Ontario’s opportunity in the global energy transition

The global energy system is changing. Strong international commitments to decarbonization, technological advancements in the generation and management of electricity and seismic shifts in the geopolitics of energy are ushering in a new era, a clean energy revolution. Trillions of dollars are being invested globally to build a new economy based on the clean and sustainable use of energy resources. Ontario, with its clean grid and innovative energy sector, has a strategic opportunity to lead in and prosper from this new clean energy economy. Meaningful inclusion and collaboration with Indigenous communities is not only crucial to maximize Ontario’s advantage, but also necessary to ensure a successful energy transition across the province.

The global context

A major trend in global energy markets is the emergence and growth of a new clean energy economy. According to the International Energy Agency (IEA), global investment in clean energy has risen by 40 percent since 2020 and is strongly outpacing investment in fossil fuels. Total global energy investment in 2023 is expected to hit an all-time record of US$ 2.8 trillion, of which nearly two-thirds is being spent on clean energy development. In 2023, one in five cars being sold globally is electranic, more than 500 gigawatts (GW) of renewable generation capacity are being added to the global system (a new record), and more than US$ 1 billion a day is being spent on the deployment of solar power alone. Investment in the clean energy economy will likely grow as nascent industries scale up, new innovations are commercialized, and further policy commitments are made. The IEA estimates that global decarbonization will require a tripling of annual clean energy investment to around $4 trillion by 2030.

The growth in clean energy investments has been driven in part by ambitious policy commitments across the global economy. 93 countries and the European Union have now pledged to meet a net zero emissions target, covering more than three quarters of global emissions, along with a myriad of subnational jurisdictions, corporations and financial institutions. These net zero policy commitments have been driven by climate concerns. Large-scale international agreements like the Paris Climate Accord, wherein 195 members of the United Nations Framework Convention on Climate Change committed to work to keep the rise in mean global temperatures well below 2°C (and preferably less than 1.5°C) above pre-industrial levels, have institutionalized ambitious commitments to emissions reduction. Such commitments have also been motivated by subsequent reports of the Intergovernmental Panel on Climate Change (IPCC) warning that climate change poses a threat to human well-being and planetary health and that decarbonization to limit global warming will require rapid and far-reaching transitions in energy, land use, infrastructure, and industrial systems. The accelerating consequences of a changing climate are becoming more acute and more dangerous, with the increasing frequency and intensity of extreme weather events and 2023 witnessing the hottest year on record globally. These acute climate effects further underscore the need for ambitious energy policy action to counteract the threats to the physical integrity, reliability and adequacy of energy systems. Notwithstanding environmental motivations, commitments to net zero are increasingly becoming an indicator of alignment with the current direction of global economic development and a criterion for competitiveness.

Net zero pledges now cover 90 percent of global gross domestic product (GDP). More and more international businesses and financial institutions are incorporating environmental considerations and decarbonization policies into their capital investment decisions, as part of organizational environmental, social and governance (ESG) initiatives, requirements and commitments. As a result, the global market for emissions-intensive products and services can be expected to shrink over time, particularly as major trading partners pursue and implement stricter controls on carbon emissions. The United States (U.S.) and the European Union, two major Ontario trading partners, are already exploring measures to compensate for the competitiveness impacts of decarbonization policies, including through the implementation of Carbon Border Adjustment mechanisms. In the economy of the near future, alignment with energy transition objectives will be a key factor in maintaining competitiveness. Companies that can anticipate these developments will be better positioned in this regard.

The increasing synergy of climate policy commitments and economic competitiveness is highly salient for Ontario. Our largest trading partner, the U.S., has embarked on an ambitious policy agenda to stake a claim as a global leader in clean economy industries. The high-profile Inflation Reduction Act of August 2022 leverages nearly a half-trillion dollars in tax credits, loan guarantees and grants over the next decade, to kickstart the development of clean energy industries and scale clean energy innovations. California, Michigan and New York – three of our five largest state trading partners – have recently published detailed, economy-wide plans with sector-specific strategies for building a net zero economy and have all cited economic growth and job creation as intended outcomes. In November 2023, Michigan passed legislation to mandate an 80 per cent clean electricity supply by 2035 and 100 per cent by 2040 (the definition of ‘clean’ includes renewables, nuclear and gas plants with carbon capture). The legislation also includes a complementary labour package. The growth of clean economy industries in the U.S. and state-level net zero commitments is slated to not only shrink the market for emissions-intensive goods and services, but significantly expand the market for clean energy innovations. As an established trading partner, this presents Ontario with a unique opportunity to position itself in continental supply chains and capture market share in clean energy industries.

These global developments, and especially the ambitious policy commitments made by our biggest trading partners, suggest that the economic imperative for the energy transition is intensifying alongside environmental objectives. If Ontario takes advantage of the opportunities presented by the emergence of the clean energy economy, it can maintain and enhance the province’s economic competitiveness and future prosperity. The province can attract key investments and jobs with a clean, affordable and reliable electricity grid and with an economy that is part of the global solution.

The Ontario advantage

Ontario is well positioned to seize the opportunity of the clean energy economy. It is widely understood that the clean energy transition will primarily involve the electrification of energy services. Ontario’s electricity supply is largely emissions-free because of historic investments in clean hydropower and nuclear, and government’s leadership in recent years retiring coal-fired generation, expanding renewables, investing in nuclear refurbishments, and maximizing conservation and demand management programs. Electricity output in 2022 was about 90 percent emissions-free. This clean electricity supply mix puts Ontario in an enviable position compared to many advanced economies globally, including the United States and Europe. The emissions intensity of Ontario’s electricity system is considerably lower than our American neighbours in New York, Pennsylvania, Ohio, Michigan and Wisconsin. Ontario has been able to achieve this while maintaining a reliable and cost-competitive supply of electricity.

