More eggs, more baskets: Reducing Canada’s vulnerability to U.S. tariffs should start in the communities most affected

U.S. President Donald Trump may have thought tariffs would push Canada toward greater integration with the U.S., but they have done the opposite. Canadians are avoiding American products, cancelling vacations and even selling their properties down south.

Some still hold out hope for negotiations with the Trump administration despite the continually changing goal posts, broken promises and threats to Canada’s sovereignty.

Others are convinced that Canada can win concessions by fighting back with counter-tariffs and other punitive measures despite the challenge of meaningfully affecting an economy more than 10 times the size of ours.

Canada may not be able to control what the U.S. does, but we can start to do the work needed to reduce the economic leverage the U.S. has over us. While buying Canadian can help, our internal market is not big enough to support our economy. Diversifying the countries we export to and the products we export will be critical.

This will not be easy. It will be particularly challenging for the people in the communities most affected by tariffs.

Governments can help these communities weather the short-term impacts while working to reorient local economies and, at the same time, build national resilience.

Canadians may finally have the determination needed to diversify

Canadians feel betrayed by a country that, for many of us, includes family members, friends and colleagues. Canada has signed multiple free trade agreements with the U.S. in good faith, allowing private companies on both sides of the border to pursue mutually beneficial transactions. The current situation also feels different from previous trade disputes, since President Trump is openly undermining our sovereignty.

Most Canadians do not want to be American and will do whatever it takes to defend our sovereignty.

Reducing the economic leverage the U.S. has over us will be critical. We have put most of our eggs in one basket with U.S. free trade, expecting our long-time ally to hold up its end of the bargain.

Since we can no longer count on the U.S., we need to find more eggs and more baskets. Even if the U.S. dropped its tariff threats tomorrow, our eyes will have been opened to the risks. Preserving Canada’s sovereignty means working with the private sector to reduce our dependence on the U.S.

But export diversification will be hard — like fighting against gravity. We live next door to the biggest economy in the world, and selling to the U.S. has been easy, convenient and lucrative.

In the short term, Canada’s economy could become smaller, and Canadians could have a lower standard of living. But in the medium to long term, changing both what we produce and who we produce it for could result in a stronger and more resilient economy – and country.

To reduce U.S. leverage over Canada, we need to increase exports to other markets

Canada sold $547 billion worth of goods to the U.S. in 2024 (see figure 1). That same year, we sold $173 billion to other countries. That means that 76 per cent of Canada’s goods exports went to the U.S. Rebalancing that equation so that the U.S.’s leverage is reduced is going to take a lot of work.

Figure 1. The baskets: 76 per cent of Canada’s goods exports went to the U.S. in 2024

Source: Statistics Canada, Table 12-10-0173-01.
Notes: Based on domestic exports, or goods grown, produced, extracted or manufactured in Canada, including foreign goods that have been materially transformed. Excludes imported products that are exported without significant changes (re-exports).

Oil and gas, vehicles and auto parts make up our top exports to the U.S. (see figure 2). These exports account for a major share of Canada’s GDP and employment. In 2022, 74 per cent of oil and gas produced, and 54 per cent of transportation equipment manufactured in Canada went to the U.S.

Canada has already taken a major step toward exporting our oil and gas to other markets with the opening in 2024 of the expanded Trans Mountain oil pipeline, or TMX, that runs from Alberta to the West Coast and the Coastal GasLink pipeline that runs from northeast B.C. to the LNG Canada facility in Kitimat, which is set to begin shipping in 2025. However, the maximum capacity of TMX is only around 18 per cent of November 2024 Canadian crude oil production, with the potential to reach 23 per cent if changes are made, such as adding pump stations. There is also the possibility of building a northern leg of the TMX pipeline to ship oil to Kitimat, though there would likely still be fierce opposition to oil tankers in the Douglas Channel. The LNG Canada facility will have the capacity to process around 11 per cent of Canada’s natural gas production, and several other LNG facilities are planned that could dramatically increase Canada’s ability to export to non-U.S. markets.

Shifting auto manufacturing to non-U.S. markets is more challenging given the close integration of the Canadian and U.S. sectors. However, auto parts suppliers, such as Magna International, Linamar and Martinrea International, could potentially grow exports to other markets.

Figure 2. The eggs: Top 15 products Canada exported to the U.S. in 2024 and the corresponding imports of those products from the U.S. into Canada (CAD billions)

Source: Innovation, Science and Economic Development Canada’s Trade Data Online tool.
Notes: Product are grouped based on the World Customs Organization’s Harmonized System codes. Based on total imports and exports, which include domestic exports and re-exports.

Canada needs both market diversity and product diversity

Selling Canada’s dominant sources of exports to other countries will not be enough to improve our resilience, as the oil, natural gas and auto sectors are also susceptible to global market disruption. For example, Canada could build multiple oil pipelines to its East and West Coasts only to face a decline in global oil demand as China, Europe and other countries move to electric transportation and clean energy. Electric vehicle battery technologies are also evolving, which could bring disruption to manufacturing plants focused on lithium-ion battery manufacturing. Resilience requires both diversifying whom Canada sells to and what it sells.

In looking at options for whom we sell to, a 2021 analysis by Export Development Canada provides some helpful insights. It identified substantial possible export opportunities for Canada, assuming that policy risks, free trade agreements and cultural proximity remain unchanged (which is obviously no longer the case). The total non-U.S. opportunities that Export Development Canada identified would add up to less than one-third of the value of current Canadian exports to the U.S. (see figure 3). Still, capturing those opportunities could double Canada’s exports to non-U.S. markets. But there are geopolitical considerations in non-U.S. markets as well, with China and India representing some of the largest opportunities.

There could be greater potential if Canada also diversifies and expands the goods we produce. Markets that have more growth certainty over the course of the century could be good bets. These include critical minerals, battery materials, agriculture and agri-food, uranium and potash.

Figure 3. Canadian export opportunities in 2030 for goods and services (USD billions)

Source: Export Development Canada’s 2021 Markets of Opportunity for Canadian Exporters.
Notes: Based on Export Development Canada’s modelled short-term export opportunity (2030) between Canada and all other countries with which trade is foreseeable. Major trading partners and identified “hidden gems” are highlighted. Hidden gem markets are those whose structural conditions could allow Canada to increase its exports right away.

Another good bet is that global defence spending will grow, including in Canada. Canadian companies could capture some of these opportunities, which often lead to civilian applications.

Technology is an additional area where there is room to better capture global market opportunities, including in clean technology, biotechnology and artificial intelligence.

And we should not forget about the potential for growth in service exports, where Canada has done a better job of diversification over the past decade.

Buying Canadian can help, but there are limits

Canada is the 10th largest economy in the world but ranks 37th in terms of population. We will not be able to maintain our standard of living without a significant focus on exports. That means that it is in our interest to champion unfettered, rules-based trade around the world. Trade agreements come with an understanding: each country benefits from a reduction in trade barriers and increased access to the others’ market. When Canadians are open to buying international goods, our market is more attractive for trade agreements. We do not want that to change.

For example, Canada is on the cusp of a comprehensive trade agreement with the European Union that offers enormous economic potential. With the agreement provisionally implemented in 2017, Canada’s exports to Europe increased by 31 per cent between 2016 and 2023. Our imports from Europe increased by 56 per cent over the same period. Ten European Union countries, including France and Italy, have yet to ratify the agreement. Strong Canadian demand for their products could help seal the deal.

When a country — such as the U.S. — threatens to violate existing trade agreements, it may be possible to benefit from a “buy Canadian” sentiment to shift consumption away from U.S. imports toward Canadian alternatives. It could be particularly helpful to Canadian companies that lose business from tariffs. The most significant impact would come from governments and large businesses shifting suppliers, but individual consumers can collectively have an impact too by shifting purchases of food, alcohol and household products.

Of course, it would be much easier to buy Canadian if we were to accelerate the reduction of interprovincial trade barriers. According to a 2019 International Monetary Fund report, Canada’s internal trade barriers are equivalent to a tariff of around 21 per cent. The Canadian Free Trade Agreement, launched in 2017, established several areas to tackle, including labour mobility, procurement, regulatory reconciliation and co-operation and trade in alcoholic beverages. There have been some notable successes, such as the agreement to harmonize energy efficiency requirements for appliances, but progress in other areas, such as alcoholic beverages, has been slow.

Following the threat of U.S. tariffs, Anita Anand, the federal minister responsible for internal trade, promised to accelerate the removal of internal trade barriers and recently announced the removal of almost half of the remaining federal exceptions to the internal trade agreement.

Buying Canadian can and will help, but we should not lose sight of the strategic importance of strong trade linkages with countries around the world.

Reorienting trade will be harder for certain communities

IRPP research undertaken for our Community Transformations Project shows the importance of thinking not just about affected companies and their workers but also about communities.

Communities with a high concentration of employment in one sector can see significant impacts when a major employer suffers. There could be worker layoffs, cancelled contracts for suppliers and lower spending at local restaurants and businesses. Municipal governments can also struggle if tax revenues decline substantially, and non-profit service providers might see reduced donations at the same time as they experience an increase in demand for their services. Home prices can also drop, making it more difficult for families to afford to move.

