Energy Efficiency Sector and Market Size

It is difficult to calculate the exact market size for the energy efficiency sector, due to varied market research. Many researchers and companies have tried, but have not been able to come to a conclusion that everyone agrees upon. McKinsey & Company has published an economic study, ‘How the world should invest in energy efficiency’ in 2008, which illustrates many estimations and projections that relate to energy efficiency business in the United States.1 Their research concluded that the estimate investment into the energy efficiency sector will be at $520 billion USD by 2020, with approximately $900 billion USD in energy savings resulted from the investment.2

Compared the US market, the Canadian economy has statistically been approximately 10% of projected value. Arqwave projects that Canadian market size can be explained by approximately 9.56% of total GDP and/or population (see appendix 2.1). Since McKinsey projected its forecast in 2008, their evaluation needs to be adjust for uncertainty and inflation levels. Arqwave has estimated that Canadian market portion would be approximately $49.71 billion USD by 2020 or $39.67 billion USD in 2017 (see appendix 2.2). By converting currency and adjusting for inflation and uncertainty that relate to the risks that come from new policies and other government-related changes, Canadian investments would total $51.01 billion CAD in 2020 or $40.88 billion CAD in2017 (see appendix 2.2). $51.01 billion CAD and $40.88 billion CAD represents approximate Market Sizes in Canada in 2020 and 2017 respectively. By conducting the same analysis for the eight comparable states in the US, Arqwave has managed to estimate Market Size of $35.01 billion CAD in 2017 and $43.86 billion CAD in 2020.

Based on the U.S. Energy Information Administration ‘Energy Consumption Survey’ completed in 2012, it has been determined that major sources of energy use are heating, lighting, refrigeration, and ventilation (see Figure 1).3 Together they represent approximately 55% of the total energy investments of a business. Given the estimates for Market Size, Arqwave predicts $22.48 billion CAD will be valued within the four categories listed above.

1 Diana Farrell et al., The Case for Investing in Energy Productivity, Report, Sustainability & Resource Productivity, McKinsey&Company.
2 Ibid.
3 “U.S. Energy Information Administration – EIA – Independent Statistics and Analysis,” CBECS 2012: Energy Usage Summary, March 18, 2016, Web, accessed August 21, 2017.

Economy Overview

Canadian GDP Trends

Canadian Gross Domestic Product has had stagnant growth rates in the past, but took off with rapid GDP increase in 1999 (see Figure 1.2). Despite the economic distress that commenced in 2008, which affected 2009 and later 2012 (see Figure 1.2), the Canadian economic trends have been otherwise steady. It managed to double from approximately $1 trillion CAD in 1999 to $2 trillion CAD by the end of 2016 (see Figure 132). GDP increase cannot be explained by small annual growth rates (average rates at 2 per cent annually). It is a result of a growing business sector and increased exports (see Figure 1.4).

Canada GDP ($USD)

Figure 1.2 Annual GDP Growth (%)

Figure 1.3 Canada GDP ($CAD)

Bonds and Government Securities

Favorable GDP growth has not resulted in positive trends within government securities and bonds. Starting in 2011 bond interest rates began stagnant until 2013 where interest rate levels recovered to their 2011 levels (see Figure 1.6). What followed next is rather intriguing as the upward trend only lasted for 6 months and declined thereafter (see Figure 1.6). Therefore, short-term bonds outgrew inflation rate only during its peak times in 2013 (see Figure 1.6) which had no significant impact on overall trends over time.

Figure 1.6 Short-Term Bonds vs. Inflation


Stable GDP growth and up-and-down movement in bond returns did have strong correlation with frequent changes in inflation rates since 2001. With the first introduction of Inflation-Control Targets in 1991, Bank of Canada has made many revisions and has aimed to keep inflation rates at approximately 2 per cent with a range of 1 to 3 per cent annually (see Figure 1.6)4. As the figure also shows, Bank of Canada is keeping within the 1 and 3 percent annually.   

Tax Revenue vs. Gross Domestic Product

Although the Canadian economy doubled in the last decade, taxes generated from GDP (in percentage of nominal values) have been slowly declining over time (see Figures 1.7 and 1.8). The peak values were above 14% annually when GDP was barely above $1 trillion CAD in 1999; and had reached its lowest parameters, below 12% annually, when GDP hit $2 trillion in 2016. The Figure 1.9 illustrates that overall tax revenue has been stagnant and might potentially result in a shortage of government-related funds to support the energy sector with large incentives. Without the support of government incentives, corporate investment into energy initiatives becomes less efficient and costlier.

