Introduction

Between October and December 2018, the House of Commons Standing Committee on Natural Resources (the committee) conducted a study on the economic opportunities for energy efficiency in Canada and its contributions to Canada’s climate change commitments under the Paris Agreement. The committee heard from a wide range of experts about the impacts of energy efficiency on Canadian society, the economy and the environment. This report includes the study findings and recommendations to the Government of Canada.

Energy efficiency is part of the Government of Canada’s strategy to transition to a low-carbon economy. It is included in the Pan-Canadian Framework on Clean Growth and Climate Change (the Pan-Canadian Framework), Canada’s national plan to meet its commitment under the Paris Agreement to reduce greenhouse gas (GHG) emissions by 30% from 2005 levels by 2030 and to strengthen the country’s resilience to climate change. Specific measures to improve energy efficiency under the Pan-Canadian Framework include: making new buildings more energy-efficient; retrofitting existing buildings; improving energy efficiency for appliances and equipment; supporting building codes and energy-efficient housing in Indigenous communities; and improving industrial energy efficiency.

According to Natural Resources Canada (NRCan), “Energy efficiency is a measure of how effectively energy is used for a given purpose and an important path towards decarbonisation.” The committee heard that investing in energy efficiency can have several economic, environmental and social benefits for communities, businesses and governments across Canada. In the words of Francis Bradley of the Canadian Electricity Association, “there are many benefits that energy efficiency delivers to Canadians …[including] reduced energy expenditures, employment opportunities, increased economic competitiveness, improved energy security, and a cleaner environment through the reduction of GHG and air emissions across Canada.”

The purpose of this report is to provide policy guidance to the Government of Canada on how to further capitalize on the benefits of energy efficiency in Canada. The first section outlines the current benefits of energy efficiency for Canada, while the second section discusses ways in which these benefits can be maximized.

Benefits of Energy Efficiency: Major Findings

Energy efficiency can be a tool to stimulate economic growth.[1] The committee heard that $1 spent on energy efficiency programs can generate $7 of gross domestic product (GDP).[2] Furthermore, according to Clean Energy Canada and Efficiency Canada, energy efficiency measures included in the Pan-Canadian Framework would boost Canada’s GDP by 1%, a net growth of $355 billion over the 2017 to 2030 period (Figure 1). This projected growth comes from energy savings and spending on upgrades and considers the cost of energy efficiency programs, as well as the impacts of reduced utility sales, estimated at $48 billion over the same period.[3] According to Stephen MacDonald of EfficiencyOne, “energy efficiency’s share of Nova Scotia's GDP is valued at over $400 million [and] is expected to grow by 5% over the next five years, … compared to forecasted growth of about 2% for the rest of the province’s GDP.”

Figure 1—The Economic Impact of Energy Efficiency Measures Included in the Pan‑Canadian Framework on Clean Growth and Climate Change, 2017 to 2030

Source:  Clean Energy Canada and Efficiency Canada, Less Is More, May 2018.

Witnesses explained that energy efficiency investments can provide several benefits including improving business productivity and competitiveness (Figure 2). As indicated by Andrew Noseworthy of Innovation, Science and Economic Development Canada (ISED), energy represents one of the largest input costs for most companies and industries in Canada.[4] For that reason, the implementation of energy efficiency measures can reduce energy costs for businesses—for example, it is estimated that energy efficiency measures included in the Pan-Canadian Framework will contribute to an average annual saving of $3.2 billion for commercial/industrial entities.[5] Similarly, Corey Diamond of Efficiency Canada argued that if businesses spent less on energy, it would allow them to invest in “more productive capital improvements and human resources.”[6] The committee also heard of “co-benefits” or “non-energy benefits” associated with energy efficiency. Witnesses noted, for example, that better ventilated and designed buildings can improve employee satisfaction and performance.[7]

On the other hand, the committee heard that implementing new energy efficiency technology without a thorough cost-benefit analysis has the potential to negatively affect businesses. Jocelyn Bamford of the Coalition of Concerned Manufacturers and Businesses of Ontario indicated that “there’s no support for small and medium-sized businesses on what solutions are actually legitimate” and that some of her organizations’ member companies have “invested millions of dollars in the hopes of getting out of energy policy, only to have their energy pricing go up.”