The province is poised to build on this advantage with new investments to meet growing demand for electricity. In Powering Ontario’s Growth, Ontario made a number of emission-free and low emission resource announcements, including the start of pre-development work to site up to 4,800 MW of new nuclear generation on the Bruce nuclear site, advancing three additional small modular reactors (SMRs) in addition to the one currently being developed at the Darlington nuclear site for a total of 1,200 MW of capacity, and directing the Independent Electricity System Operator (IESO) to begin planning for a new competitive electricity procurement focused on clean resources such as wind, solar, hydroelectricity, battery storage and biogas.

To help attract investment from companies with specific clean energy commitments, Ontario is establishing a Clean Energy Credit Registry. This is an important step that responds to the increased role of ESG commitments in investments. It can also help Ontario anticipate additional sustainability requirements from innovative companies in the future. Companies are increasingly committed to not only reducing their own emissions but also contributing to broader decarbonization efforts with their business investments. Demonstrating a clean energy advantage is quickly becoming a core component of attracting new investment, building and maintaining prosperity and developing good jobs.

Ontario is also host to an innovative energy sector, with robust breadth and depth. As a leader in the development of SMR technology, the province is developing a mature value chain in the provision of nuclear equipment, components, and services. With a wealth of critical minerals and recent large-scale investments in manufacturing capacity, the province is building a strong value chain in the production of electric vehicles. Innovative investments are positioning the province as a leader in low-carbon steel manufacturing. With innovation strength in areas such as hydrogen, biofuels, energy storage and smart grids, the province has a demonstrated record of innovation on clean energy technologies and applications. A transition of the global energy sector toward a clean energy economy will require transformative changes to the ways we produce and consume energy. Ontario’s innovative energy sector is well positioned to contribute meaningfully to this process.

A unique alignment: Global economic direction meets Ontario’s energy advantage

There is thus a unique alignment between the global trend of decarbonization in energy and economic policy and the traditional and emerging strengths of Ontario’s energy sector. The province is well positioned to seize the economic opportunities of the energy transition, position itself in emerging global value chains, and maximize prosperity while pursuing decarbonization. If Ontario embraces this unique alignment, the future is bright.

The Panel envisions a bright future for Ontario if it embraces global and local trends through emphasis on five key themes, further developed in the following sections of this report:

Fostering true partnerships

A successful future Ontario will foster meaningful Indigenous participation and partnerships in clean energy projects, including both energy infrastructure and energy efficiency, conservation and demand management initiatives. It will include Indigenous perspectives, participation and collaboration at the earliest stages of energy planning at the community, regional and provincial levels, and in the governance of key energy entities. It will build durable capacity in Indigenous communities, including stable capacity funding to support meaningful and ongoing Indigenous engagement, consultation, participation, and partnerships.

Most of the proposed solutions for achieving a clean energy economy rely on using Indigenous lands and resources to build clean and renewable energy infrastructure and extraction projects. The energy transition in Ontario provides an unparalleled opportunity for meaningful inclusion and collaboration with Indigenous communities from the beginning of what is likely to be an incredible transformation with generational effects.

Delivering integrated energy planning

The future of long-term energy planning in Ontario is integrated, led collaboratively by government, and considers the relationship between electricity, natural gas, and other fuels in a holistic way. A transformed planning process will deliver certainty and predictability to align actors across the energy sector – and the economy – in striving for a common goal of a clean energy future without straying from the sector’s imperative to ensure an affordable and reliable supply of energy, that supports the province’s prosperity. Ontario’s new planning process will embrace collaboration, innovation, flexibility and creativity in meeting Ontario’s energy needs.

Building accountable governance

A successful alignment of Ontario’s energy system with the opportunity of a clean energy economy means that the agencies and institutions governing the energy sector can embrace innovative technologies and solutions and pursue objectives that support electrification and the energy transition. Accountable governance will involve measuring progress toward our clean economy goals with flexible, non-prescriptive metrics and deep, ongoing engagement with stakeholders and Indigenous partners.

Centering consumer perspectives

Successfully achieving our long-term goals requires centering and embracing the perspectives, objectives and concerns of energy consumers. A durable energy transition is paced properly and managed carefully to maintain affordability, reliability, resilience, and consumer choice. Aggressive decarbonization policies have triggered backlash and discontent in other jurisdictions when they ignore the needs, preferences and vulnerabilities of customers. It is essential to bring people along on this journey, through ongoing community, customer and citizen support and transparent communication, public education and meaningful and accessible engagement.

Maximizing economic prosperity

Embracing this unique alignment means that Ontario can lead in a clean energy economy future. The province can capture its share of the massive investment that is needed to electrify and decarbonize the world. By using an integrated energy, economy and technology lens, Ontario can link the significant changes in the global energy landscape with prosperity right here at home. It can become the jurisdiction of choice for low-carbon manufacturing of a broad variety of clean economy products, leading to enhanced productivity, better-paying jobs and export growth. This in turn could lead to a new wave of technological advancements made here in Ontario and designed to capitalize on the changing tides of the energy transition.

Our goal should be the development of a clean energy economy, supported by a provincial energy system with abundant, reliable, affordable, sustainable energy. The time is now to take advantage of this alignment and create a prosperous and inclusive future for Ontario. It will require a commitment to forward-looking, future-oriented and collaborative governance that anticipates where the sector is going and deploys the tools to strategically pursue those opportunities.