Assessment and recommendations1

The Assessment and recommendations present the main findings of the Environmental Performance Review of Canada and identify 46 recommendations to help Canada make further progress towards its environmental policy objectives and international commitments. The OECD Working Party on Environmental Performance reviewed and approved the Assessment and recommendations at its meeting on 28 June 2017. Actions taken to implement selected recommendations from the 2004 Environmental Performance Review are summarised in the Annex.

  

1. Environmental performance: Trends and recent developments

Canada is the world’s second largest country by area, and the eleventh largest economy in the OECD. It is more reliant on the use of natural capital than most other OECD member countries. Fossil fuel and mineral extraction industries, agriculture, forestry and fisheries account for around 10% of gross domestic product (GDP) and 40% of exports. As one of the world’s largest energy producers, Canada has much benefited from the commodities boom in the 2000s, although the fall in oil prices since mid-2014 has slowed growth. Canadians generally enjoy a high quality of life. However, parts of the population, including many Indigenous communities, lack equal access to essential services, while being more vulnerable to environmental degradation and the effects of climate change.

Economic growth has come with increased environmental pressures. The country faces challenges associated with high energy and resource intensity, high emissions of greenhouse gases (GHGs) and pressures on biodiversity and water resources. The federal government elected in 2015 established ambitious environmental goals and injected new momentum for advancing environmental policy across the country. This includes improved collaboration with provinces and territories, which have wide responsibility for environmental policies, as well as a commitment to reconciliation and rebuilding of nation-to-nation relationships with Indigenous peoples.

Transition to a low-carbon and energy-efficient economy

Canada is the fourth largest GHG emitter and one of the most carbon-intensive economies in the OECD. While GHG emissions have been decoupled from economic growth since 2000, they decreased more slowly (-1.5%) than in the OECD as a whole (-4.7%). Emissions dropped considerably during the 2008/09 global financial crisis, but have been rising since (Figure 1). The increase was driven mainly by increasing fossil fuel consumption in transport and oil sands mining. The emissions profiles vary significantly across provinces, reflecting differences in natural resource endowments, electricity production and economic activity. Alberta, which accounts for nearly 40% of national emissions, saw its emissions surge by 18% over 2000-15, largely due to the development of oil sands. Emissions have also risen in Saskatchewan, Newfoundland and Nunavut, while they have decreased in all other provinces and territories. Energy production and consumption are responsible for about 80% of Canada’s emissions.

Figure 1. Selected environmental performance indicators

 https://doi.org/10.1787/888933565108

Canada has a target to reduce GHG emissions by 30% from 2005 levels by 2030. This is demanding in terms of reducing emissions intensity, even if it is not much more ambitious than the targets previously set under the 1997 Kyoto Protocol and the 2009 Copenhagen Accord (Figure 1). Canada will need to implement additional policies beyond those in place in November 2016 to meet its 2030 target. Until recently, Canada’s climate policy has been driven mainly by provinces, without an overarching national framework. In December 2016, Canadian First Ministers announced the Pan-Canadian Framework on Clean Growth and Climate Change (PCF) to co-ordinate and accelerate efforts to mitigate GHG emissions to meet Canada’s 2030 target (Section 4). Putting in place Canada-wide carbon pricing, a key pillar of the framework, will be essential. This will correct currently limited taxation and low prices for high-carbon energy, which have discouraged investment in renewable energy and energy efficiency. With temperatures in Canada rising nearly twice as fast as the global average since 1950, the country also needs to continue building adaptation measures to face expected challenges such as rising sea levels, and more frequent and intense weather events (ECCC, 2016b).

Fossil fuels continue to dominate Canada’s energy mix. They accounted for 74% of total primary energy supply in 2015, only marginally less than in 2000 (Figure 1). The share of renewable energy has stayed below 20%; much of Canada’s vast renewable energy potential remains untapped (IEA, 2016). CO2 emissions from energy use were therefore not significantly decoupled from energy supply, despite a welcome decline in the use of coal for electricity generation. This decline was driven mainly by the phase-out of coal-fired electricity generation in the province of Ontario. The announced phase-out of coal-fired generation in the country by 2030 and the planned establishment of a federal clean fuel standard are, however, expected to reduce CO2 emissions from energy use. Canada is also leading large-scale carbon capture and storage (CCS) pilots, whose development would help curb CO2 emissions further (Section 4).

Canada has one of the least carbon-intense electricity mixes in the OECD. Thanks to the strong role of hydro and nuclear power, about 80% of electricity comes from non-emitting sources, up from 73% in 2000. The electricity mix varies across provinces and territories, however. Quebec and Manitoba source nearly 100% of power from hydro; Ontario relies on nuclear; and fossil fuels dominate in Alberta, Nova Scotia and Saskatchewan. The growing demand for electricity was met mainly by additional nuclear and, since the late 2000s, a remarkable expansion in wind power. By the end of 2016, Canada had the eighth-largest wind power capacity in the world.

Despite progress, Canada remains one of the most energy-intensive economies in the OECD. High energy intensity reflects the country’s large heavy industry, including the extraction and processing of minerals and fossil fuels for exports. Some energy-intensive sectors have become more energy efficient (e.g. iron, steel, pulp and paper). However, this has been more than offset by rising demand from the mining and quarrying sectors, including oil and gas extraction, as well as road transport and households.

Outdoor air pollution continues to harm the health of Canadians. About 30% of Canadians live in areas where outdoor levels of fine particulate matter (PM2.5) and/or ozone exceed national air quality standards, mostly in cities in Ontario and Quebec (the most populous provinces). Emissions of PM2.5 have declined in the early 2000s and remained relatively stable since. Canada still has the highest emission level per unit of GDP in the OECD. Trans-boundary air pollution is significant. Environment and Climate Change Canada (ECCC) estimates that annual PM2.5 concentrations are strongly influenced by US sources, notably in the border regions; pollution originating in East Asia affects particulate matter and ozone concentrations on Canada’s west coast during the spring and summer season. The emission of other air pollutants has decreased since 2000 (Figure 1), reflecting the phase-out of coal in electricity generation, stricter regulations for trucks and vehicles, technological improvements in heavy industry (e.g. non-ferrous smelting and refining facilities) and closure of major smelters.

In 2012, Canada introduced the Air Quality Management System (AQMS), a national management system for air emissions and outdoor air quality. Under the AQMS, Canada strengthened national outdoor air quality standards for PM2.5 and ground-level ozone. It also set up the first-ever mandatory emissions standards that cover boilers, heaters and engines, and the cement sector. It published “codes of practice” for the aluminium and the iron, steel and ilmenite sector, and proposed a code of practice for the pulp and paper industry. No standards or codes of practice exist for some other heavily polluting sectors such as oil sands or petroleum refineries. Continued efforts are needed to manage non-point sources, including particulate matter emissions from construction operations and ammonia emissions from agriculture.

Improving resource efficiency

Canada is among the most material-intense economies in the OECD. Resources consumed per capita (measured by weight) and resources needed to generate a unit of GDP are high even compared to other resource-rich OECD economies with strong mining and construction industries. Technological and process innovation, as well as greater use of recycled materials, would help Canada improve its resource efficiency. This would also contribute to green growth objectives, including climate mitigation and growth in clean tech segments (Section 3).

Generation and treatment practices of solid waste vary widely across the country, reflecting heterogeneous goals, regulations and incentives for waste reduction and recovery. The share of waste diverted (i.e. recycled or composted) ranges from 14% in Saskatchewan to 40% in Nova Scotia. Northern communities face specific challenges with the collection and disposal of environmentally-harmful wastes, open burning and outdated disposal infrastructure. Nationally, nearly three-quarters of waste continues to be landfilled, while only one-quarter is diverted (Figure 1), significantly less than in most other OECD member countries. One of the main obstacles is the low cost of landfilling in many provinces, even in respect of material streams for which recycling technologies and markets exist (e.g. metals). The 2009 Canada-wide Action Plan for Extended Producer Responsibility was a major step forward for harmonising and accelerating the implementation of resource recovery schemes across jurisdictions. However, harmonisation of definitions and data remains a challenge. Major waste-producing sectors, such as construction and demolition waste, are not yet covered in the schemes. Initiatives such as the 2014 Shared Vision for Waste and the National Zero Waste Council aim to promote further progress in waste diversion.

Canada has significantly expanded its use of agricultural chemicals. The application of nitrogen fertilisers increased more than twice as fast as agricultural production since the early 2000s, and faster than in any other OECD member country. This has intensified pressures on water quality in the Great Lakes, Lake Winnipeg and the St. Lawrence River basin, among others. The use of pesticides has increased by about 40% over the past five years. At the same time, regulatory oversight was found to be insufficient to ensure protection of human health and the environment (OAG, 2015). The share of organic farming in Canada remains low.

Canada was one of the first countries to systematically start addressing the risks of legacy chemicals. Under the 2006 Chemicals Management Plan, some 23 000 chemicals were prioritised. Of these, 4 300 substances have been identified for further review, which the government has committed to complete by 2020. Approximately 70% of these priority substances have been assessed to date. Some 80 risk management measures have been put in place to address the effect of these substances on human health and the environment.

Managing the natural asset base

Canada’s vast territory harbours a great diversity of territorial and marine ecosystems, including about 9% of the global forest area, 25% of remaining wetlands and the world’s longest coastline. However, wetlands and grasslands continue to be lost, even if the rate of loss has slowed. Habitat loss and fragmentation, invasive species and disease, overexploitation of natural resources, pollution and climate change constitute the main pressures on Canada’s natural environment (CCRM, 2010). Canada has reiterated its commitment to conserve at least 17% of land and 10% of coastal and marine area by 2020. However, this will be challenging to achieve (Figure 1). A framework to guide the development and implementation of a terrestrial protected areas network, currently under development, will help accelerate the establishment of new areas across jurisdictions. It could also help improve the representativeness of ecosystems in the protected area network, as well as the ecological connectivity between areas. Canada has not signed the Nagoya Protocol on Access and Benefit Sharing and lacks a comprehensive system that would support its implementation.

Canada has an estimated 7% of the world’s renewable freshwater supply. However, about 60% of that renewable supply flows northward, away from the general population. Several areas along the southern border have faced a high threat to water availability. This situation will likely worsen under continuing urbanisation and climate change. Freshwater abstraction, measured per capita, remains one of the highest in the OECD, reflecting the abundance of water in some areas and water-intensive natural resource sectors (such as agriculture, mining and oil and gas development, and fossil-fuel-powered electricity generation), as well as low water prices. Only a few provinces charge for water abstraction, or have systems to re-allocate resources in times of water stress. Recent reforms have introduced fees for water permits (e.g. Quebec) and limited trading of water rights (e.g. Alberta). These could serve as examples to other jurisdictions facing water stress. Water quality is generally fair to good, but nutrient pollution from agriculture, and urban and industrial wastewater, is increasing pressures in some areas. Poor drinking water quality disproportionately affects Indigenous peoples, who have lower access to adequate water supply and sanitation (Section 5).