The consequences for people in these communities are not just economic. Families can also face significant financial and mental stress.

This means that any plan to reorient Canada’s trade patterns needs to build in a range of community supports that cover economic, financial and social needs.

Rather than looking at the implications of specific tariff proposals, which are still in flux, we look at community susceptibility to U.S. tariffs using a similar approach to our analysis of susceptibility to the energy transition. We select sectors with significant exports to the U.S. and identify communities (or census divisions) with more than 5 per cent of their workforce employed in those sectors (see figure 4).

For example, communities with high concentrations of employment in oil and gas production include Fort McMurray and Cold Lake in Alberta and Fort Nelson in British Columbia. Communities with high concentrations of employment in auto manufacturing include Ingersoll and Windsor in Ontario. Sault Ste. Marie, Ontario and Sept-Îles, Quebec have high concentrations of employment in steel and aluminum, respectively — sectors that could face tariffs of up to 50 per cent.

While the Trump administration has proposed a 10 per cent tariff on energy and minerals, lower than the 25 per cent he has threatened to place on manufactured goods, there is no guarantee that he will stick to that. It has become clear that any sector that depends on exports to the U.S. could be vulnerable to an unpredictable president.

Of course, impacts on these communities could be reduced if the U.S. decides to implement lower tariffs, if U.S. buyers struggle to find alternatives or if Canadian companies have ready access to alternative export markets.

The biggest impacts of the trade dispute may be felt as companies reduce investment in Canada, U.S. buyers adjust supply chains or businesses in Canada decide to relocate. Even if there is a reprieve from tariffs, the uncertainty could significantly dampen investment for some time.

Figure 4. Canadian communities with high concentrations of employment in sectors susceptible to the impacts of U.S. tariffs

Source: IRPP calculations based on census 2021 data.
Notes: Limited to census divisions where more than 5 per cent of workers were employed in the corresponding industries in 2021.
*When grouping employment in oil and gas extraction with support activities, we excluded census divisions with more employment in mining than oil and gas extraction because the support industry (NAICS 213) captures contract services for both those industries.

Governments can lessen the blow of economic transformation

If the U.S. tariffs are implemented, a certain amount of short-term harm will be unavoidable. But federal and provincial governments can help reduce the magnitude and duration through several key measures:

Incentivize company investments linked to market or product diversity. Canada has already experimented with investment tax credits to encourage the development and adoption of clean technology and energy. A similar tax credit covering 30 per cent of the capital costs of eligible investments in the technologies, transportation and equipment needed to reorient or develop new exports to non-U.S. markets could help accelerate diversification. It could also apply to expanding processing and value-added capacity in Canada. Provinces could introduce their own incentives.
Accelerate investments in trade and transportation infrastructure. The Canada Infrastructure Bank (CIB) has made some significant investments in trade and transportation infrastructure, including the expansion of the Prince Rupert port in British Columbia. Because the CIB catalyzes private investment, its projects require less public expenditure. The CIB has also successfully partnered with Indigenous communities on several projects.
Identify ways to boost domestic demand for affected products. Governments can boost procurement of Canadian-made products affected by tariffs and accelerate plans to reduce interprovincial trade barriers. For example, Canada Post — with one of the largest fleet of vehicles in the country — could source electric delivery vans from the GM’s CAMI plant in Ingersoll, Ontario. Interprovincial trade barrier reductions could prioritize the sectors most affected.
Help affected communities develop strategic economic development plans. Communities that depend on U.S. exports may need to re-evaluate economic development plans and consider how they can adapt. Previously, the IRPP proposed expanding federally funded Community Futures Organizations to provide more on-the-ground support for community-led strategic economic development in communities undergoing economic transformations.
Make it easier for affected workers to access income support. Programs meant to support workers through job loss, such as Employment Insurance (EI), may not be nimble enough to respond to concentrated impacts in small communities. For example, jobless benefits are not available or are hard to get for self-employed and part-time workers, who may be impacted indirectly if the slowdown of economic activity cascades in ways that affect suppliers and local restaurants. Making it easier to qualify for EI and increasing benefits could dampen the economic shock on a community. Now would be a good time to revisit EI modernization, which the federal government promised to do in 2021 but has only made minor progress to date.

With the support of governments at all levels and the engagement of the private sector and communities, Canada can eventually emerge from the current turmoil with a stronger and more resilient economy that supports a high standard of living across the country for decades to come.

Canadian Independence

The following is a chapter from the 1979 IRPP-Harvard University book, The Future of North America: Canada, the United States, and Quebec Nationalism. Edited by Elliot J. Feldman and Neil Nevitte. Walter Gordon (1906-1987) was an influential Canadian accountant, businessman, philanthropist and politician who served as Minister of Finance under Lester B. Pearson.

Two central issues concern Canada today, one domestic and one foreign. The domestic issue is the “Quebec problem”; the foreign issue is economic, especially foreign ownership of Canadian companies and resources.

The Current Canadian Economy

Let me begin with the foreign problem. The annual merchandise trade between our two countries is the highest of any two countries in the world. Adding imports and exports together, it amounted to over $50 billion last year. However, Canada’s exports to the United States (more than two-thirds of Canada’s total exports) are to a large extent made up of industrial raw materials, whereas U.S. exports to Canada (close to one-quarter of total U.S. exports) are largely in the form of manufactured goods. In other words, the United States has a considerable advantage in the labor content of exports.

When we take into account such invisible items as interest and dividend payments on U.S. investments in Canada, freight and travel charges, etc., Canada has incurred a deficit in its current account transactions with the United States in every year over a very long period. These deficits have been reduced to some extent by surpluses with some other countries and, much more importantly, by the capital that has come to Canada, largely from the United States.

The Canadian economy is extremely sluggish at the present time; Canada is, in fact, on the verge of a recession:

The Gross National Product in real terms dropped in the second quarter of 1978.
Unemployment is running at a seasonally adjusted rate in excess of 8%, the highest it has been since the days of the Great Depression.
Wage rates in many manufacturing industries are higher than in the United States, despite the fact that productivity in Canada is much lower than in the U.S.
The rate of inflation has been rising again and is presently said to be about 7.5%.
For the first half of 1977, the deficit on current account in the Canadian balance of payments was running at an annual rate of$6.5 billion. In U.S. terms, this would be the equivalent of a current account deficit of more than $65 billion in a full year.

It is true that all the oil-importing countries, including the United States, have had balance of payments problems since the oilproducing countries (OPEC) raised their prices so dramatically in 1973, but that does not make the Canadian problem any easier. It is not much wonder that the Canadian dollar, which in 1976 was at a premium in terms of the U.S. dollar, was in July 1978 down to about 88 cents U.S.

Foreign Control of the Economy

There is no doubt that foreign capital (mostly American) helped to develop the Canadian economy much more rapidly than would otherwise have been the case. (By foreign capital, I mean a package that apart from money, included management, scientific and technological know-how, and in many cases an assurance of markets for the raw materials or goods to be produced.) The economy of the United States was developed in much the same way with the aid of foreign capital in the nineteenth century (mostly from Britain). But in those days, the capital came in the form of bonds and other fixed-term securities which the United States was able to pay back out of profits.

In Canada’s case, the capital came in the form of equity which ensured continuing control in the future to those who put up the funds (mostly enterprising American corporations). It is this continuing foreign control of the most dynamic industries that concerns Canadians, especially as these industries continue to expand. Many Canadians believe that non-residents control too much of their resources and their business enterprises. Foreign control accounts for approximately 60% of all manufacturing companies, 70% of all mining enterprises, 99% of petroleum refining, 80% of the oil and gas industry (including exploration and development), 95% of the automobile industry, 90% of the rubber industry, 80% of the chemical industry, three-quarters of electrical apparatus, and so on.

In an article in the August 1977 issue of Fortune, entitled “Why the Multinational Tide is Ebbing,” it is asserted that “some kinds of American corporations are still powerhouses abroad, but the basic attractions of overseas investment have vanished.” The article suggests that the urge for U.S. corporations to make direct investment abroad is declining.

In a reference to Canada, the article states:

Ironically, Canada, which among advanced nations is perhaps the most rabidly opposed to American investment, may have the most to lose from discouraging this investment. It can be argued that the more foreign investment a country has, the more it is likely to benefit from additional investment. The inflow of foreign capital raises the productivity of domestic labor by increasing the amount of capital per worker. Hence real wages rise. At the same time, the new foreign investment should increase domestic competition, driving down prices and thereby lowering the returns to capital. If the capitalists are mostly Americans, which is overwhelmingly the case in Canada, then additional U.S. foreign investment would logically transfer income from American business to Canadian labor and consumers-a circumstance that most Canadians should applaud.

I have three comments to make about these assertions:

If Canada is “rabidly opposed to American investment,” it is surprising that nothing of substance has been done to restrain it.
If “inflow of foreign capital raises the productivity of domestic labor …,” why is productivity in Canada so very much lower than it is in the United States?
If “the new foreign investment should increase domestic competition …,” why has this not been the case?