Figure 2—Impact of Energy Efficiency Investment

Source:  Clean Energy Canada and Efficiency Canada, Less Is More, May 2018.

Witnesses indicated that energy efficiency can reduce households’ energy bills and improve their disposable income.[8] Kaili Levesque of NRCan informed the committee that energy efficiency measures led to savings of $38.5 billion in energy costs in Canada between 1990 and 2014. Furthermore, Clean Energy Canada and Efficiency Canada estimated that energy efficiency measures included in the Pan-Canadian Framework can be expected to contribute to an average annual saving of $1.4 billion across all Canadian households (approximately $114 a year per household).[9] According to Yasmin Abraham of Kambo Energy Group, energy savings can provide some relief to the “21% or more than 1.8 million Canadian families [that] struggle to pay their bills.”

On the other hand, some witnesses noted that household and business investments in energy efficiency may be hindered by the high up-front costs or long pay-back periods of some upgrades, especially in the case of small and medium-sized enterprises (SMEs).[10] As pointed out by Kevin Lee from the Canadian Home Builders’ Association, higher energy efficiency standards in the residential sector can raise the purchasing price for homes, potentially impacting housing affordability for Canadians. He also noted that the increased costs associated with higher energy efficiency standards may not be offset by the additional energy savings. It was suggested by the Canada Green Building Council, that at least in respect to the retrofit economy, regulators may incentivize (i) building recommissioning, (ii) retrofits, (iii) performance standards and (iv) renewable energy, and provide disincentives to (v) encourage switching from more polluting fuels.[11] Subsidies and prices on pollution affect the cost-benefit analysis on whether the capital cost for adopting increasingly energy efficient options achieves the appropriate balance between economic and environmental goals.

As for the energy efficiency industry, the committee was told that increased demand for new goods and services represents opportunities for businesses. Mr. Noseworthy indicated that there is a growing global demand for clean technologies that is expected to reach US $2.5 trillion by 2025 and that, as estimated by the International Energy Agency, the global market for energy-efficiency products is about US $231 billion which represents 10% of this amount.[12] Mr. Diamond thinks there is “an opportunity to grow Canadian clean-tech companies, with specializations in areas such as integrated building design, data analytics and smart devices to sell to the global energy efficiency market.”

Several witnesses also pointed out that energy efficiency can create jobs of diverse grades and skill requirements across a variety of industries.[13] Pierre Langlois from the Canadian Institute for Energy Training indicated that investments in energy efficiency in Alberta have contributed $475 million to the province’s economy and created more than 2,300 new jobs. Furthermore, according to Clean Energy Canada and Efficiency Canada, energy efficiency measures included in the Pan-Canadian Framework could add approximately 118,000 jobs annually to the Canadian economy.[14]

The committee also heard that using less energy through energy efficiency could help reduce Canadian GHG emissions.[15] Ms. Levesque explained to the committee that energy efficiency alone prevented 90.5 megatonnes of GHG emissions in Canada between 1990 and 2014. In addition, she highlighted that more than a third of GHG emission reductions by 2030, as planned in the Pan-Canadian Framework, are expected to come from energy efficiency measures.

Finally, witnesses pointed out that investments in energy efficiency can help offset the demand from new electricity infrastructure development.[16] Terry Young from the Independent Electricity System Operator estimates that every dollar invested in energy efficiency avoids three dollars in investments in new transmission and distribution infrastructure.

