Regional variability and its impact on the decarbonization of emissions-intensive, trade-exposed industries in Canada

Emissions-intensive, trade-exposed (EITE) industries must decarbonize to limit global warming to 1.5°C. This study explores how policy stringency and regional variability impact EITE industrial decarbonization. It uses Canada as a case study due to its heterogeneous industrial sector and high regional resource variability. The study has two scenarios: one with global climate action where the world pushes to limit warming to 1.5°C, and one where Canada acts to achieve net-zero emissions by 2050 and the rest of the world lags. The scenarios differ in three ways: the global price of oil, the pace of technological change for low emission technologies, and domestic climate policy. In the global action scenario, a carbon price of $430USD2020 was needed to achieve 75% decarbonization of EITE industries by 2050. In our global inaction scenario, EITE industries only decarbonize 25%, as domestic climate policy considered international competition and the risk of industrial shutdown. If competitiveness concerns persist as simulated in this scenario, Canada is highly unlikely to achieve deep industrial decarbonization by 2050. The results also show that regional variability plays a significant role in low emissions technology adoption. While all regions will need targeted innovation and commercialization support as well as market uptake mechanisms, we find that relative advantages and disadvantages in terms of resource availability and industrial mix play an important role in how regional decarbonization occurs. For instance, regions with inexpensive local fossil fuels and ready geology suitable for CO2 storage have a high uptake of carbon capture and storage. Regions with access to abundant hydroelectricity rely more on electrification as a decarbonization pathway. Regions with no relative resource advantages are at greater risk for industrial shutdown due to the higher cost of decarbonization.Achieving national deep decarbonization of EITE industries in Canada or elsewhere is highly unlikely without global climate action due to competitiveness concerns.Policymakers interested in addressing competitiveness concerns might do so either through policy mechanisms that support the uptake of low emission technologies, mechanisms that penalize regions without decarbonization policy, or both.Policymakers should consider relative regional advantages and disadvantages to EITE decarbonization by designing policies that account for industrial heterogeneity and regional resource availability.