The article reads like an apologia for U.S. multinational corporations. It is unconvincing to a Canadian like myself. There are many reasons why I believe excessive foreign control of the Canadian economy is not in Canada’s best interests. But here I will concentrate on only two of them.

As I have said, some 60 % of all Canadian manufacturing is controlled abroad. A typical Canadian subsidiary may be encouraged or directed by its parent corporation to import parts or materials from its parent or the latter’s associates instead of developing alternative sources of supply in Canada. Moreover, a typical Canadian subsidiary frequently is not permitted to develop export markets for its products, including markets in the United States, in competition with its parent. While this prohibition is quite understandable, it tends in both cases to reduce job opportunities in Canada and to increase the deficit in the balance of payments.

The largest manufacturers in Canada, as in the United States, are the automobile companies whose operations come under the U.S.Canada auto pact. According to a recent review of the financial statements of General Motors Corporation (worldwide) and General Motors Canada, the Canadian subsidiary assembled 8.3% of all the vehicles produced by the corporation. However, it does considerably less actual manufacturing than is done in the United States. Consequently, it accounts for only 4.2% of worldwide employment and 4.5% of worldwide payrolls. The Canadian company’s payroll represents only 12.5% of the manufactured cost of a car in Canada compared to 33.9% worldwide. It follows that while General Motors is assembling a large number of vehicles in Canada, it is not doing a satisfactory job in terms of employment opportunities.

Consider also the influence of the principal oil companies in Canada, most of them subsidiaries of large U.S. corporations. Prior to 1970, Canadians were informed that they had conventional reserves of crude oil and natural gas that would last 900 and 400 years, respectively. Then, some four years later, new estimates warned of shortages. While both sets of estimates were announced by the Canadian government authorities, inevitably they were based on data supplied by the oil companies. The earlier estimates presumably were based on optimistic expectations of the amount of oil that would prove available in the Alberta basin. They came at a time when the oil companies were urging the Canadian government to persuade the United States to accept more imports from Canada. However, the hopes about the quantities of oil available in Alberta were not substantiated by drilling results. By the time the much lower estimates were announced, and with the new information available, the objectives of the oil companies had changed. By that time, they were urging the Canadian government to approve very substantial price increases, ostensibly to provide them with additional funds with which to step up their exploration activities in Canada.

Perhaps Canadian officials were naive in accepting data supplied to them by the oil companies; they at least might have told the public of the assumptions on which the estimates were based and the uncertainties surrounding such assumptions. Such caution regarding the accuracy of the estimates was of particular importance, as in both cases the reserve estimates supported the objectives of the oil companies at the time; in the first place, to justify increased exports to the United States, and in the second, to justify substantial increases in prices in order to stimulate exploration in the light of serious shortages. This may have been only a matter of coincidence. If so, it was a remarkably favorable coincidence for the oil companies.

Solutions to the Problem of Foreign Ownership

There are several alternatives for dealing with the foreign control problem. The one I have suggested from time to time is that members of the Canadian Parliament should express by resolution the view that the foreign owners of the larger Canadian subsidiary companies should gradually over a period of years sell out to Canadians. By “larger” I mean foreign-controlled companies with assets in excess of $250 million. At the end of 1973, there were only 32 of them, which would make the problem manageable. The seven or eight thousand other foreign-controlled Canadian companies would be left alone unless and until their total assets reached the $250 million mark.

I have suggested that the transfer of ownership should take place in stages over a period of years, beginning with companies in the oil and gas and other resource fields. An estimate of the total cost of the 32 companies in question would come to perhaps as much as $15 billion to be paid by Canadian investors (not the Canadian government) over a period of 10 years. This amount would be well within Canada’s financial capabilities.

It would be up to the owners to decide how the changes in control should be accomplished. In many cases, it would simply be a matter of selling the shares of their Canadian subsidiaries for cash through underwriters. In some cases, the Canada Development Corporation or some new federal or provincial agencies established for the purpose might buy control. In still others, it might be necessary to sell control not for cash but for some form of debentures redeemable over a period of years.

The advantages of this proposal would be that:

No legislation would be required and there would be no need for sanctions.
Only 32 companies would be affected.
The companies would not be nationalized.
It would be left to the foreign owners to decide how to go about selling the shares of their subsidiaries to Canadians. They would have plenty of time to work things out.

I should make it quite clear that the Canadian government has shown no disposition to do anything along the lines suggested. Nevertheless, the American Ambassador to Canada, Thomas Enders, has explained United States policy regarding such possible changes as follows:

The United States believes the free flow of private investment capital between countries can make a major contribution to the prosperity of each country, and should be interfered with as little as possible.

However, should a foreign country nationalize or buy into U.S. enterprise for an authentic public purpose, the United States would not oppose the transaction provided full, effective and prompt compensation is made.

Specific Causes of Tension

Let us consider some other specific matters that are now, or could in the future become, the cause of tension between our two countries.

There are no very serious or basic differences between Canada and the United States in the fields of defense and foreign policy at the present time. The U.S. government would have liked Canada to take an active part in the war in Vietnam and no doubt would like Canada to spend more money on defense. But from a Canadian point of view, this would not make sense.

Occasionally, Canada has taken initiatives in its foreign policy, which at the time may have appeared to be contrary to the then current posture of the United States. For example, after long negotiations, Canada established diplomatic relations with the People’s Republic of China in 1971. As things turned out, this was a useful prelude to the wholly identical relations that now prevail between the United States and China. However, in this world of superpowers, there are decided limits to what a country like Canada can do. Moreover, as your closest friends and neighbors, we think it fair to say that, as a rule, Canadian and American views and objectives are much the same. I do not expect serious tensions to arise in this general field.

There is the question of a common energy policy for North America which, from time to time, your government authorities have suggested. Canada has not thought this would be desirable from its standpoint. The amount of our conventional reserves of oil and gas is limited, and, even if Canada were to increase exports to the U.S., it would have only a marginal effect on U.S. requirements. Canadians who have any knowledge of the subject will expect their government authorities to safeguard Canada’s reserves for domestic use.

A recent issue of The Canadian Forum was devoted to a discussion of a gas pipeline from Alaska to the “lower 48,” i.e., to the central United States, through Canada. All the contributors opposed the construction of the pipeline at the present time. The reasons included the fact that, as far as Canada is concerned, only a disappointing amount of natural gas has been discovered so far in the Canadian Arctic; the prospects seem to be for greater discoveries in the south, in Alberta itself, than in the Mackenzie Delta. Other reasons for not proceeding with the project now are the desirability of settling the land claims of the native peoples before, not after, the construction of a pipeline, and the supposed damage the construction would do, both to the ecology of the region and the social mores of the natives. I have not agreed with these conclusions and, in a newspaper article published in June 1977, expressed my own views in the following terms:

An early decision on the pipeline issue is both necessary and desirable because the United States desperately needs the natural gas that has been discovered in large quantities in Prudhoe Bay, Alaska. From the point of view of the Americans, the best way of transporting this gas to the markets is by a pipeline through Canada.

Only limited quantities of Canadian gas have been discovered in the Beaufort Sea area (of Canada) so far, and the potential for further discoveries in the high Arctic may be less than in Alberta itself. It follows that Canadian requirements for natural gas can be taken care of from existing and potential reserves in the south for a good many years during which time the native land claims could be settled.

But the Americans are our friends and neighbors and surely it would be unthinkable for Canada to refuse them access to their gas in Alaska even if approval for a pipeline at an early date may complicate the settlement of native Canadian land claims. While it would be quite wrong for Canada to refuse permission for a gas pipeline to be built, we would be foolish not to point out to the U.S. the disadvantages to us in proceeding immediately rather than later and to make certain conditions to giving the necessary approvals.

In the first place, it should be agreed that any Canadian gas exported to the United States from now on under existing contracts should be repaid by equal quantities of Alaskan gas, at the same prices, as soon as the pipeline is completed.

Secondly, we should point out the effect a huge inflow of capital needed to finance the line would have on Canada’s balance of payments and the exchange rate for the Canadian dollar. This would be an ideal time to offset this inflow of capital by an equivalent outflow represented by the cost of acquiring control of some of the large foreign-owned companies in this country.

And thirdly, in the light of our present unemployment problem, we should insist that priority be given to Canadians and Canadian manufacturers in connection with all phases of the pipeline construction. There is no doubt that under present conditions, the construction of a pipeline from Alaska could do much to relieve the unemployment problem.

Finally, we should insist on measures to protect and safeguard the lives and social habits of the native peoples near the areas to be traversed by the pipeline.

Recently, President Carter and Prime Minister Trudeau announced that they had agreed upon the construction of a natural gas pipeline from Alaska through Alberta along the route of the Alaskan Highway. In doing so, they did not spell out the conditions as specifically as I for one might have thought desirable. However, it is now decided the pipeline will be constructed if it is approved by Congress and the Canadian Parliament. This removes what might have caused serious tensions between our countries.

Canada will be exporting large amounts of electric power to the United States when the huge development in James Bay is completed. Canadians do not seem to object any longer to the export of water power in the form of electricity. But any suggestion that Canada should consider the export of fresh water itself, even if at present it is being wasted in rivers or glaciers emptying into the Arctic or Pacific Oceans, would have Canadians up in arms. This may not seem logical to Americans. But then the United States’ tremendous arms exports to the Middle East and, formerly, Iran may seem to others to lack a certain common sense. In other words, the human animal is not always very rational in its thoughts or actions.

