Market Snapshot: Why Does Canadian Energy use Decline in Energy Futures 2021?
Release date: 2022-04-27
In Canada’s Energy Future 2021 (EF2021), total Canadian energy use declines 21% from 2021 to 2050 in its primary scenario (Evolving Policies ScenarioFootnote1). A frequently asked question about this result is why, after a long history of Canadian and global energy use increasing, do we project energy use to fall? The answer has to do with energy intensity and policy assumptions.
Canada’s energy intensity has been declining for many years
Energy intensity is a measure of energy use per unit of activity. Two common measures of energy intensity are energy use per $ of Gross Domestic Product (GDP) and energy use per capita (per person). In the Evolving Policies Scenario, Canada’s population and economy are both growing, but energy use per person and GDP are declining. Figure 1 compares the historical and Evolving Scenario projections for total energy use and energy intensity.Footnote2 From 2005 to 2019, Canadian energy use per $ GDP fell an average of 1% per year. In the projection period, this trend accelerates: GDP intensity declines nearly 2.5% per year in Evolving Policies. Population intensity shows a similar trend.
Figure 2 compares the year-to-year change in the three variables, showing their percentage change from 2005 levels.Footnote3 It shows the change in trend for energy use, compared to the declining trend for the energy intensity values in both history and the projection.
Figure 1: Comparison of Energy Use and Energy Intensity Trends, Average Annual Growth Rate
Description: This bar chart compares Canadian annual average growth in energy use, energy use per $ of GDP, and energy use per person for two time periods: historical (2005 to 2019), and projected (2022 to 2050). The years 2020 and 2021 are left out of these calculations to avoid distorting the growth rates with the sharp downturn and rebound associated with the COVID-19 pandemic. It shows the energy demand trend switching from increasing in history (growing an average of 0.6% per year) to declining in the Evolving Policies Scenario (declining nearly 1% per year). Energy use per GDP and energy use per person decline in both the historical and projected periods.
Figure 2: Percent of Growth from 2005: Energy use, Energy use per $GDP, and Energy use per Person
Description: This line chart compares the Canadian percentage growth in total energy use, energy use per $ of GDP, and energy use per person relative to 2005. It shows a declining trend for the energy intensity values in history and the projection. Total energy use grows during history but declines in the projection following recovery in energy use from the 2020 downturn associated with the COVID-19 pandemic.
Policy assumptions play a big role in projected declines
So, what’s driving these declines in energy use and energy intensity? Many factors can affect energy use and intensity, including policies, energy efficiency improvements, and structural changes in the economy.
In the Evolving Policies Scenario, for example, the underlying policy assumptions play a big role in reducing energy use across the economy. The increasing carbon price makes it more expensive to use fossil fuels, so people use less of them. The switch to electric vehicles, driven by strong climate policy, leads to lower energy use, as battery electric vehicles are far more fuel efficient than vehicles with internal combustion engines.Footnote4 Buildings become more efficient as clean building codes cause a shift towards higher efficiency devices, heating systems, and building envelopes.
Another factor that contributes to declining energy use is crude oil production slowing and eventually declining in the Evolving Policies Scenario. This is a major change from the large increase in production, and associated energy use, seen in recent history. Finally, structural change of the economy will play an important role in energy use trends, such as the shift towards service industries.
Emerging areas contribute to uncertainty
Of course, there is uncertainty associated with these projections. While decreasing energy intensity can play a key role in shifting to a lower emitting energy system, emerging technologies such as low carbon hydrogen, carbon capture and storage, and direct air capture could have significant energy requirements. If these technologies play a greater role in Canada’s energy transition, it could lead to higher energy use than shown in the Evolving Policies Scenario.
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