is almost wholly domestic.

Some allies continue to depend on Russian enriched uranium, a market in which that nation leads. This has spurred the United States to pass bipartisan legislation to enhance the security of its nuclear fuel supply, and led to an alliance between the U.S.A, Japan, United Kingdom, France and Canada to collectively enhance nuclear fuel security, announced on the sidelines of the G7 in Sapporo, Japan in April 2023.

3. Technology

The main objections to nuclear energy have been that they pose unnecessary safety risks and that they are too expensive. These statements have been negated by decades of safe performance with jurisdictions using nuclear energy having stable, affordable electricity prices. The latest generation of nuclear technology – known as Gen IV designs – is further revolutionizing nuclear technology to address these concerns. Central to this latest wave are SMRs: small, modular reactors. While larger reactors will remain the preferred option for many situations, especially where power density is required for the electrification of cities and major industries, SMRs introduce greater flexibility to the nuclear energy mix.

According to the International Atomic Energy Association, small modular reactors (SMRs) are advanced nuclear reactors that have a power capacity of up to 300 MW(e) per unit, which is about one-third of the generating capacity of traditional nuclear power reactors. SMRs are: (1) small – physically a fraction of the size of a conventional nuclear power reactor (2) modular – making it possible for systems and components to be factory-assembled and transported as a unit to a location for installation; and (3) reactors – harnessing nuclear fission to generate heat to produce energy.

Due to these features, advanced SMRs are anticipated to be cheaper to build than traditional reactors. Modularity allows reactors to be prefabricated and then assembled on site, saving in construction time and costs. A sub-category of SMRs, the microreactor, is generally less than 20MW(e), and small enough that it can be safely transported as a plug-and-play unit on a truck, train or cargo plane.

As smaller units, SMRs require less footprint than traditional reactors, making them more flexible in siting. Because most SMRs are not water cooled, they can also be placed in locations without a significant water source. This can reduce the time and money associated with transmission build and opens up reliable energy options in rural and remote areas. In addition, they are often meant to be scalable, with multiple units co-located depending on specific MW needs. This includes the four GE Hitachi BWRX-300 MW reactors planned for Darlington in Ontario, or the twelve Xe-100 80MW reactors planned in central Washington state.

Gen III+ and Gen IV models are also being designed using passive and inherent safety features, requiring no human intervention to shut down. This dramatically limits and even eliminates the potential for serious incidents such as meltdowns. In addition, some models can go years, or even a decade, without being refuelled.

New nuclear technologies are also opening up advanced energy uses. While traditional reactors were almost always developed to produce grid-scale power, emerging reactor models are being developed for industrial decarbonization. Many industries require process heat at levels between 100-1500°C, for example in manufacturing chemicals, cement, steel and other metallurgical processes. Fossil fuels are excellent at generating high temperatures for process heat and are hard to replace through electrification. However, the highest-temperature Gen IV reactors, known as very-high-temperature reactors (VHTR), can generate a temperature in the order of 1000°C, making them useful for a number of industrial applications. New reactor models can also be optimized for creating hydrogen or for desalination, two energy-intense applications which are expected to become increasingly important to support future low carbon energy and clean water supply needs, respectively.  

Advanced reactors thus provide not only the reliability and low carbon characteristics appreciated from the current nuclear reactor fleet, but promising new applications that will help guide the future of energy for both community and economic development.

Canada’s nuclear pedigree

At the heart of nuclear fission is uranium, a metal with the highest atomic weight (92) of any naturally occurring element. In the Athabasca Basin of northern Saskatchewan lies the world’s richest uranium deposits. While many of the world’s largest mines have uranium ore grades in and around 0.10 per cent, some deposits in Saskatchewan are up to 20 per cent average grade. Cigar Lake, the world’s highest grade and largest producing uranium mine, has an average grade of 17.21 per cent U3O8, the compound created when uranium ore has been mined and milled.   

Saskatchewan uranium fuelled American and British nuclear programs in the Cold War, and then supplied the first CANDU reactors. Canadian Nuclear Laboratories (CNL) in Chalk River, Ontario, has been designing, building and experimenting with nuclear reactors since the Second World War.

CANDU, short for Canada Deuterium Uranium, is a nuclear reactor that uses heavy water as a moderator and coolant and natural uranium as a fuel source. The development of the first CANDU reactor began in 1954 through a partnership between Atomic Energy of Canada Ltd., Ontario Hydro and the Canadian General Electric Company, and the first full scale generating station commenced operations in 1968 in Ontario. Canada has produced 47 CANDU nuclear reactors, with 34 of those operating internationally. Domestically, CANDU reactors were built in Ontario, Quebec and New Brunswick. Quebec’s Gentilly nuclear power station was decommissioned in 2012. Ontario continues to have three nuclear plants – Bruce, Pickering and Darlington – and New Brunswick has a plant in Point Lepreau. Nuclear power produces 15 per cent of Canada’s electricity and 60 per cent of Ontario’s electricity. Canada’s 81 TWh of nuclear production in 2022 made it the world’s sixth largest nuclear power producer.

Current advances in CANDU nuclear energy

There was no further construction of CANDU reactors in Canada following the completion of Darlington 4 in 1993, due to a drop in electricity demand and concerns about predictability of construction costs. However, the CANDU supply chain has remained active, and is witnessing its own revitalization. Major refurbishments are ongoing at both the Darlington and Bruce power plants, and so far have come in ahead of schedule and on budget. The refurbishment program has also injected about $30 billion into the Canadian nuclear supply chain, a robust network of over 250 supply chain companies and suppliers. With 90 per cent of Bruce Power’s and OPG’s spend on the project in Ontario and 98 per cent in Canada, the refurbishment program is truly a Canadian infrastructure project.

That active supply chain will help support the next wave of nuclear power in Canada. Not only is Bruce Power proposing to build Canada’s first new large scale nuclear site in three decades, but the country is also preparing to see OPG construct the country’s first four SMRs at the Darlington site.

CANDU technology continues to progress and its defining features – the unique ability to use unenriched uranium and other fuels, on-power refuelling, and a number of active and passive safety features – remain very attractive. Romania is building two new CANDU-6 reactors at its Cernavodā nuclear power plant. In September 2023, Natural Resources Canada announced $3 billion in export financing to support the project, which will flow to Canada’s nuclear supply chain.

The CANDU Owner’s Group, which includes CANDU operators from Ontario, New Brunswick, China, South Korea, India, Argentina and Romania, continues to collaborate to pool resources for innovative research, development and joint projects.  They have invested hundreds of millions of dollars in research and development to advance CANDU technology, much of which involves process innovation: improving the efficiency, economics, safety, and performance of CANDU reactors.

CANDU reactors are also able to produce nuclear isotopes that are then used to sterilize medical devices, in medical imaging and diagnostic procedures, and in medicine and new drug development. Ontario’s CANDU reactors produce 50% of the global supply of Cobalt-60, and are developing production of molybdenum-99, helium-3, tritium and deuterium. This is unleashing growth and innovation in nuclear medicine, and positioning Canada at its centre. Beyond medicine, isotopes are also being used in neutron research, border security, food preservation, and quantum computing.

Current advances in Canadian SMR nuclear technology

The effort to realize the potential of SMRs in Canada has been concerted. As early as June 2017 CNL invited expressions of interest in SMRs. But political coordination began in earnest when Natural Resources Canada developed an SMR Road Map in 2018, followed by an SMR Action Plan in 2021, in close collaboration with Alberta, Saskatchewan, Ontario and New Brunswick, as well as Indigenous stakeholders, the private sector, crown corporations, research institutions and civil society. Those four provinces also put out their own interprovincial strategic plan for the deployment of SMRs in 2022, building on their provincial power utilities’ SMR feasibility study of March 2021. The Canadian Nuclear Safety Commission (CNSC) has been facilitating SMR developments through pre-licensing to identify fundamental barriers to licensing a new design in Canada and assure that a resolution path exists.

Nine models have been submitted to CNSC for pre-licensing: Terrestrial Energy’s Integral Molten Salt Reactor; Ultra Safe Nuclear Corporation’s MMR-5 and MMR-10 microreactors; ARC Nuclear’s liquid sodium ARC-100; Moltex’s stable salt reactor; SMR, LLC’s pressurized light water SMR-160; U-Battery’s high temperature gas U-Battery; GE Hitachi’s boiling water reactor BWRX-300; X-energy’s high temperature gas Xe-100; and Westinghouse’s eVinci microreactor.

A number of projects are advancing or planned in Canada. These include:

• The Darlington New Nuclear Project, which aims to deploy four GE-Hitachi BWRX-300, a 300 MW SMR, at OPG’s Darlington site in Ontario for on-grid power. The first is planned to be constructed by 2028, with commercial operation beginning in 2029.
• A 100 MW liquid sodium-cooled fast reactor, the ARC-100, at NB Power’s Point Lepreau site in New Brunswick, for on-grid power by 2030.
• Another ARC-100, at the Port of Belledune’s Green Energy Hub in New Brunswick, to produce clean hydrogen for export in collaboration with Cross River Infrastructure Partners in the mid-2030s.
• The GE-Hitachi BWRX-300 in Saskatchewan for potential deployment by SaskPower for on-grid power in the mid-2030s.
• The Ultra Safe Nuclear Corporation’s commercial demonstration project of its Micro Modular Reactor (MMR) at Chalk River Laboratories in Ontario, for operation by 2028.

Early and meaningful engagement and consultation with Indigenous peoples is ongoing for these projects. Indigenous peoples will be involved in the nuclear renaissance in three primary ways: (1) consultation on the nuclear regulatory process; (2) consent for siting of new nuclear reactors and waste storage on their territories; and (3) economic participation through equity ownership, construction, component manufacturing, workforce development, and other elements of the supply chain. One promising development was the announcement in September 2023 that the North Shore Mi’kmaq Tribal Council and its seven First Nations members are investing in the proponents of the SMR projects in New Brunswick, resulting in $2 million in share value from Moltex and $1 million in share value from ARC; a first of its kind agreement in the SMR sector.

While much of the attention on SMRs in Canada has been on forthcoming grid scale projects, a lot of the SMR potential for Canada is in industrial decarbonization, given the nature and geography of our economy. In addition to the Belledune project for hydrogen production, oilsands, mining, petrochemicals and fertilizers all offer compelling use cases. The Pathways Alliance of the six major oilsands companies are actively exploring SMRs as a means to reduce the emissions intensity of their barrels, using nuclear energy to produce steam for extraction of oil from Alberta’s northern oil sands deposits rather than using natural gas. Terrestrial Energy is headquartered in Oakville, Ontario but announced in March 2023 that it would open an office in Calgary to support commercial development of its model for industrial co-generation, and X-energy and Invest Alberta announced an MOU in January 2023 to develop economic opportunities supporting the deployment of its model. The Government of Alberta announced in September 2023 that it would contribute $7 million towards an SMR feasibility study being led by Cenovus, a large oil sands producer.

To the south, the Inflation Reduction Act has spurred new nuclear development projects with demonstration projects funded and being advanced by NuScale, X-energy, Holtec, and TerraPower. Dow, for example, has entered into a partnership with X-energy to build four Xe-100s at an industrial site at one of its Gulf Coast locations to decarbonize its chemical production. And Microsoft is implementing a global Small Modular Reactor (SMR) and microreactor energy strategy to power its energy-intense Artificial Intelligence business.

Remote mines in Canada are another logical use case. Energy costs are a huge deterrent for development in off-grid locations, and diesel is generally the only option, which poses its own logistical, economic and environmental challenges. One diamond mine in NWT uses up to 80 million litres of diesel a year. Leveraging SMRs to support remote mining operations promises to open up more deposits for development as global demand for critical minerals grows. The Government of Yukon commissioned an SMR feasibility study released in September 2023 that concluded that SMRs had a lower Levelized Cost of Electricity (LCOE) for off grid mines than comparable systems of diesel; wind and diesel; solar and diesel; wind and battery; solar and battery; hydro; and liquified natural gas.

Beyond the Arctic, a use case for very small, or nano, reactors exists as far afield as the moon. The Canadian Space Mining Corporation is developing a model for this very purpose. The sky is not the limit for nuclear development.

Nuclear waste

Concerns about waste are a common source of hesitancy to nuclear energy. The CNSC is responsible for the regulatory oversight of the management of radioactive waste, but the waste owners are responsible for its management, via the Nuclear Waste Management Organization (NWMO). The NWMO is implementing the Adaptive Waste Management approach that was selected by the Government of Canada for the long-term management of Canada’s used nuclear fuel, and will be constructing a deep geological repository in Ontario for that purpose. One element unique to the nuclear sector is that its operators have always, and continue, to both fully capture and pay for the long term costs of waste management as part of their ongoing production.

The NWMO plans to choose the final site in 2024, and has short-listed the areas of Wabigoon Lake Ojibway Nation-Ignace and Saugeen Ojibway Nation-South Bruce, based on their geology and willingness to host the depository. It is a significant economic undertaking in its own right: the cost of the multi-generational project is estimated at $26 billion (in 2020 dollars) over its approximately 175-year life cycle. The depository will be designed to account for the anticipated waste generated by SMR applications in Canada. The NWMO has developed an interim plan for transporting radioactive waste that considers regulatory requirements; potential vehicles (trucks vs rail); representative routes; nuclear security and escort arrangements; emergency management; logistics and scheduling of shipments; as well as operational aspects such as communication, monitoring and tracking of shipments.

Canada’s nuclear business opportunity

Nuclear has excellent applications that can provide the tailored, low carbon power and process heat that Canadian industry needs to compete and thrive. But in addition to the energy itself, there is a tremendous opportunity for Canada to become a major player in the global nuclear energy market. Canada has many inherent advantages: its high-quality uranium reserves, nuclear supply chain, nuclear fuel processing capacity, long record of safe nuclear power production, and large domestic market. It can leverage these to both grow CANDU’s global market share, and capture new market share as the emerging SMR sector reaches an estimated global market of $150 billion/year by 2040. It’s an exciting and dynamic time to be in the space as new private sector entrants to the nuclear industry, beyond large utilities and traditional vendors, bring fresh ideas and perspectives.    

Three main opportunities stand out: expertise, supply chain and uranium fuel.

1. Nuclear expertise

Having engineering and operational expertise in both CANDU and SMRs is highly marketable. As a first mover in the advanced reactor space, Canada could develop a competitive advantage. Its nuclear regulator, the CNSC, is respected, flexible and politically independent, with high technical and scientific competence. Licenses approved under the Canadian regime lend credibility for other markets. That helps make Canada attractive for First-of-a-Kind, or FOAK, models. The Belledune hydrogen project, for example, will see NB Power accept higher costs associated with a FOAK, but position it to build local expertise and then capture consulting fees elsewhere.     

Nuclear projects in Canada can also lock in research and intellectual property in critical areas of innovation such as engineering and construction methods, robotics, materials science, fuel testing and qualification, advanced manufacturing, control systems, cybersecurity, and remote operation.

2. Supply chain opportunities

The current Canadian nuclear industry, which is made up of 200+ suppliers, has developed around nuclear engineering, advanced manufacturing, and services, and primarily services CANDU heavy water reactors. As it expands into the SMR market, the creation of new facilities specialized in serial manufacturing and modularization will be needed. The SMR market is quite different, and much more reliant on serial manufacturing and modularization. The existing Canadian nuclear supply chain will need to grow to seize emerging opportunities. This will allow existing suppliers to expand, and for new entrants to enter the market. Main opportunities for the SMR supply chain include (1) technology vendors (2) system integrators (3) equipment manufacturers (4) sub-component suppliers and distributors (5) processors and fabricators and (6) raw material suppliers and miners (see figure 1).

Uranium fuel

As an energy dense, clean, reliable source of both power and heat with tremendous opportunities for technological advancement, nuclear energy is likely to grow in importance in the global energy mix. Just as oil and natural gas are highly strategic commodities today, nuclear fuel is likely to be so in the future, even more so than it is now.

By its nature, the market for nuclear fuel is much more concentrated than that of fossil fuels and has high barriers to entry, which bestows political and economic benefits to suppliers. The nuclear fuel fabrication industry is dominated by four companies serving international demand for light water reactors: Framatome and ORANO (France), Global Nuclear Fuel (United States, Japan), TVEL (Russia) and Westinghouse (United States). Canada does not enrich nuclear fuel, not least because its CANDU reactors use natural uranium.

Canada has a significant advantage to expand into nuclear fuel enrichment given that it is a very significant miner of uranium, the raw material for most nuclear fuels, and has decades of experience and a well-established international customer base for fuel services through Cameco. In addition, Westinghouse was acquired by a Canadian partnership between Brookfield Renewable and Cameco in 2022.

The development of large reactors like the Westinghouse AP1000 and new SMRs will change the landscape of nuclear fuel supply. Advanced reactors are being designed to require enriched fuel, including in some cases high-assay, low-enriched uranium, or HALEU, a product that currently only Russia supplies commercially. Enriching uranium means increasing the concentration of the U-235 isotope. In natural uranium, which CANDU reactors use, U-235 is found in concentrations of about 0.7 per cent. Traditional reactors use nuclear fuel enriched up to 3-5 per cent. But HALEU is enriched up to 5-20 per cent by definition, and usually to 19.75 per cent. This allows the reactors to be physically smaller and require less refuelling.

The United States is putting resources into addressing the issue of Russian HALEU dependence. A bipartisan bill, the Nuclear Fuel Security Act, has made its way through Congress and is intended to increase domestic production of both the low-enriched uranium and HALEU. Cameco itself is developing enrichment capacity in the United States through a partnership with an American firm in a facility in North Carolina; it is the commercial lead for Global Laser Enrichment (GLE) which is the exclusive licensee of the proprietary Separation of Isotopes by Laser Excitation (SILEX) laser enrichment technology, a third-generation uranium enrichment technology. Enrichment services supplier Urenco is also expanding its existing enrichment facility in New Mexico, and nuclear fuel supplier Centrus is bringing online a new domestic U.S. technology at its facility in Ohio.