Recommendations on air, materials, water and biodiversity management

Air pollution

• Develop standards for all heavily polluting sectors and activities (e.g. refineries and oils sands development) under the Air Quality Management System; continue to improve knowledge of the relative health impacts and associated costs of the individual components of PM2.5 pollution to allow for more effective mitigation actions; continue efforts to manage non-point sources; continue to pursue co-operation with the United States and other countries affected by, or contributing to, transboundary air pollution.

Materials, waste management and circular economy

• Continue to develop extended producer responsibility schemes, prioritising key waste-generating sectors (e.g. from the industrial, commercial and construction sectors) and waste streams with large recycling potential (e.g. metals); ensure coherence and, where possible, harmonisation of schemes across jurisdictions, while strengthening the availability and comparability of data to monitor and track progress.

• Encourage waste prevention and recovery of materials not covered under extended producer responsibility schemes (e.g. organic waste) by: i) expanding landfill charges; ii) making greater use of waste collection charges for household waste; iii) raising awareness among citizens and businesses; and iv) considering the possibility of incentives (e.g. fiscal incentives) for recycled products to support the development of recycling markets and infrastructure; facilitate the diffusion of best practices across jurisdictions, while paying particular attention to improving waste practices in northern communities.

Water management

• Consider the introduction of water abstraction charges, in particular in watersheds where water is scarce or competition to access the resource intensifies; continue efforts to reform water allocation regimes, with a view to establish abstraction caps, define priority users and build mechanisms for effective water re-allocation in regions facing water scarcity.

Biodiversity management

• Accelerate efforts and collaboration across jurisdictions to conserve at least 17% of terrestrial areas and inland water by 2020; expand protected areas in the southern part of the country; and substantially increase the total area of marine and wetland ecosystems under protection.

• Develop and implement a national policy on access and benefit sharing of genetic resources to lay the ground for accession to the Nagoya Protocol.

2. Environmental governance and management

Institutional framework

The environment is an area of concurrent jurisdiction between the federal and provincial or territorial governments. Provinces have historically had the leading role in environmental protection, with limited responsibilities delegated to municipalities (mostly for environmental services). The federal government’s environmental authority focuses primarily on issues of national concern, such as regulation of toxic substances, cross border pollution, and protection of fisheries and marine areas; the federal government also plays a role of co-ordination and guidance. Powers between the federal and sub-national government levels often overlap with regard to particular environmental issues. Several multi-level governance mechanisms facilitate close collaboration in policy and regulatory development and implementation. These include the Canadian Council of Ministers of the Environment and issue-specific councils and working groups, as well as equivalency and administrative agreements between federal, provincial and territorial environmental authorities. Still, responsibilities overlap in several areas, including environmental assessment and water and biodiversity protection. This leads to occasional tensions between the two levels of government and may need further clarification. Improved partnerships with provincial, territorial and municipal governments are an explicit mandate of the federal Minister of the Environment and Climate Change (PMO, 2017).

The elaboration of inter-jurisdictional agreements requires substantial time and resources, and their coverage remains limited. Recent experiences of collaborative development of federal-provincial-territorial policy frameworks on climate change (Section 4) and air pollution (Section 1) have been positive. Under these frameworks, the parties jointly established minimum performance standards while leaving flexibility for provinces and territories on how to reach them. This could provide a model to address other pressing environmental issues that require significant cross-jurisdictional partnership, such as achieving the Aichi targets related to protected areas and shifting towards integrated spatial planning approaches in land-use planning. There is also a need for better standardisation of data collection and methodologies and inter-jurisdictional exchange of information to support environmental decision making at the federal and provincial levels.

The relationship with Indigenous peoples (First Nations, Inuit and Métis) is an important element of Canada’s institutional framework. There are 26 modern treaties – Comprehensive Land Claim Agreements – and 4 self-government agreements signed since 1973, covering over 40% of the country (including most of the land in the territories). They are negotiated between Indigenous peoples, the federal government, and the province or territory and implemented through legislation. These agreements provide certainty for all parties about the ownership, use and management of land and natural resources, including harvesting and sub-surface rights, resource revenue-sharing and environmental management. They have established new governance regimes that have significantly enhanced Indigenous communities’ influence over land, wildlife and resource decisions. Federal, provincial and territorial governments are working extensively with local Indigenous groups and communities.

There is improved co-ordination between the federal environment, health and other departments, particularly in the framework of Federal Sustainable Development Strategies. Provincial horizontal bodies such as the Natural Resource Board of British Columbia, Alberta’s Natural Resources Conservation Board and Quebec’s Inter-Ministerial Committee for Sustainable Development also play an important role in environmental governance. There is growing horizontal collaboration across municipalities in the provision of water supply, sanitation and waste management services.

Regulatory requirements

The federal government uses regulatory impact analysis for all regulatory proposals, including cost-benefit analysis for all significant ones. Potential environmental, economic and social impacts are all part of the scope of the analysis. Provinces and territories have similar regulatory assessment processes for proposals under their jurisdiction.

Canada has strengthened its requirements for strategic environmental assessment (SEA) at the federal level in line with a recommendation of the 2004 Environmental Performance Review. However, a recent review of selected federal departments showed that only a few of them use this instrument well. Less than a quarter of audited policy, plan and programme proposals with potentially important environmental effects underwent SEA (OAG, 2016). More needs to be done to implement SEA at the provincial level, where there are few SEA requirements.

Ex post evaluation of regulatory programmes has gained high political priority. It plays a key role in supporting the federal government’s commitment to ensuring value for money in the delivery of its policy commitments. Particular emphasis has recently been placed on measuring outcomes.

Environmental assessment (EA) is conducted by the federal, provincial and territorial governments for projects under their respective jurisdictions. The number of projects subject to EA at the federal level decreased significantly following the revision of the Canadian Environmental Assessment Act in 2012 (OAG, 2014). In 2016, the Minister of Environment and Climate Change established an Expert Panel to review federal environmental assessment processes in order to restore public confidence in the credibility of EA. In 2017, the panel recommended creation of a single authority in charge of all federal-level EA. Further, it emphasised the importance of co-operation among jurisdictions, integrating Indigenous considerations into decision making and ensuring meaningful public participation.

Several provinces have introduced integrated environmental permitting. However, this integration is mostly procedural. It does not provide for holistic management of environmental impacts through application of best available techniques. Moreover, environmental permitting in many provinces is not well integrated with EA. For example, conditions set in permits and EA decisions are often enforced separately. There are a few positive examples (e.g. in Ontario and Quebec) of simplified permitting regimes for facilities with low environmental risk.

There is no national land-use planning in Canada, and all provinces and territories have their own land-use planning systems. Provinces and territories with few inhabitants tend to centralise land-use planning. In contrast, those with a large number of inhabitants tend to delegate more power to local governments. Municipalities have low institutional capacity and lack an SEA requirement for land-use planning. This impedes systematic consideration and integration of environmental aspects into community and district plans and better assessment of cumulative environmental effects of economic activities. Indigenous peoples’ rights are a major issue in land use: plans in Indigenous communities do not have legal force, and free, prior and informed consent is not always obtained. The federal and provincial governments encourage development companies to negotiate impact-benefit agreements with Indigenous peoples to settle financial compensation, provision of jobs and eventual environmental restoration. However, companies are under no obligation to do so, the government is not a party to the agreements, and the agreements seldom result in changes to the project itself.

Compliance assurance

Both federal and several provincial environmental authorities conduct risk-based planning of environmental inspections, which takes into account the compliance record of regulated entities. Criminal penalties for environmental violations are high, can be doubled for subsequent offences and levied for each day an offence continues. However, they do not account for the economic benefit to the offender of non-compliance. The federal government, British Columbia and Quebec have recently introduced administrative fines for moderate non-compliance. This decriminalises minor offences and makes the application of sanctions more flexible. However, only limited enforcement data are disclosed to the public.

Different Canadian jurisdictions have introduced good enforcement practices with respect to sanction policies, public disclosure of enforcement records and measurement of outcomes. For example, British Columbia provides guidance to inspectors on making proportionate enforcement decisions. Several attempts to develop outcome indicators of environmental enforcement activities have not institutionalised the practice. However, they show the growing focus on performance management of compliance assurance at the federal and provincial levels.

Canada has several environmental liability regimes under federal and provincial law. Liability is strict (irrespective of fault) with respect to past pollution. It is generally applied to contaminated land, but not to damage to water bodies and ecosystems. The federal and provincial governments require financial assurance (letters of credit, trust funds, guarantees or insurance) in several sectors, including mining and energy, to make sure that polluters bear the costs of clean-up and remediation. Several provinces have established regulatory regimes for the assessment and remediation of contaminated sites. Some, such as Ontario and Alberta, have created special funds to pay for the clean-up if a financially solvent responsible party cannot be identified. The recent requirement for governments to include in their balance sheet remediation costs for contaminated sites they own is an incentive to accelerate clean-up of public lands.

Federal and provincial environmental authorities increasingly recognise the importance of compliance promotion. They use a variety of information-based tools (electronic and face-to-face dissemination of information and guidance) to reach out to enterprises, especially small and medium-sized ones, in key activity sectors as well as Indigenous communities.

In line with the 2004 EPR recommendation to continue to develop cost-effective voluntary approaches with industry, ECCC uses performance agreements that commit participating sectors or companies to specific challenges or performance levels. ECCC has signed 14 such agreements (mostly related to air quality) with different industries, including chemicals, transportation, metal processing, consumer products, forestry and printing. Three of the 14 are currently in effect. Eight of the eleven agreements completed fully achieved their objectives, while others had mixed results.

The federal and most provincial and territorial governments actively use public procurement to support green business practices. However, the government does not offer regulatory incentives (such as lower inspection frequency or reduced permit fees) to enterprises to adopt and certify environmental management systems (EMS). This contributes to the recent slowdown of EMS certifications in Canada.

Environmental democracy

Public consultation is a prominent feature of Canadian government decision making. Stakeholders and the public are consulted before federal or provincial statutes or regulations are passed and, extensively, as part of the EA process. The latest Federal Sustainable Development Strategy (Section 3) and the Pan-Canadian Framework for Clean Growth and Climate Change (Section 5) are the most recent examples of broad engagement of civil society at different levels. Outreach is accomplished through working groups with multiple stakeholders, town hall meetings and interactive websites. Special attention is given to meaningfully engage and partner with representatives of Indigenous peoples.