I suppose there will always be issues that affect particular industries in particular sections of the country and, therefore, provoke individual Senators or Congressmen to speech, if not to action. The recent row over Canada’s decision to disallow as deductions for income tax purposes payments to U.S. television stations for advertising beamed at Canadian audiences is a case in point. Two others that come to mind are disagreements over fishing rights and the question of pollution in the Great Lakes. But such issues are not of very serious proportions.

Conclusion

In conclusion, I always ask my American friends to keep in mind that, by and large, Canadians are your friends, your neighbors, and your allies. We are probably the best friends you have in this dangerous and troubled world.

But please remember that Canada is a separate, sovereign nation and wants to remain that way. We do not like it when American businessmen—sometimes with the best will in the world-treat Canada as if it were just another state of the Union.

I am not exaggerating when I say that we have great admiration for the United States and for all that Americans have accomplished. We acknowledge that we rely on the United States for our defense. We have no alternative, of course, in this age of superpowers.

But this does not mean we would like to become the fifty-first state of the Union. And it does not mean that the United States would have us, even if we did.

The best solution, I submit, is for each of us, Canadians and Americans, to respect one another’s independence—to try to understand each other’s problems—but whatever happens, to remain good friends.

NOTES

¹ Personal conversation between the Hon. Thomas Enders and the author.

A Methodology for Measuring Community Susceptibility

Introduction

As part of global efforts to avoid the most dangerous effects of climate change, the federal government has made international commitments to reduce national greenhouse-gas (GHG) emissions by at least 40 per cent below 2005 levels by 2030 and to achieve net-zero emissions by 2050 (Government of Canada, 2024). At the same time, other countries are taking action to reduce GHG emissions that are driving investments in new technologies, energy sources and services that will transform markets and shift trade patterns (IEA, 2024a).

The scale, scope and timing of the resulting economic and societal transformation over the coming decades carry a lot of uncertainty. However, the direction of change in many sectors is clear, irrespective of near- or long-term changes in Canadian policy. Using various analytical approaches that rely on both historical data and future scenarios, it is possible to identify Canadian communities that are likely to be susceptible to workforce disruption. Disruption could involve widespread job change, requirements for reskilling or upskilling, inflows or outflows of workers, worker shortages, adjustments to earnings or unemployment (see box 1).

Temporary workforce disruption may be positive for a community or region in the long run. For example, public and private investment in electric vehicle and battery manufacturing has expanded in southern Ontario, creating job opportunities. At the same time, some workers in the auto sector may require retraining to adapt their skill sets to the shift toward electric vehicles. In fact, some businesses in growth industries are concerned that a shortage of skilled labour and a lack of housing for workers could constrain the pace of growth (Ontario Chamber of Commerce, 2023; Statistics Canada, 2024a).

Governments at all levels can play a role in supporting workers, employers and communities to get ahead of change and build resilience. Identifying susceptibility at a community level could help federal and provincial governments better target investments in economic development, training and emission-reducing projects.

With this in mind, the Institute for Research on Public Policy (IRPP) has launched The Community Transformations Project, a multi-year initiative exploring the challenges and opportunities facing workers and communities, as well as actions that governments can take to better support them. The IRPP has a long history of research on government policies to support Canadian workers, including policies on skills and adult learning, Employment Insurance and more. Given the breadth and depth of this project, the IRPP has partnered with the Canadian Community Economic Development Network’s Community Data Program and The Energy Mix, and has engaged several external experts to undertake detailed studies to support and complement our work.

The goal of the project is not to predict the future but, rather, to explore areas of susceptibility and the policy actions that can build resilience. Through research, data analysis and interviews with people who work in the sectors and live in the communities likely to be affected, the project will gather information, insight and advice that can support government decision-making and empower workers and communities to successfully navigate the transformation in the years ahead.

A key part of the project is an interactive map of community susceptibility, which is based on a methodology that was developed over more than a year of data gathering, analysis and consultation with experts.

The following sections describe the methodology used to develop the map. The map and its associated data will be freely available on the IRPP website. Any feedback we receive will be used to make adjustments and continually improve its utility.

Mapping Susceptibility Provides a Foundation for Further Research and Analysis

The map ranks communities according to their susceptibility to workforce disruption associated with transformations likely to arise from efforts to reduce GHG emissions in Canada and around the world.

We focus on the likelihood of significant workforce disruption for two reasons.

First, there is a wide body of literature that examines the link between major shifts in local labour markets and changes in the socio-economic conditions of communities (Alasia et al., 2008; O’Hagan & Cecil, 2007; Vermeulen & Braakmann, 2023; Weaver et al., 2024). When a significant share of a local workforce is coping with disruption, there can be community-level impacts on the local economy as well as in areas such as housing (Notowidigdo, 2020) and the level of trust in government and community institutions (Wietzke, 2015).

Second, workforce disruption ties in closely to the evolving international dialogue on people-centred transitions, which are now viewed as essential to the success of energy system transformation at the pace and scale required to avoid the worst impacts of climate change (IEA, 2021). People-centred transitions focus on policy approaches that ensure decent jobs and worker protection; improve social and economic development; build equity, inclusion and fairness; and include people as active participants in the process (IEA, 2024b).

To measure susceptibility to workforce disruption, we selected a methodology that is not tied to a particular government policy direction or global emissions-reduction scenario. This approach allows for a more grounded discussion of the risks and opportunities, separate from current political and policy debates or assumptions regarding the pace of global market change. It also allows us to focus on the core concepts of community susceptibility and resilience — not the changes that are more difficult to predict and largely outside the control of local communities.

In communities where the proportion of workers directly exposed to disruption is high, there is also a greater chance of indirect disruption that affects the community more broadly. For example, if a large facility closes in a small community, it can also affect businesses that supply goods or services to the facility and its workers.

Our focus on workers who work directly in sectors and facilities that are more likely to be disrupted is a baseline estimate of the level of overall disruption a community might experience. Other factors can also influence worker outcomes including their age and education level, the community’s proximity to other population centres, and the pre-existing availability of training and support services. At the community level, there may also be planned investments that will reduce susceptibility that are not yet reflected in the data. For example, General Motors’ auto assembly plant in Ingersoll, Ontario, transitioned to manufacturing fully electric delivery vans, helping to improve the resilience of the community’s largest employer (IRPP, 2025).

To capture some of these other factors and local perspectives, we selected 10 communities across Canada to profile, using a combination of interviews with people who work and live in the areas that are likely to be affected, as well as local data analysis and research. Project team members are travelling to the communities to gather insights from local leaders. Communities were selected to ensure diversity across sectors and regions. A list of profiled communities can be found in Appendix A. Each profile will be available on the IRPP website as it is completed.

The mapping exercise and community profiles, as well as additional consultations and analysis, will be used to develop five policy briefs that look at specific actions governments can take to build worker and community resilience. The first brief looks at community-led transformation strategies and is available on the IRPP’s website. Additional in-depth studies will be published in 2025 and 2026.

Three Ways to Measure Community Susceptibility

Our methodology for measuring community susceptibility builds on previous research on potential employment implications of emission reductions. For example, some studies have focused on employment in fossil fuel production and distribution (Stanford, 2021). Others have looked at the share of community wages coming from emissions-intensive sectors, or the share of workers employed in sectors susceptible to global transformation (Chartered Professional Accountants Canada, n.d.; Samson et al., 2022). Economic modelling is another tool that is often used to estimate the possible change in employment associated with various climate policy scenarios (Clean Energy Canada, 2023; Navius Research, 2023).

Each approach has its merits and drawbacks. None capture all the potential sources of susceptibility, interactions or local nuances that play a role in worker and community outcomes. The IRPP and its partner organizations explored a variety of methodological options throughout 2023 and 2024, testing different approaches and consulting with external experts.

Ultimately, we landed on an approach that takes advantage of publicly available data to estimate the extent to which communities rely on sectors that are or are likely to be impacted by the transformation. To capture the various challenges communities could face, we selected three core metrics. Across the three indicators, we use the share of local employment or the presence of high-emitting facilities to estimate the relevance of these sectors to a community.

Facility Susceptibility (FS): Communities are ranked according to the emissions from large facilities divided by the size of the community’s labour force. A cement production plant, for example, could be a large emitter, employer, contractor and consumer in a small community.
Intensity Susceptibility (IS): Communities are ranked according to the average emissions intensity of sectors with employment in the community, weighted for the share of the local labour force in those sectors. For example, a community might have many small employers active in food manufacturing and truck transportation, two emissions-intensive sectors.
Market Susceptibility (MS): Communities are ranked according to the proportion of employment in export-oriented sectors that are undergoing or are expected to undergo major global market transformations. For example, communities with a high proportion of employment in auto manufacturing are not captured in the FS or IS metrics because most auto emissions are associated with the combustion of gasoline or diesel in a vehicle on the road, not the manufacturing of the vehicle. However, the global shift away from gasoline-powered vehicles to electric vehicles is creating significant market disruption that may lead to workforce disruption in communities with high proportions of employment in the sector.