While the United States will be essential for supplying nuclear fuel that replaces Russia in the early stages of advanced reactor development, there is a strong case for Canada to do so as well, at least in the medium term. Foremost among them is economic: enriching nuclear fuel is a high value-add process. But another reason is security related. It is not desirable to be overly reliant on any one or two countries for energy security, perhaps especially when those two are global superpowers – the United States and Russia. Canada’s unique attributes would support diversity of supply in a way that would not undermine global non-proliferation efforts, while also enhancing its own domestic energy security as it builds more SMRs. However, entrance into that highly controlled and costly sector will require significant government support and political will.

In the interim, CANDU will remain an attractive technology to many jurisdictions where the ability to use unenriched uranium is seen as an asset, especially if demand for western sources of enriched uranium start to exceed supply.

Recommendations

The political environment in Canada is not always seen as an advantage in energy development, but in the case of nuclear there are reasons for optimism. Provincial governments both in the West and in the East have been working with the federal government on nuclear development; Liberals and Conservatives have both supported development of the nuclear sector; unions and the private sector both see opportunity for growth; and Indigenous communities and stakeholders are being engaged early and meaningfully in the newest wave of nuclear development in Canada. The global political environment is very favourable too, as many customers seek to reduce their dependence on the Russian nuclear supply chain and find alternative, friendly suppliers.

The federal government has provided significant support to nuclear development in the past two years, including:

• incentives through the Clean Electricity Investment Tax Credit, Clean Technology Investment Tax Credit and Clean Technology Manufacturing Investment Tax Credit;
• large investments in the Darlington SMRs through the Canada Infrastructure Bank;
• funding to increase efficiencies with regulatory reviews and approvals, including for the Canadian Nuclear Safety Commission;
• increased funding for the Strategic Innovation Fund, which has supported SMR development;
• funding to better engage Indigenous nations and businesses in the nuclear sector; and
• export financing for Romania’s new CANDU-6 projects.

The advanced SMR sector is in its early stages and will benefit from continued supportive government policies to position Canadian industry favourably. As the sector moves from the technology phase to the project phase, it faces challenges such as affordability of capital, regulatory burdens, high project risk profiles, nascent supply chains, lack of harmonized international standards, and public nuclear safety concerns. Governments can help de-risk private investments at various stages to ensure the sector can develop at pace.  

In order to promote the development of a globally competitive advanced nuclear sector in Canada, stakeholders should:

• Ensure competitive financing is available. Nuclear energy is capital intensive and FOAKs can affect investor confidence and defy standard financing models. Investment tax credits and low interest loans are very important to building up the sector in its early stages. Nuclear energy has often been excluded from clean energy funds and subsidies, including Canada’s own Green Bond Framework announced in 2022. Wind and solar energy have enjoyed far greater subsidies on a per MW basis. Financial institutions and government programs should be technology-neutral when it comes to supporting low carbon energy investments.
• Ensure regulations are clear and predictable, and approvals and licenses are allocated on a timely basis. Due to its inherent characteristics, the nuclear sector is highly scrutinized. While this is indeed important, the regulatory process must still be responsive, flexible, and efficient, or else the nuclear industry will remain slow and expensive. The Canadian Nuclear Safety Commission is generally viewed positively, and must be supported to continue its work as new technologies and logistical and regulatory puzzles arise from advanced designs. It also has a role to play in ensuring that harmonization of standards for advanced nuclear models takes place at a global level, and that Canadian technologies and suppliers gain access to customers around the world. To that end, a new joint report from the World Nuclear Association, the Nuclear Energy Institute and the Canadian Nuclear Association was released in September 2023 that proposes regulatory steps which can be taken to minimise the time and cost for large-scale deployment of a fleet of standardised reactor designs.
  
  The Impact Assessment Act, as with so many industries, has hampered efficiency in nuclear project timelines and must be improved. Often, existing sites are considered as new areas even though they have hosted nuclear facilities for decades. These sites should be exempted.

• Ensure strong coordination of Canadian nuclear policy. A national body composed of federal and provincial governments, Indigenous stakeholders, owners and operators, end-users, and suppliers should be established to guide and oversee the development of the sector, proactively communicate and address problems, and implement strategies to take advantage of emerging opportunities. The group would also bolster and support an integrated pan-Canadian nuclear supply chain, including Indigenous suppliers. Canada’s SMR Action Plan group, involving the federal government, interested provinces & territories, industry, Indigenous stakeholders, labour, and civil society, provides a good foundation for this approach.

Canada has all the advantages to become a major player in the emerging nuclear and SMR landscape; now we just need ambition and execution. The opportunities economically, geopolitically and environmentally are all compelling and merit a strategic approach going forward. The business community is an essential and willing partner on this journey. 

The post Canada in the New Energy Landscape appeared first on Business Council of Canada.

In May 2023, Quebec Minister of Finances Éric Girard launched a consultation to seek the opinions of experts in academia and business on the issue of the wealth gap between Quebec and Ontario. I thank the minister for giving me the opportunity to take part and contribute to this important initiative. I welcome his personal commitment, and that of his government, to taking a fundamental issue for Quebec’s future head on.

Regaining productivity is a necessity and a central issue for Quebec. The financing of the social programs that are so dear to Quebecers is not guaranteed for the generations to come. What’s more, the headwinds represented by population decline are likely to be painful in the long term.

Rather than dwelling at length on the causes of the malaise in productivity, which, it seems to me, has already been the subject of a number of largely consensual analyses over the years (including by the Ministry of Finances), I have chosen for the purposes of this exercise to mainly concentrate on potential solutions.

First, I would note the singular context in which we find ourselves. Though the problem posed by the lack of productivity poses is neither new or easily solved, it is arising at a critical juncture, one in which many governments, first among them the U.S., are embarking on a major reindustrialization exercise in favor of the ecological transition. This inevitably brings industrial policy to the center of debates and government action.

The collapse of consensus in Washington in the 1980s was, in economic terms, one of the most consequential events of the last 20 years.

The new imperatives of political economy are now being manifested and engendering a more marked state interventionism. These imperatives—first among them the energy transition and national security—are neither trivial nor transitory.

The post A more innovative, productive, and prosperous Quebec appeared first on Business Council of Canada.

Canada’s national security is dependent on the economic vitality and resiliency of our nation. It is only through our enduring economic prosperity where we find the talent, resources, and innovation necessary to achieve our national ambitions, protect the lives and livelihoods of Canadians, and play a positive and influential role on the world stage.

The converse is also true. Absent a strong national security environment, it is impossible to have a healthy and productive economy.

Many of Canada’s closest allies recognize this “mutually reinforcing link”¹, and have developed integrated approaches to economic and national security that seek to enhance their prosperity, safety, and sovereignty in a period of heightened geopolitical risk.

Canada has not. For decades now, successive Canadian governments have overlooked, taken for granted, or simply ignored the principle that economic security is national security.

This neglect has made us vulnerable. In an era of renewed geopolitical rivalry, where countries’ ability to foster economic growth is the foundation upon which military, economic, and cultural power now rests, Canadian companies of all sizes are increasingly finding themselves in the crosshairs of strategic threat actors² seeking to advance their national interests in ways that can, and do, undermine Canada’s national and economic security.

These threats have the potential to wreak large-scale havoc on Canadians’ daily lives. The impacts include mass layoffs caused by the theft of intellectual property, disruptions to Canadians’ ability to heat and power their homes due to paralyzing cyberattacks, and skyrocketing cost of everyday household products because of weaponized supply chains.

Defending Canada’s economic security is too important an undertaking to be left to either the public or private sectors working alone. Both must work together seamlessly to detect, deter, and disrupt a broad range of emerging and evolving threats.

That is why this report calls on the Government of Canada to work with Canadian businesses to develop and implement a national security strategy that, for the first time, establishes economic security as a central pillar.

Based on in-depth consultations with the leaders of Canada’s most innovative and successful companies, security experts, and former government officials, this report examines the threats facing Canadians, explores the consequences of inaction, and recommends measures to address the most glaring gaps in Canada’s economic security posture.

The paper’s recommendations are organized around three themes:

Strengthening Canada’s economic security architecture, including by creating a legal framework allowing the Canadian Security Intelligence Service to proactively share timely and actionable threat intelligence with companies targeted by attacks;  

Bolstering Canada’s economic and innovative capabilities, including by incentivizing high-risk, high-reward research in disruptive and emerging fields which are foundational to spurring economic growth and are strategic from a national security perspective; and

Expanding and reinvigorating Canada’s international security partnerships, including by spearheading measures to collectively counter weaponized supply chains, such as a “NATO for trade.” 

In a world where security is a prerequisite for prosperity, and prosperity a prerequisite for security, Canada will be unable to sustain a healthy and prosperous society without a national security strategy that safeguards our economic security. Now is the time for Canadian policymakers to recognize this reality and to come together with Canadian companies to protect the economic vitality and resiliency of our nation.

Strategic threat actors are advancing their national interests at our expense

Canada now finds itself in the midst of the greatest, most complex, and unpredictable security environment in a generation.

The free, open, and relatively stable unipolar order that prevailed following the conclusion of the Cold War – and which provided Canada with unprecedented levels of safety, security, and prosperity – is giving way to a new, more turbulent, multipolar reality marked by geopolitical rivalry.³

The splintering of the global commons into rival camps struggling for strategic superiority has sharpened competition and confrontation among states in wide-ranging areas. This is no truer than in the fields of business, economics, and technology.

As in past eras defined by heightened geopolitical competition,⁴ countries’ ability to foster economic growth – especially through the invention, diffusion, and adoption of emerging and disruptive technologies – is the foundation upon which military, economic, and cultural power now rest.⁵

Recognizing this reality, strategic threat actors have shown both a capacity and willingness to steal, sabotage, and disrupt their way up the economic ladder to strengthen their geopolitical might and to unilaterally reshape the existing international order into something more favourable to themselves.⁶

New technological advances, especially in cyberspace, have enabled these actors to both broaden and tailor their tactics to better penetrate our defences and achieve their revisionist aims.

The result: Canadian companies, in almost every region and sector of our economy, now face unprecedented dangers. They are operating on an increasingly skewed playing field in which traditional private commerce is always at a disadvantage.

Canada’s lacklustre economic performance is adding to this threat.⁷ Canada underperforms its global rivals in a range of areas essential to spurring innovation, scaling companies, and capturing global market share in advanced industries vital to our prosperity and security.⁸ Indeed, Canada leads in none of the forty-four advanced technology categories – such as artificial intelligence, quantum, or advanced cybersecurity – identified by one think tank as being essential to a country’s economic and national security.⁹

Economic security threats represent serious risks of substantial harm to our society

To be clear, not all attacks directed against Canadian companies represent economic security threats requiring a national security response. Most threats today can be countered by conventional tools, such as civil litigation.

Economic security threats are distinct. They represent serious risks of substantial harm to our country as a whole – to our sovereignty, values, economy, and people. As such, they are well beyond the capacity of conventional tools to address alone and require a coordinated national response.

Canada faces a series of interconnected economic security threats that erode Canada’s economic competitiveness by tilting the playing field to others’ advantage. The list is long. It includes mercantilism, weaponized trade, espionage, cyberattacks, malign foreign influence, and co-opted academic research.

State-sponsored actors are the primary perpetrators.¹⁰ The Government of Canada regularly identifies the disruptive activities of countries, such as China, Russia, Iran, and North Korea, as posing the “greatest strategic threats” to Canada’s security.¹¹

Mercantilism: competing against “State, Inc.”

Canada and its allies adhere to a common set of market values – such as the rule of law – that ensure that economic competition takes place on a level playing field.¹²

Strategic threat actors reject these globally recognized rules. They are increasingly adopting mercantilist practices aimed at giving their state champions the advantages necessary to replace imports with domestic production, climb global value chains, and seize dominant global market share in strategic sectors.¹³

The catalogue of predatory practices is lengthy. It extends well beyond generally accepted support for home-grown industries, to include manipulating local currencies to give their state champions an unfair price advantage in foreign markets, requirements for foreign firms to transfer advanced technology to state champions as a prerequisite to access their markets, and the showering of massive industrial subsidies on state champions that allow them to engage in unprofitable activity that wipes out foreign competition.¹⁴

These mercantilist interventions mean that Canadian firms are not competing with a typical commercial company. Instead, they are operating on a skewed playing field, competing with the full strength and resources of a foreign state.¹⁵ In other words: “State, Inc.”

Mercantilism undermines Canadian society by introducing into our economy uncompetitive and inefficient enterprises that can accept significant financial losses to outbid and undercut Canadian businesses because they are governed by state interests and not shareholders.¹⁶ This, in turn, destroys domestic industries and gives Canada no choice but to rely on state champions for critical economic inputs.¹⁷

That reliance is especially problematic. The blurred lines between state policy and private pursuits means that even ostensibly private firms often have no choice but to support their government’s national security objectives. This includes providing support, assistance, and cooperation to intelligence agencies.¹⁸

Weaponized trade: turning a positive sum activity into a zero sum game

Canadians’ prosperity relies on a fair, predictable, and open international trading system. This system creates good, well-paying jobs for Canadians; promotes competition and product choice; and lowers consumer prices.

Our reliance on international trade also makes us vulnerable. Strategic threat actors seek to expand their global influence by weaponizing Canada’s dependence on trade to pressure, induce, or influence the Government of Canada into taking actions that conform with their national priorities.¹⁹

Strategic threat actors use diverse tactics to coerce the Government of Canada. They can restrict the movement of critical goods for which there are no substitutes, withhold reciprocal access to domestic markets, and subject Canadian goods to onerous import inspections and conditions.²⁰

With Canadian exports supporting more than one out of every six jobs in the country,²¹ weaponized trade can directly threaten the livelihoods of Canadians. Indeed, between 2019 and 2020, China’s targeting of the canola sector cost Canadian farmers upwards of $2.35 billion in lost exports and lower prices.²²

Weaponized trade may also have broader societal costs.²³ As Russia’s unprovoked invasion of Ukraine has highlighted for our European allies, overreliance on a strategic threat actor for critical economic inputs, especially one with systemically divergent values and interests, can prove both costly²⁴ and deadly²⁵ for society during a crisis.

Canada is dependent on strategic threat actors for a broad range of commodities vital to Canadians’ safety, security, and prosperity. Using data compiled by the United Nations, a recent study found that Canada is strategically dependent upon China, a country with a history of weaponizing trade, for at least 367 categories of goods.²⁶ Eighty-three of these categories service the critical infrastructure that Canadians rely upon daily to heat and power their homes, move their products to and from international markets, and communicate with their loved ones across our vast nation.²⁷

Espionage: using Canadian ingenuity against Canadians

As an advanced, free-market economy home to many of the world’s most successful and innovative companies, Canada has become an attractive target for states seeking to advance their domestic industries through espionage.²⁸

Strategic threat actors use a wide range of methods to covertly steal commercially valuable information, such as confidential business plans, proprietary manufacturing processes, and intellectual property.

They include the use of intelligence officers and state-affiliated hackers, corporate insiders with legitimate access, as well as seemingly benign joint ventures and university research partnerships.²⁹

Businesses are typically targeted directly. The 2022 arrest of a power utility employee for allegedly stealing trade secrets for China’s benefit provides an example.³⁰

However, corporate information will be targeted wherever it may reside.³¹ In 2014, it was discovered that a Chinese state-sponsored cyber actor had compromised the digital systems of the National Research Council.³² The actor stole more than 40,000 files, including “intellectual property and advanced research and proprietary business information” from the government agency’s private sector partners.³³

The theft of Canadian ingenuity is used to build or enhance state champions’ products. Without having to make decades worth of costly investments, such as in research and development, state theft gives these companies a leg up over Canadian businesses.³⁴

Stolen information is also used to give state champions insights into Canadian companies’ business dealings, such as in bids for large overseas procurements.³⁵  As one expert notes, “[i]f the bottom line of a Canadian firm is already known, it will be easy for the other side to outbid or negotiate around them.”³⁶

These tactics collectively destroy the incentive for Canadian businesses to enter new markets, innovate and grow.³⁷ Over time, they may permanently hollow out Corporate Canada.³⁸

While no precise estimate of the cost of economic espionage currently exists in this country, based on studies from the United States,³⁹ the cost to Canadians is likely tens of billions of dollars annually.

Cyberattacks: disrupting the backbone of Canadian society

Just as the Industrial Revolution brought about enormous benefits for society, the unfolding digital revolution⁴⁰ has the potential to do the same. It can help companies reach new buyers and markets; make products faster and more efficiently; and improve consumer convenience, choice, and value.

However, as international interactions shift into cyberspace, we have seen skyrocketing levels of cyberattacks directed at Canadian businesses.

Canadian companies represent more than half of all known cyber victims in this country and are the most frequent focus of geopolitically inspired cyberattacks against Canada.⁴¹ To give a sense of the problem’s scale, two out of every five companies in this country were the victims of a cyberattack within the last two years.⁴²

The impact is staggering. Attacks often result in reputational damage, lost revenues and business opportunities, legal repercussions, as well as lasting damage to business infrastructure and operations. By one estimate, ransomware⁴³ alone cost the Canadian economy US$4.3 billion in paid ransoms and lost productivity in 2021.⁴⁴

Cyberattacks against critical infrastructure – such as electrical grids, telecommunication networks, and natural gas pipelines – are particularly troubling, given their potential to wreak large-scale havoc on Canadians’ everyday lives.