Maximizing Energy Efficiency Gains in Canada

Energy efficiency is an area of shared jurisdiction and responsibility in Canada. At the federal level, NRCan’s Office of Energy Efficiency administers the Energy Efficiency Act and the associated energy efficiency regulations. It supports several energy efficiency initiatives for industrial and residential buildings and products, as well as the transportation sector. NRCan hosts CanmetENERGY laboratories, which is responsible for clean energy research and technology development and demonstration; manages several funding, grant and incentive programs, such as the Energy Innovation Program and the Green Infrastructure programs; and offers support to federal organizations engaged in reducing their energy use through its Greening Government Services as part of the overall Greening Government Strategy. The department also supports Canada’s commitment to Mission Innovation, a global initiative of 23 countries as well as the European Union, dedicated to accelerating breakthroughs in clean energy technology.

Other federal, provincial or territorial initiatives that support energy efficiency as well as the research, development and commercialization of energy efficiency technologies include the intergovernmental’s Build Smart — Canada’s Buildings Strategy; provincial organizations such as Nova Scotia’s EfficiencyOne and Energy Efficiency Alberta; and the Government of Canada’s Clean Growth Hub, Economic Strategy—Clean Technology Table, Industrial Research Assistance Program, and Canadian Centre for Housing Technology.

The committee heard that energy efficiency has reduced the rate of growth in energy use in Canada. As indicated by Ms. Levesque, while energy use in Canada increased by 31% between 1990 and 2014, it would have grown by 55% without energy efficiency improvements. Despite these improvements, Mr. Diamond indicated that the potential benefits of energy efficiency have been realized only partially, pointing out that Canada uses “more energy to produce a unit of GDP than the United States, the United Kingdom, France, Mexico or South Korea.” Witnesses discussed opportunities to further improve energy efficiency in Canada, including the following suggestions:

