The global low-carbon transition needed to avoid the worst impacts of climate change has already begun sweeping across economies and industries around the world, and it is building strength.

In response, Canada faces a critical choice that will define our economic prospects for generations: will we fight against the tide, simply tread water, or will we catch the wave and ride it to a prosperous, low-carbon future?

This report assesses the implications of this global transition for Canada’s economy, and the strategies that can be used to manage risks, seize opportunities, and drive clean, strong, and inclusive growth.

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A Thriving transition Is possible

To date, Canadian governments have not done enough to transform Canada’s economy to thrive in the years and decades ahead. There are enormous economic opportunities, but governments have tended to focus on minimizing near-term competitive risks rather than developing future competitive advantages.

How can Canada thrive? Our analysis finds that targeted government action can improve Canada’s chances of success by mobilizing private investment and smoothing workforce transition. The stakes are high: moving too slowly is now a greater competitive risk than moving too quickly. 

Three big trends are transforming global markets

The global low-carbon transition is being accelerated by:

  • international climate policy—countries representing more than 70 per cent of global GDP have committed to reach net zero emissions
  • cheaper and better technology—wind, solar and electric vehicle battery costs have fallen by 60 to 90 per cent over the past decade—and
  • a growing investor response—international investors with over 40 per cent of global assets under management have committed to supporting net zero goals.

The transition stakes are high for Canada, with over 70 per cent of our goods exports and over 60 per cent of foreign direct investment in sectors that are vulnerable to market disruption.

Source: GAC (2020). Notes: This figure shows the per cent share of the value of Canada’s goods exports in 2019, by product. Nearly 70% of Canada’s goods exports—including energy products, motor vehicles and parts, metal ores and non-metallic minerals, and basic and industrial chemicals—are in global markets expected to face disruption.
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Which companies are transition-ready?

Companies in some sectors—like batteries and storage, or solar and wind equipment—will see higher profits through transition. Companies producing products such as coal and oil will see lower profits. Companies in several sectors could go either way, depending on the actions they take. For example, companies in steel, cement, and aluminium sectors could see higher profitability through transition if they dramatically lower emissions.

Source: Canadian Institute for Climate Choices (2021c), based on modelling and analysis commissioned from Planetrics. Notes: This figure shows the difference in profitability between the baseline scenario and the immediate 1.5-degree scenario in 2050. It compares the performance of the bottom 10 per cent of global equities in a sector (bottom node) with the performance of the top 10 per cent of global equities in a sector (top node). It illustrates that sector average results do not necessarily represent the performance of individual companies through transition.
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What are the drivers behind these changes?

There are three main transition drivers that affect profitability:

  • demand creation (growing global demand for the product), which increases profitability
  • carbon costs (higher costs due to government policy and border measures), which decrease profitability and can be partially offset by abatement of emissions and passing costs through to customers 
  • demand decline (shrinking global demand for the product), which decreases profitability

The following graph illustrates these main drivers in six sectors:

Source: Canadian Institute for Climate Choices (2021c), based on modelling and analysis commissioned from Planetrics. Notes: This figure
breaks down the major drivers that determine the future profitability of companies through low-carbon transition. It shows the decomposition
of the difference in profitability between the baseline scenario and the 1.5-degree scenario for a selection of sectors in 2050, based on
all equities operating in the Canadian market. Results are similar for Canadian equities operating in the international market, though fewer
companies and sectors are captured.
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How can Canada become more competitive through global transition?

Canada needs more, and bigger, companies active in markets that will see growing demand through transition. There are hundreds of promising Canadian companies, but many still struggle to attract the investment they need to grow. Canada also needs transition-vulnerable companies to make the investments needed to thrive through global market change. For emissions-intensive manufacturing, that means reducing emissions intensity. For coal and oil, it means shifting into new business lines.

Source: Analysis by the Canadian Institute for Climate Choices using data from PitchBook (2021). Notes: This figure shows the total capital invested across nine transition-opportunity sectors in US dollars and the number of completed business deals (i.e., investment transactions). Values include private equity, venture capital, corporate and strategic mergers and acquisitions, initial public offerings (IPOs) and liquidity, and debt. The analysis captures businesses that are primarily focused on the relevant technologies, products, and services in each sector. More detailed analysis on each opportunity is available at https://climatechoices.ca/reports/sink-or-swim. Data is drawn from a custom search and has not been reviewed by PitchBook Analysts.
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Dive deeper into transition-opportunity sectors

How will the low-carbon transition affect workers and communities?

There are workers in transition-vulnerable sectors in every province and territory. Improving Canada’s transition readiness will help them maintain their jobs, or readily find new ones. By share of workforce, Alberta, the Northwest Territories, Saskatchewan, and Newfoundland and Labrador top the list. However, Ontario has the largest total number of workers due to its strong transportation equipment manufacturing sector.

Source: Analysis by the Canadian Institute for Climate Choices (2021) based on data from Statistics Canada (2016a). Notes: This figure shows the share of the workforce directly employed in transition-vulnerable sectors by province and territory. The size of each square represents the share of workers in transition-vulnerable sectors relative to each province and territory’s total workforce. The size of polygons within each square illus¬trates the share of workers within individual sectors. Emissions-intensive manufacturing includes NAICS codes 324, 325, 326, 327 and 331.
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There are many communities across Canada that have a relatively high proportion of workers in transition-vulnerable sectors. This graph shows communities with greater than 10,000 people that have more than 3 per cent employment in transition-vulnerable sectors. Some communities really stand out, like Wood Buffalo which has cumulatively 29 per cent of its employment in vulnerable sectors. These communities are vulnerable to broader impacts to service sectors and government tax revenues.

Source: Analysis by the Canadian Institute for Climate Choices based on data from Statistics Canada (2016d). Notes: This figure shows
census metropolitan areas (CMA) and census agglomerations (CA) that have more than three per cent employment in transition-vulnerable
sectors. Communities within each province and territory are plotted according to the total share of their workforce within a single
transition-vulnerable sector. Some communities appear twice, illustrating that they have a concentrated workforce in multiple transition-
vulnerable sectors. For example, Wood Buffalo in Alberta has 25 per cent of its workforce employed in oil and gas extraction, and four
per cent of its workforce in related support activities for mining and oil and gas extraction.
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How do we ride the wave?

Governments have a major role to play in helping ensure strong economies in thriving communities. Our recommendations focus on four priorities for government action:

  • Prioritize forward-looking decision making that considers the competitive benefits of climate action
  • Emphasize future-fit innovation and economic development that supports growth in markets where global demand will be strong
  • Develop local and people-focused transition plans that drive new areas of job creation, improve the resilience of the workforce and empower Indigenous economic leadership; and
  • Mandate the disclosure of climate-related metrics that are decision-useful, building on international approaches to close gaps and mobilize private investment

These are the areas where government involvement is most needed to overcome market and non-market barriers to successfully navigate the low-carbon transition. Learn more in our report.

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Dive Deeper: Transition-Opportunity Profiles

The following sectors all have great opportunities for Canada—if they can scale up fast enough to catch the wave.

Indigenous Perspectives

To ensure our work reflects the diverse perspectives and issues facing Indigenous Peoples and Nations as the world transitions to a low-carbon economy, Climate Choices commissioned a set of essays written by prominent Indigenous authors. The perspectives and insights within each essay fed directly into the analysis and findings of Sink or Swim.

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