Critical infrastructure operators will continue to be at high risk from cybercriminals, including those affiliated with nation states, because of operators’ “deep pockets” and the “impact of operational downtime on the customers [operators] serve.”⁴⁵ State actors are expected to continue to target critical infrastructure “to pre-position in the case of future hostilities, and as a form of power projection and intimidation.”⁴⁶

Recent incidents in Canada involving critical infrastructure include:

• In May 2022, a “Russian-speaking cybercrime group” disrupted the operations of a Canadian aerospace company providing engineering and research and development services to the Canadian Armed Forces. The firm had recently been selected to participate in the modernization of the CH-146 Griffon helicopter fleet.⁴⁷
• In April 2023, a “pro-Russia” hacker group engaged in a string of distributed denial-of-service attacks during the Ukrainian Prime Minister’s visit to Canada. The attacks caused the websites of major Canadian businesses in the utility, transportation, and banking sectors to crash.⁴⁸
• In April 2023, leaked intelligence revealed that “Russian-backed hackers” gained access to and control over a Canadian natural gas distributor’s digital systems.⁴⁹ The Head of the Canadian Centre for Cyber Security asserted that the hackers “had the potential to cause physical damage” to the distributors’ pipeline network.⁵⁰ 

It is difficult to overstate critical infrastructures’ importance to Canadians’ safety, security, and prosperity. While not resulting from a cyberattack, a power outage in August 2003 that lasted less than a week caused an estimated $2.3 billion loss to Ontario’s economy, contributed to a 0.7% decrease in Canada’s GDP in August, and very likely led to loss of life.⁵¹ Given the growth of the Canadian economy in the 20 years since then, the impact of a similar cyber-induced outage would be several orders of magnitude larger.

Malign foreign influence: eroding Canadians’ trust and confidence

Foreign states seek to influence Canadian society. Most of this activity is perfectly legitimate. It is both lawful and appropriate for foreign states to have views of Canada’s domestic affairs and to express those views with Canadians.⁵²

However, foreign states veer from diplomacy into unacceptable malign foreign influence when their activities are covert, deceptive, or threatening.⁵³

The current narrative surrounding malign foreign influence is rightly focused on the integrity of democratic processes and the safety and security of targeted ethnic or cultural groups.

However, strategic threat actors actively target all aspects of Canadian society to advance their strategic interests to our detriment.⁵⁴ This includes the use of third parties wielding deceptive tactics online to damage strategically important sectors of the Canadian economy.

In June 2022, a malicious actor with possible links to China deployed thousands of inauthentic social media accounts to carry out a coordinated disinformation campaign against a Canadian company developing a rare earth mine in northern Saskatchewan.⁵⁵ 

Shortly after the miner announced its project, inauthentic social media posts began to target locals with false claims regarding the project’s environmental and labour record.⁵⁶

A post from “Ashely Wilson” stated: “[t]he protection of the lake, everyone’s responsibility, if once mining, how to ensure the health of workers, firmly resist.”⁵⁷ Another user, “Farrah”, stated: “[i]t’s not exciting, our lakes will be destroyed.”⁵⁸ “Brown Emily” and “Gonzales Bonnie” were equally appalled, respectively referring to the discovery as “terrible” and “terrifying.”⁵⁹

The plan of attack was clear: whip up local opposition against the project, force the stoppage of the miner’s operations, and undermine a sector essential to Canada’s security and prosperity.⁶⁰

In an era of heightened geopolitical rivalry, these attacks are increasingly becoming the norm. Other recent attacks targeting the Canadian economy include Russian and Iranian disinformation campaigns advancing narratives critical of energy pipelines and the Government of Canada’s immigration policies.⁶¹

Co-opted academic research: exploiting Canadian openness and collaboration

Open and collaborative academic research is indispensable to pushing the boundaries of Canadian science and technology. However, strategic threat actors exploit this feature of our academic institutions to advance their priorities at our expense.⁶²

They may deploy visiting faculty, private sector collaborators, or not-for-profit organizations to gain unauthorized access to valuable information, expertise, or technology.⁶³

In some scenarios, the co-opting of Canadian-led research can lead to advancements in foreign states’ strategic, military or intelligence capabilities.⁶⁴

For instance, instead of strengthening Canada’s defensive capacities through the domestic development and commercialization of cutting-edge technologies, we have repeatedly seen Canadian academic institutions enter into partnerships that support foreign states’ military ambitions.

From 2018 to 2023, academics at ten of Canada’s leading universities published more than 240 joint papers on advanced research topics, including quantum cryptography, photonics, and space science, with military scientists working out of China’s top military institution.⁶⁵

Failure to address growing threats puts our country at risk

Canada’s new geopolitical reality means that economic security – repeatedly taken for granted, overlooked, or simply ignored – is now central to the preservation of our national security.

Therein lies the challenge for the country.

Our decades’ long neglect of economic security issues has made us vulnerable. To use the Canadian Security Intelligence Services’ own words, Canada has become an “attractive and permissive target.”⁶⁶

Failure to address this challenge with urgency and ambition will have serious, long-term consequences for Canadians. The Chief of the Communications Security Establishment explained it this way: “Cyber security is not abstract. Cyber systems, digital systems, they do not exist in a vacuum. They exist in relation to people with real-world implications for their privacy, their prosperity, their wellbeing.”⁶⁷

If left unchecked, attempts to degrade our economic capacity will result in the loss of secure, well-paying jobs for Canadian workers; forgone tax revenues to pay for essential public services, like health care and public transit; as well as lost leadership in advanced industries vital to the country’s national strength and long-term economic health.⁶⁸

This point takes on increased significance as the Government of Canada spends tens of billions of dollars annually to promote Canada’s transition to a net-zero economy.⁶⁹ If economic security considerations – such as measures to tackle espionage – are not baked into the Government of Canada’s investments in industrial capacity, taxpayers’ hard-earned money will likely end up subsidizing others’ net-zero industries .

Attacks directed against Canadian businesses also erode the beliefs we cherish most as Canadians. This includes the principle of free enterprise and fair competition; the tenet that all persons are accountable to the law, equally enforced and independently adjudicated; and the values that our laws promise, such as Canadians’ rights to privacy or security of the person.⁷⁰

The threat of punitive cyberattacks against critical infrastructure is illustrative. Russian-aligned cyber actors have targeted Canadian energy companies for its “psychological impact,” including to “weaken Canadian [military and humanitarian] support for Ukraine.”⁷¹ By creating consequences for challenging illiberal behavior on the international stage, punitive cyberattacks complicate Canada’s ability to independently assert its values.

We also must be mindful that Canada’s closest allies are moving fast in this era of heightened geopolitical risk to improve their abilities to identify and mitigate economic security threats.⁷²

If Canada fails to move in lockstep with its closest allies in building out its economic security capacity, it risks being perceived as a “weak link.” This would jeopardize the country’s relationships with its closest allies at a pivotal moment when the global order is being reshaped and partnership matters most.

There are already troubling signs that Canada’s closest allies are taking note of our reluctance to seriously confront growing security threats. Some argue that has resulted in the country increasingly sitting on the sidelines when it comes to vital conversations around security.⁷³

The Prime Minister’s former National Security and Intelligence Adviser has written that “[t]he glacial pace at which Canada appears to be adapting to the realities of modern great power competition has left it far behind the curve, with consequences for…Ottawa’s reputation among its allies.”⁷⁴

This likely contributed to Canada’s exclusion from AUKUS, a security partnership between three of Canada’s closest allies intended to align member states’ defence and technology sectors to develop the next generation of military capabilities.⁷⁵

The time for after-the-fact policy patches is over

The Government of Canada has been responding to our new geopolitical reality. But its actions have been slow, modest, and piecemeal.

This approach stems largely from a mode of governance that responds to immediate and pressing issues that arise without sufficient long-term planning for dealing with strategic threat actors which think well beyond the length of an average Canadian political cycle.

Canada’s efforts to combat foreign interference demonstrates the weakness of this approach. According to the National Security and Intelligence Committee of Parliamentarians, “Canada’s ability to address foreign interference is limited by the absence of a holistic approach.”⁷⁶ In the Committee’s view, Canada’s “[r]eactions to foreign interference remain ad hoc and case-specific, rarely putting them in their broader context.”⁷⁷

The lack of information-sharing powers provided to the Canadian Security Intelligence Service offers another example of the approach’s pitfalls. While the Minister of Public Safety tasked the Director of the Canadian Security Intelligence Service in May 2022 with ensuring that “organizations working in sensitive domains are aware of current and emerging economic security threats,”⁷⁸ the agency remains without the legislative powers to proactively share threat intelligence and advice with such organizations.⁷⁹

This in no way represents a coherent approach to tackling strategic threat actors that think long-term and operate in sophisticated and pervasive ways. The time for after-the-fact policy patches is over.

Canada must catch up with its closest allies

Canada must fundamentally alter the way it approaches issues of national security. This will require an over-arching national security strategy that takes an eyes wide open approach to the complex ways strategic threat actors seek to undermine Canada,⁸⁰ while explicitly recognizing that economic security is central to a broader national vision of a more secure country.

Only by doing so can the Government of Canada take full advantage of all facets of its national power – including its diplomatic, defence, financial, economic, technological, and intelligence capabilities – to effectively safeguard our economic security and ensure our shared prosperity, safety, and sovereignty in this period of heightened geopolitical risk.

Canada’s one and only national security policy – Securing an Open Society⁸¹ – is not up to the task. Released almost two decades ago, when terrorist attacks, weapons of mass destruction, and the SARS outbreak were the preoccupation of the day, the policy makes almost no mention of the economic security threats now facing the country.

Securing an Open Society therefore falls significantly short of the modern national security strategies of Canada’s closest allies:

The United States’ 2022 national security strategy clearly articulates the principle that economic security is national security. The American strategy considers economic security from a broad, multi-faceted perspective, including trade and commerce, industrial strategy, and rules governing cyberspace. The strategy notes that “if the United States is to succeed…, we must invest in our innovation and industrial strength, and build our resilience, at home.”⁸²

Reflecting on “changes in [global] power balances and intensifying geopolitical competitions,” Japan’s 2022 national security strategy asserts that “issues not necessarily deemed as security targets in the past, such as supply chain vulnerabilities, increasing threats to critical infrastructures, and leadership struggles over advanced technologies, ha[ve]…become a major security challenge.” Japan’s security strategy thus argues that “the scope of security has expanded to include the economic sector, making economic measures even more necessary to ensure security.”⁸³

Germany’s 2023 national security strategy, suitably entitled Integrated Security for Germany, follows the same logic. It states: “in the 21^st century, security…means making sure our heating works in winter,…[h]aving smartphones that work because supplies of the necessary microchips are reliable,…[g]etting to work safely because our trains are not paralysed by cyberattacks.”⁸⁴

Even Australia’s 2013 national security strategy identifies key economic imperatives, such as the protection of intellectual property, critical infrastructure, and supply chains, as being essential to its national security. Australia’s strategy notes that “there is a mutually reinforcing link between our national security and our economic wellbeing,…[a] healthy economy underpins our stability and security, which in turn is conducive to the pursuit of our personal and national economic goals.”⁸⁵

Canada requires a national security strategy that establishes economic security as a central pillar. That strategy should describe current and anticipated economic security challenges, the role of economic security in advancing Canada’s national security, the objectives of economic security policy, and the ways and means by which Canada can deliver on these objectives over the short, medium, and long run.    

The strategy must also be balanced. While it must be capable of tackling the threats facing Canadians at home and abroad, it must also remain consistent with Canada’s democratic values as well as ensure that the domestic and international environment remains conducive to beneficial cross-border activities, such as trade and economic immigration, which are central to our national interests.

In other words, protecting Canada’s economic security should not be used as a veiled excuse for the Government of Canada to undermine Canadians’ rights, adopt protectionist trade and investment rules, or decouple its relations with certain foreign states altogether.

This point cannot be overlooked. Some of Canada’s closest allies have responded to our new geopolitical reality in ways that do not always live up to their commitment to the rules-based international order.⁸⁶ In rare cases, these actions could prove to be equally damaging to Canada’s economic prosperity as the threat posed by strategic threat actors.

Recommendations for an integrated national security strategy

To address the most glaring vulnerabilities in Canada’s economic security posture, we urge that a new national security strategy adopt measures to:

Strengthen Canada’s economic security architecture,

Bolster Canada’s economic and innovative capabilities, and

Expand and reinvigorate Canada’s international security partnerships.

Strengthen Canada’s economic security architecture:

Strategic threat actors have no intention of undertaking the structural reforms needed to level the playing field for Canadian businesses. A latticework of new and interconnected laws, policies, and programs will therefore be required to improve Canadian companies’ ability to deter, detect, and disrupt the threats facing our nation.

Recommendations:

1. The Government of Canada should comprehensively review and amend the Canadian Security Intelligence Service Act to align the agency’s legislative mandate and powers with expanding expectations for it to identify, analyze, and disrupt threats to Canada’s economic security.
   Among other things, an amended Canadian Security Intelligence Service Act should enable the agency to proactively share timely and actionable threat intelligence with stakeholders outside the federal government, including companies, where it is in the public interest and subject to all necessary safeguards and oversight.
2. The Government of Canada should provide the Canadian Security Intelligence Service with the resources necessary to launch a new division with an express mandate to provide training and advice to a broad range of private sector entities on how to defend themselves against economic threats. The agency should look to models established in allied countries, such as MI5’s National Protective Security Authority.
3. To reduce risks to security of supply, prevent dependencies with respect to critical infrastructure, and counter the problematic transfer of sensitive technologies, the Government of Canada should move forward with amendments to the national security provisions of the Investment Canada Act to more precisely target and screen out malicious foreign investments. An amended Investment Canada Act should include a requirement for the Government of Canada to formally incorporate Canadian companies’ unique perspectives on new and emerging national security threats within the investment review process.
4. To improve law enforcement’s ability to thwart economic security threats, the Government of Canada should strengthen the Security of Information Act’s economic espionage offence. Alongside this initiative, the Government of Canada should develop a new legal regime that allows the use of intelligence as evidence in the prosecution of criminal activities, while remaining compliant with the constitutional principle of the accused receiving a fair trial.
5. To enhance the cybersecurity and resiliency of critical infrastructure, the Government of Canada should:
   • Follow the United States’ lead and legislate safe harbour protections⁸⁷ that eliminate legal obstacles that prevent companies from working voluntarily with each other and governments to address cyber challenges,
   • Explore new legal mechanisms to encourage developers of digital goods and services used by critical infrastructure operators to take all reasonable precautions to secure their products, and
   • Establish a centre of excellence within the Canadian Centre for Cyber Security to:
     • Bring together public and private sector partners to unify their defensive actions through synchronized cybersecurity planning, preparation and response, like what is done by the Joint Cyber Defense Collaborative of the United States’ Cybersecurity and Infrastructure Security Agency;
     • Encourage more meaningful, two-way information sharing within and between government and critical infrastructure providers, including on emerging threats to critical cyber systems, the safety record of current technologies, and the relative benefits of different security measures;
     • Convene and support regular tabletop and threat hunting exercises where critical infrastructure providers and government stakeholders work through simulated events to improve their collective responses to major cyber incidents;
     • Establish a systemized process to review major cyber intrusions to capture and share lessons learned as well as make concrete recommendations for improving cybersecurity and resiliency; and
     • Offer onsite incident response services to critical infrastructure providers that require immediate assistance.
6. To safeguard our continued access to critical economic inputs, while strengthening the Government of Canada’s capability to act independently on the global stage, the Government of Canada should work with sectors vulnerable to economic coercion to strengthen the depth and resilience of critical supply chains. This should include conducting vulnerability reviews, sharing threat information, developing robust mitigation strategies, curbing excessive dependence on strategic threat actors, and increasing the availability of commercial free-market alternatives.
7. To blunt the impacts of mercantilist practices, the Government of Canada should create new legal mechanisms to block the import of foreign goods and services that have benefitted materially from unfair economic practices. The Government of Canada’s initial focus should be on blocking strategic threat actors’ market access to critical industries where they are using illegal means to catch up and surpass Canada.
8. To deter, denounce, and discipline those actors who threaten the integrity of critical infrastructure systems, the Government of Canada should follow the United States’ lead and amend the Criminal Code to expressly criminalize willful or negligent acts that materially interfere with critical infrastructure through financial penalties, imprisonment, or both.
9. To prevent Canadian-led academic research from furthering strategic threat actors’ interests at our expense, the Government of Canada should, in duly justified circumstances, ban entities linked to these states from participating in, or benefiting from, Canadian academic research.
10. To enable the earlier and more effective disruption of malign foreign influence, as well as to increase the public’s awareness of the nature, scale, and extent of foreign activities in domestic affairs, the Government of Canada should move forward with the enactment of a foreign influence transparency regime. Like existing regimes in the United States, Australia, and the United Kingdom, Canada’s scheme should require entities acting on behalf of a foreign state to publicly declare their activities intended to influence government decision-making or public opinion. The adoption of any registry must be consistent with the values we share in our democracy, including our commitment to be an open, free, and welcoming place to study, work, and invest.

Bolster Canada’s economic and innovative capabilities:

We must abandon the notion that it is possible for Canadian businesses to compete on a level playing field with state champions in developing and commercializing emerging and disruptive technologies. They simply do not play by established rules.

To prevail in these circumstances, the Government of Canada will need to complement the economic and innovative capacity of Canadian companies with a modern industrial strategy. That strategy must increase our country’s ability to systemically translate intellectual capital into world-leading technologies and internationally competitive businesses.  

The Government of Canada must identify and support advanced technologies that are foundational to spurring economic growth, strategic from a national security perspective, and where companies on their own are not yet able to make the investments needed to develop and commercialize such technologies. The goal should be to help Canadian companies do what they do best – innovate, scale, and compete globally.

Together, these investments will support millions of secure, well-paying jobs by encouraging billions of dollars of economic activity. They will also increase our ability to act autonomously on the international stage by reducing Canada’s vulnerability to economic coercion, and boost the country’s economic clout, thereby providing the means to invest in our security.