• Ensuring that government incentive programs are predictable and reliable over the long term. The committee heard that the business plans of energy efficiency service providers often rely on government programs.[17] Karim Abraham of Kambo Energy Group pointed out that unpredictable public funding “has been detrimental to Canadian energy efficiency businesses and their ability to invest and plan for the future.” Mr. Lee indicated that programs sustained over the long term can be beneficial to households as energy efficiency improvement projects, such as home energy retrofits, may take several years to complete. Brad White of SES Consulting suggested that “it may be desirable to also consider other forms of support that may be more durable – through the tax code, for example.”[18]
• Improving public knowledge of, and access to, energy efficiency resources and services.[19] Witnesses indicated that households and businesses are often not fully aware of the benefits of energy efficiency and the programs available to them.[20] Furthermore, Ms. Abraham pointed out that some Canadians, especially seniors, Indigenous people and new immigrants, may have less access to energy efficiency programs due to language, cultural or accessibility barriers. She believes that programs should be designed to address these barriers. Emilie Hayes from the Canadian Federation of Independent Business suggested that an online one-stop shop for energy efficiency would make existing resources and services more accessible.
• Harmonizing energy efficiency programs across jurisdictions. According to Allan Fogwill of the Canadian Energy Research Institute, there is a “fragmentation of effort” among different levels of government, utilities and associations with regard to energy efficiency programs. He suggested that a common set of initiatives, with a single delivery and branding strategy, would help users understand the benefits and the processes of energy efficiency. Some witnesses indicated that further collaboration between jurisdictions would be needed to ensure greater harmonization of programs, taking into account regional specificities.[21]
• Ensuring a competitive tax and regulatory environment for attracting and maintaining businesses and investment. The committee heard that a competitive business environment in Canada retains investment and prevents capital from moving to places with lower environmental standards than Canada, which would result in raising GHG emissions globally.[22]
• Investing in skills training and workforce development. The energy efficiency industry includes a wide range of technologies and services that require a skilled workforce in a variety of sectors and disciplines.[23] According to Thomas Mueller of the Canada Green Building Council and Mr. Lee, Canada is facing a shortage in skilled trades that is hindering progress in energy efficiency. Witnesses called for further investment in workforce capacity building—namely, with the aim of identifying skills gaps, developing more targeted curricula, and delivering training more consistently and cost-effectively across Canada.[24]
• Leveraging private sector capital to facilitate energy efficiency investments. The committee heard that private sector investment, in conjunction with government and utilities rebates and incentives, would be useful to alleviate high up-front costs of some energy efficiency improvements. For example, in the building sector, according to Ms. Levesque, “federal investment and interventions are not enough on their own to meet [Canada’s] energy efficiency goals [and there is a] need to leverage the untapped private sector capital potential and further cultivate Canada's retrofit economy.” Several witnesses indicated that a national institution, such as the Canada Infrastructure Bank or the Canada Mortgage and Housing Corporation, could be used to attract private sector capital for improving the energy efficiency of Canada’s building infrastructure.[25] Having such support could increase investors’ confidence and reduce risks, for example, by consolidating small energy efficiency projects under a single, larger financial instrument, standardizing transactions, such as contracts, and guaranteeing loans.[26]
• Scaling up deployment of market-ready technologies. The committee heard that some commercially available energy efficiency technologies face market barriers, such as high capital cost, that hinder their widescale deployment in Canada.[27] NRCan’s Local Energy Efficiency Partnerships (LEEP) was identified as a program that enables groups of builders to work together, on a regional basis, to reduce time and risks in finding and trying new energy efficiency technologies.[28] Paul Cheliak of the Canadian Gas Association suggested extending LEEP beyond the residential sector to commercial buildings. Ms. Bamford indicated that revisiting the Scientific Research and Experimental Development Tax Incentive Program and accelerating depreciation for new capital could allow businesses to reinvest in new technology.
• Accelerating energy efficiency improvements in existing buildings through energy performance disclosure and energy codes for building retrofits. According to Ms. Levesque, “given that 75% of Canada’s current stock of homes and buildings will be standing in 2030, deep building retrofits will be crucial to achieving … GHG emissions reductions targets and facilitating Canada’s transition to a low-carbon economy.” The committee heard that while current building codes are limited in their application to existing buildings to improve energy efficiency, programs requiring the evaluation and disclosure of building performance can be effective tools to move the industry forward.[29] Mr. White referred to Australia’s voluntary national labelling program for buildings (NABERS) that, through state and local legislation, requires mandatory disclosure of building energy performance. The program has contributed to a reduction of over 800,000 tonnes of GHG emissions in approximately 10 years. Mr. Mueller supported Canada’s plan to publish model energy requirements/codes for existing homes and buildings in 2022.
• Supporting the broader use of high energy performance standards for new buildings. The committee heard that the adoption of more stringent high-performance standards for new buildings, such as Net Zero Energy, the Leadership in Energy and Environmental Design (LEED), BOMA BEST, the Toronto Green Standard, the BC Energy Step Code, and Zero Carbon, can drive increased energy efficiency.[30] Mr. Mueller pointed to an opportunity for the federal government, as the largest building owner in Canada, to help support high energy performance voluntary standards through research, development and procurement policy.
• Harmonizing product standards across jurisdictions. Bruce Rebel from the Association of Home Appliance Manufacturers Canada indicated that harmonization and alignment of product standards and test procedures between jurisdictions within Canada and with the United States, Canada’s largest trading partner, are essential to sustaining a competitive industry and maintaining the affordability of products. Witnesses were encouraged by the work under way for greater product harmonization under the auspices of the Canadian Free Trade Agreement and the Regulatory Cooperation Council Stakeholder Forum.[31] Mr. Rebel indicated his support for the implementation of a ministerial authority provided for in Budget Implementation Act, 2017 as a necessary requirement to facilitate regulatory changes and to update efficiency standards while maintaining harmonization with other jurisdictions.

In order to take advantage of opportunities to further improve energy efficiency in Canada, witnesses called on the federal government to scale up action, in collaboration with governments and stakeholders across jurisdictions, to maximize energy efficiency gains for Canadian businesses and households. As Ms. Levesque put it, “we have to shift from seeing energy efficiency only in terms of reducing our demand for energy, and wake up to its potential to deliver concrete economic and social benefits.” Furthermore, Mr. Diamond asserted that “treating energy efficiency as the ‘first fuel’ can show that this resource is one of Canada’s most plentiful energy resources, helping to drive significant employment and GDP growth and making us more competitive on a global scale. It can also help us reduce our carbon emissions.”