How Canada-US Trade Shapes Both Economies

The success of Canada as a commercial nation, particularly in its trade with the United States, is a significant factor in its prosperity and prosperity. The trade flows between the two economies and the characteristics of each provide a significant context for discussions regarding the development of a national renewable energy strategy for Canada. This significance is attested to by the Clean Energy Dialogue that Canada and the United States have initiated. One the one hand, the economic and environmental implications of climate and energy policy decisions made in the United States are felt in Canada due to the high degree of trade integration between the two nations. Firms in a single country may acquire competitive advantages as a result of policy discrepancies.

Conversely, the United States and Canada differ in their energy sources, emissions profiles, forecast rates of emissions increase, and costs of emission reduction. The development of a Canadian clean energy strategy that will incorporate economic, environmental, social, and regional factors, despite the presence of evident complementary elements, suggests that a policy approach that is uniquely Canadian—complementary but distinct—may be the most effective in meeting our requirements. The United States is the largest market for Canadian exports and the largest sole source of Canadian imports. In 2008, the United States was the destination of over 77% of Canadian exports. The United States is the primary destination for Canada's main exporting sectors, which include the energy and agriculture sectors.

Around percent of Canadian imports are sourced from the United States; the aerospace industry and the oil and gas sector are the most significant sectors

followed by automotive manufacturing and parts. The success of Canada as a commercial nation, particularly in its trade with the United States, is a significant factor in its prosperity and prosperity. The trade flows between the two economies and the characteristics of each provide a significant context for discussions regarding the development of a national renewable energy strategy for Canada. This significance is attested to by the Clean Energy Dialogue that Canada and the United States have initiated. One the one hand, the economic and environmental implications of climate and energy policy decisions made in the United States are felt in Canada due to the high degree of trade integration between the two nations. Firms in a single country may acquire competitive advantages as a result of policy discrepancies.

Conversely, the United States and Canada differ in their energy sources, emissions profiles, forecast rates of emissions increase, and costs of emission reduction. The development of a Canadian clean energy strategy that will incorporate economic, environmental, social, and regional factors, despite the presence of evident complementary elements, suggests that a policy approach that is uniquely Canadian—complementary but distinct—may be the most effective in meeting our requirements. The United States is the largest market for Canadian exports and the largest sole source of Canadian imports. In 2008, the United States was the destination of over 77% of Canadian exports. The United States is the primary destination for Canada's main exporting sectors, which include the energy and agriculture sectors. Around 65 percent of Canadian imports are sourced from the United States; the aerospace industry and the oil and gas sector are the most significant sectors, followed by automotive manufacturing and parts. Figure 1 illustrates the trade balance, imports, and exports of the United States and Canada, categorized by sector.

Oil and gas extraction, hydrocarbon and coal product manufacturing, paper manufacturing, and wood product manufacturing were all areas in which Canada reported significant trade surpluses with the United States in 2008

Canada's exports to the United States are considerably less diverse than those of the United States to Canada. Over the past five years, the oil and gas industry has nearly doubled in value, making it the largest source of Canadian exports to the United States. The automobile manufacturing sector is a distant second. However, the reverse was the case as recently as 2004, with approximately $56 billion in automobile exports to the United States in contrast to $52 billion in oil and gas exports.In recent years, the value of automobile exports has progressively decreased, dropping by approximately 35 percent to its current level of approximately $36 billion. This underscores the critical role of energy trade in the economic prosperity of Canada. The value of Canadian energy exports to the United States has increased significantly over the past decade. Oil exports now exceed $40 billion annually, while natural gas exports surpass $28 billion annually. This growth is predominantly attributable to an increase in oil and natural gas exports, as illustrated in figure 2. Additionally, the prices of these commodities have increased. Conversely, revenues from electricity exports have remained relatively consistent over the same period, ranging from $1 billion to $4 billion annually.

Figure 3 illustrates that Canada's aggregate trade balance with the United States in energy commodities is positive for all fuels except coal. Despite the fact that Canada's aggregate trade balance with the rest of the world in coal is positive, it imports more from the US than it exports. The export of petroleum products generates the most substantial trade surplus for Canada in the energy trade. The composition of energy sources utilized for electricity generation is a significant distinction between the energy systems of Canada and the United States. In 2006, hydroelectricity was the primary source of electricity generated in Canada, as illustrated in figure 4. Canada is the world's second-largest producer of hydroelectricity, following China. Canada is significantly less reliant on coal-fired power facilities for electricity than many other countries, including the United States, due to the abundance of hydropower. The United States generates a substantially greater amount of electricity from coal than Canada. Additionally, the United States employs a greater quantity of natural gas to generate electricity.

The value of Canadian energy exports to the United States has increased significantly over the past decade. Oil exports now exceed $40 billion annually, while natural gas exports surpass $28 billion annually

Nevertheless, this abundance of hydropower does not inherently result in a competitive advantage in all regions of Canada. For instance, the provincial government in Ontario has committed to the closure of its four coal-fired facilities (Atikokan, Lambton, Nonticoke, and Thunder Bay) by December 31, 2014. The rationale for this decision is based on environmental and health concerns. In addition to implementing enhanced conservation measures, the government intends to supplant coal-fired capacity with natural gas, nuclear, hydroelectricity, and wind. Currently, coal is responsible for approximately 16% of Ontario's electric power. In the 2009 reference case of the National Energy Board, the cessation of Ontario's coal-fired facilities is counterbalanced by the expansion of coal-fired plants in other regions of the country, particularly in Alberta and Nova Scotia. Consequently, Canada's coal-fired generation experiences a modest increase, from approximately 106 billion kilowatt hours in 2006 to 128 billion kilowatt hours in 2030.

These discrepancies have clear implications for any renewable energy strategy. However, the United States has the potential to achieve substantial emissions reductions by substituting its coal-fired electricity facilities with less carbon-intensive alternatives. In contrast, Canada necessitates a more comprehensive set of measures across various sectors to reduce emissions. Conversely, the reduced emissions intensity of electricity generation in Canada results in greater emissions reductions as a result of electrification. In the short term, Canada's low carbon generation offers it a potential long-term competitive advantage if Canada and the US implement climate policy that imposes similar prices and stringent constraints on carbon emissions. The federal government has recently expressed its intention to further align Canada's climate policy with that of the United States, with a focus on all aspects. This has implications for the tempo and ambition of climate policy development and implementation in Canada. In order to align with the less stringent proposed US objectives, Canada has already moderated its GHG emissions targets to be 17 percent below 2005 levels by 2020. Table 1 compares the United States' and Canada's current and recent GHG emissions reduction targets for 2020.