Consultation with Indigenous groups is an obligation of the federal, provincial and territorial governments, which has been confirmed by several decisions of the Supreme Court of Canada. In addition, formal consultation protocols provide for a participatory process for assessing the environmental implications of projects on Indigenous lands. However, Indigenous peoples often feel they have not had the opportunity to meaningfully participate in environmental decision making, and that consultation often occurs too late in the process. In 2016, Canada officially removed its objector status to the UN Declaration on the Rights of Indigenous Peoples and declared that it intends to fully implement it. However, Indigenous communities and organisations often lack capacity to meaningfully participate in consultation processes. Many conflicts with respect to specific natural resource development projects continue.

Canada has federal, provincial/territorial and municipal legislation on access to information that compels disclosure of government information to the public. There are several sources of government and private-sector environmental data, including the Canadian Environmental Sustainability Indicators website and the National Pollutant Release Inventory, as well as EA registries and enforcement databases (including through the National Energy Board). The federal government has released a number of reports on the state of the environment. However, there are challenges regarding the comparability and timeliness of published information, notably in the area of waste management.

The Canadian public has a broad right to petition the government on environmental issues and to appeal environmental permits or approvals to an administrative tribunal. In all Canadian jurisdictions, an individual or a non-governmental organisation (NGO) can take legal action against a polluter or initiate a judicial review of the government’s environmental decision. Over the last decade, there has been a significant expansion of the rights of public interest groups to demand judicial review. However, few mechanisms exist to reduce financial barriers to environmental justice (WRI, 2016).

Provincial and local governments support local environmental organisations and volunteer programmes promoting environmental education, particularly in the area of biodiversity conservation. The federal government also provides methodological support for environmental education in schools. However, many initiatives to integrate environmental and sustainability aspects into school curricula in the provinces come from civil society rather than government. About half of Canadian universities have an environmental or sustainability policy, covering both operations and educational initiatives, but the situation is uneven across sub-national jurisdictions.

Recommendations on environmental governance and management

• Enhance institutional collaboration between the federal and provincial/territorial governments to reinforce synergies and reduce duplication of environmental management responsibilities, for example by extending provincial-territorial environmental framework agreements to areas requiring better cross-jurisdictional collaboration such as biodiversity conservation, water management, environmental assessment or land-use planning; expand the involvement of municipalities in vertical policy co-ordination; improve data management to better support decision making.

• Improve implementation of SEA at the federal level and introduce SEA requirements at the provincial level; ensure its application to regional and local land-use plans to better evaluate and address cumulative environmental effects of economic activities; enhance municipal capacity for land-use planning.

• Strengthen environmental assessment at the federal level by increasing transparency of the EA procedure and starting it at the early project design phase; ensure closer integration between EA and permitting at the provincial level.

• Implement integrated environmental permitting in all sub-national jurisdictions; promote the use of best available techniques through a holistic, cross-media approach to setting permit requirements; expand the use of sector-specific standardised requirements and simplified permitting regimes for facilities with low environmental risk.

• Expand the use of administrative fines (instead of criminal penalties) for minor environmental violations; take account of economic benefit from non-compliance in determining the size of monetary penalties; develop enforcement policies with clear guidance on applying administrative and criminal sanctions proportionately to the seriousness of non-compliance; develop outcome-focused performance measurement of compliance assurance activities; ensure public disclosure of all enforcement data.

• Improve the procedure for consultation with Indigenous communities by starting engagement at the outset of the process; build their capacity to meaningfully participate in environmental decision making, particularly EA; clearly define and implement the concept of Indigenous communities’ “free, prior and informed consent” with regard to land use and natural resource management.

• Enhance the quality and timeliness of information provided to the public; expand mechanisms to offer financial support for legal costs to facilitate access to justice on environmental matters; enhance the support for environmental education in secondary schools and universities.

3. Towards green growth

Canada has strengthened its commitment to “clean” growth and begun to build a strong policy framework for its delivery. Since 2008, a Federal Sustainable Development Strategy (FSDS) is required by law every three years. The FSDS is developed under the leadership of the Minister of the Environment and Climate Change with the involvement of more than 30 federal departments and agencies. The current FSDS (2016-19) improves upon previous versions by establishing concrete goals linked to the UN Sustainable Development Goals, and by defining measurable targets and responsible ministers across multiple federal departments. The involvement of Indigenous communities is included directly in several of its goals and targets. To date, the FSDS has focused on environmental aspects of sustainable development. Planned legislative revisions will provide an opportunity to address socio-economic challenges more explicitly. Several sub-national jurisdictions have their own sustainable development strategies or green growth plans. These are not directly linked to the FSDS and vary in their approach and comprehensiveness.

The 2016 Pan-Canadian Framework for Clean Growth and Climate Change (PCF) provides Canada’s first-ever overarching plan to meet its GHG emissions reduction target in a co-ordinated manner among federal, provincial and territorial levels. In addition to advancing climate change mitigation (Section 4), the PCF aims to build resilience to climate change, as well as accelerate innovation, support clean technology and create jobs. The PCF is a promising first step in Canada’s transition towards green growth, but many components are still being put into action. Rigorous implementation, combined with mechanisms for policy evaluation and adjustment, will help ensure Canada achieves its objectives.

Greening taxes and subsidies

Canada has made significant progress on carbon pricing in recent years. Carbon taxes or cap-and-trade systems are now in place in the four most populous provinces. Most of the remaining provinces have committed to introduce carbon pricing under the umbrella of the PCF (Section 4). While this is a significant achievement for Canada, there is scope to make greater use of environmental taxes. Revenues from environmentally related taxes decreased to 1.1% of GDP in 2014, the third lowest share in the OECD (Figure 2). Raising environmental taxes provides an opportunity to lower taxes that may be a brake on growth, such as taxes on corporate and labour income. It may also help finance new public investment, for example in innovation and in infrastructure.

Figure 2. Canada has among the lowest levels of environmentally related tax revenue across the OECD

 https://doi.org/10.1787/888933565127

Energy taxation, which accounts for most environmentally related tax revenue, has not been consistent with environmental and other external costs of energy production and use. Federal excise taxes apply only to transport fuels, with low tax rates by international comparison. Energy used for purposes other than transport (e.g. for electricity generation, industrial processes, or residential and commercial heating) is taxed at the provincial level, though taxes vary in scope, level and characteristics. The combination of the narrow tax base and low tax levels placed Canada among the three OECD member countries with the lowest effective tax rate on energy use in 2012, both in terms of energy content and carbon content. This represented foregone revenue and reduces the incentive to save energy and switch to cleaner forms of energy supply. The expansion of carbon pricing under the PCF (Section 4) will, however, help the country catch up with OECD peers. It will increase the effective carbon taxation rate on CO2 from energy use and, importantly, expand its coverage to sectors other than transport.

The only tax that applies at the federal level to electricity consumption and fuels used to produce electricity is the federal value-added tax. In addition, most provinces regulate electricity prices, and generally keep them low. The phase-out of coal in Ontario seems to have contributed to an increase in electricity prices that, viewed from an international perspective, is rather small. Electricity prices in Ontario and in Canada generally remain among the lowest in the world, yet the price increase remains controversial for some. Low electricity prices act as a barrier to energy efficiency measures and renewable energy development, but governments have preferred targeted subsidies, regulated requirements or information instruments over price increases.

Canada’s transport-related taxes and charges could be adjusted to have greater influence in preserving the environment. For example, the federal excise tax on the purchase of fuel-inefficient vehicles does not apply to pickup trucks. Yet these trucks are among the best-selling vehicles in Canada and their GHG emissions have been rising continuously. The tax essentially applies only to luxury passenger vehicles, providing no incentives to purchase high-performing vehicles in other categories. As in most OECD member countries, diesel is taxed at a lower rate than petrol, despite its greater carbon content per litre and greater environmental harm from certain air pollutants. Diesel for commercial use is taxed at an even lower rate (IEA, 2017). Most governments do not link vehicles’ emissions or fuel economy performance with their vehicle registration charge. There is thus no incentive to opt for a more environmentally-friendly vehicle. Some cities and provinces have introduced limited congestion and road pricing. In other jurisdictions, such as Ontario, legislation and policy have prevented their introduction. Canada’s transport-related taxes and charges are due for review, considering new developments in carbon pricing, the proposed federal clean fuel standards and possible changes in US vehicle standards.

Some progress has been made in pricing water use, generation and disposal of waste, and water and air pollution. Some cities have shifted towards volume-based and full cost-recovery pricing in urban water supply and some regions facing water scarcity have introduced water trading (e.g. southern Alberta). Ontario and Alberta have long used cap-and-trade systems to manage NOx and SOx emissions, while Quebec has introduced some water pollution taxes. However, for the most part, Canada relies on regulation to address air and water pollution. Canadian governments should more rigorously consider the use of economic instruments as a lower-cost alternative to regulation.

Canada has made progress in reducing environmentally harmful subsidies, but more work remains at the provincial level. Between 2005 and 2014, fossil fuel support was reduced by almost half. This was in part due to the removal of Ontario’s sales-tax exemptions for energy products. The reduction was also influenced by federal reforms relating to the treatment of certain capital expenses for oil sands and coal mining. Yet, according to the OECD Inventory of Support Measures for Fossil Fuels, some CAD 3 billion in fossil fuel support per year remains. The bulk of this support stems from provincial and territorial measures (such as royalty reductions, tax credits for drilling and tax exemptions for fuel use in farming and fishing). To make further progress, sub-national governments will need to be brought into discussions on reducing fossil fuel subsidies. Public revenue from royalties and land sales from the oil and gas sector continues to come mainly from conventional oil and gas development, even though oil sands production now exceeds conventional production. Subsidies to agriculture have been reduced to levels that are among the lowest in the OECD (measured as percentage of gross farm receipts). However, 70% of remaining support is in the form of price support. This risks encouraging production and increasing associated GHG emissions and pressures on water and biodiversity.

Expenditure and investment

Canada does not systematically track public environmental expenditure across jurisdictions and ministries. Business environmental expenditure seems to have increased in most recent years. Most of these expenditures focus on pollution control within the oil and gas, and mining and quarrying sectors.