Figure 1.7 Tax Revenue (% of GDP)

Figure 1.8 Tax Revenue vs. Inflation

Figure 1.9 Tax Revenue (in trillions)

Corporate Taxation Trends
(as a part of Federal Government Revenue)

The other contributing factor to Canadian GDP is corporate taxes. Rising GDP should result in higher revenue generated from taxes that corporations pay to the government. Even though it is reasonable to assume that GDP growth would directly be reflected in corporate tax increase, as seen on Figures 1.9 and 2 tax rates have been steadily cut by the government over the last decade, while total corporate profits before taxes fluctuated but averaged at $575 billion CAD. Therefore, tax revenue generated only represents 6.51% of total corporate profits before taxes on average (see Figure 2.2). 

Figure 2 Corporate Tax Rate

Figure 2.1 Profit Before Taxes

Figure 2.2 Tax Revenue and PBT


Canadian government has come close or surpassed its target for economic development and overall economic stability within last 15 years. However, the 2 per cent GDP growth is offset by 2 per cent growth in inflation. While bonds were trying to outperform inflation (see Figure 1.6), Canadian Treasury Bills have not had such success, as they were consistently below inflation levels (see Appendix 3.1 and 3.2).

Failing to collect corporate taxes and tax revenue from GDP, government of Canada is going to run into deficit of federal funds. This is primarily due to its inability to charge higher tax rates that would cause less stability and some companies are more likely to have high insolvency. This leads to the outcome that it has to implement new strategies and approaches to generate more revenue. The new technique that government is going to use is Carbon Taxation. It will affect the majority of commercial and industrial businesses across Canada.

Another threat is part of exports. As Canadian economy highly depends on the export volume, the potential export/import ‘trade wars’ might create a situation where export levels will significantly go down as a result bringing Canada’s GDP down.

4 “Inflation,” Bank of Canada, Web, August 17, 2017.

Carbon Taxation

The government of Canada showed its intentions to fight Greenhouse Gas Emissions (GHG) by introducing Pan-Canadian Framework on Clean Growth and Climate Change plan. Arqwave has evaluated the provinces of Alberts, British Columbia, Ontario and Quebec for representation of the effects of carbon taxation rates and revenues. These provinces have the best representatives because of their industry and GDP shares, demographics levels and overall contribution to Canadian economy.

Carbon Tax Rates

The 4 provinces already have a Carbon Tax Policy in place (current):

  • Alberta taxes carbon at the rate of $20 per ton
  • British Columbia taxes carbon at the rate of $30 per ton
  • Ontario and Quebec are projected to be at the rate of $15 per ton

Since the introduction of Pan-Canadian approach to pricing carbon pollution, the federal government will impose $10 per ton starting January 1st, 2018. It is expected to increase in increments of $10 per ton for the next five years reaching $50 per ton in 2022.6 This policy also states that provinces that currently do not have Carbon Taxation, or have rates are lower than the minimum requirement, will have to adjust their tax rates to reach federal levels. Arqwave has determined that only Alberta and British Columbia have reached the government’s requirements, while the rest of Canada will have to double or triple their tax rates (see Figure 2.3).

Figure 2.3 Carbon Tax in $ per tonne

Carbon Tax Revenue Generated

Figure 2.5 illustrates historical CO2 emissions per industry, and indicated that emissions have been on a steady upward trend since 1990, reaching 721.8 megatons in 2014. Given the historical growth rates, Arqwave projects CO2 emissions to grow at 0.64% (for calculations, see Appendix 4.1) and reach approximately 754.82 megatons of emission in 2022. Therefore, it is expected to generate Carbon Tax Revenue of $14.47 billion by the end of 2017 and $37.74 by the end of 2022 (see Appendix 4.2 & Figure 2.4). The revenue generated will be distributed to the market to support different incentives, programs and grants to reduce energy consumption rates and GHG emissions.

Figure 2.4 Carbox Tax Revenue, Actual vs. Required

5 John Paul Tasker, “Here’s where the provinces stand on carbon prices,” CBCnews, October 03, 2016, Web, August 17, 2017.
6 Ibid.

Report Summary

Energy efficiency market is one of the largest markets of Canada. It is projected to be $40.88 billion CAD in 2017 and to grow up to $51.01 billion CAD by 2020. Given current market fluctuations, more companies will be seeking for help to reduce their energy demand levels and decrease overhead production costs to not suffer from increasing electricity costs.

Canadian bonds have not been generating money for investors because of bond and treasury bills’ returns not exceeding inflation rates. It is also demonstrated that federal government has not been efficient and successful in collecting corporate taxes and tax revenue from GDP. Any ‘trade wars’ might play a key role in the economy as well.

Introduction of Carbon Taxation is expected to put enforce every province to start generating money from GHG emissions. Provinces like Manitoba and Saskatchewan do not have a current GHG emissions strategy in place are most likely to suffer the most from the future changes. Starting with $10 per emissions ton in 2018, Canada will keep increasing it at $10 per year reaching $50 per ton in 2022.

Other business-related risks like health implementations by Health Canada or federal and provincial interference into day-to-day operations of a business create strict stipulations that every company has to follow. Failure to comply might result in penalties and fines that can be avoided by following green energy initiative that is part of making the companies more efficient.