The global pandemic has heightened our awareness of the vulnerability of international supply chains to interruptions and reminded us of the value of making, growing and building the things we need within Canada. It has also reminded us of how quickly industry can repurpose its know-how and production technologies to address an urgent need. Several Canadian manufacturers have stepped up to help deliver the protective equipment needed to curb the public health crisis. From vodka distilleries retooling to produce hand sanitizer to GM Canada using its production heft to build ventilators to hat-maker Tilley providing gowns and masks for hospital employees, we are seeing the benefit of local production capacity. Add to that the thousands of food-processing plants across the country keeping food on the shelves of our grocery stores.
Canada’s manufacturers generate more than 10% of total GDP, export more than $354 billion in goods each year and employ 1.7 million Canadians. Along with all the many benefits, manufacturing also has a sizable footprint. When it comes to greenhouse gas (GHG) emissions, there are two distinct groups: general manufacturing and what we call heavy industry. The heavy industries are the energy-intensive, primary processors, sometimes called the “smokestack industries” – steel, metal smelting, pulp and paper, lime and cement, and industrial chemicals. They consume 80% of the sector’s energy and emit more than 85% of total manufacturing GHG emissions. Their energy and emissions intensities are tied to the production technologies and processes used to make useful materials from raw inputs like trees, ores and aggregates, often in high-temperature furnaces and kilns. They are economic and employment mainstays of the communities and regions where they are located, but most of them operate in global business environments and markets where innovation is driving rapid change. For them, the low-carbon path is a game changer.
The transition to a sustainable production system is proceeding on many fronts, led by a reframing that shifts the focus from commodities to services, and includes dematerialization and lightweighting, reuse and recycling, the substitution of renewable energy for fossil fuels and information for energy, the elimination of toxic by-products and pollutants, and a redoubling of efficiency everywhere. Human production systems may never equal the elegance, efficiency and circularity of the natural systems in which they are embedded, but that is the aspirational goal and that is the direction in which they were evolving when the pandemic put the world on pause.
We have become accustomed to thinking of the primary processors as being necessarily energy- and carbon-intensive, but nowhere is the drive toward cleaner production more intense than in the heavy industry group. Most of the technologies we need to dramatically reduce emissions already exist: in patents, in some engineer’s lab or already in commercial use.
For the rest of the manufacturers, from food and beverage to the auto and industrial machinery industries, energy is no less critical an input, but it is a smaller contributor to the cost of production. Particularly for light manufacturing like consumer goods manufacturing and food processing, decarbonization is possible by electrifying the energy and transportation used, which, although it requires upfront investment, is increasingly popular because of the favourable economic paybacks. This means that there are ready-made solutions available today to significantly reduce emissions, including switching from natural gas to electric heat pumps, improving process efficiency, electrifying fleets and using alternative fuels like sustainable biofuels or hydrogen where available.
A critical component of the transition to net zero will be creating a circular economy, one that designs products for durability, uses fewer raw materials and returns as much used material back into the production chain as possible. A circular economy reduces emissions and waste sent to landfill as well as pressure on natural resources. It also creates jobs and new economic activity: the International Labour Organization projects that worldwide employment would grow 0.1% by 2030 under a circular economy compared to business-as-usual, with a net creation of 18 million green jobs.
Setting Canada’s manufacturing industry on a pathway to decarbonizing as part of building back better can help meet Canada’s goal to be net zero by 2050, as well as support good jobs by enabling the manufacturing sector to weather the economic downturn while retooling for the future and, at the same time, make Canadian companies leaders in exportable low-carbon technology.
Some key steps for getting there include:
- creating jobs in the transition to a zero-waste economy by setting policy direction that sends a clear signal to business;
- accelerating the uptake of technology to switch from natural gas to electricity where it already exists and is affordable;
- using the power of government procurement to support the use of zero- and low-carbon materials and the adoption of deep decarbonization technologies for cement and steel, and reward producers for the amount of carbon reduced; and
- attracting businesses that build low-carbon equipment and technology in Canada with research and development and business supports.
Building Back Better Manufacturing:
1. Drive investment and innovation toward a circular, zero waste economy: Shifting our manufacturing and retailers to support the transition to a circular, zero-waste economy can reduce the need for raw materials, support local economic development and domestic manufacturing (including “upcycling” of materials), and reduce vulnerability to global market disruptions. It can also reduce waste that goes to landfill, reduce GHG emissions and support new jobs in the technologies to reduce, reuse and recycle products in the waste management sector, which has grown three times faster than the rest of the economy over the past two decades.
The recycling industry is currently in crisis. For the industry to work, companies need to earn a return on their investments. There is a clear role for the federal government here to help create markets for recycled material, for example by establishing mandatory recycled content in products and packaging that contain plastics. The federal government could also provide carrots in the form of financial support for new investment in circular economy initiatives in provinces that agree to better harmonize their extended producer responsibility (EPR) standards (under which producers of packaging and paper are responsible for 100% of costs) as well as Nova Scotia–style landfill bans – both of which create reliable supply for recycling firms).