In the absence of concrete thresholds for what makes a community susceptible, we focus on the communities with the highest scores. We rank the communities to help identify where to focus research and policy efforts.

Across the three indicators, there are a small number of communities at the very top of the distribution whose scores are significantly higher than the national mean. We place each community into one of six susceptibility groups — ranging from “Not susceptible” to “Most susceptible” — intended to capture these trends in the distribution of each of the metrics (see table 1).

The thresholds are designed to identify the highest-scoring communities across the three metrics using a standardized and easy to understand approach. Future research could identify other ways to group the data or alternative thresholds to measure different levels of susceptibility.

Applying these groupings across the three metrics allows us to compare communities between and within groups. We do not add all scores to derive a single susceptibility score for each community. That approach would require us to make assumptions about the relative importance or weight of each of the three types of susceptibility. Furthermore, combining the metrics would also obscure the source of susceptibility, which is important to validate the findings at the local level and develop a targeted policy response.

Instead, we calculate a fourth metric, which we call “top-scoring communities.” For this metric, we select the highest score across the FS, IS and MS indicators for each community. Communities identified as most susceptible in the top-score metric are among the top 2 per cent of communities in at least one of the three susceptibility metrics. For example, a community that scored in the top 2 per cent in the FS metric, in the top 5 per cent in the IS metric and in the top 5 per cent in the MS metric would be given a score of “most susceptible” based on its top 2 per cent FS ranking.

This approach will help governments and communities see the full picture of susceptibility without developing a complex index that loses the direct connection to on-the-ground realities.

To facilitate analysis and visualization at the national scale, we define communities as census divisions.^[1] The methodology could, however, be applied to any other census geographical unit. Census divisions have two advantages: they are sufficiently large to delimit a reasonable commuting zone in most parts of the country; and they cover the entire country, ensuring that we’ve captured urban, rural and remote communities and workers. See box 2 for a discussion of some of the limitations associated with using census divisions.

Our approach is meant to be transparent, replicable and verifiable. The data sources used are public and updated on a regular basis, which will also allow us and other researchers to track changes as new data become available.

As the IRPP receives feedback on the map and new sources of data, we will reflect on the approach and methodology and may periodically make adjustments. Other areas of the project, such as community profiles and policy briefs, may also provide insights or introduce new questions that lead us to analyze the data in a new way.

Facility Susceptibility

The Facility Susceptibility (FS) score for a community is calculated by dividing total emissions from large emitters (LEs) in the census division by the size of the community’s labour force.

Data sources

Facility-level data for 2021 were obtained from the “facility-reported greenhouse gas” dataset, part of Environment and Climate Change Canada’s (ECCC) Greenhouse Gas Reporting Program (ECCC, n.d.). The program requires facilities emitting more than 10 kilotonnes of carbon dioxide equivalent (CO₂e) to submit a report to the department (ECCC, 2023). Data are updated annually and include information about the facility, such as its name, location, reporting company and industry,^[2] as well as a breakdown of emissions by GHG. We refer to all facilities included in this dataset as LEs (table 2).

We exclude facilities in pipeline transportation (NAICS 486) because employment is likely to be spread out across multiple census divisions. Community emission totals were calculated by aligning the geographic co-ordinates of the individual facilities with the corresponding census division.

Census 2021 labour force counts by census division come from Statistics Canada. Labour force counts include all people aged 15 and older who were employed or unemployed at the time of response.

In 2021, there were 1,681 facilities that reported annual emissions of more than 10,000 tonnes of CO₂e to ECCC. Another 152 chose to voluntarily report their emissions despite not reaching the threshold (ECCC, 2023). Together, they directly emitted the equivalent of 285 megatonnes (millions of tonnes) of GHGs, or 43 per cent of all domestic emissions in that year.

Emissions from LEs are highly concentrated among a small number of regions and industries.^[3] The top 10 emitting facilities in 2021 (less than 0.5 per cent of facilities) were responsible for 22 per cent of all emissions from LEs. These included coal and natural gas power generation, oil and gas extraction, and pipeline transportation.^[4] These industries, along with petroleum refineries, produced the most emissions, accounting for more than 60 per cent of total LE emissions in 2021. Other high-emitting subsectors included metal, non-metallic mineral and chemical manufacturing, as well as mining and quarrying. The largest number of individual reporting facilities were in conventional oil and gas extraction, accounting for almost 40 per cent of the total (670 facilities).

More than half of emissions from LEs came from facilities reporting from Alberta (53 per cent), with the second- and third-highest proportions coming from Ontario (16 per cent) and Saskatchewan (10 per cent). Of the 293 census divisions in Canada, there were 78 with no reported large emitters in 2021.

Strengths of the Facility Susceptibility indicator

An advantage of the FS metric is that it allows for a direct estimate of industrial emissions at the community level. While regional emissions data are not publicly available through Statistics Canada, the ECCC Large Emitters Database (2024) includes the geographical co-ordinates of all facilities that report. Using spatial analysis software, we assigned each facility to a census division. We then calculated total emissions from LEs in a community by summing the emissions of all facilities located within the census division. Then we divided total census-division facility emissions by the number of people in the local labour force to calculate the facility susceptibility score (see figure 1 and table 3).

Due to their size, the nature of production or the availability of natural resources, large emitting facilities are likely to be located in rural or remote areas or small municipalities, away from large population centres. This is why our indicator is composed of both LE emissions in a census division, which approximates the magnitude of the decarbonization required, as well as the size of the census division labour force, which estimates how reliant the census division is on its large-emitting facilities. The presence of LEs in a community is a clear source of susceptibility because they are responsible for a disproportionately large share of all emissions.

In Canada, policies to decarbonize LEs are predicted to be the main drivers of emissions reductions by 2030 (Dion & Linden-Fraser, 2024). LEs are already subject to federal or provincial/territorial climate policies such as the federal coal phase-out regulations, the federal output-based pricing system, the Alberta Technology Innovation and Emissions Reduction regulation or the Quebec cap-and-trade system. Even if climate policies and targets change, Canada is unlikely to achieve meaningful emissions reductions without decarbonizing its largest emitters because they account for more than 40 per cent of domestic emissions.

Many facilities are also major exporters, exposing them to changes in global demand for their products or to trade measures such as the European Union’s Carbon Border Adjustment Mechanism aimed at ensuring that emissions-intensive imports of steel, aluminum, iron, cement, electricity, hydrogen and fertilizers do not erode the competitiveness of EU manufacturers subject to the EU emissions-trading system (European Commission, n.d.). Additionally, a growing number of countries are moving to decarbonize their heavy industries through the adoption of innovative technologies (United Nations Framework Convention on Climate Change, 2024). Facilities that do not decarbonize may be less competitive in the future (Canadian Climate Institute, 2021).

Limitations of the Facility Susceptibility indicator

One major limitation of this metric is that it does not account for how many workers in a community directly work in LE facilities. However, direct employment is only one factor in community susceptibility. For example, the facility may use local contractors for construction or catering. Employees might also be significant purchasers of goods or services from small businesses. Other businesses may rely on infrastructure developed for the facility, such as a port or rail line. Local governments might also benefit from property tax revenues, which support more public services and employment.

A more significant limitation is that census employment data may not always align with employment in large facilities. We use census employment data based on where people live, which will not capture workers who live outside the census division where the facility is located and those who travel to the census division for seasonal or temporary employment. For example, a worker who lives in Montreal but travels to a remote mining camp in northern Quebec for work would not be counted as an employee in the northern Quebec census division. The IRPP will undertake additional analysis using data based on where people work and their commuting patterns.

To fully understand the role of a large facility in a community, more in-depth community analysis will be required.

Intensity Susceptibility

The Intensity Susceptibility (IS) score for a community is equal to the average emissions intensity of sectors with employment in the community, weighted for the share of the local labour force employed (or last employed) in those sectors.

Data sources

National emissions-intensity data by economic sector come from the Canadian Climate Institute’s Canadian emissions intensity database, developed by 440 Megatonnes (Canadian Climate Institute, n.d.). To calculate the emissions intensity of Canadian sectors, the authors allocate national emissions from the National Inventory Report (NIR) across the responsible sectors and divide their emissions by the sector’s value-added (or GDP). This is the value generated by an industry in 2021, minus the cost of materials and services used in production, and comes from Statistics Canada’s Supply and Use Tables (Statistics Canada, 2024b).

According to international carbon accounting standards, emissions are grouped into three categories or scopes (see figure 2; Greenhouse Gas Protocol, n.d.). Scope 1 includes emissions produced in the facility or by company-controlled transportation. Scope 2 refers to emissions from electricity, heating, cooling or steam purchased by the company. Scope 3 captures embedded emissions across the supply chain.

In this case, the authors of the Canadian Climate Institute database, developed by 440 Megatonnes, allocate Scope 3 upstream emissions (such as those stemming from purchased inputs) to industries and distribute Scope 3 downstream emissions (emissions from the use of the final product or service) across 51 final demand categories for expenditure or exports (Stiebert & Sawyer, n.d.). They use industry-level energy and facility emissions data to map Scope 1 and 2 emissions from the NIR to specific industries, and the National Symmetric Input-Output Tables to model ways in which embodied carbon passes through supply chains (Scope 3 emissions). However, since the data do not include emissions associated with the use of products in other countries, the emissions intensity of some industries can sometimes be under- or overestimated (see limitations below).