Recommendations:

1. The Government of Canada should modernize its science and technology architecture to reward high-risk, high-payoff research in emerging and disruptive technology fields essential to our economic and national security. In modernizing programs, special attention should be made to displacing problematic foreign sources of financing for academic research, as well as retaining and commercializing more advanced research at home.
2. The Government of Canada should stimulate Canadian innovation in emerging and disruptive technology fields essential to our economic and national security, while integrating new technologies into the Canadian government, through the strategic use of public sector procurement. In doing so, the Government of Canada should look to agile and challenge-based models used in allied countries, such as the United States’ highly successful Defense Advanced Research Projects Agency. 
3. To strengthen Canada’s intelligence capabilities, support academic institutions, and create new economic opportunities for businesses, the Government of Canada should partner with trusted academic researchers and businesses to co-develop and deploy advanced security solutions across the Canadian intelligence community. The Government of Canada should emulate the approach adopted by the United States’ Intelligence Advanced Research Projects Activity. This specialized government agency invests in high-risk, high-payoff research that pushes the boundaries of science and technology to empower the American intelligence community to do its work better and more efficiently.
4. Canada must invest in the input that lies at the core of economic growth and innovation: talent. The Government of Canada should:
   • Refocus Canada’s economic-class immigration programs to ensure that sectors essential to Canada’s economic and national security have quick and reliable access to the trusted, specialized, and high-skilled international talent they need to drive innovation, scale, and compete internationally;
   • Scale organizations with a proven track record of advancing the recruitment and training of underrepresented groups in fields of security, such as Rogers Cybersecure Catalyst;
   • Incent post-secondary institutions with leading security programs, such as the University of New Brunswick and Durham College, to increase enrollment rates and offer students more experiential learning opportunities; and
   • Increase Canada’s ability to attract, cultivate, and retain world-class security talent by creating greater opportunities for personnel exchanges between trusted academic institutions, businesses and government departments and agencies, such as the Canadian Armed Forces, Communications Security Establishment, Royal Canadian Mounted Police, and Canadian Security Intelligence Service.

Expand and reinvigorate Canada’s international security partnerships:

Canada’s international security partnerships – including participation within the G7, Five Eyes, NORAD, and NATO – are some of the country’s most important strategic assets. By providing a platform for security cooperation, Canada’s international security partnerships act as a force multiplier, amplifying Canada’s capacity to respond to shared economic security challenges that affect Canadians at home and abroad.

Canada must expand and reinvigorate its network of security alliances and partnerships to uphold and strengthen the principles, institutions, and rules-based international order that have enabled so much stability, prosperity, and growth. The end goal for Canada should be a world in which responsible state behaviour is the norm, and where irresponsible behaviour is isolating and costly.

Recommendations:

1. The Canadian military remains the guarantor of the country’s peace, stability, and prosperity, as well as our commitment to allied nations. The Government of Canada should recommit to meeting the defence investment target of two percent of GDP set out under NATO’s 2014 Wales Summit Defence Investment Pledge. Considering the most recent NATO summit in Vilnius, Lithuania, this pledge should be viewed as a “floor” and not a “ceiling”.
2. To better monitor, mitigate, and respond to threats to Canada and the United States’ heavily integrated cross-border infrastructure, the Government of Canada should work with the United States to create a formal bilateral public-private sector working group. Composed of a cross-section of public and private sector leaders, the goal of this group would be to facilitate the free, frank, and confidential exchange of strategic information about the evolving threat environment as well as the ways and means by which governments and businesses on both sides of our shared border can work together to build a stronger, more secure North America.
3. Given the importance of international trade and commerce to the security and prosperity of Canadians, the Government of Canada, in partnership with other like-minded allies, should reinforce the rules-based economic order by:
   • Strengthening the multilateral trading system with the World Trade Organization at its core;
   • Strengthening or joining international frameworks promoting free and fair international trade and investment among market-oriented countries, such as the Comprehensive and Progressive Trans-Pacific Partnership and the Indo-Pacific Economic Framework; and
   • Creating and enhancing plurilateral measures to collectively deter, withstand, and counter economic coercion and other unfair trade practices, such as through a “NATO for trade” whereby allied nations agree to come to the aid of each other when they are economically threatened. As a part of this initiative, Canada should leverage its economic advantages, such as in the production of energy, food, and minerals, to help reduce our allies’ trade dependencies on strategic threat actors.
4. The Government of Canada should work closer with its Five Eyes partners and other like-minded allies to undermine malicious cyber actors, including by:
   • Jointly deterring, attributing, and responding to cyberattacks which breach global rules and norms in cyberspace;
   • Shutting down illegal online markets for cyber tools and services, which lower the start-up time and threshold of sophistication necessary for malicious actors to target and sabotage Canadian companies;
   • Better regulating crypto assets and exchanges, which are used by malicious actors to conceal their identities and obfuscate their activity from national security and law enforcement agencies; and
   • Increasing pressure on countries with lenient or non-existent laws and law enforcement related to cybercrime and other malicious cyber activities.
5. To build upon Canada’s capabilities in cybersecurity, artificial intelligence, and quantum, the Government of Canada should pursue admission to AUKUS, the trilateral security and technology co-operation pact between the United States, United Kingdom, and Australia. The Government of Canada’s initial focus should be on AUKUS’ second institutional pillar, which focuses on advancing these and other important technologies.
6. International technical standards have a direct bearing on Canada’s national security, including by curbing the abusive use of emerging and disruptive technologies that could threaten Canada’s economic security. The Government of Canada should ratchet up its collaboration with Canadian businesses to support the development and implementation of international technical standards for next generation technologies that reflect our national interests as well as free-market and democratic values.
7. To enhance Canada’s diplomatic influence, foster greater collaboration with like-minded nations, and advance Canada’s economic interests, the Government of Canada should pursue a program of “economic diplomacy”, whereby the country’s industrial capacity is leveraged to help address global security challenges.

Execution and review will be critical

A new national security strategy is not the end of the road but the start. The strategy will only fulfill its purpose when its contents are fully executed. Measures included in a new strategy must therefore be implemented in a timely and effective manner.

Further, as much of the battleground that the Government of Canada needs to contest lies outside of its direct control, deep and sustained partnership with Canadian businesses, from the strategic to the tactical level, will be required to achieve success. Consultation will not suffice.

Lastly, to stay relevant in a rapidly evolving threat environment, a new strategy should be viewed as a “living document.” It must be regularly and systematically evaluated, such as every three years, to ensure that it is satisfying its objectives. The Government of Canada should make necessary revisions to the strategy should it expect any material changes.

To ensure that these measures are taken and given adequate priority, we urge that:

1. The newly created cabinet committee on national security and intelligence – the National Security Council – be chaired by the Prime Minister and staffed by all relevant ministers and senior government officials with a security mandate, so as to provide the sustained and forward-looking leadership and decision-making needed to implement the new national security strategy;
2. The role of the National Security and Intelligence Advisor be established in legislation and enhanced to better organize and coordinate the intelligence community as well as consult, engage, and partner with Canadian businesses;
3. The Prime Minister amend the mandate letters of all relevant ministers, including public safety, foreign affairs, defence, industry, and finance, to ensure that economic security considerations are incorporated into each of their priorities;
4. A dedicated economic security division be established within the Privy Council Office and that economic security units be created or enhanced within all major ministries, such as public safety, foreign affairs, defence, industry, and finance, to better plan and coordinate economic security policies in partnership with Canadian businesses;
5. The Government of Canada release annual implementation plans setting out the specific measures that the government intends to carry out within a given calendar year to implement the new strategy; and
6. Within eighteen months of the roll-out of a new national security strategy, the National Security and Intelligence Committee of Parliamentarians initiate, and the Government of Canada respond to, a special study of the Government of Canada’s framework for tackling economic security threats with a view to:
   • Identifying gaps that exist in legislation, policies, or governance mechanisms;
   • Strengthening ministerial accountability; and
   • Improving transparency, including helping businesses better understand the roles of the government organizations responsible for serving them.

As a part of this study, the Committee should launch an economic security “roadshow”, like the bi-partisan roadshows employed by the United States’ Senate Select Committee on Intelligence, to gain insights from companies on the frontlines of attack. 

Canada’s most innovative and successful companies are ready to do their part

Every year, Canada’s most innovative and successful companies spend billions of dollars to defend Canadians against a growing list of economic security threats. This includes investing in measures to detect, mitigate, and respond to attacks; establishing partnerships with post-secondary institutions to train security professionals and develop defensive technologies; as well as sharing threat intelligence, expertise and best practices with governments and industry peers.

For instance, in critical infrastructure sectors, like energy, transportation and telecommunications, most Business Council of Canada members individually invest well over $100 million per year in Canada on measures to prevent, detect and respond to cybersecurity incidents. A sizable number of these members individually invest over $500 million annually.

Drawing on their deep experience and expertise, Canada’s most innovative and successful companies are ready to work constructively with the Government of Canada to develop and implement a new national security strategy. This includes, but is in no way limited to:

1. Strengthening Canada’s economic resilience by increasing the amount they invest annually on measures to detect, prevent, and disrupt economic security threats to Canada;
2. Sharing more with the government about what threats they are seeing on the ground to better inform government policy, as well as improve national security agencies’ ability to investigate, analyze and disrupt threats;
3. Increasing their investments in Canadian academic research to help displace problematic foreign sources of funding and to retain and commercialize more advanced research at home; and
4. Better supporting their large and diverse supply chains, including through education, capacity building, and relationship brokering, to increase awareness of the threats facing small and medium sized businesses, as well as roles and responsibilities of the government organizations responsible for serving them.

Conclusion

The free, open, and relatively stable unipolar order that provided Canadians with extraordinary levels of safety, security, and prosperity is now consigned to history.

In our new geopolitical reality, Canadians face a turbulent, multipolar landscape that poses an unprecedented national security threat to their economic well-being.

With the economic health of Canadians now intertwined like never before with questions of national security, the time has come for the Government of Canada to take bold steps to protect Canadians.

That is why this report calls on the Government of Canada to create a first-of-its-kind national security strategy that establishes economic security as a central pillar.

The recommendations contained in this report offer a path to help government and businesses successfully navigate this new, more turbulent world together.

The post Economic Security is National Security appeared first on Business Council of Canada.

Climate change is one of the greatest challenges of our time. Canada will not be able to achieve its ambitious climate change goals, however, unless it has a comprehensive energy transition plan. Immediate action and substantial capital investment are required to meaningfully lower emissions and invest in lower carbon energy solutions that will position the country for long-term success. Yet much of that required capital is currently sitting on the sidelines as corporations face an uncertain regulatory and policy environment which discourages investment in the energy systems that will allow Canadians to thrive in a lower-carbon future.

Canada urgently needs a coherent climate and economic policy agenda to ensure a rapid deployment of low-carbon capital and technology. Our companies and policy makers proved during the pandemic that they could react with speed and dexterity, and that effective programs could be set up quickly and adapt to changing conditions and new information. We need that drive and nimbleness now more than ever.

Canada’s role in bolstering global energy security

The war in Ukraine has put an additional spotlight on energy security, as many countries struggle to cope with a rapid run-up in energy prices and — in some cases — to keep the lights on. Our climate ambitions cannot be separated from the domestic and global need for secure sources of affordable energy. As Deputy Prime Minister Chrystia Freeland has noted, energy security is now clearly tied to national and economic security. We believe there is both an economic and moral imperative for

Canada to use our resources to help our most important allies in their time of need.
Canada can be a leader in contributing responsibly produced energy to global markets in the form of liquefied natural gas (LNG), uranium/nuclear and in time, hydrogen. This could both ease short-term energy security challenges for our allies and reduce global reliance on higher-emissions sources of power.

The federal government must clearly articulate its intention to have Canada make a significant contribution to global energy security and outline specific measures it will undertake to expedite the approval of further development of Canadian LNG, other low-carbon energy sources and related infrastructure.

Maintaining a level playing field with our largest trading partner

While governments at all levels have advanced foundational pieces to support Canada’s energy evolution, what is missing is a sense of urgency. Other countries are moving faster to attract the technologies and investments that will power the coming economic and energy transformation. With the tectonic shift that is the Inflation Reduction Act, the U.S. has signaled that climate policy is also economic security policy. And they have opted for market incentives for investment in climate solutions rather than prescriptive regulation. Without an adequate Canadian response, we risk standing by while valuable human and financial capital moves to greener pastures south of the border.

Budget 2023 must respond effectively to the competitive challenge of the U.S. Inflation Reduction Act with commensurate measures to support industries and technologies that will enable domestic decarbonization and position Canada for international success.

Policy clarity and predictability

Financial and market certainty. We have a mere seven years to reach the ambitious federal 2030 target for greenhouse gas (GHG) reductions. Without a coherent policy agenda aimed at deploying capital at speed and scale, Canada may fall short of our climate targets and miss out on the emerging net-zero economic opportunities. This could in turn weaken the country’s competitiveness and ability to create the highly skilled and well-paid jobs of the future. The policy focus should be on incenting higher levels of investment and identifying ways to improve project economics rather than developing new regulations or taxes, which add complexity and delay final investment decisions.

The federal government must:

• Create policy clarity, certainty and longer-term predictability for the industries leading the net-zero transition.
• Ensure carbon pricing policy is attuned to the competitive realities of Canada’s emissions-intensive and trade-exposed industries and build a robust market for carbon credits.
• Develop a broader suite of investment and production tax credits to incent investment in major emissions reduction projects.

Regulatory coherence. Given the scale of the net-zero challenge, we urgently need to restore Canada’s reputation as an attractive place to invest in low-carbon solutions and as a country that can get big projects built. The Prime Minister, Deputy Prime Minister and Minister of Natural Resources have all recognized the need to shorten the timelines for approval of low-emissions projects. This should include projects that are in the national interest and meet one or more of the following criteria:

• Increase Canada’s contribution to global energy security;
• Ability to substitute Canadian products for more GHG-intensive options in importing countries;
• Low-carbon fuel production (e.g. hydrogen, renewable natural gas, biofuels and uranium);
• Electricity transmission within and between provinces resulting in a net decrease in GHGs.
• Low-carbon electricity generation (e.g., renewables, nuclear, storage, pumped hydro);
• Critical mineral mining and processing facilities; and
• Projects which are Indigenous-led, have an Indigenous ownership component, or have Indigenous support based on early engagement by the proponent.

The federal government must use Budget 2023 to enhance the efficacy and efficiency of the assessment process and shorten the timelines for approval of projects that will make a demonstrably positive contribution to Canada’s climate and economic goals.
The federal government should empower the Privy Council Office with a mandate to ensure ongoing coordination amongst relevant departments and the Impact Assessment Agency in order to maximize efficiencies and quickly address barriers to completing assessments for major projects.

A supportive innovation ecosystem. Technological change is the key to addressing climate change without compromising economic growth and living standards. However, catalyzing breakthrough ideas and technologies and then transforming them into commercial opportunities requires a shift in policy focus. The federal government recently added the $15 billion Canada Growth Fund to the existing array of funding and technology progams (SIF, NZA, CIB, SDTC, etc.) as well as financial commitments associated with specfic sector strategies (critical minerals, hydrogen, SMRs, etc.). It also is creating a new innovation agency to help commercialize research and advance new economic opportunities. The sum total allocated for clean technology is signficant, but what is lacking is a coherent overall strategy.

The federal government should rationalize existing clean technology support programs, pool resources and make bigger bets on a smaller number of key innovations that have the best chance to maximize climate benefits and/or return on investment.

The government’s new innovation agency should be independent and given a mandate that parallels that of U.S. ARPA-E, i.e., bringing together the best public and private research, as well as pursuing the most promising opportunities to scale up/commercialize low-carbon technologies and products.

Empowering Indigenous economic reconciliation

Indigenous communities understandably want a larger voice regarding economic development that takes place on or near their communities and how they can share in the benefits. Canada’s business leaders recognize this, and many are building stronger relationships/partnerships to expand opportunities for Indigenous Peoples. However, barriers remain to enabling Indigenous communities to partner in development projects, most notably their access to risk capital and traditional lending.

The federal government should establish a national loan guarantee program to support Indigenous access to capital for equity partnerships in natural resource projects.

Building the electricity grid of the future

The federal government has set an ambitious goal of a net-zero electricity grid by 2035 and net zero emissions nationally by 2050. That suggests at least a doubling of current electricity capacity. In addition, it must be done in a way that maintains grid security, reliability and affordability. That can only be accomplished by recognizing provincial jurisdiction, creating incentives for grid modernization and working with electricity providers on new technologies such as hydrogen and energy storage. The required expansion of electricity capacity cannot be accomplished by public dollars alone; governments will have to encourage much greater private sector investment.

The federal government must work cooperatively with the provinces to support the build-out of grid capacity and through facilitating substantially greater private sector investment in electricity generation and transmission.

The federal government must deliver a predictable and technology-neutral set of investment tax credits to encourage the investment required to generate, transmit, and distribute, the scale of clean generation necessary to meet Canada’s climate goals.

Critical minerals

Canada has impressive reserves of several critical minerals that will power the net-zero transition. But the global race is heating up and other countries are not standing still. The federal critical minerals strategy is an important step. But it needs to transform into a truly national strategy focused on mining and processing of minerals and establishing strong linkages to North American and global supply chains.

The federal government must work with the provinces to develop a national strategy to capitalize on our world-class reserves and mining expertise and position us to be a key global provider of critical minerals. This includes a plan to develop the infrastructure to support mines and processing facilities in remote locations and a commitment to fast-track the approvals for such projects.

Low-carbon oil and gas

All credible scenarios suggest the world will need fossil fuels for several more decades. With its ESG credentials and commitments to invest in GHG-reducing technologies, the Canadian energy industry can compete to retain, and even expand, its share of that market. The proposed cap on the sector’s emissions must be designed with flexibility to ensure it actually stimulates new emissions reduction projects and does not merely curtail oil and gas production. The current uncertainty over the specific cap and the design of the policy risks delaying needed investment and puts our climate targets at risk.

