Determinants of GHG emission intensity in Canadian industries

Decoupling of production activities and greenhouse gas (GHG) emissions, or a decline in GHG intensity, is a key metric for gauging GHG mitigation performances. In this study, we explore the determinants of GHG intensity in Canadian industries to understand its key drivers. This study is relevant, because Canada is a developed country characterized by high energy and GHG intensities. Canada has also introduced a series of policy measures to mitigate GHG emissions, including a carbon tax and investments in renewable electricity. The most significant factor for GHG intensity is energy intensity. However, fuel mix, policy trends, and sectoral shifts are essential. After conducting stationarity and cointegration tests, we estimated the relationship between GHG intensity and these determinants using panel error correction, dynamic fixed effects, and dynamic OLS methods to determine the long-run relationships. Besides the strong effect of energy intensity, we found that industrial production mix that indicates sectoral shifts, fuel mix, and the time-fixed effects that capture factors such as the introduction of a carbon tax and technology standards have statistically significant impacts on GHG intensity. We found that industries that rely more on fuel sources other than electricity are characterized by higher GHG intensity. The policy implication is that energy efficiency and fuel switching are essential for reducing GHG intensity, but the role of factors such as sectoral shifts should not be ignored.