While waste management is largely under provincial and municipal jurisdiction, the federal government has an important role to play in setting the policy and public procurement framework to help drive investment in the circular economy. This includes:
- setting rising standards and integrating requirements for the recycled content of plastic produced to drive demand for recycled plastic in Canada and send a clear signal to recycling firms that they will have a domestic market; this would reduce vulnerabilities to supply- and value-chain interruptions and boost domestic recycling capacity;
- delivering on the government’s commitment to ban harmful single-use plastic products while providing financial carrots for provinces to adopt a more harmonized approach to landfill bans, modelled on the approach taken in the EU; and
- making producers fully responsible for their products, including packaging, at end of life by working with provinces and territories to ensure that companies that manufacture plastic products or sell items with plastic packaging are responsible for the cost of collecting and recycling, through EPR programs, and to set increasingly aggressive targets for recycling.
2. Leverage public procurement: The steel and cement sectors produce critical materials needed to build our transit, buildings and infrastructure, and they employ tens of thousands of Canadians. As part of the pathway to net zero (which the Canadian Steel Producers Association has recently adopted as a formal goal), these sectors will need significant investments in new process technologies. But if Canadian steel and cement producers do not make these investments as soon as possible so they can begin gradually dialling down emissions, there is a risk that it will cost a lot more to move quickly later to comply with Canada’s net-zero targets.
All levels of government are significant purchasers of steel and cement for the construction of public works projects like hospitals, transit and bridges. To support the decarbonization of these sectors, Canada should follow the lead of California and Europe by adopting green public-procurement policies for construction materials. California’s “Buy Clean Act” will set standards for the maximum amount of GHGs produced by steel and other building materials used in public works projects. The European Green Deal is building on existing green public-procurement policies to drive toward the EU’s net-zero goal.
The federal government and some provinces have already taken steps to lay out guidelines for greener procurement.
The federal government can send a clear signal to the steel and cement sectors that there will be a strong market in Canada for low-carbon materials by:
- paying a premium for lower-carbon cement and steel in public projects ($100 per tonne of carbon avoided), based on an industry benchmark, that declines as the cost of adopting the technology decreases;
- adopting a policy to reward lower-carbon suppliers in its own public procurement that sets a maximum threshold for GHG intensity that declines over time; and
- requiring that comparable thresholds are phased in by provincial and municipal governments for projects that receive federal government funding.
It is estimated that a $350 million per year program in subsidies for avoided greenhouse gases could (if combined with $50 million per year for measurement and verification systems and $80 million per year in R&D support) help unlock the $3.7 billion of private capital investment per year that is required for deep decarbonization in these sectors, as well as open up potential opportunities for other low-carbon building materials. With these measures, energy economist Chris Bataille estimates that by 2030, the carbon intensity of steel and cement could be reduced by 30%, and the technology will have developed such that new facilities could be net-zero carbon by 2035.
3. Incentivize electrification of light manufacturing: Light manufacturing has been reducing its energy use over the last several years and increasing electrification. There is an opportunity to accelerate this process and reduce GHGs quickly by creating a financial incentive for facilities to convert from natural gas to electricity, making them more efficient and competitive and securing jobs. The federal government could help spur investment by the private sector in technologies like heat pumps with a time-limited investment tax credit of 50% for the purchase and installation of equipment that eliminates the use of natural gas. To attract the facilities that manufacture this equipment to Canada, such as heat pump manufacturers, the federal government could extend this investment tax incentive for new heat-pump manufacturing facilities located here.
4. Incentivize new circular, zero-waste facilities: In addition to setting the policy and procurement framework to help drive the transition to a circular, zero-waste economy, the federal government can help attract new businesses and technologies to Canada to take advantage of the market. To accelerate these new investments, the federal government could offer an investment tax incentive, similar to what was used to spur solar investment in the U.S., for businesses that want to set up in provinces that have established a policy framework that creates the right conditions for a circular economy (including the phase-in of harmonized EPR and bans along the lines of Nova Scotia, which has among the best diversion rates in the country).
Smart, dynamic policies can help us build back better by accelerating the circular economy, electrifying light industry and decarbonizing heavy industry – moves that will help us build a resilient foundation to strengthen Canada’s manufacturing sector for a thriving 21st-century low-carbon economy.
Ralph Torrie is senior associate with Sustainability Solutions Group and partner at Torrie Smith Associates.
Toby Heaps is the CEO and co-founder of Corporate Knights.
With files from Céline Bak.
Notice to reader: Please be aware some of the figures and other details in this white paper have been updated in the Final Report to reflect feedback.