In 2021, roughly 67 megatonnes of CO₂e were allocated across all three scopes to petroleum and coal product manufacturing, which includes oil refineries. This includes direct emissions from combustion during production, purchases of power and embedded emissions in all sector inputs. The emissions stemming from the use of products (e.g., asphalt, fuels and oils) are allocated across buyers, such as industries that use the products as inputs, or to final demand when they are exported or bought by households and governments.

Census 2021 labour force counts by industry (4-digit NAICS code) and census division come from Statistics Canada (2022b). Labour force counts include all people aged 15 and older who were employed or unemployed at the time of response. Since emissions intensity data are available for a selection of industries and industry groups (non-overlapping and covering virtually the whole economy), we aggregated census labour force counts to match when required.

We also used Statistics Canada’s 2021 Canadian Business Register (Statistics Canada, 2022a) to roughly estimate employment counts in industries not covered by our census data. Specifically, we broke down utilities (NAICS 221) into fossil fuel power generation (221112), natural gas distribution (2212), and water, sewage and other systems (2213). We excluded the rest of power generation (hydro, renewables and nuclear) because emissions-intensity data are available only for the parent industry group (2211 electric power generation), which would overestimate the susceptibility of employment in these subsectors. We also exclude employment in crop (111) and animal production (112), because employment counts are grouped together in census data as a combined subsector called “farms” (see limitations).

Based on total emissions across all three scopes, the highest-emitting industries in 2021 were oil and gas extraction, food manufacturing, petroleum and coal product manufacturing, and electric power generation. Some produce the bulk of their emissions during production (Scope 1), such as power generation. For others, such as food and petroleum, and coal product manufacturing, emissions are largely embedded in the materials they use in production (Scope 3; see table 4).

However, using emissions intensity, the focus of this indicator, the most emissions-intensive sectors in 2021 were animal production and aquaculture; water and sewage; iron and steel manufacturing; petroleum and coal product manufacturing; and water transportation.

These industries, along with the rest shown in table 4, produce the most emissions relative to the value of their goods. This may be due to the numerator (i.e., high emissions), the denominator (i.e., the low value of production) or both.^[5]

Since the database includes most economic sectors, all 293 census divisions have some employment in industries for which emissions intensity is tracked.

To calculate this indicator, we add scope 1-3 emissions intensity for each subsector and industry included in the Canadian Emissions Intensity database. We then calculate the average emissions intensity of subsectors and industries at the community level, weighted for share of local labour force employed (or last employed) in those subsectors and industries (see figure 3 and table 5).

Advantages of the Intensity Susceptibility indicator

Emissions intensity measures how many GHG emissions it takes to produce $1 worth of products and services. It is a reasonable proxy for sector susceptibility to Canadian and global efforts to reduce GHG emissions and market forces increasingly favouring lower-emitting production. A higher emissions intensity indicates the scale of exposure to emissions-intensive inputs that may see cost increases, climate policies or trade measures that could increase production costs, and shifts in market demand toward lower carbon products. As global efforts to reduce GHG emissions accelerate in the coming decades, companies that are less emissions-intensive are expected to be more profitable (Canadian Climate Institute, 2021). Companies with tight profit margins may also struggle to afford emissions reductions if large capital investments are required and low-cost financing is difficult to obtain (CCC, 2024).

Measuring the proportion of employment in emissions-intensive sectors indicates the dependence of communities on sectors that may be more exposed to increased costs. It provides a more complete picture of the community than the Facility Susceptibility measure because it captures small employers across a range of emissions-intensive sectors, including food manufacturing and truck transportation.

Of these sectors, those that export will face pressure from other countries with border carbon adjustments, currently in place in the EU and being considered by the U.K., Australia and Japan (World Bank, 2024). Sectors that don’t keep up with international competitors could face lower demand for their products as industries move to reduce the emissions intensities of their supply chains.

Additionally, some emissions-intensive sectors are subject to federal and provincial industrial carbon-pricing systems and regulations. Others may face increased costs from the purchase of fuels such as gasoline and diesel, which are covered by the fuel levy and the Clean Fuels Regulations. The cost of gasoline could increase by up to 54 cents per litre by 2030 under current policy plans.^[6] Companies that can shift to lower-emission fuels or alternative energy sources will be able to avoid these new input or transportation costs.

Even if the current policy mix changes, emissions-intensive sectors are more likely to be subject to domestic climate policies, international trade measures and competitive market forces.

Limitations of the Intensity Susceptibility indicator

Emissions-intensity data cover all domestic emissions across most economic sectors but are only available as a national average for a specific combination of subsectors and industry groups. While national average sector-emissions intensity serves as a reasonable estimate in most cases, it may underestimate or overestimate emissions intensity — and, therefore, susceptibility — of local facilities or companies that differ from the average.

For this reason, we adjusted the approach for certain sectors. For example, electricity sector emissions-intensity data are available for the electric power generation, transmission and distribution subsector (NAICS 2211), but not the industries it encompasses, which include both low-emission power sources such as renewable, hydroelectric and nuclear, as well as coal and natural gas electric-power generation.

Because the national average for the subsector is likely to overestimate the susceptibility of communities with employment in low-emission power production, we exclude employment in these industries from the calculation of community Intensity Susceptibility. This underestimates the susceptibility of communities with employment in fossil fuel power generation, but coal and natural gas power generation are captured in the Facility Susceptibility metric.

Other subsectors impacted by the challenge of using a national average emissions intensity are crop (111) and animal production (112), which are largely grouped together as “farms” in census 2021 data. The average emissions intensity of animal production is significantly higher than crop production (7.4 versus 1.9 kilograms of CO₂e per dollar), and emissions intensity can vary considerably between commodities and regions (Canadian Climate Institute, n.d.).

To address this, we exclude the combined farms subsector from the calculation. However, this may underestimate the susceptibility of some agricultural communities because some farms may be emissions-intensive and major employers in the community. Future iterations of the map may include farms based on local data relating to the specific products produced.

Lastly, emissions data across scopes are derived from the total number of emissions in the National Inventory Report, which includes only Canadian emissions. This means that Scope 3 emissions can sometimes be underestimated, such as with the export of Canadian products that generate emissions when they are used outside of the country, or overestimated, such as when Canadian products rely on imported inputs that are less emissions intensive than Canadian alternatives.

Market Susceptibility

Market Susceptibility (MS) identifies export-oriented sectors where global markets are already transforming or are shown to transform under various global scenarios with different levels of climate action. The sectors were selected by reviewing global trends as well as various forward-looking global scenarios of economic and energy transformation, with a particular focus on the International Energy Agency’s (IEA) World Energy Outlook, a well-recognized and credible source of energy analysis and projections (box 3).

Based on a review of IEA and other scenarios and trends, we selected six sectors that will experience major transformations across multiple global energy transformation pathways, referred to as MS sectors: coal mining, oil and gas extraction, support activities for mining and oil and gas extraction, petroleum manufacturing, chemical manufacturing and transportation-equipment manufacturing. The key element of uncertainty that differs across scenarios is the pace of transformation, with more rapid market change in net-zero scenarios than in the stated policies and announced pledges scenarios. Further evidence supporting the selection of each sector is provided below.

The MS score for each community is equal to the share of local labour force employed (or last employed) in MS sectors.

Data sources

Sector selection was based on a review of market trends, as well as global and domestic emissions-reduction scenarios. Labour force counts by sector and census division come from Statistics Canada’s census 2021 (Statistics Canada, 2022b). Labour force counts include all people aged 15 and older, who were employed or unemployed at the time of response. Four of the 293 census divisions in Canada reported no employment in MS sectors in 2021.

Coal mining

Canada produced 47 million tonnes of coal in 2022, of which 59 per cent was metallurgical coal used for steel manufacturing and 41 per cent was thermal coal used for power generation. Canada’s coal production decreased by 32 per cent between 2012 and 2022, with thermal coal accounting for 75 per cent of the decline. In 2022, Canada exported 77 per cent of the coal it produced (NRCan, 2024a). In 2023, around 10,000 people worked in the coal sector (CCEI, n.d.-a).

Coal demand declines under all future global energy transformation scenarios we reviewed. In the IEA’s 2024 World Energy Outlook, global demand for coal falls by 47 per cent between 2023 and 2050 under the STEPS scenario, and by 77 per cent under the APS scenario (figure 4). The Asia Pacific region is projected to account for over 80 per cent of coal demand in 2050 under both scenarios. North American production falls by 80 per cent in the STEPS scenario and 93 per cent in the APS scenario (IEA, 2024c). Demand for thermal coal used for power generation declines more rapidly than metallurgical coal used for steelmaking, and there may be a short-term shortage of global supply that increases demand for Canadian metallurgical coal in the coming decade (Griffin, 2024).

