Why Low-Carbon Energy Innovation is Crucial to Canada’s Future

Achieving Canada’s climate commitments and securing a low-emissions economy, demands – now more than ever – innovation at every level. This includes not just technological advancements but also innovations in regulation, policy, governance, and business models.

Low-carbon energy innovation can solve many current problems in Canada: it can reduce emissions, lower energy costs, strengthen grid performance, build more resilient communities, and open new avenues for economic development and job creation.

To lead in these areas, federal, provincial and municipal governments must move beyond setting targets, and focus on real-world implementation. This involves eliminating regulatory barriers, more effectively enabling the transition from pilot projects to deployment, consistently supporting communities in their transformation, and, ensuring Canada has the workforce equipped for an innovative energy transition.

Innovation is not optional. It must become the engine of cost-effective, future-ready net-zero energy systems.

Built on the groundwork laid
The National Low-Carbon Energy Innovation Assessment Report, released in June 2025, is the culmination of the Low-Carbon Energy Innovation (LCEI) Initiative spearheaded over three years by Pollution Probe and QUEST Canada. The Report builds on the groundwork laid by the 2020-2023 Innovation Sandboxes in Canada Initiative, that identified the regulatory, policy, and market conditions necessary for scaling energy innovations that drive emissions reductions, and to position Canada for long-term competitiveness.

While innovation is already happening in every jurisdiction, more is needed to ensure that the entire country can benefit from low-carbon energy innovation. To open more access to low-carbon energy innovation across the country, the National Low-Carbon Energy Innovation Assessment identifies our strengths and gaps, and highlights successful pathways forward in each jurisdiction.

Identifies key areas for improvement
The national LCEI assessment – based on three years of engagement with policy makers, regulators, energy sector stakeholders and innovators from every jurisdiction across the country – clearly illustrates that Canada’s diverse landscape means each province and territory is at a different stage in their energy transition journey.

Despite this diversity, the assessment identifies six key areas where Canada must improve to fully capture the value of becoming a low-emissions economy:

• 1. Align Climate Policy and Market Signals
  Low-carbon innovation thrives in competitive energy markets, but only when backed by stable, credible policy. Investors and innovators need consistent, long-term climate policy to make confident decisions. Currently, uncertainty is stalling progress.

As an example, British Columbia’s and Québec’s long-term political consensus for climate policies have shown that, with a strong climate signal, innovation can be directed toward finding low-carbon solutions.

• 2. Modernize Energy Regulation to Enable Innovation
  Outdated regulatory frameworks are a significant barrier to innovation. Canada’s provinces and territories need smart regulatory frameworks that balance customer protection with flexibility. This includes advanced rate systems and performance-based models that reward results, incentivise innovation, and allow for new business models.

The Ontario Energy Board, Ontario’s energy regulator, has introduced its Innovation Sandbox program to allow for more regulatory flexibility. Nova Scotia’s Innovation Justification Criteria ensures that proponents know the requirements for regulatory support for energy innovation. Québec’s Innovation Zones initiative gathers innovators into specific areas to encourage collaboration and reduce barriers to development; their Vallée de la transition énergétique (Valley of the Energy Transition) zone is supporting developments in the battery storage, electrification and hydrogen sectors. Alberta‘s competitive energy market and advanced rate-regulatory system (PBR3) is creating a supportive environment for energy innovation.

• 3. Plan Energy Systems Holistically
  Sectoral climate leadership should always begin with a systems view. Effective energy planning must transcend sectoral silos. Integrated, cross-sectoral plans are crucial for identifying where emissions reductions can have the greatest impact, and, where innovation can unlock cost savings.

Holistic systems planning has begun in Canada. Québec has indicated that it is moving to develop holistic system planning approaches that integrate all energy uses. Ontario recently released its holistic energy vision, with more to come. BC has highlighted the need, and their intent to create holistic planning in the energy sector.

• 4. Prioritize Thermal Energy Innovation
  Canada’s decarbonization efforts often overly focus on electricity, overlooking heating, which accounts for a significant share of energy use. Innovation in clean thermal energy is essential for a complete transition to a low-emissions economy.

Prince Edward Island’s Net Zero Free program is offering free heat pumps and electric water heaters to low-income households. BC, Québec and Ontario are also looking at hybrid dual-fuel programs that pair a heat pump with a gas furnace.

• 5. Put Indigenous Inclusion at the Centre
  Innovation must be inclusive. As projects impact their lands and economies, First Nations communities are key partners in Canada’s energy future. Early, meaningful engagement builds trust, enables social acceptance, and fosters long-term partnerships that drive shared success.

Manitoba is planning a 600 MW wind power procurement with majority Indigenous ownership, and Raven Outcomes has introduced Community-Driven Outcomes Contracts (CDOCs), which is a pay-for-success social finance tool for Indigenous communities.

• 6. Build the Skilled Workforce the Transition Requires
  Canada needs a skilled workforce – and fast – ready to build, install, maintain, and manage the new energy system. This means not just training for today’s needs but anticipating tomorrow’s skills. Investment in education and re-skilling must match the ambition of the energy transformation.

Nunavut’s Inuit Employment Plan (IEP) is a comprehensive strategy designed to enhance Inuit employment within the Qulliq Energy Corporation. And BC’s Future Ready Action Plan connects people to the training they need for in-demand careers in many areas, including clean energy and housing.

It’s time to act decisively
The path to a low-emissions economy is clear: scale innovation, remove barriers, and invest in people and systems that are getting ready for what’s next.

Every jurisdiction has its strengths. From PEI developing a clear climate plan for 2040, to strong political commitment in BC and Québec, to a market openness in Alberta. From a focus on improving residents’ quality of life in Nunavut, to significant provincial funding for demand-side management and the Ontario Energy Board’s Innovation Sandbox.

Yet all learning can be, and should be, national. As every jurisdiction has areas they can work on, Canada has the potential to secure a stronger, more resilient economy.

It’s time to act decisively and make low-carbon energy the cornerstone of our national strategy. By focusing on and funding the critical areas of innovation, Canada can not only meet its climate commitments but also thrive in a competitive global economy.

The national Low-Carbon Energy Innovation Assessment Report is a blueprint for that action.  The national Low-Carbon Energy Innovation Policy Database is a country-wide database of assessments of policies and factors that directly or indirectly impact low-carbon innovation across Canada’s provinces and territories.