The federal government must work cooperatively with the oil and gas industry to establish a downward emissions trajectory to 2030 and 2050 that is economically and technically feasible. They should also agree on a policy framework that would support the required technology investment.

Electric vehicles

Canada must solidify its position in the rapidly expanding North American electric vehicle (EV) industry and ensure an integrated continental supply chain for EVs, from critical mineral mining and processing, to battery elements and vehicle assembly and parts. Current EV policy is largely driven by a sales mandate to have 100 per cent of vehicles sold be zero-emission by 2035. But other policy drivers are urgently needed for the country to have any chance of meeting that target.

The federal government should work with the provinces to enhance purchase incentives for EVs, expand publicly funded charging infrastructure as well as create incentives for installation of home and commercial EV chargers. In light of the IRA, the federal government should review incentives and develop an overall strategy to attract domestic production of battery cells, modules and cathodes.

Introduction

Climate change is one of the greatest challenges of our time. Failure to act decisively will create significant long-term issues for our economy, our communities, and the quality of life for future generations. A coherent and effective response to the challenge can unleash significant economic opportunities that will position Canadian companies to compete in the low-carbon transition, create highly skilled and well-paid jobs and improve the prospects for reconciliation with the Indigenous Peoples of Canada.

A successful strategy to combat climate change requires a true partnership between the public and private sectors. Companies are designing their strategies to meet climate goals, encouraged by shareholders, regulators, employees and customers to demonstrate their societal responsibility and ensure their products and operations come with a lower carbon footprint. Many are ready to invest significant sums in transforming their business, but they face an uncertain policy environment and conflicting signals from all levels of government.

Estimates have put the scale of investment to achieve Canada’s net zero transition at $2 trillion, much of which will come from the private sector. In addition to companies reorienting their business plans toward a low-carbon future, immense amounts of capital are available through pension plans, financial institutions and private equity. But much of that capital is currently sitting on the sidelines, as investor uncertainty delays emissions reduction projects and blunts the incentive to develop sustainable technologies for export.

Time is not on our side – we have a mere seven years to reach the ambitious 2030 target for greenhouse gas (GHG) reductions set by the federal government. To their credit, governments at all levels have put some foundational pieces in place, but what is missing is a sense of urgency. Investors and project proponents do not have the policy clarity and longer-term predictability they need to confidently make the multi-billion-dollar investments that will be required. Other countries are quickly adopting policies to attract and deploy the technologies and investments that will power the coming economic and energy transformation. The U.S. Inflation Reduction Act is a game-changer. Without an adequate Canadian response, we risk valuable human and financial capital moving south of the border.

Our climate ambitions cannot be separated from the domestic and global need for secure sources of affordable energy. The war in Ukraine and the lingering effects of the global pandemic have put the spotlight on energy security. Countries around the world are struggling to cope with a rapid run-up in energy prices and – in some cases – to keep the lights on. This has in turn brought renewed attention to Canada’s global responsibilities. As Deputy Prime Minister Chrystia Freeland has noted, energy security is now clearly tied to national and economic security. We believe there is both an economic and a moral imperative for Canada to use its resources to help allies in their time of need.

The Business Council of Canada has long supported carbon pricing as an essential part of the climate toolbox. Likewise, we see an essential role for fair, responsive and efficient regulation to build public trust as we develop new infrastructure to support Canada’s energy transition. But the time has come to ask whether creating more and increasingly complex regulation is the right approach to further reduce emissions. An efficient regulatory system could be a competitive advantage for Canada. But it is long past time for a policy framework that is clearly set up to drive capital deployment with speed and scale.

A clean electricity grid can be a powerful competitive advantage and is key to the growth and decarbonization plans of many of our industries, including manufacturing, automobiles, steel, aluminum and critical minerals. Recent estimates suggest that Canada will require two to three times more electricity capacity to fulfill its net zero ambition by 2050.

Canada can be a leader in fueling the world with more sustainable forms of energy while also developing leading-edge climate solutions for domestic and global markets. But we face a very real risk that we will fall short of our climate targets and miss out on the economic opportunities from the net-zero transition. Canada urgently needs a coherent climate and economic policy agenda to ensure a rapid deployment of low-carbon capital and technology occurs over the next few years. Our companies and policy makers proved during the pandemic that they could react with speed and dexterity, and that effective programs could be set up quickly and adapt to changing conditions and new information. We need that drive and that nimbleness now more than ever.

As noted above, 2022 witnessed two fundamental shifts – global attention to energy security and the renewed focus by the United States on its domestic economic security – that greatly affect the choices Canada must make to navigate the clean energy transition. This paper outlines how we think Canada needs to respond to those two new drivers of change, and then outlines where urgent action is needed in a few areas that are critical to Canada’s economic, energy and climate security future.

Responding to new drivers of change

Canada’s role in bolstering global energy security

Energy price spikes and fears of rationing and blackouts have become headline news in some countries. European gas prices have eased somewhat recently, thanks in part to an extraordinary effort to obtain supply and the ramping up of LNG facilities in record time. But prices are still four to five times higher than what would normally be expected. This experience reminds us that energy systems are complex and attempts at rapid transformation can be painful when not coherently planned or in the face of unintended consequences. Indeed, they can impact climate goals, as some countries have had to resort to higher-emitting fuel sources in the short-term to prevent blackouts and/or contain public anger over spiking prices.

Canada could have been in a position to help its European allies with responsibly produced LNG. In August 2022 German Chancellor Olaf Scholz visited Canada with that request. But our failure to get government and industry alignment on building East Coast gas infrastructure meant that the Chancellor went home empty-handed. Most Canadians would agree that we have a moral obligation to help our allies. Accordingly, what is the appropriate role for Canada in strengthening global energy security and in ensuring a successful international response to the climate challenge? We believe Canada has the resources, the financial ingenuity and the human and technological capital to be a key player in the transition.

Even in a scenario where countries are aggressively pursuing decarbonization efforts and the world is on track to net zero emissions in 2050, the International Energy Agency (IEA) estimates that the world will still need fossil fuels. Their ‘Net Zero Emissions’ scenario suggests global demand of 77 million barrels of oil equivalent in 2030 and 24 million by 2050, down from about 100 million today. Natural gas demand is also likely to be strong for the next two decades as countries transition from higher-emissions sources of fuel. In addition, it plays a role as a necessary complement to renewables in electricity generation. As a world-leading sustainable producer of affordable natural gas, Canada should continue to compete for global market share. Canada already produces some of the cleanest natural gas in the world and has stringent regulations for methane. As well, major players in the oil sands have committed to net zero. They are making aggressive plans for carbon capture and are examining other decarbonization technologies, such as small modular reactors, to drastically reduce their emissions.

“The EU set a powerful example during the COVID pandemic, when European vaccine makers honoured their contracts with non-European allies. Canada must – and will – show similar generosity in fast-tracking, for example, the energy and mining projects our allies need to heat their homes and to manufacture electric vehicles.”

Hon. Chrystia Freeland, Speaking to the Brookings Institution, October 11. 2022

The investments we make today in natural gas infrastructure can become the flexible energy infrastructure of tomorrow. As countries around the world look to increasingly utilize clean-burning hydrogen, Canada is already one of the largest hydrogen producers and can capture more of this nascent market by ramping up investment in low-carbon hydrogen production and export. Our existing and emerging nuclear technologies, robust supply chains and uranium reserves also position us well to help countries develop zero-emissions electricity. And Canadian firms are eyeing significant investments in other low-carbon solutions, such as biofuels and renewable natural gas.

With aggressive investments in clean energy solutions, Canada can be a key player in the global energy transition, lowering global GHG emissions while powering new industries and resilient supply chains and creating a highly skilled work force. Our emerging clean energy advantage could also yield geopolitical influence, help create a more sustainable planet and assist the more than one billion people living without basic energy services. As other major energy suppliers – such as the United States, Australia and Norway – have demonstrated, there is no contradiction between contributing to global energy and economic security and the desire to reduce GHG emissions.

Several federal ministers have rightly pointed out that Canada needs a new strategy to ensure its economic and energy security. The concept of “friendshoring”, coined by U.S. Treasury Secretary Janet Yellen, reflects a desire to ensure supply chains, including energy and critical minerals, are more closely aligned with like-minded allies. Recent actions by Russia and China have demonstrated the wisdom of reducing reliance on autocratic countries seeking dominance in parts of the energy and materials supply chain in a way that is contrary to Canada’s interests.

Closer to home, we can work closely with the United States and Mexico to build on our diverse resource base and bolster continental energy security. Canada and the U.S. have world-leading nuclear technologies producing emissions-free baseload power and Canada has some of the lowest-emissions natural gas anywhere in the world. Together we can capitalize on growing global demand for lower carbon intensity energy and manufactured goods. Our countries can also benefit from close cooperation in developing innovative technologies – CCUS, hydrogen, biofuels, energy storage and small modular reactors.

Canada’s recently released Indo-Pacific Strategy recognizes the desire of countries in the region to obtain Canadian LNG, expand natural resource ties and mutually support the clean energy transition. Japanese and Korean government officials have made clear that their inability to source lower-emissions gas supplies threatens their domestic energy and climate objectives. And yet the Indo-Pacific Strategy says nothing about expanding Canadian energy export infrastructure to meet this growing demand. Also missing is any mention of nuclear power, notwithstanding our significant reserves of uranium, our nuclear and SMR technology and our expertise that could support Asia’s transition to cleaner electricity. Building the successful partnerships and trade relationships around Canadian LNG can strengthen Canada’s ability to export emerging low-carbon fuel sources and technologies in the future once they have evolved and matured.

Recommendation
The federal government must clearly articulate its intention to have Canada make a significant contribution to global energy security and outline specific measures it will undertake to expedite the approval of further development of Canadian LNG, other low-carbon energy sources and related infrastructure.

Maintaining a level playing field with our largest trading partner

Through the recent passage of the Bipartisan Infrastructure Act, the CHIPS and Science Act and the Inflation Reduction Act (IRA), the United States has committed more than $1 trillion (U.S.) to the creation of a “modern industrial strategy”. They have clearly signaled an intention to focus on manufacturing, clean tech, advanced computing, infrastructure and related workforce skills, all aimed at bolstering American competitiveness and countering China’s attempts to dominate certain critical market segments. They also are looking to work proactively with democratic allies in “friendshoring” critical supply chains. This is an important opportunity for Canada, but our privileged position in the continental market does not guarantee success if we are slow to act or fail to recognize the competitive implications of U.S. domestic economic realignment. And it is not just investment capital that may shift. The talent and technology that we need to prosper in the low-carbon economy could be drawn southward as well.

With the tectonic shift that is the IRA, the U.S. has clearly chosen the path of market incentives for investment in climate solutions rather than prescriptive regulation. Given the unlikely prospect of a meaningful national carbon price anytime soon in the United States, Canadian policy must be sensitive to the competitiveness implications for our most energy-intensive and trade-exposed industries. Business leaders continue to support a national carbon price in Canada, but we are price takers in the global market and Canadian firms must be competitive to be able to invest in low-carbon solutions.

We were pleased to see in the Fall Economic Statement (FES) that the federal government will consult with industry on the relevant portions of the IRA and how they could affect the competitive position of Canadian industry sectors. U.S. industry is already moving to take advantage of the IRA. For most sectors the IRA rules are simple and clear, offer more financially attractive incentives and over a longer period, than what is being planned or currently available in Canada.

One area of Canadian strength is hydrogen. The FES offers an investment tax credit of at least 40 per cent for the least carbon-intensive form of hydrogen production, compared to 30 per cent in the U.S. But the IRA also includes a production tax credit of up to $3 per kilogram for green hydrogen.

Both countries also have incentives for CCUS. Canada is proposing an investment tax credit of 50 per cent, beginning in 2023, but which is cut in half after 2030. The U.S. created a production tax credit for CCUS several years ago and the IRA increased it to $85 per tonne of carbon sequestered ($180 for direct air capture) and extended eligibility to 12 years.

Canada’s announced incentives and some of the investment tax credits lack the detail necessary for companies to make informed, long-term investment decisions. As well, several of the incentives disappear entirely or are sharply reduced post-2030, which will curtail investment since many of the biggest projects will take until 2030 to complete engineering and secure regulatory approval. We would not argue that Canada should attempt to match every aspect of the IRA. Rather, the strategy must focus on industries and technologies needed to meet Canada’s climate goals and — where Canada has obvious advantages abroad — ensure comparable incentives to maintain or strengthen that advantage. Given that most of the IRA incentives took effect January 1, 2023, it is critical that a targeted and effective Canadian response to the IRA be fully laid out in the 2023 federal budget.

Recommendation
Budget 2023 must respond effectively to the competitive challenge of the U.S. Inflation Reduction Act with commensurate measures to support industries and technologies that will enable domestic decarbonization and position Canada for international success.

A call for urgent action

Providing policy predictability for business

A. Financial and market certainty

The federal government’s goal of significantly reducing GHG emissions by 2030 and net zero emissions by 2050 will require a radical transformation in the way Canadians produce, transport, and consume energy. Research completed by the Royal Bank of Canada estimates that the total investment needed for Canada to transition to a net-zero future is $2 trillion. Budget 2022 estimates that between $125 and $140 billion of investment per year in green innovation and technologies will be required between now and 2050. However, current levels hover between $15 B to $25 B per year.

To its credit, the federal government has developed several important programs designed to incent higher levels of investment in Canada. The Strategic Innovation Fund’s Net Zero Accelerator, investment tax credits for CCUS, hydrogen and clean technologies, and a more pointed role for the Canada Infrastructure Bank are examples of federal efforts to accelerate such spending. While these programs are helpful, Canadian firms and investors need long-term policy predictability to support investments in emission reduction projects, which are typically capital intensive and involve payback periods that can span decades. Policy clarity also is critical to companies if they hope to maintain their global competitiveness in the low-carbon transition.

Canada’s carbon pricing regulation provides guidance up to 2030, but firms and investors require certainty over a much longer timeframe. Business leaders continue to support a national approach to pricing carbon emissions. However, complexity and uncertainty increase when new supply-side policies are introduced for specific industries. Of particular note are the Clean Fuel Regulation and forthcoming regulations designed to reduce emissions in the electricity and oil and gas sectors. Canadian firms and investors must wait and see how these requirements interact and influence their ability to attract capital. The net effect is to delay final investment decisions at a time when large-scale investments are urgently needed for Canada.

The government can also improve investment certainty by ensuring that its policies are aligned across multiple departments and portfolios. For example, Canada’s Greenbonds Framework excluded nuclear technology yet federal investments are flowing towards SMR projects in Canada. Further, differing eligibility requirements for investment tax credits and government grants create an unlevel playing field across technologies. The government can ensure the most efficient use of capital by creating a level playing field and allowing the most competitive solutions to emerge. The work currently being led by the federally appointed Sustainable Finance Action Council should focus on unlocking higher levels of investment in sustainably-produced energy of all kinds, including natural gas production and infrastructure.

To avoid carbon leakage, Canada’s carbon pricing regime must recognize that many other countries with which Canada competes in resource-intensive materials do not have correspondingly stringent GHG regulation, nor commitments to establish or enhance pricing mechanisms to close the gap. Additionally, the cost curves for Canadian low-carbon resource products, such as steel, cement, aluminum, uranium, and potash, remain high even as the carbon intensities of these products are world-leading. To date, it is unclear whether the market will pay a premium for low-emitting products.

Canada’s business leaders are committed to helping the government achieve its emissions reductions goals for 2030 and 2050 and are poised to invest billions over the coming decades. These investments require a deeper level of collaboration between the federal government and the private sector to improve investor confidence and scale up Canada’s most promising clean growth opportunities.

Our view is that policy makers need to urgently turn their attention to the following items:

Create fiscal instruments that support capital investment and operating expenditures in low carbon technologies of strategic significance to Canada

Recent decisions to create investment tax credits (ITCs) for clean energy and technology projects are positive and should be extended to a range of promising emission-reduction technologies. However, the design of the ITCs is narrowly focused on incenting upfront capital investments and not operating expenditures. A shift to creating revenue streams and supporting operational expenditures would improve project economics and maintain the competitiveness of Canadian firms. As well, credits currently focus predominantly on technology type, with some technologies being excluded (e.g., large-scale hydro power). An expansion in scope – taking an “all tools on the table” approach to decarbonization technologies – is needed to for Canada to achieve clean-economy and emissions-abatement objectives.

Through the Canada Growth Fund, the government is proposing a range of investment instruments to reduce both the risk created by carbon price uncertainty as well as costs for emerging clean technology projects. While details are lacking at this time, our view is that additional investment instruments will be necessary to incent investments in nascent low-emissions technologies which are high cost but have the potential to significantly lower greenhouse gas emissions. These instruments should be used to improve the ability of Canadian firms to compete in a global low-carbon economy.

Production tax credits are also important fiscal tools that can generate predictable revenues for major projects over a predetermined time frame. These tax credits are a cornerstone of U.S. climate policy but have yet to be explored in Canada. Doing so could help Canada level the playing field with the U.S. and improve the conditions for Canadian and foreign firms to invest in Canada. Used strategically, production tax credits can help firms make the investments necessary to reach climate goals as well as grow their market share in areas where Canada has comparative advantages: clean hydrogen production, carbon sequestration, critical minerals, manufacturing, and heavy industrial processes.

The Business Council agrees with the IEA that the transition to a low-carbon economy will require the use of all energy sources to be successful. Strong fiscal policies are required to develop and support technologies that are of strategic significance to Canada, using a technology-agnostic approach.

Ramp up Canada’s carbon credit market capacity

Canadian policy needs to evolve quickly from producing carbon credits to creating markets for credits. Without a robust market for both the demand and supply of credits, governments may be forced to increase stringency for emissions-intensive, trade-exposed sectors to maintain market balance. This can rapidly erode trade protection for key industries and reduce Canadian competitiveness. Companies with ambitious GHG reduction obligations require access to credible and reasonably priced domestic offsets as well as to the international emissions credit market.