The Canada Energy Regulator’s (CER) 2023 report, Canada’s Energy Future, shows that coal-fired power is mainly phased out by 2030 across Canada (CER, 2024a). Japan, which was the destination for 52 per cent of Canada’s thermal coal exports in 2022, has committed to shift to renewable energy to meet its 2030 and 2050 emissions-reduction targets (NRCan, 2024a; Prime Minister’s Office of Japan, 2023). China, which was the destination for 27 per cent of Canada’s metallurgical coal exports in 2022, is investing in lower-emission steel production that does not use metallurgical coal (NRCan, 2024a; Shen & Schäpe, 2024; Zoryk & Sanders, 2023).

Crude oil production and petroleum products

Canada produced 4.7 million barrels of crude oil per day in August 2024, of which 4.2 million barrels per day — or 89 per cent — were exported (CCEI, n.d.-b). Most exports go to the U.S., but the start of the Trans Mountain pipeline, which runs from Alberta to the B.C. coast, in May 2024 allows for 890,000 barrels per day to be shipped to Asia and other destinations (Williams, 2024). In 2023, Canada’s crude exports were valued at $124 billion, or 16 per cent of Canada’s total export value (CER, 2024b). Canada also produces around 2 million barrels per day of finished petroleum products such as gasoline, aviation fuel and petrochemical feedstock (CCEI, n.d.-b). Upgraders in Alberta and Saskatchewan turn bitumen from oilsands production into synthetic crude oil, processing around 42 per cent of the bitumen produced in Canada in 2022 (CER, 2022).

Demand for Canada’s oil is highly dependent on the pace and scale of global climate action. In the Canada Energy Regulator’s scenario where the world achieves net-zero emissions by 2050, Canadian crude oil production peaks in 2026 and then declines steadily thereafter, reaching 1.22 million barrels per day in 2050, a 76 per cent decrease from 2022 levels. Other uncertainties for the sector include domestic export capacity and the cost of decarbonization technologies such as carbon capture utilization and storage, or CCUS (CER, 2023).

In the IEA scenarios, global oil demand falls by 6 per cent between 2023 and 2050 in the STEPS scenario and 46 per cent in the APS scenario (figure 4). Crucially for Canada, U.S. oil demand falls by 38 per cent in the STEPS scenario and 73 per cent in the APS scenario over the same period (IEA, 2024c). A change in U.S. climate policies could influence the trajectory for oil demand (Brown, 2024). BP’s energy outlook shows global oil demand declining in both its current trajectory and net-zero scenarios (BP, 2024).

Transportation accounts for the largest source of global oil demand, and the electrification of transportation is the main source of declining oil demand. Electric and fuel cell vehicles are already displacing 1.8 million barrels of oil per day, and Bloomberg New Energy Finance projects they will displace triple that amount by 2029 (Doherty, 2024).

Natural gas production

Canada produced 16 million cubic metres of natural gas in August 2024, and exported 7 million cubic metres, or 43 per cent. Canada produces and exports more natural gas in the winter months (CCEI, n.d.-c). Most Canadian exports go to the U.S. though the construction of liquefied natural gas (LNG) facilities on the west coast will allow for exports to Asian markets.

Canada has seven LNG export terminals in varying stages of development, four LNG liquefaction facilities and two LNG import plants in operation (NRCan, 2023). LNG Canada in Kitimat, British Columbia, is set to start operations at its $40-billion terminal in mid -2025. The terminal will process around 11 per cent of current Canadian gas output (Nickel & Disavino, 2024). Five additional LNG projects have received export licences (NRCan, 2024b).

Global natural gas demand is highly dependent on the trajectory of global climate action. In the IEA’s STEPS scenario, natural gas demand increases by 5 per cent between 2023 and 2050. However, in the APS scenario, natural gas demand declines by 41 per cent over the same period. U.S. demand declines under both scenarios, by 38 per cent in the STEPS scenario, and 72 per cent in the APS scenario. However, demand in the Asia-Pacific region grows by 28 per cent in the STEPS scenario, and shrinks by 39 per cent in the APS Scenario (IEA, 2024c). Decisions on the pace and scale of electrification, and investment in renewable energy and battery storage, will be key determinants of future demand for natural gas.

Analysis by the Canada Energy Regulator also shows Canadian end-use demand for natural gas declining by 11 per cent under a current measures scenario, 51 per cent under a Canada net-zero scenario, and 67 per cent under a global net-zero scenario (figure 4; CER, 2023).

The other challenge for Canadian LNG projects is global competition. Suppliers in the U.S., Qatar and Mozambique can produce LNG at a lower cost (O’Connor, 2024). The IEA’s World Energy Outlook (2024c) states that LNG supply could exceed demand by 2030 under all three of its scenarios if all projects that are under construction are completed on time. If global supply exceeds global demand, international gas prices will decline and there will be fierce competition among LNG suppliers. Natural gas may also increasingly face competition from low-emission gases such as biomethane, low-emission hydrogen and e-methane (IEA, 2024d).

Transportation equipment manufacturing

Canada had over 3,500 businesses active in transportation equipment manufacturing in 2023, contributing around $28 billion to Canada’s GDP and employing over 200,000 people (ISED, 2023a). The sector includes motor vehicles and parts, aerospace and aerospace parts, railroad rolling stock, and ship and boat building. Motor vehicles and parts, and aircraft and other transportation equipment and parts accounted for around 17 per cent of Canada’s goods exports in 2023 (Global Affairs Canada, 2024). In 2021, close to 70 per cent of all Canadian workers in transportation equipment manufacturing worked on motor vehicle assembly and parts, another 22 per cent on aerospace and the remainder on railroads, ships and other parts of the subsector (Statistics Canada, 2022b).

Road transportation is highly likely to experience significant transformation over the coming decades. Globally, nearly one in five cars sold in 2023 were electric, representing a 35 per cent year-over-year increase (IEA, 2024e). In the IEA’s STEPS scenario, one of every two cars sold will be battery electric or a plug-in hybrid vehicle by 2035 and more vans, buses and trucks will be electric (figure 5; IEA, 2024e). Bloomberg’s 2024 Electric Vehicle Outlook acknowledges that the EV transition has slowed in the near term, but still projects that 73 per cent of passenger vehicles, 66 per cent of commercial vans and 43 per cent of heavy trucks will be zero emission by 2040 in its economic transition scenario (BNEF, 2024b).

In the U.S., 10 per cent of new cars sold in 2023 were electric (IEA, 2024e). Canada also reached the 10 per cent mark in 2023 (CER, 2024c). In the first quarter of 2020, there were 19,603 new vehicle registrations that were battery electric, hybrid electric or plug-in hybrid electric in Canada. Four years later, this number had more than quadrupled to 83,344 (Statistics Canada, 2024c).

There has also been significant investment in Canada in electric vehicle and battery manufacturing. Investments in Canada related to electric vehicle and battery production totalled $52.6 billion by 2024, of which roughly $19 billion was invested in the previous two years (AccelerateZev, n.d.).

Canada’s air transportation industries have also outlined aspirational goals to reach net-zero emissions by 2050 (Transport Canada, 2022). International Civil Aviation Organization (ICAO) member states have adopted a collective long-term global aspirational goal of net-zero carbon emissions by 2050 (ICAO, 2022). However, the technologies needed to decarbonize these industries are in earlier stages of development, so the transformation may be slower to materialize (IEA, 2023a).

Bombardier, Canada’s largest aerospace manufacturer, is undertaking research on a new type of airplane with the goal to reduce aircraft carbon emissions by up to 50 per cent (Bombardier, n.d.). Sustainable aviation fuel is now being sold in Canada, with the first purchase by WestJet from Shell Aviation in 2024 (WestJet, 2024).

Chemical manufacturing

Canada had over 3,500 businesses active in chemical manufacturing in 2023, contributing around $31 billion to Canada’s GDP and employing over 90,000 people (ISED, 2023b). Basic and industrial chemical, plastic and rubber products accounted for 5.5 per cent of Canada’s goods exports in 2023 (Global Affairs Canada, 2024). Around 72 per cent of exports go to the U.S., and another 7 per cent go to China (CCC, 2024).

Nineteen large petrochemical and industrial gas manufacturing facilities are responsible for more than 75 per cent of the sector’s emissions (CCC, 2024). At the same time, many of the technologies needed to achieve GHG emissions reductions rely on the chemicals sector. Low-emissions chemicals are an opportunity for growth in chemical manufacturing (e.g., plastics in EVs, resins protecting solar panels, refrigerants in heat pumps). Internationally, there have been investments in net-zero chemicals, including electric crackers, a process used to break down large hydrocarbons into smaller molecules, and low-carbon ammonia facilities (CEC, 2024).

Demand for primary chemicals could also decline with increased plastic recycling and more efficient fertilizer use (IEA, 2023b). In the IEA’s NZE scenario, chemical recycling is widely adopted in advanced economies by 2050 (IEA, 2024c). China is also ramping up its domestic petrochemical production and is poised to increasingly displace petrochemical imports from other regions (IEA, 2024c).

The energy transition is driving a convergence of sectors, with some oil and gas companies moving into chemical markets. At the same time, some chemical companies are moving into lithium processing, battery manufacturing and clean ammonia. There are both new opportunities and risks in the sector’s transformation (Yankovitz et al., 2023).