Investment needs for infrastructure are large. An estimated 30% of municipal infrastructure, a sector that represents 57% of Canada’s core public infrastructure, is in fair or poor condition; an estimated CAD 141 billion is needed to replace infrastructure in poor condition (FCM, 2016). Some of the biggest gaps include environment-related infrastructure, such as public transit, buildings and wastewater. The federal government has recently embarked on a major initiative to support provincial and municipal investments in infrastructure, including for public transit and green infrastructure. To ensure highest value for money, Canada would benefit from pursuing a more strategic approach to project selection than it has used in the past. Specifically, it could consider objectives and priorities in an integrated manner rather than slotting projects into distinct envelopes of funding. In addition, clearer guidance on project approval and design criteria across all infrastructure projects could help ensure that any investment is climate-resilient and contributes to Canada’s low-carbon and clean growth vision. A May 2017 announcement by the Minister of Infrastructure and Communities makes progress in this regard. Local, provincial and territorial governments must now apply a “green lens” to proposed infrastructure projects before they can be approved for federal funding. An emphasis would be put on GHG reductions and climate resilience to reduce the cost of disasters on communities.

Public-private partnerships have been used increasingly over the past decade, notably in the water, wastewater and solid waste management sector. The federal government is seeking additional opportunities to leverage private sector investment. Some institutions are using green bonds, including Canada’s export credit provider and the governments of Ontario and Quebec. The recently announced Infrastructure Bank could play a role in co‐ordinating and consolidating green bond initiatives across the country, for example by establishing common standards and definitions, and encouraging a larger pool of bankable projects.

Eco-innovation, green markets and employment

Canada’s innovation environment has some strong elements, with a good skills foundation, high-quality university-centred research and a generous tax regime for research and development (R&D). However, the level of public investment in R&D, measured as a share of GDP, is relatively low. Indeed, it has been declining since 2000. In line with recommendations from the OECD, as well as Canada’s own innovation task force, the federal government has begun to shift away from the use of R&D tax credits towards competitive and transparent grants better suited to the needs of young firms. A relatively large share of public R&D expenditure targets the energy sector (8% of total R&D budget). This reflects large investment in oil sands, but also in environmental management improvements (e.g. water reuse) and carbon capture and storage (CCS). About 4% of total public R&D outlays target the environment, in line with the OECD average. However, the share of energy-related R&D supporting renewable energy and energy efficiency is among the lowest in the OECD. Environmentally related patent applications have increased since 2000, albeit at a significantly slower pace than in leading OECD member countries. On a per capita basis, Canada files far fewer green patents than leading OECD member countries.

The lack of domestic demand and markets for clean technologies and solutions has been reported as a major barrier to eco-innovation in Canada. The country’s share of the global clean technology market fell between 2005 and 2014. However, green markets seem substantial, with Statistics Canada estimating revenues from environmental goods and services at CAD 4.1 billion in 2012. Other sources, which include revenues from small and medium-sized enterprises (SMEs), estimate revenues from Canada’s clean technology industry at CAD 13.3 billion in 2015, exports of CAD 6.7 billion and employment of 55 200 (AA, 2017). The federal government committed to improve national statistics on the sector by including a broader range of technologies and a clear definition of Canada’s clean technology sector. It also plans to establish a baseline in order to track the contribution of the sector to GDP and employment.

The recently announced federal Innovation and Skills Plan includes clean technology and clean resources as two of the six areas of focus. In addition, the government has committed to double investments in clean energy research, development and demonstration (RD&D) by 2020 from 2015 levels under Mission Innovation. These intentions are most welcome as a number of Canadian sectors need accelerated innovation to achieve green growth. The 2017 federal budget further proposed CAD 1.4 billion in new equity financing, working capital, and project financing to support clean technology. In the area of CCS, Canada has been an early leader: it developed two major pilot projects through demonstration funding and R&D supported by both federal and provincial governments. To ensure the effectiveness of new funding, the federal government has proposed establishing the Clean Growth Hub to streamline innovation support mechanisms across organisations and support a new Innovation Canada single-window platform. A PCF federal-provincial-territorial working group will also support co-ordination and implementation of clean technology commitments across Canada. A greater role for the private sector in eco-innovation should be encouraged. This is particularly the case in sectors where the carbon price will be insufficient to induce the near-term innovation needed to achieve long-term environmental objectives. Some positive examples of collaboration to tackle eco-innovation challenges include the Canadian Oil Sands Innovation Alliance (COSIA) and the Bio-pathways Partnership Network for Canada’s forestry sector. These could serve as models for collaborative approaches in other sectors of the economy.

Strengthened environmental policy instruments, such as carbon pricing, the development of green procurement, greening government operations and eco-labelling initiatives will help increase domestic demand for eco-innovation and environmental goods and services. Energy efficiency regulations and minimum standards are also important tools to foster eco-innovation. With Canada part of the large, integrated, North American energy market, there are economic opportunities from market-wide standards for clean technologies and products.

Distribution issues and competitiveness impact of the green growth transition

Electricity and petrol prices are relatively low compared to other OECD member countries. However, if not adequately addressed, concerns about the impacts of green growth policies on these prices, as well as on business competitiveness, could derail ambitious environmental plans. Most provincial carbon pricing policies are building mechanisms to minimise impacts on vulnerable households and businesses. Some, for example, recycle carbon pricing revenues and/or develop complementary or alternative measures for certain emitters. Care must be taken that any support measure preserves the price signal that encourages more environmentally beneficial choices and behaviour to the greatest extent possible. While targeted adjustments to green growth policies for businesses may be justified in some cases (for example, for emissions-intensive trade-exposed industries for which no effective abatement technologies are available), such protective measures should be gradually phased out.

Canadians also have opportunities to better capture the benefits of a green growth transition. Until recently, Canada has not linked green skills needs with its broader skills policy agenda. The new Innovation and Skills Plan, however, offers an opportunity to better incorporate analysis of the green skills needs across skilled trades and academic disciplines. The green growth transition also has potential to reduce the vulnerability of Indigenous peoples to environmental impacts, such as climate change and poor water quality. At the same time, the transition could help them capture employment opportunities in areas such as renewable energy or protected area expansion.

The international dimension of green growth: Multilateral efforts, trade and development co-operation

Canada’s withdrawal from the Kyoto Protocol in 2011 and the UN Convention to Combat Desertification in 2013 left it open to international criticism. However, the government elected in 2015 has injected new energy into international engagement on the environment. Canada re-joined the UN Convention to Combat Desertification and ratified the Paris Agreement on climate change. It is also engaged in a number of other international partnerships, including the Climate and Clean Air Coalition, the Arctic Council Expert Group on Black Carbon and Methane, the Global Methane Initiative, the Convention on Long-range Transboundary Air Pollution and the Carbon Pricing Leadership Coalition. While the United States’ decision not to implement the Canada-US commitment to reduce methane emissions from the oil and gas sector is a setback, Canada should continue to press forward, pursuing the most cost-effective approaches possible along with measures to mitigate competitiveness concerns.

Canada has increased the proportion of official development assistance (ODA) that is environmentally-related from 6% in 2007-08 to more than 31% in 2013-14. In part, the increase reflects commitments within the international climate change negotiations. Canada assesses all of its development assistance activities for potential environmental sustainability risks and opportunities, particularly in relation to climate change, land degradation, access to clean water and sanitation, and urbanisation. It is also among the OECD leaders in incorporating environmental considerations and obligations in its free trade agreements. Canada is one of the few OECD member countries to enact legislation that makes it obligatory to assess potential environmental impacts of trade agreements. Canada has signed a number of agreements on the environment and established environmental co-operation mechanisms with various countries. The Canada and European Union Comprehensive Economic and Trade Agreement, for example, includes a trade and environment chapter.

Recommendations on green growth

Policy frameworks to support green growth

• Ensure effective and timely implementation of the Federal Sustainable Development Strategy and the Pan-Canadian Framework on Clean Growth and Climate Change, combined with mechanisms for policy evaluation and adjustment, while more explicitly addressing the social component of sustainable development; ensure that sectoral policies, notably energy policies, are well aligned with both frameworks.

Green taxes and other market-based instruments

• Resist pressure to halt or alter carbon pricing plans due to competitiveness concerns, instead focusing on measures to mitigate those concerns through policy design, revenue recycling and programming targeted at vulnerable sectors; include carbon pricing impacts on businesses, work forces and households in commissioned expert assessments.

• Review the taxation of energy use, taking into account the gradual roll-out of nation-wide carbon pricing, and adjust as necessary to ensure that energy prices adequately reflect the societal costs of GHG and air pollutant emissions; gradually reduce the petrol-diesel gap and increase diesel taxes for commercial and residential use; reform the tax on fuel-inefficient vehicles to optimise incentives for the purchase of lower emission vehicles across all categories.

• Continue to review and adjust tax, royalty and subsidy regimes that encourage fossil fuel production in order to meet Canada’s commitment to rationalise and phase-out inefficient fossil fuel subsidies that encourage wasteful consumption by 2025; provincial governments in particular need to make further progress; ensure that Crown royalty and land sale payments are not more favourable for unconventional development than for conventional.

Investing in environmental infrastructure and services

• Pursue a more strategic approach to project selection for infrastructure investment and develop priority lists for infrastructure projects that deliver multiple objectives in partnership between the federal government and provinces, territories and municipalities; ensure cost-benefit analysis of infrastructure projects consider environmental externalities, such as GHG emissions; use the Canada Infrastructure Bank to ensure greater co-ordination and standardisation in green bonds and other tools aimed at leveraging private sector investment in environmental infrastructure.

Promoting eco-innovation and green markets

• Provide stable and higher public investment in R&D; shift away from indirect tax credits towards competitive and transparent grants; ensure that energy-related R&D focuses on reducing and mitigating environmental impacts from fossil fuel activities, rather than encouraging increased oil and gas production; ensure innovation programming extends to renewable energy and energy efficiency and the circular economy.

• Foster domestic demand for clean technology and eco-innovations through public procurement, fiscal incentives and information sharing; improve federal-provincial-territorial collaboration to improve access to financing for Canadian clean technology firms; encourage a greater private sector role in research, development and technology adoption.

The social consequences of the transition towards green growth

• Ensure that measures to mitigate the distributional impacts of green growth policies preserve the price signal reflecting negative externalities and are narrowly targeted towards vulnerable households.

• Position Canadians to capture the benefits of green growth by better integrating green skills needs into existing and new skills and training policies, addressing both skilled trades and academic disciplines.

• Fulfil commitments to Indigenous communities to work with them to reduce their vulnerability to climate change and poor water quality, while supporting and encouraging efforts to capture income and job opportunities for them from green growth in areas such as renewable energy and protected area management.

The international dimension of green growth: Environment, trade and development

• Maintain Canada’s engagement in international environmental agreements and expand environmentally related development assistance, while pursuing new agreements and partnerships as part of trade agreements with the aim of promoting a level playing field for business, expanding knowledge-sharing and improving environmental outcomes.

