This is an extract from a recent report “The World Next Door: Aligning Canada’s economy with our new reality means building trade alliances beyond the U.S., where clean equals competitive” by Clean Energy Canada.
Canada woke up the day after President Donald Trump’s second inauguration in unfamiliar territory. Canada must now look beyond its borders, within its borders, and within itself. First and foremost, that means aligning the economy with the wider, friendlier world. Canada has trade agreements with 60% of the global economy, making us well positioned to lessen reliance on U.S. markets. According to Clean Energy Canada’s analysis of 10 largest non-U.S. trade partners, all have net-zero commitments and carbon pricing systems, and roughly half apply carbon border adjustments on imports and have domestic EV requirements reshaping their car markets.
Taken together, these measures send a clear, unmistakable signal about where their economies are headed. Carbon border adjustments, for example, incentivize low-carbon products from importing nations like Canada, while a carbon price and requirements for more EVs mean a market is weaning itself off fossil fuels. As more countries adopt these measures, demand for oil and gas will see a decline, while interest in clean energy imports and low-carbon products will increase. Canada’s opportunities are plentiful, significant, and feasible. A made-in-Canada industrial policy approach will help unlock Canada’s clean growth opportunity. A number of think tanks and business groups have analyzed and identified opportunities in Canada’s clean economy, including but not limited to clean electricity generation and transmission, critical minerals, EVs and batteries, low-carbon heavy industry, and value-added agricultural and forest products.
How does Canada map this vision into reality?
The simple answer is to streamline Canada, connect Canada, buy Canada, and promote Canada. Streamlining Canada involves accelerating regulatory and permitting processes for clean growth projects, making it easier for green collar workers to move between provinces, and better aligning building, construction, and transportation codes. Connecting Canada means investing in and accelerating the build-out of critical trade, energy, and transportation infrastructure, like road networks to remote mining sites and ports to growing markets. Prioritizing grid interties in strategic regions will enhance energy security, flexibility, and ratepayer affordability. Buy Canada has quickly turned into a trendy phrase, but for policymakers the definition should include growing the market for Canadian products, supporting Canadian ownership, and helping emerging Canadian companies scale up. Governments can do this through consumer incentives for locally-made clean technologies, government procurement that favours low-emissions Canadian products, and interprovincial trade promotion. Promoting Canada boils down to expanding and diversifying export opportunities while also incentivizing global companies to build here. Business parks and shovel-ready industrial lands that are proximate to production networks and abundant clean electricity are easy beacons for all manner of businesses.
Why build up a clean economy?
• Like-minded trade partners are increasingly preferring low-carbon goods and services. Canada already has a clean industry advantage, having invested in a number of major decarbonization projects while powering production with an electricity grid that is 82% clean. Starting next year, the EU will be applying carbon border adjustments on goods produced without a carbon price. It covers iron and steel, cement, fertilizers, aluminum, hydrogen, and electricity. With its clean industrial headstart and a provisional trade agreement with the EU, Canada is well-positioned to be a preferred supplier.
• Global companies want to set up shops where they can plug into clean electricity. Sustainable projects attracted 29% of all foreign direct investment into Canada in 2023, up from 25% in 2022, 10% in 2021, and 5% in 2020. Clean energy now employs more people worldwide than fossil fuels, and Canada can and should carve out its fair share of the prize.
• Building up Canadian companies and intellectual property provides Canada with more economic autonomy and global leverage. Canada already punches above its weight when it comes to innovative clean technologies and could lean into this strategic advantage. Employing an international panel of experts, the Cleantech Group every year reviews 28,000 clean energy companies across 147 countries and highlights the 100 most innovative. Among 2024 Global Cleantech 100 finalists, 13 were Canadian.
• Clean economy sectors support stable, good-paying jobs in all parts of Canada and provide Indigenous peoples economic opportunities. The GDP of Canada’s clean energy sector is projected to reach $107 billion by 2030, with $58 billion in investment and 600,000 jobs. As of 2022, 20% of Canada’s electricity-generating infrastructure included First Nations, Métis, or Inuit partners, almost entirely in renewables.
• Improving Canadian household access to clean technologies reduces home energy bills and shields families from volatile fossil fuel price swings. Clean electricity prices are low, stable, and set here in Canada.
The global landscape
There is no question that the U.S. is Canada’s largest trade partner by a considerable margin. But Canada has a number of other vital trading relationships that politicians and businesses will want to foster and grow to help offset the impact of U.S. tariffs and the risks of political uncertainty. Canada recently signed major trade deals with the EU and a number of Indo-Pacific nations and now has a trade agreement network covering 60% of the global economy. And yet this network is underutilized. Canada must view foreign markets as moving vessels. Knee-jerk investments could miss the boat and leave Canada splashing in its wake. To determine the extent to which each nation is building up its clean economy, the report has identified four key barometers with big implications—and opportunities— for trade partners like Canada in the years ahead. The report considers whether the country in question:
• is committed to net zero
• has a carbon pricing system
• applies a carbon border adjustment on imports
• has a requirement that EVs make up an increasing proportion of new vehicle sales
Taken together, these measures send a clear, unmistakable signal regarding where a country’s market is headed. Carbon border adjustments, for example, levy a charge based on the carbon-intensity of a good’s production and therefore incentivize low-carbon products from importing nations like Canada. Meanwhile, the existence of a carbon price and a requirement for more EVs means that a market is weaning itself off fossil fuels, and thus demand for oil and gas will see declines, while interest in clean energy imports and low-carbon products will increase. The upshot? Among 10 largest non-U.S. trade partners, all of them have net-zero commitments and carbon pricing systems, and roughly half are putting carbon border adjustments on imports and have domestic EV requirements reshaping their car markets
Despite Trump’s efforts to roll back many key climate measures and investments, a number of individual U.S. states are still rowing in a very different direction. For example, 17 states representing 40% of the U.S. car market have their own EV requirements, following in California’s legal footsteps. Governor Gavin Newsom has also said he will seek trade deals that spare California, the world’s fifth-largest economy, from retaliatory tariffs. Add to that the Canadian market and facing competition from abroad, and U.S. automakers are still compelled to build better, more affordable EVs. By empowering its own clean economy, Canada is aligning its trajectory with the U.S. states that share values—along with most of the world.