Canada’s carbon credit market is still in its infancy and has been slow to mature. The federal government should move swiftly to develop protocols for generating offset credits for investments that reduce emissions produced by industrial processes in Canada. Federal and provincial governments can work together to assess the capacity and competitiveness of their respective offset systems and explore innovative ways to increase the pool of eligible credits for purchase by companies in Canada. The federal government also should work with allies internationally to ensure Article 6 of the Paris Agreement is implemented to secure a robust global trading system in carbon credits and that such system is transparent, economically efficient and environmentally credible.

Develop sectoral roadmaps and capital plans

As noted, Canada maintains several important programs and incentives to support clean growth opportunities. However, they are largely based on one-off applications by firms which can take months to be reviewed and approved by government officials. More fundamentally there is little evidence to suggest that they work within a coherent strategy designed to unlock the country’s most promising emissions reductions opportunities. Part of the solution is broad-based, technology-neutral support through ITCs and PTCs that allow companies to calibrate the level and duration of corresponding government investment.

A useful illustration of sector strategies is the recent “Roadmap to Net-Zero Carbon Concrete by 2050” signed by the federal government and the Cement Association of Canada. It will combine a focus on R&D, government support for major decarbonization projects, standards and skills development, as well as market development for Canadian low-carbon cement and concrete internationally.

Our view is consistent with the recommendations put forward by the Expert Panel on Sustainable Finance and numerous think tanks committed to ensuring a responsible transition in Canada. The country’s decarbonization efforts can be fast-tracked by developing sectoral roadmaps and policy instruments that support capital investment at critical junctures in the roadmaps. Such strategies could assess major economic and emissions-reduction opportunities, including a realistic timeline for significant decarbonization of the specific sector and competitive realities in global markets. They could serve to identify where business and government can co-invest in clean growth opportunities. They can be used to build a supportive policy environment for new market opportunities for clean technologies such as offshore wind. They can also be used to assess the potential for decarbonizing supply chains through new technologies and the low-carbon movement of goods.

B. Regulatory coherence

We sense a growing consensus amongst leaders in business, public policy and the environmental community that Canada’s regulatory approval processes have become unduly long and cumbersome. Federally appointed bodies, such as the Barton Growth Council, the Economic Strategy Tables and the External Advisory Committee on Regulatory Competitiveness, have repeatedly referred to the benefits of ensuring that our regulatory system is stringent, predictable, flexible and efficient. Regulatory “business-as-usual” means that many positive decarbonization efforts will take far too long to get built. This will compromise the country’s ability to meet the ambitious 2030 GHG reduction goal and realize the economic opportunities associated with clean energy and innovative decarbonization technologies.

Prime Minister Justin Trudeau, Deputy Prime Minister Chrystia Freeland and Natural Resources Minister Jonathan Wilkinson have all committed to shortening approval times for resource development and infrastructure projects. There is a case for fast-tracking projects that are in the national interest and meet one or more of the following criteria:

1. contribution to global energy security;
2. ability to substitute Canadian products for more GHG-intensive options in importing countries;
3. low-carbon fuel production (e.g., hydrogen, renewable natural gas, biofuels and uranium);
4. electricity transmission within and between provinces that would lead to a net decrease in GHGs;
5. development of low-carbon electricity (e.g., renewables, nuclear, battery storage, pumped hydro);
6. critical mineral mining and processing facilities;
7. projects which are Indigenous-led, have an Indigenous ownership component, or have Indigenous support based on early engagement by the proponent.

The FES announced further resources for the Impact Assessment Agency (the Agency) and other federal departments with oversight responsibilities. That is positive but inadequate. The government should use Budget 2023 to establish a comprehensive plan to improve the efficacy of the assessment process and shorten the timelines for approval of demonstrably beneficial projects. Given the multi-billion-dollar scale of the net-zero challenge, we need to restore investor confidence in the attractiveness of Canada as a place to invest in low-carbon solutions and as a country that can get big projects built.

To be clear, we are not arguing for a wholesale repudiation of the Impact Assessment Act (IAA). We recognize that major development projects need to undergo a rigorous assessment process which minimizes the potential for deleterious effects. And it must include robust engagement with Indigenous communities and consideration of the project’s impact on their rights and interests. But the time has come to find creative solutions to maximize efficiency. Pending the possibility of more fundamental reform, there are several practical steps that should be taken immediately to improve predictability, timeliness and efficiency:

• Delivery on the commitment by the federal and provincial governments to the principle of “one project, one assessment” is still lacking. A formal cooperation agreement or MoU is needed between the federal government and each province setting out how the two levels of government will work together, including alignment on Indigenous engagement. Such an agreement could lead to the federal government recognizing the provincial agency as the lead on the environmental assessment of specific projects (substitution).
• The federal government should specify that the Minister’s power to designate a project under the IAA would only be exercised in exceptional circumstances and clarify the criteria governing that decision.
• A strategic assessment could be undertaken for specific types of projects that could be replicated – e.g., a particular SMR design – to eliminate the need for an entirely new environmental assessment each time a similar project is proposed. Ontario’s class environmental assessment provides a model for consideration.
• Development of Indigenous consultation guidelines that clearly articulate the respective responsibilities of the project proponent and each level of government; how UNDRIP is to be applied and how key obligations such as free, prior and informed consent are met; illustrating best practices in Indigenous consultation; addressing capacity issues for communities to effectively participate in the process; as well as guidance on the scope of consultation efforts for directly affected communities versus those less so.
• Within the planning phase of impact assessments, ensure tailored guidelines are designed for each project that allow efforts to focus on key potential impacts and create clear Indigenous engagement and partnership plans.
• Consideration of expedited regulatory approval processes for brownfield sites and sites served by existing infrastructure.
• Strengthened governance mechanisms to improve coordination amongst high-ranking officials across federal departments and agencies and with provincial and territorial governments.

Undoubtedly, some other countries with which Canada competes for investment also suffer from cumbersome approval processes. All the more reason for Canada to act now. Success in developing a clear, efficient and predictable regulatory process for energy transition projects could be a new and significant competitive advantage for Canada.

Recommendations
The federal government must use Budget 2023 to enhance the efficiency of the assessment process and shorten the timelines for approval of projects that will make a demonstrably positive contribution to Canada’s climate and economic goals.

There should be a dedicated office within the Privy Council Office with the mandate that was envisioned for the former Major Projects Management Office. That is, to ensure ongoing coordination amongst senior officials in relevant departments and the Agency aimed at maximizing efficiency and quickly addressing any barriers to timely completion of major project assessments.

For major projects which involve federal and provincial jurisdiction, a “Clerk-to-Clerk Table” should be established between the Clerk of the Privy Council and the Executive Council of a province or territory to instill disciplined coordination on regulatory decision-making for specific projects.

C. Building a supportive innovation ecosystem

Accelerating the pace of technology and innovation will be critical to meeting Canada’s net-zero objectives. However, pursuing clean technology projects comes with many challenging headwinds. Opportunities are typically capital intensive and relatively high risk, while adopting clean technologies may create environmental premiums for products that customers are unwilling to pay. Governments have an important role to play in de-risking private investment.

Research recently published by the Canadian Climate Institute estimates that “safe bet” technologies such as electric vehicles and energy-efficient equipment can contribute at least one-third of the reductions required to meet Canada’s net zero target. “Wild card” technologies–high-risk but potentially high-reward solutions that are in early stages of development– will need to make up the rest.

Canada has a robust research ecosystem. However, we do relatively little industrial research and we rank poorly relative to most OECD countries on spending and scaling up innovative technologies and companies. As a percentage of GDP, Canada’s combined public and private expenditures on research and development have been declining since 2001. The United States currently invests 2.9 per cent of its GDP in research and development while Canada invests just 1.57 per cent, below the OECD average. If Canada is serious about reaching its emissions targets, a dramatic increase in investments in R&D will be required.

The arms-length science model Canada adopted after the Second World War does not provide an adequate framework for today’s economic paradigm. Under this model, it was assumed the transfer of public research to private firms would be automatic. Today, we know that funding foundational research is not a sufficient precursor to better innovation outcomes or enhanced productivity. The translation of scientific knowledge generated in universities to productivity-enhancing industrial progress has proved to be more difficult than expected.

Governments and policymakers around the world have recognized that technological change is the key to addressing climate change without compromising economic growth and living standards. We believe that Canada has significant potential to be an exporter of innovative, sustainable products and services. However, catalyzing breakthrough ideas and technologies and then bridging them across the innovation process to commercialization requires a shift in policy focus and a more intentional approach. It’s too simple to equate R&D with innovation. From R&D to development through production, application and diffusion, the road to innovation is long and hard. A modern industrial policy requires a new institutional infrastructure to support the application of science and technology in highly competitive and advanced industries, and an approach focused on mandated missions.

The federal government recently added the $15 billion Canada Growth Fund to the existing array of funding and technology portals, from institutional (EDC, BDC, CIB, SDTC) to stand-alone funds (SIF, NZA) as well as financial commitments associated with specfic sector strategies (critical minerals, hydrogen, SMRs, clean fuels, renewable electricity, etc.) The sum total of funds allocated for clean technology is signficant, but lacks overall direction. And the various mechanisms reflect a scattershot approach rather than a well-considered and coherent overall strategy. As well, many companies find them confusing and slow to access, with objectives and criteria that are not clearly stated. Plus, questions remain even as to which fund is appropriate for any particular project, and whether specific large projects might be able to access more than one funding mechanism.

The 2022 FES also saw the government commit $1 billion over five years to establish a new innovation and investment agency to help firms turn their research into commercial opportunities. Few details are available concerning its mandate, areas of focus or its ability to work in concert with the numerous government programs already in place. But a new agency whose mission is to provide subsidies across various sectors of the economy will fall short of creating the public-private partnerships that can facilitate the radical innovation required to reduce emissions in the decades ahead.

Our view is that the U.S. DARPA and ARPA-E models continue to be best-in-class and have the most consistent track record of radical invention over the past several decades. They present a compelling alternative for Canada to consider given their ability to bring together world-class experts from industry and academia to create clear missions aimed at solving problems such as climate change. Critical to their success is the ability to operate independently and outside of government.

Recommendations
The federal government should rationalize existing clean technology support programs, pool resources and make bigger bets on a smaller number of key innovations that have the best chance to maximize climate benefits and/or return on investment.

The government’s proposed new innovation agency should be independent and given a mandate that closely mirrors that of ARPA-E in the United States, i.e., a forum to bring together the best public and private research and pursue the most promising opportunities to scale up/commercialize low-carbon technologies and products.

The federal government should work with the private sector to dramatically increase Canada’s investments in research and development. The key is to strengthen the connections between publicly funded research and the Canadian companies that can commercialize those ideas.

Empowering Indigenous economic reconciliation

Indigenous communities increasingly are benefiting from resource and infrastructure development through employment and skills training, fostering Indigenous-owned businesses and support for community development. Successful partnerships have been built when the community has a voice in how development is undertaken and how they can share in the benefits. As they have noted, the country’s path to net zero goes straight through Indigenous communities. Canada’s business leaders recognize this reality, and many are building stronger relationships to ensure cleaner energy projects also create expanded opportunities for Indigenous Peoples.

There is a need to increase capacity within communities to allow adequate assessment of project benefits and risks, to determine what kind of partnership is best for the community in question and the role it will have in ensuring Indigenous rights and traditions are respected.

Many Indigenous communities would prefer to have an ownership stake in projects on their traditional territories. But they often lack the resources to make such a significant investment and face barriers to accessing sufficient capital due to lack of collateral or lack of a financial track record that satisfies traditional lenders. Also, as non-taxable entities, Indigenous communities cannot access investment tax credits for CCUS and those recently announced in the Fall Economic Statement. Overcoming barriers to accessing capital is key for improving Indigenous participation in clean energy projects. Interesting new approaches are emerging – the Alberta Indigenous Opportunities Corp. recently provided low-interest financing that was instrumental in allowing a number of First Nations to secure an equity interest in several Enbridge pipelines. We suggest there is a need for a more focused strategy nationally to enhance Indigenous access to capital.

A key challenge is that Indigenous communities often do not have the security to offer to traditional lending institutions. A federal loan guarantee program for Indigenous financing should free up more private funding, especially through Canada’s major financial institutions. It’s worth noting that the Prime Minister’s December 2021 mandate letter to his natural resources minister tasked him with developing a National Benefits Sharing Framework. A loan guarantee program and business capacity funding could be housed within such a framework to fast-track these policy advancements. As noted elsewhere in this paper, we believe there is a compelling case for expediting approval processes for Indigenous-led energy projects. In turn, this should make financing more readily available to Indigenous communities.

Recommendation
The federal government should establish a loan guarantee program to support Indigenous access to competitive capital for equity partnerships in natural resource projects. It should also make available funding for Indigenous groups to engage in commercial due diligence and business capacity building necessary to support successful partnerships with the private sector.

Building the clean electricity grid of the future

The federal government has an ambitious goal of a net-zero electricity grid by 2035. But the current focus on the Clean Electricity Regulation is insufficient and does not provide the basis for a national conversation about how best to expand electricity supply. Delaying this discussion could erode Canada’s longstanding ability to provide its resource and manufacturing industries with access to clean and competitively-priced electricity. As well, an overly prescriptive approach may lead to unintended consequences related to resource adequacy, grid reliability and affordability.

As S&P Global notes through its credit rating process, regulatory independence is one of the key attributes that underpins the credit quality of the utility industry. Political intervention in independent regulatory processes undermines investor confidence, leads to credit downgrades and creates higher costs for borrowers and ultimately consumers. As Canada seeks to grow and green its electricity grid, it is paramount that its regulatory systems remain independent and can act judiciously and in ways that build and balance public confidence.

The U.S. and other competitors are moving quickly to decarbonize their energy infrastructure in the wake of the energy crisis triggered by Russia’s war in Ukraine. For example, the Inflation Reduction Act earmarks $100 million US for a process to bring together state governments, regulators, utilities, generators, transmission developers and civil society to further develop a national transmission grid – one that is built on renewable energy and other clean power technologies, such as nuclear energy.

The Pan-Canadian Grid Council and the Regional Energy and Resource Tables are promising ideas, but the federal government needs to recognize the primary responsibility of the provinces, work cooperatively with them to accelerate investment in low-carbon solutions and help build out grid capacity quickly. That starts with an agreed vision of the electricity grid of the future and a common understanding of the best options in each region, inclusive of costs and potential implications to consumers. That vision is critical to ensuring timely investment in clean electricity generation and transmission.

A key consideration is ensuring reliability and affordability through the transition, to maintain consumer support and business competitiveness. A grid that is twice as big by 2050 will require major upgrades as more Canadians aim to electrify their homes, vehicles and businesses. Longstanding industrial processes powered by coal and natural gas are poised to be powered by clean electricity, while promising new technologies related to hydrogen also will drive up demand. A recent study by the Trottier Institute found that central and eastern Canada are looking at a significant electricity shortfall to meet the carbon neutrality objectives for 2035 and 2050.

Growing the grid of the future will require an “all hands-on deck” approach. Substantial investments in clean energy generation sources such as renewables, traditional and advanced nuclear (e.g., small modular reactors) and hydrogen should be encouraged, particularly as price points for wind and solar continue to fall. But natural gas must continue to play an important role in meeting the electricity demands of Canadians. Used strategically, and as the industry ramps up the use of new abatement technologies, it can supplement intermittent renewables, deal with high-demand scenarios and ensure reliability and cost-competitiveness in regions without large-scale hydro or nuclear. Canada should also rapidly develop and deploy new energy storage technologies to support grid reliability, just as the US has done through the Inflation Reduction Act and strategic initiatives such as Li-Bridge.

Such a significant expansion of electricity capacity cannot be accomplished by public investment alone. There is a large pool of capital in pension funds and private equity that is looking for the stable returns that rate-regulated electricity can provide. But only Alberta, and to a lesser extent Ontario, have a competitive marketplace for electricity supply.

The federal and provincial governments should begin an immediate discussion about market liberalization and the necessary conditions for higher levels of private investment in electricity.

Increasing the supply of affordable electricity will also require policy makers to identify new ways to extend the life of existing assets through refurbishments, retrofits and the re-powering of clean energy facilities. Incentives such as tax credits should be developed to drive investment towards existing assets and new electricity generation opportunities.

The Atlantic Loop is a proposed regional clean energy transmission project that, in the near term, will help displace coal-fired generation in Nova Scotia and New Brunswick. In the longer-term, it can expand Canada’s stock of clean energy by supporting the deployment of additional onshore and new offshore wind, green hydrogen for domestic and export markets, and broader electrification of the economy.

The federal government has given the Canada Infrastructure Bank an expanded role in stimulating electricity investment, but the results have been slow to materialize. Ensuring that electricity is a higher priority for the Bank should be central to federal efforts to support regional development opportunities.

Recommendations
The federal government’s ambitious goal of a net-zero electricity grid can only be accomplished by recognizing provincial jurisdiction, working cooperatively with the provinces to support the build-out of grid capacity and through facilitating substantially greater private sector investment in electricity generation and transmission.

To reduce cost to consumers, the federal government should deliver a predictable and technology-neutral set of investment tax credits that encourage investment in the new technologies that can generate, transmit, and distribute, the scale of clean generation required to meet Canada’s climate goals.

The federal government should use its funding instruments and leverage its convening power to help ensure that regional transmission projects such as the Atlantic Loop can be developed in a timely and cost-effective manner.

Focusing on Canada’s comparative strengths

Canada has exceptional potential to respond to global energy security challenges and accelerate its ability to achieve net zero by 2050. There is an immediate need to develop industrial policies in three critical areas where we can grow the country’s economic capacity and reduce global emissions. These should include broad engagement with the private sector and stakeholders to establish clear goals related to capturing market share. Industrial policies also can be a vehicle to discuss issues critical for success, such as skills and training, infrastructure, and supply-push and/or demand-pull policy tools.

