Energy transition

An energy transition is a move away from carbon-intensive energy sources to low-emission ones. It means shifting from energy that relies on fossil fuels—like coal, oil, and natural gas—to energy from a mix of cleaner sources, like hydro, wind, solar, biomass, or geothermal power.

This transition has been going on for some time in Canada and continues today.

Fossil fuel production or combustion generates emissions that contain GHGs, such as carbon dioxide and methane. These gases drive climate change, whereas cleaner energy sources do not.

Why is transitioning to a low-carbon economy important?

The transition is important for three main reasons:

1. To avert the worst effects of the climate crisis

Emissions from dirty fuels are heating the atmosphere and changing the climate. These changes lead to extreme weather events, rising sea levels, damaged ecosystems, food and water shortages, displaced people and more.

2. To ensure energy security

Energy security refers to a country’s ability to produce enough uninterrupted power to meet its needs without relying on other nations. It protects national security by reducing a country’s vulnerability to external disruptions and market volatility. Sustainable energy sources are a better choice in this respect. Orderly and timely transition, notably concerning the role of natural gas in the transition, also contributes to energy security and affordability.

3. To grow our economy

Investing in renewable energy and nuclear power drives innovation, reduces energy costs over time, and—as prices fall—helps Canada be more resilient to price volatility and supply disruptions.

What are Canada’s energy transition goals?

Canada's current goal is to achieve net-zero greenhouse gas emissions by 2050. The interim goal is to reduce emissions by 40% to 45% below 2005 levels and phase out coal-fired electricity by 2030.

How best to reach these targets is a matter of ongoing discussion, with frequent disagreement among provinces and political parties.

“There is broad agreement on the goal to decarbonize, but the pace and manner continue to be debated,” says Shannon Glenn, Lead, Public Policy and Strategic Initiatives, BDC.

That said, the Canadian Climate Institute recently found that Canada’s emissions are 7% lower than 2005 levels overall.

As the shift continues, some businesses will notice these decarbonization efforts affecting their operations (for example, as the prices of different energy sources fluctuate). In contrast, others may discover opportunities to capitalize on the shift.

Examples of the energy transition

Key steps in the transition include:

• improving energy efficiency
• electrifying sectors with high levels of emissions, like transportation (electric cars instead of gas-powered ones) and buildings (heat pumps instead of gas furnaces or boilers)
• modernizing our energy infrastructure, for instance by expanding electrical grids and building smart grids to optimize how we produce, distribute and consume electricity
• developing new clean energy technologies 

The shift requires policy and regulatory changes, financial investments, individual and industry-wide behavioural changes—and significant contributions from the supply chains that deliver the materials needed for these components.

How will the energy transition affect Canadian businesses?

Challenges and opportunities for Canadian businesses are typically:

• those related to your operations and environmental footprint
• those related to your ability to contribute to the transition as a supplier of goods and services, such as manufacturing of equipment and building supplies, warehousing, transportation and distribution of those materials, engineering services, and construction

Whether a business experiences one, both or neither will depend on its sector, products, services and markets.

Changes in operations

Many businesses can save costs and/or avoid risks by integrating climate considerations into their business strategies, transitioning to renewable energy sources, and finding ways to be more energy efficient—for example, by upgrading their lighting and heating systems.

The transition is also a chance for businesses to differentiate themselves in the market and build brand loyalty by making their operations more environmentally friendly. There is a business case for sustainability.

Businesses that implement changes ahead of regulations or market forces may gain a competitive advantage.

The transition will create opportunities

Not all businesses operate in sectors that will position them to pursue opportunities related to the energy transition, but those that do could benefit from:

• There is a chance for growth through technology development and innovation as the transition drives demand for solutions in clean tech, renewable energy, and energy efficiency. These opportunities will likely appear in the construction and automobile manufacturing energy management sectors.
• The chance to supply the materials, equipment and services needed to grow electricity grids, transform the built environment, and support the electrification of the transportation sector.
• Greater market access as consumers and investors increasingly favour sustainable products. Companies that lead the way may access new markets focused on low-carbon products. They may also find it easier to enhance their brand reputation and attract investors.

Glenn says these companies can look for gaps in the supply chains and aim to fill them. For example, various materials, products and services will be needed to expand electrical grids across the country and retrofit buildings to use sustainable energy sources.

“Growing the electricity grid and transforming the built environment are two of the largest areas of economic activity for SMEs as suppliers of building materials, equipment, services, particularly construction, services and technologies,” says Glenn.

Finding opportunities in the energy transition

Updating Canada’s power grids will be a significant growth area over the next decade. The estimated cost to utilities across the country is $1 trillion to $1.7 trillion—nearly twice the size of the entire Canadian economy in 2023. Rural and urban grids must double or triple in size to generate enough power.

Many provinces are planning significant power system upgrades. Northern areas want to rely less on diesel. Biogas, green hydrogen and wind projects are scheduled for Atlantic Canada. These projects will require new installations, including those for hydrogen, wind, geothermal, biomass, hydro and solar power.

SMEs can provide building materials, equipment, services and technology for these projects. Those specializing in construction or building materials innovation, grid management, or energy storage will play central roles, and companies in the manufacturing, engineering, warehousing and distribution, and trucking sectors may see opportunities.

Digital start-ups will also help maximize the use of physical infrastructure and support the build-out of electrical and other infrastructure, including changes to the built environment.

Many new energy projects will be built on or across Indigenous lands and involve Indigenous partnerships. Indigenous participation, leadership and entrepreneurship are already key to the success of these projects.

How can businesses prepare for the transition?

In addition to opportunities, the energy transition may also deliver challenges for businesses, such as:

• the need to retrain workers, especially in sectors like clean energy or digital technologies
• the need to rethink supply chains to incorporate low-carbon materials, reduce emissions, improve efficiency and be more resilient
• the need to improve processes, streamline operations and innovate to be best positioned for opportunities that arise
• uncertainty about exactly when these opportunities may present themselves

You may be able to manage these by making proactive changes—which could turn them into opportunities.

For example, businesses that move early to reskill workers and rethink supply chains may gain a competitive advantage.

Although there are some uncertainties about how and how fast the transition will occur, it will happen.

The take-home message? Start thinking now about how important the energy transition is to your business, says Glenn—whether in terms of your operations or because there may be chances to contribute or profit (or both).

“Think about the range of opportunities that exist, educate yourself on how to access them, and make a business decision around whether you want to be an early actor,” she says, “because there's an opportunity to capture market share.”

Next step

Find everything you need to reduce your company’s carbon footprint in BDC’s Climate Action Centre.