4. Climate change mitigation in electricity generation and transport

Ten years after the last Environmental Performance Review, Canada’s total GHG emissions are almost 20% above the 1990 level and have fallen back only slightly compared with the 2005 level. Two large provinces (Ontario and Quebec) and some of the smaller provinces and territories have reduced their emissions compared to the 1990 level, but others did not. Emissions in electricity generation have been cut quite significantly. However, they grew substantially in domestic transport and in the oil and gas extraction industry – the two largest emitting sectors in absolute terms (Figure 3).

Figure 3. GHG emissions from transport and oil sands kept rising

 https://doi.org/10.1787/888933565146

While Canada did not develop an explicit nation-wide mitigation strategy, several provinces moved ahead with ambitious climate policies, including various schemes of carbon pricing. British Columbia has a carbon tax; Quebec has a joint cap-and-trade system with California that Ontario, which launched a cap-and-trade programme in 2017, is planning to join in 2018; and Alberta has a hybrid system that involves emission intensity targets for major emitters, with offset trading between under- and over-performers, combined with a carbon levy elsewhere in the economy. The cost of emissions varied between CAD 18-30 per tonne of CO2 in early 2017. This is low compared with what is needed to get near the 2°C target. Nevertheless, it is higher than in most of the carbon pricing or trading systems in the rest of the world. Several additional measures have been introduced at the provincial level, including incentives and regulations targeting specific activities and sectors.

Mitigation under the Pan-Canadian Framework for Clean Growth and Climate Change

The Pan-Canadian Framework for Clean Growth and Climate Change (PCF) is a well thought-out strategy. It aims to ensure that all jurisdictions in Canada are striving for GHG emission reductions that are consistent with the national target, building on progress that different provinces and territories have already made. A key component is the introduction of pan-Canadian carbon pricing. Complementary measures include the phase-out of coal-fired electricity production and the development of clean fuel standards for fuels used in transport, industry and building. While the PCF target leaves Canada’s emissions not much below previous commitments (Figure 1), it remains ambitious given the country’s current and foreseeable emissions profile. The target implies that Canada needs to achieve drastic reductions between 2030 and 2050 to be consistent with the internationally agreed objective to keep global warming within 2°C. Canada’s Mid-Century Long-Term Low-Greenhouse Gas Development Strategy, issued in 2016 as a discussion document, outlines an emissions pathway involving emissions 80% below the 2005 level by 2050, which implies a cut between 2030-50 nearly twice that planned for 2014-30.

Successful implementation of Canada-wide carbon pricing will be key for the country to meet its climate objectives. The PCF sets a federal “benchmark” carbon price of CAD 10 per tonne of CO2eq in 2018 with a commitment for it to rise to CAD 50 per tonne by 2022. Special conditions may apply for emissions-intensive, trade-exposed industries to address competitiveness concerns. For jurisdictions with cap-and-trade regimes, it requires a decline of annual caps that corresponds with projected emission reductions from the carbon price in price-based systems (e.g. a carbon tax). If provinces and territories do not meet the benchmark or choose to not introduce their own carbon pricing regime, the federal government will introduce a federal carbon pricing system with revenues returned to the jurisdiction. All jurisdictions have signed on to the PCF except Manitoba and Saskatchewan. Saskatchewan has threatened to take the federal government to court if it imposes carbon pricing in the province.

By setting a federal (minimum) level of ambition while leaving provinces flexibility for implementation of their carbon pricing policies, the PCF accommodates existing systems. It also provides latitude for considerable policy experimentation. Practical implementation will, however, be a huge challenge. Much work will be needed to understand how the benchmark carbon price will apply in Alberta’s hybrid system or Quebec and Ontario’s cap-and-trade system, while ensuring some sort of level playing field from a competitiveness perspective. Indeed, there are differences in the coverage and price levels, and of policy effectiveness, across jurisdictions. These may eventually create frictions and pressures for eventual convergence of the different pricing systems to reduce costs, improve efficiency and address business competitiveness concerns. The linkage of the Quebec-Ontario-California cap-and-trade system presents another challenge. No agreement has yet been reached at the national level as to whether emissions reductions (compliance units) in California purchased by Quebec, for example, would count towards Canada’s Paris Agreement mitigation target.

An initial step towards “convergence” of carbon pricing could be to link existing systems through a common offset scheme. An emitter in one jurisdiction, for example, could acquire offset credits from projects not covered by trading or carbon tax systems in other jurisdictions. Emitters in carbon tax jurisdictions could use the offsets to reduce their calculated emissions for tax payment. Offset provisions already exist in jurisdictions with pricing regimes. However, regimes in Alberta and British Columbia have been developed independently. As a result, they use different offset protocols and approaches to verification and monitoring than Quebec and what is being proposed in Ontario. A common offset scheme would need to ensure that the credits are additional, verifiable, permanent, measurable and enforceable. Such a step would allow for arbitrage across systems, lowering the overall cost of any given level of national emission reduction.

Establishing a clear commitment to, and a timeline for, an increasing carbon price (and steady tightening in cap-and-trade systems) after 2022 will be crucial to reduce uncertainty for investors and project developers, and to induce a change of behaviour as soon as possible. The announcement in advance that the price will rise to CAD 50 in 2022 is welcome; not many countries have yet made such a step. Notwithstanding, it remains very low compared with current abatement costs and Canada will need to go further. Similarly, coverage of carbon pricing systems should gradually increase. Under current plans, the carbon price would apply to between 70-80% of total emissions. This is a higher share than under the European Union Emissions Trading System, for example. However, the long-term ambition should be to ensure no significant emitters are exempt and that its coverage is as wide as possible. Various grandfathering or free allowance provisions (used, for example, in Quebec and Alberta) can be important when pricing is first introduced, both to give firms time to adjust and to gain acceptance. However, they will need to be phased out in the longer term.

Canada should establish a strong accountability mechanism that would allow for tracking and comparing progress across provinces. A “feedback rule” could be adopted, determining the path for the backstop carbon price by a commitment to accelerate price increases if it becomes clear that Canada’s emissions are not falling as intended. This would mimic one useful property of cap-and-trade systems without being rigidly bound to specific targets. A feedback rule could also be applied to policies other than carbon pricing, for example by pre-announcing that regulations will be tightened (or relaxed) as a function of the current and expected path of GHG emissions. The assessment whether existing policies are likely to lead to intended outcomes, and whether, a priori, overall tightening is needed to keep GHG emissions on track, should be conducted by an independent body. The process should build on monitoring and evaluations mechanisms and institutions already in place. Reports of the Auditor General of Canada, such as those on progress in implementing Federal Sustainable Development Strategies, could serve as a possible model. Such assessments could also review the effectiveness and efficiency of the policy mix, which may change as the carbon price enters into effect or increases.

Energy and climate objectives will need to be balanced, and their respective policies better integrated. For example, the Canadian Energy Strategy, which the premiers of Canada’s provinces and territories agreed on in 2015, does not integrate effectively the implications of decisive action on GHG mitigation on the energy production sector in Canada. New oil pipelines are planned to connect Alberta’s oil sands to the United States and Canada’s Pacific harbours. These will likely create production and export capacity inconsistent with Alberta’s recently announced cap on GHG emissions of 100 million tonnes from oil sands, or Canada’s national mitigation goal more broadly. The federal government aims to reduce methane emissions from energy production by 40-45% below 2012 levels by 2025. This objective would benefit from tighter regulatory environment to better address venting and flaring and ensure data transparency. Recent research suggests that methane emissions from the oil and gas industry are significantly higher than previously thought, reflecting inappropriate technology or poorly maintained or monitored devices (Pembina Institute, 2015; Environmental Defence Canada, 2017). The Canadian Energy Strategy needs updating to clarify the energy sector’s contribution to the transition to a low-carbon economy. It should also take into account Canada’s large potential to improve energy efficiency in buildings, heating and electricity retail. The PCF includes a number of proposals for action in this area.

Finally, evaluation of any policy, programme or major investment project should take into account its impact on GHG emissions. This would improve consistency across the range of public policies and projects. One way of achieving this is to introduce GHG emissions, valued at the overall carbon price (and taking into account its likely increase through time), into impact and cost-benefit analyses. Most fossil fuel subsidies, for example, would be unlikely to survive such a test. Policies to reduce methane and other non-CO2 gases, where direct pricing seems impracticable, can be assessed with a carbon-equivalent price set on their impact on emissions.

Mitigation in electricity generation

Canada’s electricity generation is among the least carbon-intensive in the OECD and the sector contributes to a rather small share of national GHG emissions (11% in 2015). However, around 40% of emissions reduction in 1999-2016 came from measures related to electricity generation (ECCC, 2016c). The PCF identifies several measures to achieve further emission reductions. These include increasing the amount of electricity generated from renewable and low-emitting sources; connecting clean power with places that need it; modernising electricity systems; and working with Indigenous peoples and northern and remote communities to reduce their reliance on diesel. A number of governments have also implemented relevant policies, including renewable portfolio standards. Some are moving towards large competitive procurement to deploy more renewables.

The demand for electricity will rise substantially up to 2050 as fossil-fuel use in transport, homes and industry declines. Improving energy efficiency and using Canada’s vast untapped renewable energy potential can play a vital role in meeting future demand, while advancing decarbonisation of the power sector and maintaining affordable energy prices. However, low electricity prices (Section 3) have acted as a barrier to both energy efficiency measures and renewable energy development. Canada’s low energy prices are a key competitive advantage. However, they should be based on genuine resource availability, not under-pricing of externalities, implicit subsidies or skimping on infrastructure maintenance and investment. In addition to well-aligning prices to costs, “nudging” policies can help consumers make good decisions, especially for long-lived items like home heating, insulation and many appliances. Canada’s energy labelling schemes help in this way. Research into their effects and of other measures such as smart home meters can enhance their effectiveness.

Additional generation capacity required to meet future demand needs to be developed in ways that minimise environmental costs, while ensuring reliable energy supplies across the country at reasonable cost. Expanding generation from natural gas, wind and hydro power are all plausible candidates at the moment. Other emerging sources of generation could also be deployed, including geothermal and offshore marine renewable energy (e.g. wind and tidal). Coal-fired generation could also remain economical for longer than expected if carbon capture and storage (CCS) technology can be sufficiently effective. Canada hosts two of the world’s first large-scale CCS facilities, including the Boundary Dam power station in Saskatchewan. These projects should be used to gain knowledge on the economic costs and environmental results of the technology, and assess its potential future role.

