If Canada wants to be a credible climate leader, it needs to align its export credit agency with the Paris Agreement goals immediately.

That is the conclusion of a new study into Export Development Canada (EDC) by leading German environmental think tank Perspectives Climate Research.

The study found EDC “unaligned” with the Paris Agreement, which strives to hold global warming to no more than 1.5 C, and gave the EDC the worst of four possible rankings. The top reason for EDC's dismal rating is that it continues to invest in the domestic oil and gas industry despite a flurry of recent government announcements promising Canada would phase out public financing of fossil fuels.

EDC exists to provide financing and connect companies to the market, giving Canadian businesses an edge in the global economy. From 2018 to 2020, EDC provided US$11 billion annually on average to the oil and gas sector. Since Prime Minister Justin Trudeau took office, EDC has increased investment in fossil fuels by 3.7 per cent from its annual average amount between 2016 and 2018.

At the centre of the study is a call for Canada to acknowledge the choice it faces. With more than 80 per cent of the country’s known coal, oil and gas reserves unable to be extracted without pushing the planet’s temperature rise past 1.5 C, the time has come to either phase out the sector or admit the plan is to burn through the world’s remaining carbon budget.

“The implications of acknowledging such absolute limits are self-evidently against the interest of commercial groups with stakes in fossil fuel value chains,” it reads.

“Based on the findings in our study, we urge the Canadian government to acknowledge the absolute limits to fossil fuel production in a 1.5-degrees warmer world — with strict implications for the mandate and operations of Export Development Canada,” said the study’s lead researcher, Philipp Censkowsky, in a statement.

The report calls on Ottawa to align EDC with the Paris Agreement by ending financing for the domestic fossil fuel industry. If EDC’s financing is considered a subsidy, it could be phased out by the end of 2023 as part of the government’s promise to eliminate fossil fuel subsidies. Alternatively, to be in line with the International Energy Agency’s net-zero roadmap, the EDC could axe all financing to the fossil fuel sector this year.

The study’s authors also urge the federal government to create a cross-department steering committee for EDC to improve oversight and ensure progress. Other recommendations include complementary domestic policies, like just transition legislation to help mitigate the impact on workers in transitioning industries, and taking into account exported emissions from the fossil fuel sector when defining Canada’s national net-zero target.

If #Canada wants to be a credible climate leader, it needs to align Crown corporations like Export Development Canada with the Paris Agreement goals immediately, says @PerspectivesCC. #cdnpoli

EDC said it believed the findings were “inconsistent” with its track record but could not point to anything incorrect. EDC spokesperson Amy Minsky said the Crown corporation has committed to end financing for new coal-fired power plants, is increasing its financing for cleantech and will improve its transparency.

Moreover, “EDC’s commitment to and path toward net-zero emissions by 2050 are aligned with the Government of Canada and the Paris Agreement,” she said.

However, net-zero by 2050 and the Paris Agreement goal of holding onto 1.5 C are two totally separate objectives. In fact, current estimates forecast the dangerous 1.5 C threshold being crossed in about a decade, meaning steep rapid reductions are required now to stay onside with the Paris goal.

EDC says it is phasing out its support for fossil fuels and, for the first time, has put more into cleantech than oil, gas and coal. Minsky said that based on preliminary data from 2021, EDC expects to have invested $6.3 billion in cleantech compared to $4.4 billion in oil and gas.

Those figures come with a major caveat. As noted by the Perspectives Climate Research report, EDC considers investments in carbon capture technology eligible for “cleantech” financing, meaning these investments come with significant risk of locking in carbon emissions if they prolong fossil fuel use.

EDC did not respond to followup questions before publication.

Environmental Defence senior program manager Julia Levin says Finance Minister Chrystia Freeland has an important role to play in aligning EDC with credible climate goals. Not only does the finance department control government purse strings, but the cabinet minister's mandate letter clearly puts responsibility for requiring all Crown corporations to align with net-zero goals in her shop.

“We know that public financing is the lion's share of financial support that governments and Crown corporations give to the oil and gas sector, but (Freeland) should also be ensuring that across departments, all funding aligns with a climate-safe future,” Levin said.

High among the many tools Canada is missing to pull off an equitable energy transition is a carbon budget. The report references this in its calls for Ottawa to acknowledge the limits of its fossil fuel extraction, and Levin agreed, calling it essential.

In a nutshell, a carbon budget would calculate how much more carbon dioxide the atmosphere can take before warming is pushed past 1.5 C, then work backwards to figure out each country’s fair share. A country could then divide up its allowable emissions by region, by industry or in some other way to chart a course to a climate-safe future.

Levin said because Canada is a leading contributor to historic emissions, the country has already burned through its “fair share.” Still, it’s worth pursuing, she said.

“Just the way a budget is a helpful financial tool for planning, carbon budgeting is essential for doing any kind of climate policy and energy policy planning,” she said. “So Canada's lack of a carbon budget is setting us up for planning failure, and we definitely need to establish one, especially now that we're talking about a cap on oil and gas emissions.”

Finance Canada declined comment and deferred answers to other departments. Natural Resources Canada and Environment and Climate Change Canada did not return a request for comment by deadline.

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