Critical minerals

The transition to a clean energy economy is projected to increase the global demand for critical minerals by 400 to 600 percent by 2050, with the demands for EV and battery materials projected to account for nearly half of this increase. Canadian mineral and manufactured metal products are among the lowest carbon intensity in the world and are poised to play a growing role as essential inputs in low-carbon technologies such as wind turbines, solar panels, small modular reactors and batteries. However, much of Canada’s potential remains untapped. Many other countries have access to these resources, and some are moving expeditiously to seize relevant opportunities. Long-term supply deals are being negotiated today.

There are challenges to reaching Canada’s full potential to be a supplier of the minerals required to support the energy transition here and abroad. These include yet-to-be built infrastructure to access mineral deposits and transport them to market, weak linkages to clean and affordable electricity, and insufficient battery-grade manufacturing capacity. Further, Canada’s rare-earth supply chain is even more nascent than our battery supply chain. And Indigenous participation is paramount.

In December, the federal government made a major step with the country’s first critical mineral strategy, securing several important fiscal policies for the sector. Next steps should include ensuring that it becomes a truly national strategy by working with the provinces and Indigenous nations to carve out Canada’s most promising opportunities, including mining and processing of critical minerals and establishing strong linkages to North American and global supply chains. In the lead-up to Budget 2023, careful attention should be given to what complementary tax policies and measures are needed to achieve the same outcome in the critical minerals space as is being achieved in the downstream electric vehicle supply chain. After all, climate success and security of supply for the downstream OEMs is contingent on expanding upstream extraction and metal manufacturing production.

The federal strategy focuses on developing six minerals (lithium, graphite, nickel, cobalt, copper and rare earths) where Canada has a clear edge and that are essential to seizing emerging economic opportunities, while also strengthening Canada’s ability to be a global supplier of uranium, potash and aluminum. The federal government should move quickly to work with relevant governments, Indigenous communities and the private sector to develop an action plan that signals to the global market that Canada wants to be a supplier of choice for critical minerals. That includes clarifying the process, timelines and engagement requirements for critical mineral projects in Canada.

Recommendations
The federal and provincial governments and Indigenous leaders should work together to develop a national action plan to capitalize on our world-class reserves and mining expertise and position Canada to be a key global provider of critical minerals. This should include a plan to develop the infrastructure to support mines and processing facilities in remote locations and a commitment to fast-track the approvals process for such projects.

The federal government also should champion further development of world-class existing uranium assets and seek to enable nuclear energy deployment across Canada and globally. This could both support long-term energy security in developed and developing countries and contribute to reducing global GHG emissions.

Low-carbon oil and gas

All credible scenarios offer a portrait of a world which will still need fossil fuels for several decades, although debate continues as to when and how quickly demand may lessen. There is a strong case for Canadian oil and natural gas retaining, and even expanding, its share of the global market, regardless of how demand evolves over time. Canadian energy can compete on the basis of its ESG credentials, regulatory standards, community and Indigenous engagement and high labour standards. Nonetheless, current GHG emissions are a challenge that the industry is committed to addressing.

Oil sands make up by far the biggest portion of Canada’s oil production (and GHG emissions) and major players in the sector have committed to net zero. The end goal is not up for debate, but rather the trajectory of declining emissions — how quickly can emissions be reduced and at what cost to jobs, investment and the economy? As noted elsewhere in this paper, the current policy environment is neither sufficiently clear nor predictable to incent the scale of investment needed to put sector emissions on the necessary downward trend, short of curtailing production.

The government is currently consulting on two options to put an overall cap on GHG emissions from oil and gas. One would impose a unique cap-and-trade system on the sector. The other option would impose a higher carbon price than applies to other parts of the economy, set at a level that would prompt energy firms to implement sufficient emissions reduction effort to meet the cap. To the extent that either option makes Canadian energy uncompetitive in the North American or global markets, the ultimate effect could be a loss in market share and/or curtailment of production. That is not a desirable outcome, given the contribution that the industry makes to Canada’s economy, job creation and government revenues. Moreover, it is inconsistent with a key pillar of the Carbon Pricing Leadership Coalition championed by the federal government – carbon pricing should be broadly applied in the economy and treat all sources of emissions equally.

Whichever of the two options is chosen, achieving the required legislative amendments and developing the detailed regulations is likely to take another two years. This would compound the uncertainty facing the energy sector and delay much-needed investments in emissions-reduction technologies. A better approach would be to work with the industry on defining a downward emissions trajectory that is economically and technically feasible. It would also require an enhanced policy framework that would add certainty and incent early investment in the most promising GHG reduction technologies, including CCUS, new extraction methods and electrification of operations. The approach would have to be flexible to allow for the fact that some large GHG reduction projects, such as CCUS, will take several years to be approved and built and accordingly, the emissions decline rate will not be linear from current levels. A true public-private partnership is necessary and would provide a superior outcome to an overly prescriptive regulatory approach untethered from economic and technological realities.

Recommendation
The federal government should work cooperatively with the oil and gas industry on laying out a downward emissions trajectory for the sector to 2030 and 2050 that is economically and technically feasible. They should also agree on a policy framework that would incent the scale of investment in technology necessary to meet that trajectory.

Electric vehicles

Canada can build on its long-established position in the North American vehicle industry to create a larger footprint in the zero-emissions vehicle space and the related battery supply chain. The U.S. Inflation Reduction Act gives a competitive advantage to North American sourced and assembled vehicles, as well as for critical minerals and battery components. Canada must be all-in to take advantage of this growing opportunity, ensuring Canadian value-added at each stage of the electric vehicle (EV) supply chain.

Canada’s EV policy is currently driven by a 100 per cent zero-emissions vehicle sales target for 2035. Our view is that the country needs a coherent mines-to-wheels strategy that embraces all elements of the EV supply chain – critical minerals mining and processing; sourcing of battery components; auto parts and vehicle assembly; recycling – as well as the clean electricity infrastructure to power each element.

In terms of EV market penetration, Canada lags the performance of several other countries, notably in Europe. Nonetheless, sales volumes in the past year reflect a noticeable increase in Canadians’ appetite for EVs. But it is concerning that Canada is falling behind in putting the pieces in place that will support widespread adoption of these vehicles. The annual EV readiness index, developed by global accounting firm EY, shows Canada in 13th place out of 14 countries measured, down from 8th place last year.

The policy focus should be less on sales mandates, which are beyond the capacity of the vehicle industry to guarantee. Instead, we need an overall strategy that ensures Canadians will have a choice of affordable ZEVs that can be delivered in a timely and efficient manner. Not surprisingly, EV sales in Canada are highest in the two provinces, Quebec and British Columbia, which have provincial purchase incentives on top of the $5,000 rebate offered by the federal government.

Conclusion

Canada is uniquely positioned to achieve its climate goals for 2030 and 2050 while also expanding its supply of cleaner energy sources and innovative technologies that can help the world solve today’s energy security challenges and tomorrow’s net-zero transition needs. But urgent action is needed.

It will require a true partnership amongst various levels of government, the private sector and Indigenous leaders and a laser focus on the country’s most impactful opportunities. It undoubtedly will mean vastly larger public and private investment and a coherent policy framework that will encourage sustained levels of investment over the coming decades. And it will require an industrial strategy that pushes Canada’s innovation capabilities and allows it to compete with other countries also seeking to secure national advantage in the coming clean energy transition.

This paper has laid out what we think are the essential elements for Canada to innovate, compete and win.

The post Innovate, compete and win appeared first on Business Council of Canada.

In 2020, the Government of Canada dramatically increased spending in an effort to protect Canadians from the worst economic effects of the COVID-19 pandemic. Important as these measures were at the time, this expansionary fiscal policy resulted in a massive deficit of $328 billion in fiscal year (FY) 2020-21 and a net debt/GDP ratio that ballooned to 52% – the highest level this century and dramatically higher than the roughly 35% ratio achieved on average since the Great Financial Crisis of 2008. According to the 2022 Fall Economic Statement (FES), the federal government debt is projected to reach $1.177 trillion on March 31^st 2023 (Table A1.5, FES), from $685.5 billion three years earlier (Table 1, Debt Management Report 2018-19).

When preparing budgets, the government must consider fiscal sustainability and debt servicing. In this context, the government’s current fiscal plan may not tell the full story of the country’s financial path.

The importance of fiscal anchors

Fiscal anchors serve as notional ceilings or caps to the levels of public spending, deficits, and debt that governments are prepared to reach in their fiscal policy. They serve many purposes including: 

• Retaining the confidence of lenders and global markets (i.e., credit access at favourable rates); 
• Establishing a positive investment climate for businesses; 
• Providing a measure of fiscal discipline inside government;
• Ensuring that the government can respond to future economic shocks and unforeseen crises. 

The Debt-to-GDP anchor versus the Interest Cost-to-Revenue anchor

Two different ratios – net debt/GDP and interest cost/revenue – provide useful indicators of the future economic and political sustainability of a government’s access to capital markets and hence the sustainability of its public finances.

There is no precise number for either of these ratios above which the government’s public finances become unsustainable and access to capital markets problematic. A common assumption about deficits is that as long as interest rates (i.e. bond rates on rollover debt) stay lower than GDP growth, the debt-to-GDP ratio won’t get out of control and overall debt will continue to be manageable. The problem, of course, is that when interest rates rise, debt servicing costs become significantly more expensive to finance.

An interest cost/revenue ratio above 10% and a federal debt/GDP ratio that is not declining steadily from close to the 50% where it currently stands signal risks of unsustainability. At the same time, to be useful, these indicators must be calculated on a forward-looking basis grounded on realistic assumptions. If we’ve learned anything from the past few years, it’s that the future is unpredictable and fiscal plans must consider the uncertain evolution of changing economic and geopolitical circumstances.

The purpose of this paper

The paper “Assessing the Potential Risks to the Sustainability of the Government of Canada’s Current Fiscal Plan” explores the way two fiscal anchors – the debt/GDP ratio and the interest cost/revenue ratio – are likely to evolve from now until 2032-33.  Using five plausible economic scenarios the paper assesses the implications of these two anchors as a guide to sustainable fiscal policy actions.

The analysis begins with a base scenario which incorporates the spending and tax policies as well as the economic assumptions set out in the federal government’s 2022 Fall Economic Statement (FES 2022).

The paper then examines the evolution of the two fiscal ratios under four alternative scenarios:

1. Increased spending relative to the base scenario from 2024 onwards;
2. A full-blown recession in 2023;
3. Lower supply resulting in permanently higher interest rates;
4. A combination of these three scenarios: a recession in 2023 with lower supply in the medium term and increased spending all the way through.

The risks to the federal government’s current fiscal and economic assumptions

As the different scenarios suggest, there are three main risks to the current fiscal and economic assumptions of the federal government:

1. A risk that the government’s current planned spending assumptions, on a per capita basis, are being underestimated to deliver the policy goals it has set out. The authors estimate that to maintain real program spending per capita at the 2023-24 level until 2027-28, $60 billion of additional program spending relative to FES 2022 would need to be added to the fiscal framework;
2. A risk that it will not be possible to get the inflation rate down to 2% by the end of 2024 without higher policy interest rates in 2023 and hence a deeper recession that year,
3. A risk that supply constraints become a permanent feature of the global and Canadian economies, implying higher interest rates on an ongoing basis.

The authors observe that not one of these three risks to the base scenario is likely to occur alone without one or both of the other risks also emerging.

Debt/GDP versus Interest Cost/Revenue under five federal budget scenarios

The implications

The analysis suggests there is a significant risk that both the debt ratio and the interest cost ratios exceed comfortable levels over the remainder of this decade, both because economic conditions will turn out to be more difficult than assumed in the FES 2022 and because the spending budgeted will turn out to be insufficient to achieve the policy goals promised. In all four alternative scenarios the authors put forward in this paper, the 10% interest cost/revenue anchor gets reached over the next decade.

All things being equal, the more the government takes from its revenues to finance its debt, the less it has to finance crucial services and social programs for Canadians, or transfers to provinces for programs such as health care and education.

The post Assessing the Potential Risks to the Sustainability of the Government of Canada’s Current Fiscal Plan appeared first on Business Council of Canada.

During the inaugural meeting of the Canada-Mexico High-Level Economic Dialogue
(HLED), Mexico’s Secretary of the Economy, Canada’s Minister of International Trade, Export Promotion, Small Business and Economic Development, and Canada’s Minister of Innovation, Science, and Industry asked the BCC and the CMN to produce a joint study which contained actionable recommendations identifying priority sectors for pilot programming and potential partnerships.

The CMN and BCC welcomed the request and, to that end, respectfully submit this report for further consideration at the next meeting of the Canada-Mexico HLED. In summary, the Mexican and Canadian business communities believe it is time for far greater focus on strengthening the bilateral economic relationship between our two countries. Moreover, business leaders believe there is significant unrealized potential and sizable economic opportunities that we can pursue.

In that spirit, and as this report was being prepared, the CMN and BCC have launched a Canada-Mexico Business Summit – an annual forum designed and dedicated to increasing bilateral trade and investment. The Summit will convene business leaders from both countries, serving as the private sector counterpart to the government-to government HLED. The first meeting of the Canada-Mexico Business Summit will take place in Mexico at a date to be determined in Q1 2023.

CUSMA has further demonstrated the importance and potential of the Canada-Mexico bilateral economic partnership – it’s a potential which is yet to be fully seized.

The Canada-Mexico trading relationship

A generation ago, the North American Free Trade Agreement (NAFTA) catalyzed Canada-Mexico trade. Between 1994 and the onset of the COVID-19 pandemic, total Canadian imports from Mexico grew nearly 10-fold from $3.7 billion to $36.9 billion.¹ NAFTA not only provided preferential market access through the reduction or elimination of tariffs it also reduced barriers and uncertainty for businesses seeking to enter our respective markets. It was a solid foundation.

Today, NAFTA’s successor, the Canada-United States-Mexico Agreement (CUSMA) builds on that solid foundation by strengthening continental competitiveness and ensuring a high level of predictability for businesses and investors in all three countries. In the first two years since coming into force, CUSMA has further demonstrated the importance and potential of the Canada-Mexico bilateral economic partnership – it’s a potential which is yet to be fully seized.²

As is clear from the chart below, bilateral trade between Canada and Mexico has consistently trended upwards save for two intervening events, the 2008-2009 global recession and the 2020 global pandemic. The resilience and robustness of the economic partnership is evidenced by the fact that trade rebounded quickly and significantly in the years since those two events. This proves that the strength of the underlying fundamentals of the economic partnership are strong.

Figure 1: Mexico-Canada Trade 1993-2021 ($ million u.s.)

Given the highly integrated nature of the North American continental economy, we must consider our common neighbour, the United States. The U.S. is the number one trading partner for both Canada and Mexico, accounting for more than 75% of each countries’ international trade. Not only is the current trading relationship between Canada and Mexico underdeveloped in comparison to their respective trade with the United States it also lacks the same diversity.

Canada-Mexico trade is largely dominated by the automotive sector, which accounts for 35% of all Canadian imports from Mexico ($12 billion annually). Canada’s exports to Mexico are somewhat more diversified, spanning agri-food, motor vehicles, and consumer goods, but the total value is significantly lower than the value of Mexico’s exports to Canada. Fortunately, there are significant complementarities between the two economies which are ready to be seized.

More specifically, Mexico has a far higher working age population with more than 38.8 million citizens aged 20-40 – which is greater than the entire population of Canada. Mexican workers have proven invaluable to the Canadian economy as skilled immigrants, temporary foreign workers, and seasonal agricultural workers. Where Canada is currently dealing with a growing labour shortage, increased cross border workforce mobility could have an immediate impact.

Canada, in turn, has considerable expertise in areas where there is growing Mexican demand including aerospace, financial services, green technology, and energy infrastructure. To cite one example, it was recently announced that TC Energy would build a $4.5 billion Southeast Gateway Pipeline – a vital energy infrastructure project to transport natural gas. Further investments in export-enabling infrastructure are desperately needed in both our countries.

Moreover, the Mexican and Canadian governments have rightly prioritized efforts to ensure greater participation in our integrated continental economy from women, Indigenous peoples, and other underrepresented groups. For bilateral economic growth to be inclusive, sustainable, equitable, and diverse, it is essential that our respective public and private sectors identify innovative and imaginative ways to harness and leverage the full potential of all our peoples.

Recommendations

Recommendation 1: Promote bilateral investment in priority sectors 

Mexico and Canada should promote and prioritize bilateral trade and investment in key innovation sectors including agri-tech, clean-tech, med-tech, and advanced manufacturing, including through government-led trade missions. In addition, investment in trade-enabling infrastructure – energy export infrastructure, expanded seaport capacity, and modernized land border crossings for road and rail – would improve supply chain resilience, facilitate increased nearshoring, and strengthen commercial ties between our two countries and higher competitiveness for our shared continent. An agreement among securities regulators and exchanges could also help companies access capital markets in each country.

Recommendation 2: Streamline cross-border workforce mobility 

Canada and Mexico should work together to expedite the approval of temporary work permits and ensure the recognition of workforce credentials/certifications in priority sectors by relevant professional and regulatory bodies. Streamlined workforce mobility between Mexico and Canada would increase continental competitiveness as well as strengthen bilateral economic ties. Among the priority sectors experiencing urgent need for skilled labour, and identified in Canada’s expanded Temporary Foreign Worker Program, are agriculture, health care, forestry, construction, hospitality, fisheries, as well as mining.

Recommendation 3: Develop a joint strategy to bolster the competitiveness of our manufacturing sectors

A joint strategy would focus on identifying shared Mexican and Canadian interests relating to trade and investment policies, with a special emphasis on manufacturing and innovation that support the green energy transition. A key objective of this work will be to ensure that such policies strengthen North American competitiveness. The strategy could be a permanent workstream of the Canada-Mexico High-Level Economic Dialogue.