The balance between the location of demand for electricity and of its supply will shift; good sites for new hydro-generation and wind will not always be found close to where the energy is needed. This will require substantial investment in transmission infrastructure. Provinces such as Alberta and Saskatchewan, which have been self-sufficient in energy, may find themselves net importers of hydro. Infrastructure investments through the PCF are intended to support transmission investments. These will be identified by provinces and territories through a consultation process led by the federal government, which is currently underway. Wind and solar photovoltaic power require investment of a different sort – in storage or backup facilities to cope with the inherent variability of these sources, smart grids and demand management.

Realistic costing of the different options, including full pricing of GHG emissions and associated investment in infrastructure, is necessary. Direct subsidies for renewables may eventually become redundant with GHG pricing in place (especially if under a cap-and-trade system). However, contract design may need to be adapted if wind or solar grow substantially: a large share of capacity with low marginal cost, but high capital costs and intermittent availability, changes the economics of supply. Payment for capacity availability, as well as electricity actually delivered, is needed, along with clear information on future regulation (including the price of carbon).

Wind and hydroelectricity technologies are both well-developed in North America. They do not face any particular barriers to investment that other technologies do not also face. If, for example, subsidies are used because of other (non-GHG) benefits from renewable generation, they can be designed to minimise costs rather than guarantee returns or prices. One example is through reverse auctions (or bid-to-supply), like the recently announced competitive process in Alberta. Transparency in the whole process should help the public understand the issues and help them see why some increases in electricity prices are likely and necessary.

Mitigation in the transport sector

Introducing effective policies faces particular challenges in Canada, where geography and historically low energy prices have led to a spatial structure heavily dependent on transport. Dispersed settlement patterns and low density urban structure make passenger transport a necessity rather than a luxury. They also render the use of some measures, such as increased public transport, more difficult or costly. A key consideration is the integration of the Canadian and US markets in vehicles and transport services. This constrains Canada’s ability to run different policies from the United States as regards vehicle regulations and fuel taxation, for example.

Emissions from transport accounts for about one-quarter of Canada’s GHG emissions, and three-quarters of this comes from road transport. The rate of increase from transport emissions has slowed as a result of various federal and provincial policies. These include federal GHG emission regulations for new on-road vehicles, provincial and federal renewable fuel standards, and investments in public transit infrastructure. However, emissions from transport have continued to grow since 2000.

Further GHG emission reductions could be achieved by expanding the use of natural gas and biofuels for freight and passenger transport, increasing the penetration of zero-emission vehicles in urban areas and by progressively shifting public transport towards more efficient modes (e.g. bus and rail). The PCF includes plans for federal-provincial-territorial collaboration to make progress in all of these areas. Over time it will be important to identify which of these policies are the more cost-effective. Care should be taken to identify and address interactions between different instruments, such as between a rising carbon price and tighter emissions regulations. Policy measures should be well-focused on desired outcomes, taking into account other externalities, such as air pollution, congestion and accidents.

Canada offers strong monetary and non-monetary incentives for zero-emission vehicles. Manufacturers are able to give additional weight to battery electric, plug-in hybrid and natural gas vehicles when calculating compliance with fleet average emission standards. The provinces of Ontario, Quebec and British Columbia also provide financial incentives to encourage citizens to purchase electric vehicles. Such incentives help get new technologies off the ground. The advantageous treatment of electric and natural gas vehicles when calculating compliance with fleet average emission standards will be reduced over the next few years. Provincial purchase incentives are regularly reviewed and revised by the respective governments. This is a good practice given the risk of excessive costs. Different strategies are likely required for commercial freight and public transport vehicles from those required for personal transport.

In a competitive commercial sector, incentives through fuel costs are likely to be effective. Strong vehicle standards are important to enhance the impact of pricing. In the rail and aviation industries, fuel costs amount to around a quarter of total operating costs, similar to labour costs. Saving 10% on fuel costs may increase profits by a similar percentage. Companies operating in a competitive market are likely to react much more strongly to this incentive than private car owners. Voluntary agreements between industry associations and the government have contributed to significant improvements in fuel efficiency in the rail and aviation industries. For public passenger transport, where competition may be limited, decisions on infrastructure investment and service provision need to be based on cost-benefit analysis. They must also be integrated into spatial planning decisions.

Recommendations on climate change mitigation

Recommendations on general climate change policy

• Develop an institutional mechanism for monitoring and evaluating the implementation of climate change policy under the PCF and their contribution to meeting GHG emission targets; consider introducing mechanisms for adjusting policies over time in order to meet policy goals. One possibility is to give responsibility to the Office of the Auditor General of Canada, in collaboration with provincial audit offices.

• Implement carbon pricing in all jurisdictions; ensure that exemptions or other measures to smooth the transition for businesses are temporary and limited to emissions-intensive trade-exposed industries with limited effective abatement options; work towards increasing the share of emissions covered by a carbon price and plan for progressive tightening; identify and address interactions of carbon pricing and complementary regulations, both at the federal and provincial/territorial level.

• Promote co-ordination of sub-national climate policies and schemes and encourage linking between sub-national pricing systems, even if only at the sector level; consider the introduction of an inter-jurisdiction offset scheme to help meet nation-wide targets more efficiently. Such work could provide a foundation for a possible future transition to a full national cap-and-trade or carbon taxation system.

• Ensure that energy policy is aligned with climate change policy and other environmental goals, including with respect to future energy supplies (especially the role of renewables), grid interconnections across Canada, and demand management through pricing and energy efficiency standards; swiftly implement available energy efficiency measures and phase out fossil fuel subsidies; tighten the target and implement regulation to reduce methane emissions from energy production without further postponement, possibly aligning regulation to the tightest of regulations already in place in some US states, and improve monitoring and enforcement.

• Encourage use of the implied GHG price time path as a shadow price in policy and project evaluations, throughout government and public agencies.

• Design public education and information campaigns to enhance transparency and gain acceptance of policies and promote public support; monitor the impact of climate policy on vulnerable groups of society, ensuring that general policies for income support and welfare are well adapted to the possible impacts of climate change policies on income and employment, and that they cover all sections of the population including Indigenous peoples.

Recommendations on electricity generation

• Prioritise the elimination of fossil fuels while tapping into Canada’s vast renewable energy potential; review and adjust specific support schemes for renewable energy to the trends in technology cost and carbon pricing. Where incentives beyond carbon pricing are needed, use market-based mechanisms such as reverse auctions for capacity to look for low-cost solutions.

• Ensure electricity pricing reflects full economic and environmental costs; complement pricing with information programmes like Energy Star, experimenting with other “nudging” measures to help consumers make effective use of information.

• Encourage the sharing of best practice of leading carbon capture projects across Canada based on assessments of cost and performance, including the facility at Boundary Dam in the power segment; follow through on inter-jurisdictional consultation to expand grid inter-connections to make better use of the potential for hydro storage to complement the increased variability of growing generating capacity for renewable energy.

Recommendations on transport

• Continue to drive the decarbonisation of transport by ensuring that environmental externalities from fossil fuel use are adequately priced, either through carbon pricing schemes or direct fuel taxation; encourage the increased use of renewable fuels, electrification of transport, use of natural gas, and mode switching, including by additional vehicle and fuel taxation measures, as well as regulation.

• Continue to promote the provision of information on vehicle fuel economy and GHG emissions, including by making the EnerGuide labelling system obligatory; ensure the labelling is based on independently verified information, and laboratory testing benchmarks are monitored to ensure they are representative of performance under real-life driving conditions.

• Promote road charging, congestion charging, parking policy and other measures that both reduce the use of private transport and associated GHG emissions, and other environmental externalities; build on the Smart Cities programme to highlight and disseminate good or innovative practices; design land use and spatial planning policies to enable future low-carbon cities.

• Continue to enable the deployment of charging and refuelling infrastructure for low- or zero-emission vehicles, including by sharing information and lessons learned from pioneering municipalities, provinces and federal programmes to accelerate learning; and encourage standardisation and technology-neutral facilities to the extent possible.

• Benchmark and reduce energy use in the freight sector; encourage modal shifts in the freight sector, such as increasing the use of rail or water transport in place of long-distance heavy trucks; and encourage the development of associated infrastructure, but with appropriate cost-benefit analysis as a condition attached to public financing.

5. Urban wastewater management

Even though clean freshwater is abundant in Canada, resources are under pressure on various fronts. Competition to access the resource intensifies in densely populated areas, while urbanisation and agricultural activity put pressure on water quality. At the same time, climate change strains existing institutions (e.g. water allocation regimes) and infrastructure (e.g. for rainwater collection and treatment). Effluent from urban wastewater systems represents one of the largest sources of pollution by volume into Canadian waters, affecting aquatic ecosystems and water bodies.

Canadians generally benefit from reliable access to, and good performance of, wastewater treatment. However, a relatively large share of the population still relies on primary wastewater treatment, while a relatively small share is serviced by advanced tertiary treatment (Figure 4). The performance of treatment facilities remains limited or poor in some areas, including large metropolitan centres like Vancouver and Montreal. Adaptation of urban wastewater management to climate change is slow across the country. Only 16% of Canadian municipalities had formally factored climate change into wastewater management in 2016.

Figure 4. Many Canadians rely on primary wastewater treatment

 https://doi.org/10.1787/888933565165

In Indigenous and northern communities, wastewater treatment often relies on ecosystem services, such as those supplied by lagoons, which discharge treated effluent into designated natural receivers. Sustained financial support from the federal government helped improve access of Indigenous communities to modern wastewater treatment systems. Still, more than half of wastewater systems in Indigenous communities are considered medium overall risk and 3% are considered high risk.

The impact of urban wastewater on water quality is not known with accuracy. Detailed assessments are not compiled at federal level. Monitoring varies across provinces, which partly reflects the size and diversity of the country, and the specificities of local situations. It makes a coherent assessment of the situation and prioritisation of responses cumbersome. New contaminants emerge as an issue of concern and may require more systematic action to build adequate monitoring and management capacity.

New federal regulation has strengthened the policy framework, yet implementation is slow

Over the last decade, the development of a national strategy and federal wastewater effluent quality standards has strengthened the policy framework for urban wastewater management. Provincial and territorial governments have primary responsibility for the management of wastewater treatment. Policy objectives, regulatory frameworks and instruments therefore vary widely across the country. The Canada-wide Strategy for the Management of Municipal Wastewater Effluent, endorsed by Environment Ministers in 2009, set out a harmonised framework for this issue.

