How Three Recent Trade Developments Could Shape Canada’s Green Energy Exports
The global energy market is changing, giving Canada the opportunity to examine its role as a supplier of energy and materials for the green energy transition. Canada’s abundant natural resources make it one of the few countries that produce more energy than it needs. In 2019, energy accounted for 10.2% of Canada’s GDP, 23% of Canada’s total export of goods, and 23% of Canada’s inward FDI. In 2020, Canada was the sixth-largest energy producer in the world, exporting 44% of its total domestic energy production to 141 countries. Undoubtedly, energy is a central part of the Canadian economy and prosperity.
Since Canada’s energy industry is heavily dominated by fossil fuels, its continued success is increasingly put at risk in a carbon constrained future. Globally, Canada is the fourth-largest producer of oil, fifth-largest producer of natural gas, and seventh-largest exporter of coal. Moreover, approximately 90% of Canada’s energy exports are exported to the United States, mainly in the form of fossil fuels.
Worldwide, advanced economies have an urgent need to diversify energy production to meet climate targets and the future demand for clean energy. However, Canadian oil production is expected to expand over the next 10 years as new renewable and green energy alternatives are deployed. To be successful in this transition, Canada will need to leverage its strengths in existing energy industries to embrace cleaner fuels like hydrogen, advanced biofuels, renewable natural gas, sustainable aviation fuel, and synthetic fuels. Currently, these alternative fuels represent a very small percentage of Canadian energy production. In 2020, clean fuels accounted for less than 3% of Canada’s energy production and an even smaller percentage of energy exports.
Toward these ends, Canada is engaged in a growing number of international partnerships focused on energy science, technology, and innovation. In August, for example, Canada announced a new Canada-Germany Hydrogen Alliance, which could help Canada become an early entrant into the global market for hydrogen. The agreement was signed in Stephenville, N.L., which has been eyed by the private sector as the prime location to develop a large hydrogen plant. The plant will use wind energy to produce hydrogen, and possibly its derivative ammonia, for export to Europe via a transatlantic supply corridor.
The project is expected to deliver 300 direct operations jobs and 3,500 indirect jobs, in addition to those needed to construct the plant. Stephenville and the surrounding communities will also have access to a $10 million community vibrancy fund financed by the developer to spend on community projects. Additionally, World Energy GH2 has signed two memorandums of understanding with Qalipu First Nation and the Town of Stephenville to provide training opportunities for the local workforce and to support green energy adoption.
Hydrogen is an increasingly attractive fuel given that the price of natural gas imports has more than quadrupled in Europe over the last three years. Canadian hydrogen is a clean alternative to natural gas, making it an attractive source of energy in Germany, Europe’s largest national economy. By 2030, Germany expects its demand for hydrogen to reach 90 to 100 terawatt-hours. Canada aims to start exporting hydrogen by 2025.
Canada’s deeply entrenched energy sector has helped produce a robust supply of energy talent. The Canada-Germany Alliance presents an opportunity for Canada to leverage this talent in clean energy roles and to secure a place in hydrogen markets. Energy-exporting provinces like Alberta and Newfoundland possess a wealth of talent with science, technology, engineering, and math (STEM) skills that can help fill emerging energy roles.
Beyond clean fuels, demand for clean energy inputs is also increasing. Countries around the world are ramping up efforts to source and supply critical minerals for clean energy production. Canada has a vast supply of the critical minerals used to manufacture solar panels, wind turbines, batteries, and other green energy technology. Canada’s wealth of critical mineral deposits can help it become a leading supplier of the inputs and technology necessary for a low-carbon future.
In September 2022, Canada and South Korea established a Comprehensive Strategic Partnership to promote trade and investment, energy security, sustainable energy sources, and critical minerals. In the coming months, the two governments will work together to renew partnerships between Canada and Korea’s national research agencies and secure competitive positions in the global critical minerals, battery, and electric vehicles supply chains.
The U.S. Inflation Reduction Act, passed in August 2022, is another opportunity for Canada to supply critical minerals abroad. The Act changes the eligibility criteria for American electric vehicle (EV) rebates. In addition to requiring final assembly to take place in North America, after 2023, only vehicles with critical minerals and other battery components sourced from the United States or the Canada-United States-Mexico Agreement (CUSMA) trading bloc will be eligible for rebates. At first, 40% of the critical minerals and 50% of the battery components will need to be sourced from the CUSMA trading bloc and free-trade agreements. The sourcing requirement will increase each year, eventually reaching 80% for both by 2027.
Demand for batteries is forecasted to grow the most in the transportation sector as EVs are more widely adopted. According to a recent report by Clean Energy Canada, Canada’s EV battery supply chain could support up to 250,000 jobs by 2030 and add $48 billion to the Canadian economy annually.
The global energy transition provides a unique opportunity for Canada to diversify its energy exports. Trading relationships like the ones Canada has established with South Korea, Germany, and the United States can help reduce uncertainty, improve financing opportunities, and incentivize businesses to explore new markets. Going forward, it will be important for Canada to understand where our comparative advantages lie and to keep developing partnerships in new and existing energy markets.
As industry in Canada watches these energy and trade policy developments, it would be helpful to have a better baseline analysis of Canadian capabilities. Access to timely and relevant data and information is needed to support organizations and firms working in this space. It is important to understand where our industry holds a comparative advantage and focus efforts on areas where Canadian industry can be dynamic. A sober appreciation of which energy subsectors Canada can realistically compete in will go a long way in supporting the entry of new and existing firms into green energy industries.
This article is also published on Digital Think Tank by the ICTC. Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.
About the authors
Justin Ratcliffe is an Economist & Research Analyst at the Information and Communications Technology Council (ICTC). His policy interests include exploring the structural aspects of the Canadian economy as it relates to industry diversification, competition, emerging sectors, and social well-being through economic opportunity. Justin believes in bringing an empirical and evidence-based approach to the policy research and design process.
Mairead Matthews is the Manager of Digital Policy at the Information and Communications Technology Council (ICTC). Mairead brings her longstanding interest in Canadian policy and her background in public administration and political science to the conversation on technology and 21st century regulatory challenges. Mairead’s areas of interest include privacy and data governance, IP and innovation policy, and the social and ethical impacts of emerging tech.
Todd Legere is an Economist and Research Analyst at the Information and Communications Technology Council (ICTC). He brings over 5 years of experience in economic research and consulting, supporting international trade and sustainable development initiatives. Todd has previously consulted on projects including a youth entrepreneurship competition in the Arctic, and attracting foreign investment initiatives in key sectors; in the latter, he used this research to develop programming recommendations for governments to best support the needs of exporters.