Opportunities in Canada’s clean economy
Clean electricity generation and transmission: Cheap, clean electricity has been the backbone of Canada’s economy for decades and is a key competitive advantage as foreign investors look to locate in jurisdictions with an electricity system that is reliable, affordable, and clean. Not only does Canada have the lowest electricity rates among G7 countries, the country’s renewables growth potential is among the world’s best. Wind, solar, and storage capacity have grown 46% in five years, with another 15,000 MW of clean capacity either currently underway or planned across the country, representing more than $30 billion in investment. As of 2022, 20% of Canada’s electricity-generating infrastructure included First Nations, Métis, or Inuit partners, almost entirely in renewables. Canada has also been a global leader in nuclear power generation and is ramping up green hydrogen potential. The Canada Deuterium Uranium supply chain fully resides in Canada with exports to four countries and a modernization plan for future CANDU exports. Finally, Canada has another export opportunity in the commodities and energy carriers produced by clean electricity, including clean hydrogen, ammonia, and methanol, which can all be manufactured using electrolysis. While the potential scale of this opportunity is not fully known, the global market for clean hydrogen could reach over $1.9 trillion by 2050, with Canadian exports reaching $20 billion to over $42 billion by 2050
Critical minerals: Canada is host to 31 different critical minerals, many of which are necessary for building a path to net zero. For instance, Canada is one of the few Western nations that have an abundance of cobalt, graphite, lithium, and nickel—critical minerals that are essential to creating batteries and EVs. Canada is also a major producer of copper, which is used in power transmission, building wiring, EVs, and other electronic components. Developing just six of Canada’s critical minerals could contribute more than $500 billion to the country’s GDP over the life of the mines. Many of Canada’s global allies are looking to increase and diversify their supply of responsibly produced critical minerals, and Canada has already signed numerous agreements with partners such as the EU, the U.K., Japan, and South Korea to increase cooperation on and investment in Canada’s critical mineral supply chain.
EVs and batteries: Canada’s battery supply chain potential has been ranked first in the world by BloombergNEF, ahead of China and 28 other countries. The country is already realizing this potential with Ontario and Quebec landing $46 billion in private sector automotive battery plant investments—in part on the basis of cheap, clean power relative to potential sites in the U.S. As Canada looks to diversify its exports, it has a particular opportunity to build out the midstream portions of the battery supply chain and export high-value, sustainable battery materials to global markets. For decades, Canada has also been a vehicle manufacturing hub, host to five auto manufacturers, a robust auto parts manufacturing sector, and home of zero-emissions bus and truck manufacturers.
Low-carbon heavy industry: Canada is well-positioned to supply global markets with low-carbon steel, aluminum, chemicals, and fertilizers, which will be needed in the coming decades. For example, steel made in the U.S., EU, and China is between 16% and 200% more carbon-intensive than steel made in Canada, while aluminum from those countries is between 170% and 535% more carbon intensive than Canadian products. To access a “green premium on world markets,” the federal government has invested over $6.5 billion into decarbonizing 15 heavy industry facilities in Alberta, Ontario, Quebec, and Saskatchewan. Electrification and clean hydrogen are at the heart of Canada’s clean industrial opportunity, where clean electricity and hydrogen replace natural gas or coal as a heat source (for example, hydrogen-DRI steelmaking) and hydrogen is used as a feedstock. In both instances, Canada has a built-in advantage and flexibility in pathways to ensure the lowest-possible emissions.
Cleantech innovation: Canada is already home to over 2,400 pure-play cleantech companies offering innovative technologies in sectors from renewable energy and energy efficiency to agriculture and mining. Canada’s cleantech sector also punches above its weight, with 13 companies making the 2024 Global Cleantech 100 list. The sector has shown strong job growth and export performance over the last decade, the latter expanding an above-average 110% from 2012 to an impressive $19.7 billion in 2023. Global Affairs Canada notes that small and medium enterprises in cleantech are roughly twice as active in international markets compared to Canadian companies broadly. Canada is also a global leader in some potentially disruptive spaces. General Fusion, one of the world’s most promising nuclear fusion startups, operates out of B.C. and has attracted $440 million in private capital. Not far down the road, Ballard Power leads a cluster of hydrogen fuel cell technology companies that have earned Burnaby an unlikely nickname: “the Silicon Valley of the hydrogen fuel cell.
Access the report here