Under the framework of the strategy, the federal government adopted Canada’s first-ever national regulation on wastewater treatment, the Wastewater Systems Effluent Regulations (WSER). These regulations, established under the Fisheries Act in 2012, require wastewater systems to meet effluent quality standards equivalent to secondary level of treatment. While the WSER have strengthened the policy framework, the adoption of the standard has been slow in some jurisdictions. Further, the WSER have created some duplication and misalignments with existing provincial and territorial regulation, creating regulatory uncertainty. The review of how provincial regulations align with the new federal standard is time-consuming and progressing only slowly. This impacts the establishment of bilateral agreements between federal and sub-national jurisdictions to reduce administrative burden and set out procedures for co-operation between federal, provincial and territorial regulators. To date, agreements have been established with New Brunswick (2014), Yukon (2014) and Saskatchewan (2015); a draft agreement with Quebec was published in 2015, but has yet to be finalised; and discussions are underway with British Columbia.

The WSER do not apply to parts of the country (Northwest Territories, Nunavut and north of the 54th parallel in Quebec or Newfoundland and Labrador), as well as provinces and territories with equivalency agreements. Neither do they apply to smaller systems (with average daily volumes below 100 m3). Absence of adequate regulation impairs the efficiency of policies and the improvement of wastewater management and water quality.

In addition to the strategy and new regulation, specific actions target selected lakes and rivers (e.g. Lake Winnipeg basin, Canadian Great Lakes, St. Lawrence River) in partnerships with provinces or with the United States. In 2005, Quebec, Ontario and the eight US Great Lakes states signed the Great Lakes–St. Lawrence River Basin Sustainable Water Resources Agreement. It has been an important regional and international initiative led by provinces.

A long-term strategy is needed to secure funding for system upgrades

The condition of infrastructure for wastewater and rainwater collection and treatment has improved significantly over the last two decades. In 1995/96, about two-thirds of infrastructure was not operating at an acceptable level. In 2016, two-thirds of urban wastewater infrastructure was considered in very good or good condition (CIRC, 2016). Notwithstanding, urban wastewater management is in need of substantial and long-term financing to upgrade existing systems and adapt to upcoming challenges. At current reinvestment levels (about 0.7% to 1.4% of current assets), it would take about 100 years to renew existing infrastructure. This far exceeds the life expectancy of many pipes and appliances. The cost of regulatory compliance with the WSER is estimated at CAD 5.5 billion.

Prevailing sources of finance heavily rely on ad hoc budget transfers through both federal and provincial or territorial programmes (such as the Gas Tax Fund, the Green Municipal Fund and the Clean Water and Wastewater Fund). This generates risks of underfunding as public finance becomes scarce and contested, while providing few incentives to manage assets properly. Moreover, funding programmes disburse money to municipalities on a first-come first-served basis, without considering the relative benefit of individual projects across municipalities. Funds therefore do not always reach projects that generate the highest value for public money (e.g. the highest benefit in terms of improving water quality or urban wastewater treatment). There is no incentive for local governments to harness additional sources of finance (e.g. through tariffs).

Canada lacks a proven financial strategy to cover long-term investment needs. The use of pricing instruments for urban wastewater management – notably tariffs for wastewater services – are widespread. However, the level is too low to generate the revenues needed to cover the cost of urban wastewater management, or to provide the incentives to minimise future infrastructure needs. Canadian municipalities are far from recovering the full cost of the service and the full environmental cost through prices. Affordability is not the main obstacle to robust pricing strategies, as Canada ranks at the low end of water rates in OECD member countries.

Some municipalities embark in innovative urban design, for example, by better connecting waste- or rainwater collection and treatment with resource management. However, innovation depends on local initiatives and is not backed by federal policy. A vast majority of municipalities either ignore the challenges related to rainwater management or adaptation to climate change, or count on federal or provincial moneys to tackle it.

Recommendations on urban wastewater management

• Complete monitoring of the performance of wastewater management, and impacts on water quality, in places where information is lacking; improve consistency of monitoring frameworks across the country with a view to better identify hotspots and rank priorities.

• Invest in research to better understand the treatment efficacy of alternative technologies (including natural systems and wetlands), as well as the impact of effluent releases on wetlands’ ecosystem health, under both normal and extreme climatic conditions. Build on that research to explore the possibility of expanding the coverage of the Wastewater Systems Effluent Regulations (WSER), across Canada, including northern territories.

• Expedite discussions on bilateral agreements between the federal government and provinces for the WSER as one possible way to trigger policy responses and adjust regulatory frameworks at provincial and territorial level; systematically explore opportunities to streamline and speed up negotiations.

• Ensure that conditions attached to provincial and federal infrastructure funds for urban wastewater management bring about the best value for money by incentivising municipalities to: i) make the best use of existing assets; ii) develop investment pathways that maximise water security returns over time; iii) ensure synergies and complementarities with investments in other sectors, especially urban development, land use, rainwater management or energy; and iv) scale-up their own financing capacities, for instance by harnessing water users (with tariffs for wastewater and rainwater services) or property developers (with taxes that capture some of the rent accrued from improved water security).

• Increase tariffs for water and/or wastewater services to at least recover the operation and maintenance cost of wastewater collection and treatment.

• Systematically reflect the impacts of climate change on water availability and demand in all urban water management plans, infrastructure design and investment programmes across levels of government. Risks of heavy rains and urban floods deserve particular attention.

• Encourage innovative approaches to urban water management, by ensuring that financial support and regulation are not technology-prescriptive and can actively contribute to the diffusion of innovative and green infrastructure solutions, as appropriate; use federal funding to encourage cities to explore water-wise urban development (such as green roofs or permeable pavements) as potentially cost-effective, climate-resilient responses to heavier storms triggered by a changing climate.

• Further study risks associated with emerging pollutants, and explore cost-effective policy responses, including by raising public awareness on their effect on wastewater streams, with a view to avoid dumping. Other options build on new developments in monitoring techniques, such as effect-based monitoring.

References

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ECCC (2016b), Climate Data and Scenarios for Canada: Synthesis of Recent Observation and Modelling Results, Environment and Climate Change Canada, Gatineau.

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Annex A. Actions taken to implement selected recommendations from the 2004 OECD Environmental Performance Review of Canada