Recommendation 4: Prioritize greater engagement between Mexican states and Canadian provinces 

The Canada-Mexico bilateral relationship is almost always discussed as being between two entities. Given that significant economic development activity falls within the jurisdiction of Mexico’s 32 states and Canada’s 10 provinces and 3 territories, efforts should be made to promote greater engagement between and among those governments. One such effort could be to establish an annual conference modeled on the SEUS-CP (Alliance of Southeastern US States and Eastern Canadian Provinces) gathering which brings together U.S. states and Canadian provinces to identify trade and investment opportunities at the sub-federal level.

Recommendation 5: Increase collaboration between the public and private sectors to safeguard integrated infrastructure from cyber attacks and other threats 

Mexico and Canada must work together to enhance the resilience of our integrated supply chain, transportation, and energy infrastructure in the face of increasing and evolving cyber attacks and other threats. Increased information and intelligence sharing between governments with businesses would better protect critical infrastructure from those who want to disrupt or disable key cross-border networks. Canada and Mexico could also consider creating a High-Level Security Dialogue to complement our newly established bilateral High-Level Economic Dialogue (HLED).

Recommendation 6: Explore the establishment of a bilateral virtual centre of excellence for women and minority-led businesses 

Both Canada and Mexico are committed to expanding opportunities for women, minority and Indigenous entrepreneurs and business leaders. A bilateral virtual Centre of Excellence could provide information to underrepresented groups on such things as market development and export/import regulations and supply-chain management. It could also offer training on accessing investment capital, developing supplier diversity programs, and securing government assistance. Potential models for such an initiative include UPS Canada’s Women Exporters Program and CMN’s Mexican Center for Competitiveness. Like those two programs, the Centre of Excellence could perform a valuable service by facilitating business-to-business networking and mentoring opportunities.

The post Primed for growth appeared first on Business Council of Canada.

Consequently, the ways we do science — how we empower our best scientists and researchers to do frontier work on the most pressing challenges we face, and how we facilitate that knowledge transfer in the real economy — must become central to how we conceptualize our growth potential as a country.

“It is crucial that Canada shift its underlying policies to better support technological development and progress if we are to compete in the new highly valuable and highly competitive areas of growth and productivity.“

This requires new thinking about how we conduct our industrial policy and what kinds of institutions we need to achieve it. Above all, it requires us to build absorptive capacity to ensure research translates into economic benefits.

The post Growth, innovation and the organization of science policy in Canada appeared first on Business Council of Canada.

Canada has an embarrassment of riches when it comes to global trade. It sits next door to the largest market in the world. Thanks to dozens of trade and investment agreements, Canadian goods, services and capital enjoy privileged access to the United States and much of the rest of the world.

Unfortunately, Canadian exporters and investors are not taking full advantage of the wealth of opportunities open to them. For many, India is at best an afterthought.

Why then should Canada work to expand its trade and investment ties with India – a distant and notoriously difficult market to crack?

Simply put: India represents a vital door to the future in global trade. The Canadian government is currently developing its long-awaited strategy for the Indo-Pacific region. And there is no path to achieving success in this massive and strategically important region without building strong and enduring economic ties with India — one of Canada’s last large, untapped trade opportunities.

India is roughly where China was two decades ago. Its economy is in the midst of an economic surge, powered by an explosion of consumer spending, a rapidly expanding middle class and massive investments in infrastructure and digitization.

The future looks even brighter. Economic growth is expected to lift nearly a billion Indians out of poverty in the next five years. That will help propel India — currently the world’s sixth largest economy — to No. 3 by 2030. With 1.4-billion consumers, India is the world’s second most populous country. Its population is on course to overtake that of China by 2027, according to the United Nations. India is also home to 17 of the 20 fastest-growing cities in the world. Over the next three years, India is projected to be the world’s fastest-growing large economy, with real GDP growth well above its peers in Asia, North America and Europe.

In a world buffeted by surging inflation, India offers relatively low labour and land costs. The country is home to the largest working-age population in the world. Half its population is under 25, compared to roughly a quarter in Canada.

And the time is right. In early 2022, Canada and India announced the resumption of talks toward a comprehensive free trade agreement. Both sides are aiming for an “early progress” deal by next year, when India is slated to host the G-20 leaders summit for the first time.

Elected in 2014 on a platform that emphasized domestic economic reforms, Prime Minister Narendra Modi shifted gears in 2021, signaling a new openness to free trade and increased global economic integration. Since then, the Modi government has signed free trade agreements with Australia and the United Arab Emirates, and has embarked on negotiations with the United Kingdom, the European Union, Israel and others.

U.S. President Joe Biden recently launched the Indo-Pacific Economic Framework for Prosperity, an effort to counter China’s growing influence in the region. A dozen other countries, including India, Japan, and Australia, have joined the framework – but not Canada.

Signing a free trade agreement with India would give Canadian companies and investors a leg up over competitors from many other countries. By the same token, failure to act soon would leave Canada at a disadvantage.

India’s economic opening to the world is happening against a backdrop of severe disruptions in global trade caused by the COVID-19 pandemic, Russia’s invasion of Ukraine, and the spectre of a global recession.

Canada has powerful incentives to diversify its trading relationships. The U.S., which accounts for the bulk of our trade, has become more protectionist in recent years – under both Democratic and Republican administrations. And our second largest trading partner, China, has become a much riskier place to do business amid deteriorating bilateral relations.

Canada’s trade performance in India, 2001-2019

At a glance, Canada-India trade appears relatively robust. Goods exports to India grew by an average of nearly 12 per cent a year between 2001 and 2019 – rising to US$3.9-billion from US$517-million. Over the same period, Canada’s goods imports from India rose at an annual pace of nearly 10 per cent. Two-way trade in services has grown even faster, showing a glimmer of what may be possible with freer trade.

These numbers don’t tell the full story, however. India’s growing economy is devouring more imports from around the world. But its trading orbit has been gradually shifting away from North America and Europe. An increasing share of its trade is with China, the UAE, and member countries of the Association of Southeast Asian Nations (ASEAN) such as Indonesia, the Philippines, Singapore and Vietnam.

The result is that Canada has lost market share in the large and rapidly expanding Indian market. An analysis by Ciuriak Consulting (commissioned by the Business Council of Canada and the Canada-India Business Council) shows that Canada’s global share of two-way goods trade with India has eroded from 1.02 per cent in 2001 to 0.81 per cent in 2021. Over the past two decades, Canada has captured just one per cent of the growth in global exports of goods, services and intellectual property destined for India. Bilateral investment is also under-developed, a worrying sign at a time when India is poised for an investment boom.¹

“Canada has been punching well below its weight in one of the major global markets,” Ciuriak Consulting concludes.

Canada could, and should, be doing much better. Ciuriak Consulting estimates that if our trade with India was on par with the business we do with similar-sized economies in the rest of the world, our exports would be nearly 2 ½ times higher than now. That represents more than US$3-billion a year in lost export opportunities. Canada’s exports to India of agricultural, agri-food and manufactured goods are all less than half the level they should be, according to the analysis.

This export gap will more than double by 2027 unless Canada does something significant to reverse the trend. By 2035, the shortfall would more than triple. Business as usual is a losing strategy for Canada in this promising and lucrative market. 

Calculating the benefits of free trade with India

For Canada, the experience of the past couple of decades in India isn’t necessarily an omen for the future.

That’s because the Canada-India relationship is marked by enormous unexploited potential. The key question is how best to unlock it.

The Canadian and Indian economies are, to a great extent, complementary. Canada needs what India has, including a rapidly growing population of middle-class consumers and a young, IT-literate workforce. In turn, India needs much of what we have: energy, technology, agri-food products, fertilizer, various other natural resources, investment capital, plus engineering and business know-how.

Economic modeling by Ciuriak Consulting suggests that a free trade agreement with India would boost Canadian GDP by 0.16 per cent a year by 2035, assuming relatively modest tariff cuts by India. A more ambitious deal would yield an annual GDP boost of 0.25 per cent. For a Canadian family of four, that represents a gain of C$731 per year. To put this in context, it has the potential to deliver a greater economic boost to Canada than the 2018 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a deal which has succeeded in strengthening trade ties with 10 other countries in the Asia-Pacific.²

The forecast is predicated on two possible models of a Canada-India free-trade agreement. One is the Regional Comprehensive Economic Partnership (RCEP), a relatively modest China-led trade deal among Asian and Pacific countries that India has so far balked at joining. The second is the more ambitious proposed bilateral deal with Canada, dubbed the Comprehensive Economic Partnership Agreement (CEPA). Negotiations on that deal began in 2010, but later stalled.

A more ambitious CEPA-style deal would boost two-way Canada-India trade by C$8.8-billion a year – more than double what it was 2019.

Four broad Canadian goods export sectors stand to benefit the most from free trade with India: fruit and vegetables; chemicals, rubber and plastics; wood products; and minerals. Canada can also take advantage of the rapidly growing demand in India for business services.

The estimates contained in this report represent a floor for what’s ultimately possible. Canada and India can do much better.

Australia offers a model that Canada can emulate. Australia appears to have achieved significant gains under a bilateral trade agreement signed with the Modi government in April 2022. Australian officials say the deal will remove tariffs on 85 per cent of goods shipped to India in the short term, rising to 91 per cent over the next decade. And it is taking key steps to strengthen ties in other areas. The Australian government has committed to investing $280-million (Australian) in India, including in renewable technology, defence and space cooperation. It has also created the Centre for Australia-India Relations, which has a mandate to promote policy dialogue, build Australian business literacy, engage the Indian diaspora communities, and deepen cultural connections.

India also stands to gain a lot from freer trade. Lowering its own historically high tariffs would make the Indian economy more dynamic and competitive, propelling growth of its own exports. That’s exactly what happened to China after it joined the World Trade Organization in 2001. China dramatically lowered its tariffs, and its exports soared.

Yet forging stronger ties with India won’t come easily.

Yes, Canada and India have relatively complementary economies. They also have growing personal bonds, reinforced by an increase of Indian immigrants and foreign students to Canada over the past two decades. The Indian diaspora in Canada now numbers 1.6-million people, three per cent of the Canadian population. India is now the largest source of landed immigrants in Canada, having overtaken China in 2017.

But India has historically been a difficult place to do business. The country jealously protects sensitive sectors such as agriculture and manufacturing. It’s not just about high tariffs. India’s borders are notoriously “thick,” marked by heavy bureaucracy, regulations and other non-tariff barriers. And even more so than Canada, its internal market is highly fragmented, to the degree that India’s various states sometimes resemble separate countries.

A free trade agreement alone won’t miraculously open up opportunities for Canadian businesses. Canadian policymakers and businesses will need to get out of their comfort zone when it comes to India, and work hard to leverage the full benefits of closer economic ties and market-opening opportunities. That will mean putting capital at risk, investing in local talent, expanding trade facilitation support, and more.

Several Canadian companies are already well established in India, demonstrating that it can be done.

There is opportunity but also urgency in India. Canada’s peers, including the U.K. and Australia, are moving aggressively to secure a trade advantage. Canada has a chance to be right there with them with a trade deal that, done right, could pay economic dividends for decades to come.

Recommendations

Canada has committed to developing a strategy for the entire Indo-Pacific region. Canada also needs a The Government of Canada has recognized the need to articulate a strategy for deeper engagement with the Indo-Pacific region. Equally, Canada needs to develop a comprehensive India strategy. India is pivotal to success in the region because of its large size, rapid economic growth and vast untapped potential.  

1. Federal government should complete a comprehensive free trade and investment agreement. An “early progress” deal with India will be an important first step in enhancing the relationship, but Canada should not stop there. A comprehensive trade and investment agreement that reduces tariffs and other barriers, increases labour mobility and improves investor confidence would generate significant economic gains for both countries.
   
2. Invest in the India relationship. To demonstrate Canada’s commitment to forging closer ties, federal ministers should commit to visiting India frequently. Ideally such visits and trade missions would be coordinated with provincial, territorial and municipal officials, as well as Canadian business organizations. In addition, Canada should ensure it has talent on the ground, including at the state, territorial and municipal levels, to support this fast-growing relationship. The government should work closely with business groups and companies that are in a position to help open doors in India. It should also collect and share data on the most promising market opportunities for Canadian goods and services.
   
3. Businesses must develop their own India strategies. Just as they did with China 20 years ago, Canadian companies must give serious thought to where India fits into their future plans. India is poised to become the world’s third-largest economy. Every company with global ambitions should have a strategy to seize potential opportunities in India and keep pace with competitors. This could include establishing a presence in India to better understand the challenges and opportunities of the complex and diverse Indian market.

Canadian success stories

More than 600 Canadian companies and organizations have established a presence in India. Hundreds more are actively pursuing business opportunities there. Examples:

CPP Investments

The global investment manager for the Canada Pension Plan opened its first Indian office in Mumbai in 2015. CPP Investments now has more than 70 employees in the country, helping to manage a C$18.5-billion portfolio of real estate, infrastructure, public and private equities, as well as funds, co-investments and credits. These investments represent 3.4% of the fund’s total assets (as of March 31, 2022).

Among its key holdings in India:

• Invested a combined about US$600 million for an approximately 21 per cent stake in ReNew Power Ventures Pvt. Ltd., one of India’s leading clean energy companies with approximately 10.3 gigawatts of capacity diversified across wind, utility-scale solar and rooftop solar power-producing assets.
• In May 2018, L&T Infrastructure Development Projects Limited (L&T IDPL) launched the first private infrastructure investment trust in India – IndInfravit Trust, with an initial portfolio of five operating toll roads which has grown over time. CPP Investments now has a stake of 43.8 per cent.
• Acquired 25 per cent of the units in National Highways Infra Trust, an infrastructure investment trust sponsored by the National Highways Authority of India (NHAI), for INR 15,029 million (C$257 million). The trust acquires brownfield toll roads from NHAI, the government agency responsible for developing, maintaining and managing national highways.
• CPP Investments first invested in Kotak Mahindra Bank Ltd. in 2013 and has subsequently added to the position through a series of share purchases. Kotak is a leading private-sector bank holding company, with additional lines of business in life insurance, brokerage and asset management. To date, CPP Investments has invested C$1.4 billion representing a 4.3 per cent ownership stake in the company.
• Formed three joint ventures with Phoenix Mills. The first – in which CPP Investments invested INR 16.62 billion (C$328 million) – develops, owns and operates retail-led mixed-use developments across India. The second – in which CPP Investments invested INR 5.6 billion (C$93 million) – is to develop a regional retail centre in Alipore, Kolkata. The third – in which CPP Investments invested INR 13.5 billion (C$231 million) – is to develop an office-led mixed-use asset in Mumbai.
• In 2021, invested US$800 million in the Flipkart Group, one of India’s leading digital commerce companies. Flipkart has enabled millions of consumers, sellers, merchants and small businesses to be part of India’s e-commerce revolution.

Canpotex

The potash marketing company, based in Saskatoon, has been exporting Saskatchewan potash to India for half a century. Over that time, Canpotex – owned by producers Nutrien and Mosaic – has sold 25-million tonnes of the fertilizer nutrient to India.

Potash is a vital import for India, particularly as farmers seek to produce higher quality crops and larger yields from limited arable land. Since 2016, Canpotex has invested US$10-million on education programs to help Indian farmers improve soil health by applying a balanced mix of potash, nitrogen and phosphate on their fields.

Memorial University

Based in St. John’s, Memorial University is more than 10,000 kilometres from Mumbai and other major Indian cities, yet it has become the university of choice for hundreds of Indian undergraduate and graduate students. Some 544 Indian students were enrolled at Memorial as of September 2021, up nearly 200 per cent from 2016.

Memorial credits the surge to a special admissions process for Indian high school students, as well as virtual open houses, recruitment trips to India, and growing academic ties with nearly a dozen Indian universities. Several Memorial faculty members are active in the Shastri Indo-Canadian Institute, a bi-national organization that promotes academic exchanges and research partnerships between the two countries.

Teck Resources Ltd.

India has emerged as a key market for Canadian steelmaking coal as India continues to grow its steelmaking capacity, with plans to double production to 240 million tonnes by 2030.  As steelmaking capacity grows, so do imports of metallurgical coal as India has limited domestic production and diversifying the locations it imports from is a benefit to India. 

To help meet this growing demand, Vancouver-based Teck now exports between 10 to 15 per cent of its production to India; that’s two and a half to four million tonnes of metallurgical coal per year.  A dedicated in-house team in concert with a team on the ground oversees Teck’s sales to India.

Teck also has a well-established partnership with UNICEF to support community development in India, including life-saving COVID supports in 2021, and a decade-long Zinc & Health Program. The Zinc & Health Program has reached 23.6 million children under the age of five through integrated awareness campaigns, trained 29,200 female health workers on diarrhea prevention and management, established over 140,000 ORS (oral rehydration salts)-Zinc corners to improve equitable access to ORS and zinc, and oriented 2.67 million people on everyday diarrhea prevention practices.

The post Why India? appeared first on Business Council of Canada.

For its part, India is seeking to diversify its markets. After taking a hiatus from trade liberalization for the better part of the last decade, it is getting back in the game with several trade deals back on a fast track and a new foreign trade policy about to be unveiled in 2022. This study provides an updated perspective on Canada-India trade and its unfulfilled potential. It develops a gravity model to identify unexploited trade potential and analyzes the potential impact of a Free Trade Agreement (FTA) on the basis of computable general equilibrium model simulations that take into account realistic scenarios for commitments by Canada and India.

The analysis suggests that an FTA would lead to palpable increases in trade and real GDP and generate solid gains in Canadian household incomes, all without significant disruption to industry in Canada. The same would be true for India. This would be a win-win policy initiative that would put some genuinely constructive “Indo” into the new Indo-Pacific strategy that Canadian officials have been tasked with developing.

The post Assessing export opportunities for Canada in India appeared first on Business Council of Canada.