Advantages of the Market Susceptibility indicator

The Market Susceptibility metric captures sectors and communities that are not identified in the other metrics (see figure 6 and table 6). For example, auto manufacturing has a low emissions intensity relative to other sectors identified in the Intensity Susceptibility metric. However, metrics reliant on emissions miss the major market transformation that is happening as the auto sector shifts from producing gasoline- and diesel-powered vehicles to electric vehicles.

The Market Susceptibility metric focuses on export-oriented sectors and captures different sources of susceptibility that are not related to GHG emissions. For example, the most significant challenge facing the oil production sector is the long-term decline in global demand for the product.

This metric is also the only one that is forward-looking, considering the potential evolution of markets in response to global and domestic efforts to reduce GHG emissions. For example, chemical manufacturing is expected to undergo a significant market transformation with both new product opportunities and new sources of competition that are not captured by looking solely at sector emissions.

Communities facing market susceptibility may achieve positive outcomes in the long run if companies and communities can position themselves to adapt and develop new products that align with future directions in demand.

Limitations of the Market Susceptibility indicator

Forward-looking global scenarios are not predictions, and the timing, scale and scope of global market transformations are uncertain. The competitiveness of natural gas production in Canada, for example, is highly dependent on fluctuations in global demand and supply, as well as costs relative to competitors. However, it may still be appropriate to identify a community with significant employment in natural gas production as susceptible, given the risk of market volatility in future years.

The selection of sectors may fail to capture important differences at the local level that may be important to determining the degree of community susceptibility. For example, the decline in demand for thermal coal for power generation is expected to occur faster than the decline in demand for metallurgical coal for steelmaking. However, identifying a metallurgical coal community as susceptible can help highlight the need for a longer-term community plan to address the global steel production sector’s shift away from coal.

Engaging with the IRPP

The IRPP welcomes input and questions from communities, workers, businesses, industry associations, governments, NGOs, researchers and others who are interested in the project. Please reach out to communitytransformations@nullirpp.org if you have questions or feedback, or to speak with the staff team behind this project.

^[1] Census divisions are groups of neighbouring municipalities used by Statistics Canada. They are meant to act as counties or regional districts and serve as intermediate geographic areas between province or territory and municipality (census subdivision). In 2021, there were 293 census divisions across the country.

^[2] All datasets used classify sectors and industries according to the North American Industry Classification System (NAICS). Developed by the governments of Canada, the U.S. and Mexico, the system is meant to provide common definitions for types of economic activity across the three countries.

^[3] According to Statistics Canada, economic sectors are denoted using two-digit North American Industry Classification System (NAICS) codes. Subsectors are groups of industry groups and correspond to three-digit codes. Industry groups are made up of industries, denoted by four-digit NAICS codes.

^[4] Facilities in pipeline transportation (NAICS 486) are excluded from our analysis because employment is likely to be spread out across multiple census divisions (see FS data).

^[5] This makes it a less reliable indicator for some industries like water, sewage, and other systems (NAICS 2213), which are not particularly high-emitting but are deemed emissions-intensive due to the relatively low value of production.

^[6] Based on estimates of the cost trajectory of gasoline (37 cents by 2030; Canada Revenue Agency, 2023) and price increases from Clean Fuel Regulations (up to 17 cents by 2030; Ammar et al., 2023).

APPENDIX A: COMMUNITY PROFILES

As part of the Community Transformations Project, we will publish profiles of municipalities located within the following 10 census divisions, which were selected based on the results of our mapping exercise. Our intention is to cover a diverse group of communities across Canada, with varying sources of susceptibility. To inform the profiles, The Energy Mix and the IRPP visited the communities and interviewed local stakeholders.

Communities and corresponding census divisions:

Cape Breton (Cape Breton)
Channel-Port aux Basques, Newfoundland and Labrador (Division No. 3)
Estevan, Saskatchewan (Division No. 1)
Fort McMurray, Alberta (Division No. 16)
Ingersoll, Ontario (Oxford)
Kitimat, British Columbia (Kitimat-Stikine)
Neepawa, Manitoba (Division No. 15)
Port-Daniel-Gascons, Quebec (Le Rocher-Percé)
Sault Ste. Marie, Ontario (Algoma)
Yellowknife, Northwest Territories (Region 6)

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Cape Breton: Region Built on Coal Looks to Renewable Energy

Measuring community workforce exposure to U.S. exports

Source: IRPP calculations based on Statistics Canada’s census 2021 (table 98-10-0592-01) and supply and use tables (tables 12-10-0100-01 and 36-10-0488-01).

Source: IRPP calculations based on Statistics Canada’s census 2021 (table 98-10-0592-01) and supply and use tables (tables 12-10-0100-01 and 36-10-0488-01).

More eggs, more baskets: Reducing Canada’s vulnerability to U.S. tariffs should start in the communities most affected

Canadians may finally have the determination needed to diversify

To reduce U.S. leverage over Canada, we need to increase exports to other markets

Source: Statistics Canada, Table 12-10-0173-01.
Notes: Based on domestic exports, or goods grown, produced, extracted or manufactured in Canada, including foreign goods that have been materially transformed. Excludes imported products that are exported without significant changes (re-exports).

Source: Innovation, Science and Economic Development Canada’s Trade Data Online tool.
Notes: Product are grouped based on the World Customs Organization’s Harmonized System codes. Based on total imports and exports, which include domestic exports and re-exports.

Canada needs both market diversity and product diversity

Buying Canadian can help, but there are limits

Reorienting trade will be harder for certain communities

Governments can lessen the blow of economic transformation

Canadian Independence

The Current Canadian Economy

Foreign Control of the Economy

Solutions to the Problem of Foreign Ownership

Specific Causes of Tension

Conclusion

Estevan: Saskatchewan’s Energy City Seeks to Chart Its Own Course

Empowering Community-Led Transformation Strategies

Ingersoll: Ontario Auto Town Grapples with the EV Transition

A Methodology for Measuring Community Susceptibility

Introduction

Mapping Susceptibility Provides a Foundation for Further Research and Analysis

Three Ways to Measure Community Susceptibility

Facility Susceptibility

Intensity Susceptibility

Limitations of the Market Susceptibility indicator

Engaging with the IRPP

APPENDIX A: COMMUNITY PROFILES

References

Does Emissions Pricing Hurt Affordability? Quantifying the Effects on Canadian Households

Climate Impact Auctions: Increasing the Effectiveness of Global Climate Finance

Cape Breton: Region Built on Coal Looks to Renewable Energy

Measuring community workforce exposure to U.S. exports

Source: IRPP calculations based on Statistics Canada’s census 2021 (table 98-10-0592-01) and supply and use tables (tables 12-10-0100-01 and 36-10-0488-01).

Source: IRPP calculations based on Statistics Canada’s census 2021 (table 98-10-0592-01) and supply and use tables (tables 12-10-0100-01 and 36-10-0488-01).

More eggs, more baskets: Reducing Canada’s vulnerability to U.S. tariffs should start in the communities most affected

Canadians may finally have the determination needed to diversify

To reduce U.S. leverage over Canada, we need to increase exports to other markets

Source: Statistics Canada, Table 12-10-0173-01. Notes: Based on domestic exports, or goods grown, produced, extracted or manufactured in Canada, including foreign goods that have been materially transformed. Excludes imported products that are exported without significant changes (re-exports).

Source: Innovation, Science and Economic Development Canada’s Trade Data Online tool. Notes: Product are grouped based on the World Customs Organization’s Harmonized System codes. Based on total imports and exports, which include domestic exports and re-exports.

Canada needs both market diversity and product diversity

Buying Canadian can help, but there are limits

Reorienting trade will be harder for certain communities

Governments can lessen the blow of economic transformation

Canadian Independence

The Current Canadian Economy

Foreign Control of the Economy

Solutions to the Problem of Foreign Ownership

Specific Causes of Tension

Conclusion

Estevan: Saskatchewan’s Energy City Seeks to Chart Its Own Course

Empowering Community-Led Transformation Strategies

Ingersoll: Ontario Auto Town Grapples with the EV Transition

A Methodology for Measuring Community Susceptibility

Introduction

Mapping Susceptibility Provides a Foundation for Further Research and Analysis

Three Ways to Measure Community Susceptibility

Facility Susceptibility

Intensity Susceptibility

Limitations of the Market Susceptibility indicator

Engaging with the IRPP

APPENDIX A: COMMUNITY PROFILES

References

Does Emissions Pricing Hurt Affordability? Quantifying the Effects on Canadian Households

Climate Impact Auctions: Increasing the Effectiveness of Global Climate Finance

Source: Statistics Canada, Table 12-10-0173-01.
Notes: Based on domestic exports, or goods grown, produced, extracted or manufactured in Canada, including foreign goods that have been materially transformed. Excludes imported products that are exported without significant changes (re-exports).

Source: Innovation, Science and Economic Development Canada’s Trade Data Online tool.
Notes: Product are grouped based on the World Customs Organization’s Harmonized System codes. Based on total imports and exports, which include domestic exports and re-exports.