Recommendations	Actions taken
Chapter 1 – Environmental performance: Trends and recent developments
Ensure proper implementation of Canada-wide Standards for ambient concentrations of PM2.5 and ground-level ozone by 2010. Further reduce SO2 and NOx emissions (in line with 2010 targets) using the most cost-effective available policy measures (e.g. emissions trading in polluted areas, air emission charges, binding air emission standards and voluntary approaches); set a reduction target for VOC emissions and ratify the Gothenburg Protocol to the Convention on Long-range Transboundary Air Pollution.	In 2012, Canada introduced the Air Quality Management System (AQMS) as a national management system for air emissions and outdoor air quality. Under the AQMS, Canada strengthened air quality standards for PM2.5 and ground-level ozone in 2013, announced a standard for SOx in late 2016 and is establishing one for NOx. Canada also established air pollutants regulations for some sectors or activities under the AQMS, and it strengthened trucks and vehicles regulations.
Firmly implement water management policies, including provincial water strategies (e.g. basin management, ecosystem approach, stakeholder participation) and enforcement of regulations (e.g. inspections, sanctions); accelerate the development of integrated water resource management and water efficiency plans.	The Canadian Council of Ministers of the Environment (CCME) has issued Canadian Environmental Quality Guidelines, including for drinking water, the protection of aquatic life, the protection of agricultural water uses and for sediment quality. Federal Wastewater Systems Effluent Regulations, in effect since 2015, establish specific effluent quality standards for municipal wastewater treatment plants. Many provinces are implementing policies and/or legislation to support integrated watershed management.
Complete the national park system; expand protected areas in the southern part of the country (where habitats are under much pressure); implement the new legal and institutional setting to improve management of national parks	The federal government and several provinces committed to the establishment of new protected areas.
Substantially increase the total area of marine and wetland ecosystems under protection.	Canada adopted several strategies and programmes such as Canada’s Oceans Action Plan (2005), the Federal Marine Protected Areas Strategy (2005), the National Framework for Canada’s Network of Marine Protected Areas (2011), the Health of the Oceans Initiative (2007-14), and the National Conservation Plan (2015-19). In 2016, the federal government committed to protecting 5% of Canada’s marine and coastal areas by 2017 and 10% by 2020.
Implement the new legislation for the protection and recovery of species at risk, with particular emphasis on priority species.	Since 2004, hundreds of species at risk status assessments have been completed and recovery plans have been developed.
Take the necessary regulatory and financial steps to control the introduction and spread of invasive alien species.	The Invasive Alien Species Partnership Program ran between 2005 and 2012. It supported 170 projects totalling nearly CAD 5.6 million in funding to minimise the risk of invasive alien species.
Continue to advance scientific and economic analysis relating to environmental health; focus action on pollution affecting human health, including that of vulnerable segments of the population.	Canada conducts human health bio monitoring activities to study citizens’ exposure to environmental chemicals such as lead, cadmium and mercury, including exposure of vulnerable populations such as pregnant women and Arctic populations.
Continue progress in improving water quality in the Great Lakes and other transboundary waters through co-operation with border country states (e.g. remediation of contaminated sediments, control of invasions by alien species); expand cross-border water ecosystem management (e.g. by promoting integrated, ecosystem approaches to transboundary water issues).	In 2012, Canada and the United States updated the 1987 Great Lakes Water Quality Agreement, which aims to identify shared priorities and co-ordinate actions to restore and protect the chemical, physical and biological integrity of the Great Lakes. In 2014, a new Canada–Ontario Agreement on Great Lakes Water Quality and Ecosystem Health was established.
Chapter 2 – Environmental governance and management
Further implement federal and provincial environmental legislation, ensuring that federal and provincial compliance and enforcement programmes are well co‐ordinated and adequately resourced.	Federal environmental authorities enter into various types of agreements (memoranda of understanding, administrative agreements, equivalency agreements and collaboration agreements) with their provincial and territorial counterparts to facilitate the implementation of relevant legislation. Provinces also engage in interagency collaboration in compliance monitoring. For example, the Ministry of Environment of British Columbia co-ordinates its inspections with the Ministry of Energy and Mines, Ministry of Forests, Lands and Natural Resource Operations, Department of Fisheries and Oceans, provincial work safety and health authorities, as well as Environment and Climate Change Canada (ECCC) and local governments.
Continue to develop cost-effective voluntary approaches within industry, ensuring that these approaches are consistent with ECCC’s 2001 policy framework.	ECCC uses performance agreements that commit participating sectors or companies to specific measures or performance levels. Every agreement requires verification of results through audits, inspections, interviews or other means. Since the adoption of the federal Policy Framework for Environmental Performance Agreements in 2001, ECCC has signed 15 such agreements with different industries, including chemicals, transportation, metal processing, consumer products, forestry and printing.
Continue to develop and expand the use of strategic environmental assessment.	In accordance with the 2010 Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, strategic environmental assessment (SEA) must be conducted when the implementation of the proposal may result in important positive or negative environmental effects. However, the SEA Cabinet Directive was applied to only 23% of the 243 policy, plan, and programme proposals submitted for approval to Cabinet in 2013-15.
Continue and strengthen efforts to implement co-ordinated inter-jurisdictional decision making that integrates environmental, social and economic policies.	The main intergovernmental forum addressing environmental issues is the CCME, comprised of environment ministers from the federal, provincial and territorial governments. It addresses issues relating to air, water, waste, contaminated sites and climate change. Based on the March 2016 Vancouver Declaration on clean growth and climate change, the federal government worked with provinces and territories to establish a pan-Canadian framework for clean growth and climate change in December 2016.
Make further progress on unsettled land claims in order to remove uncertainties about land and resource rights and foster economic development in Indigenous communities; continue devolution of land and resource management to the northern territorial governments and Indigenous self-governing communities.	Indigenous and Northern Affairs Canada negotiates and implements land claim and self-government treaties on behalf of the Government of Canada and helps build strong partnerships among Indigenous peoples, governments and the private sector. In July 2014, Canada released an interim Comprehensive Land Claims Policy to identify further reforms to advance land claims negotiations and facilitate reconciliation with Indigenous communities.
Continue efforts to develop and strengthen high-quality and integrated environmental information and data and implement the Canadian Information System for the Environment; report periodically on the state of the environment; further develop new natural and human capital indicators.	The Canadian Environmental Sustainability Indicators programme provides data and information to track Canada’s performance on key environmental sustainability issues, including climate change and air quality, water quality and availability, and protecting nature. Many new indicators have been developed and published since 2009. In addition, Statistics Canada’s environmental statistics programme produces data series on various components of natural capital (water, ecosystems, sub-soil minerals), natural resource use, pollution and environmental protection expenditures.
Continue to strengthen surveillance and enforcement capabilities, at both federal and provincial levels, with additional staff and expanded investment in technology, to address marine problems (e.g. fishing violations, marine oil spills) and illegal trade (e.g. in endangered species, ozone-depleting substances and hazardous waste).	ECCC conducts its inspections and investigations separately under each statute it is responsible for. Factors that influence the identification of the priority regulations for compliance monitoring include the nature of regulatory provisions, operational complexity and capacity, and domestic and international commitments. In addition, when new regulations are brought into effect, they are identified as priorities within ECCC’s inspection programme. Risk-based targeting of environmental inspections has been introduced at the federal and provincial levels: the inspection schedule is determined by the risk that the regulated substance or activity presents to the environment or human health, and by the compliance record of the regulated entity.
Chapter 3 – Towards green growth
Consider ways to improve the cost-effectiveness of environmental policies by extending the use of economic instruments such as charges for water supply and air and water pollution; further implement emissions trading schemes (e.g. for GHGs, SOx and NOx).	The four most populous provinces have introduced carbon pricing. In December 2016, the federal government and 11 of 13 provinces and territories agreed to the Pan-Canadian Framework on Clean Growth and Climate Change (PCF), which includes national carbon pricing. It sets a national benchmark of CAD 10 per tonne of CO2 in 2018, rising to CAD 50 per tonne by 2022. Provinces and territories are able to implement their own cap-and-trade or carbon tax systems, with a federal policy applying in jurisdictions that have not implemented their systems by 2018. There are few trading systems in place for air pollution (in Ontario and Alberta) and targeted water pollution charges (in British Columbia and Quebec).
Prepare an integrated federal sustainable development strategy (including greening of the federal budget); develop and/or implement provincial sustainable development strategies.	The 2008 Federal Sustainable Development Act requires a whole-of-government strategy every three years. The 2016-19 strategy includes 13 goals linked to the global Sustainable Development Goals, with specific targets and short-term milestones to achieve them. Several provincial governments have developed their own sustainable development strategies.
Continue to phase out environmentally harmful subsidies at both federal and provincial levels, including subsidies in the form of tax incentives for the resource-based economic sectors.	Federal measures to phase out fossil fuel subsidies include the phasing out of tax benefits for oil sands production. Ontario removed its sales-tax exemptions for energy products.
Review existing environmentally related taxes (e.g. taxes on transport and on energy products) with a view to restructuring them in a more environmentally effective way, within a neutral fiscal context, at both federal and provincial levels.	While no comprehensive review has been undertaken, progress has been made through the introduction of carbon pricing.
Employ, strategically and rigorously, the range of tools available to the government to promote improved environmental management in developing countries (e.g. expansion of ODA, CIDA’s new policy directions, Canada’s membership on the boards of international development banks, the Canadian Export Development Corporation’s environmental review requirements).	In 2015, Canada launched a review of its approach to international assistance, identifying clean economic growth, climate change and water as key areas of focus for the new policy framework.
Review Canada’s record in ratifying and implementing international agreements.	While Canada retreated from some environmental agreements since 2004 (the Kyoto Protocol and the UN Convention to Combat Desertification), the government is now actively engaged in the Paris Agreement on Climate Change and has re-joined the desertification convention. The government has also committed to achieve the Aichi targets for protected areas by 2020. Canada plays an important role in other international partnerships, including the Climate and Clean Air Coalition, the Arctic Council Task force on Black Carbon and Methane, the Global Methane Initiative and the Carbon Pricing Leadership Coalition.
Chapter 4 – Climate change mitigation
Reduce the energy intensity of the economy and increase the share of low-emission energy sources, particularly through further internalising environmental externalities in energy prices for industry and households.	Energy intensity has been targeted mainly through indirect measures such as energy labelling, fuel economy standards, not through pricing externalities. Under the Energy Efficiency Act, the government of Canada is required to submit an annual report to Parliament on its energy efficiency and alternative transportation fuels programmes and their performance. In 2012, the federal government published regulations to reduce GHG emissions from coal-fired electricity. Renewable energy has been supported by large subsidies rather than taxes on non-renewables. Some provinces introduced similar regulation to phase out coal and introduced carbon pricing mechanisms. The Pan-Canadian Framework on Clean Growth and Climate Change (PCF) will promote further internalisation of environmental externalities in energy prices, notably through the introduction of Canada-wide carbon pricing by 2018.
Expand use of economic instruments in the transport sector (e.g. tax breaks for individuals using public transport, incentives to promote shift from road to rail freight transport, incentives to purchase fuel-efficient vehicles, gasoline taxation).	The federal government introduced an excise tax on fuel-inefficient passenger vehicles called the “Green Levy” in 2007, tied to vehicle average weighted fuel consumption. A rebate for efficient vehicles was introduced at the same time as the levy, but cancelled in 2010. Taxation on motor fuel remains among the lowest in the OECD. Sectoral plans are often based on voluntary agreements rather than economic instruments. There are subsidies for electric vehicles in some provinces, but local transport plans such as the Ontario “Big Move” is based more on provision of public transport than positive incentives.
Further elaborate and aggressively implement the (2002) Climate Change Plan for Canada, using a broad array of policy instruments (including emissions trading and other flexibility mechanisms) to ensure that GHG targets are met effectively and efficiently; continue to analyse the costs and benefits of various GHG control measures, including the cost of no action as well as ancillary benefits of taking action; expand co-operation internationally regarding common approaches to GHG reduction.	The 2002 Climate Change Plan for Canada was not aggressively implemented. Provinces and territories took a wide range of measures with some similarities, but little explicit co-ordination. Key measures included coal phase-outs in several provinces. Canada withdrew from the Kyoto Protocol in 2011, but is a signatory to the Paris Agreement. By 2017, the four most populous provinces had some form of carbon pricing in place. The PCF was adopted in 2016 as a framework to help Canada achieve its commitment of reducing GHG emissions by 30% by 2030.
Chapter 5 – Urban wastewater management
Speed up the access to water supply and sanitation infrastructure for all Canadians.	Canadian provinces and territories have the primary jurisdiction over most areas of water management and protection. The federal government delivers infrastructure funding through various mechanisms. Starting in 2016, it provides CAD 5 billion over five years for investments in water, wastewater and green infrastructure projects. Additional funding is made available for supply and sanitation infrastructure for First Nations communities.
Improve efficiency in the delivery of water and wastewater services, through improved governance (e.g. consolidation of operators, quality assurance, accountability mechanisms), improved supply management (e.g. source-to-tap approaches for municipal drinking water systems, protection of rural water supply wells against contamination, maintenance and renewal of municipal water-related infrastructure) and demand management (e.g. water metering, technical measures, use of economic instruments, appropriate pricing levels and structures).	Several initiatives aimed to improve collaboration between the federal and provincial/territorial governments. For example, Health Canada collaborates with the provinces and territories to develop or update the health-based guidelines that are used as the basis for drinking water requirements. In 2009, the CCME endorsed the Canada-wide Strategy for the Management of Municipal Wastewater Effluent, which facilitates the development of a harmonised approach for the management of wastewater effluent. The 2013 Safe Drinking Water for First Nations Act enables the federal government to develop, in partnership with First Nations, enforceable federal regulations to ensure access to safe, clean and reliable drinking water, the effective treatment of wastewater and the protection of sources of drinking water on First Nations lands.
Review systematically subsidies for water supply and treatment infrastructure and water pricing practices, aiming at cost-effectiveness and long-term financing in the maintenance and upgrading of facilities; review subsidies for flood and drought control projects in terms of their long-term impact on risk; progressively move to full-cost pricing while taking account of social factors and the needs of First Nations and Inuit communities.	The 2011 Municipal Water Pricing Report summarised information on water and wastewater pricing and conservation measures collected through the 2009 Municipal Water and Wastewater Survey. It showed that metering and volumetric charging for water services have increased, contributing to a decrease in drinking water consumption. Most provinces levy licence fees to major water users for access to the resource; fees are set related to the cost of administering the licensing programme. Use of water conservation/ demand management measures varies widely across Canada.
Continue to promote reduction of water use and releases of water effluents from large as well as small and medium-sized enterprises (SMEs).	No targeted measures were implemented to reduce water use from large as well as SMEs. However, the 2013-16 Federal Sustainable Development Strategy included a target to reduce risks associated with effluent from wastewater (sewage) and industrial sectors by 2020. Statistics Canada conducts surveys to collect information related to the use of water in industry.
Improve the information and knowledge base for water management, including i) harmonised and up-to-date monitoring of ambient water quality; ii) better data on expenditure, prices and financing; and iii) further analysis of micro-economic conditions facing key water users.	Canada uses a number of water surveys to track water-related activities in Canada including for industrial water use, agricultural water use, a survey of drinking water plants and a household survey that includes a section on water use. A Municipal Water and Wastewater Survey is conducted every two years.

Note

← 1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.