Canada's energy industry needs more research and development funding from government, according to a new report by the International Energy Agency (IEA).

Financial resources are "under pressure" and that's why the IEA suggests a federal energy research and development strategy could help coordinate the work being done by industry and provincial governments. Such a strategy would focus on clean energy technologies, carbon capture and storage and environmentally beneficial methods for unconventional oil and gas production.

"This will contribute to reducing the environmental impact of energy use and production, as well as the cost of natural resource development, notably for oil-sands operations," the report states.

A demonstration by the group Oil Change International at the COP21 climate conference in Paris urged countries to stop subsidizing the fossil fuel industry. (Kyle Bakx/CBC) In its first in-depth review of the country's energy industry and policies since 2009, the IEA notes other challenges facing Canada. The country is one of the most energy-intensive nations belonging to the IEA. In addition, changes to electricity generation, such as reducing coal use and nuclear reactors reaching the end of their economic life, threaten the self-sufficiency of some provinces.

In general, Canada needs to adapt to the downturn in oil and natural gas prices, which is impacting government revenue and the country's economy. The importance of the energy industry to Canada is clearly outlined in the report. In 2014, the sector contributed about 10 per cent of gross domestic product, employed about 280,000 people and accounted for 30 per cent of Canada's total exports. In addition, the energy sector contributes about $20-$25 billion in taxes, royalties and other payments to federal and provincial governments, each year.

More subsidies

Still, the suggestion of government funding to the energy sector has drawn criticism from some groups who oppose subsidies to the fossil fuel industry.

Since 2009, public funding for energy sector research has declined at both federal and provincial levels, according to the IEA, outside of money for carbon capture and storage projects.

"The ability for applied technology to reduce costs is crucial to addressing many of the challenges facing resource development," the report states.

"Long-term public funding of basic [research and development] is necessary to maintain and increase opportunities for leveraging private funding and commercialisation, international leadership and co-operation."

Energy research and development in Canada focuses on cleaner fossil fuels, clean electricity such as renewables, and end use, which includes buildings and transportation. Total government energy sector research funding was estimated to be $941.9 million for 2014-15, down from $1.34 billion in 2013-14, according to the IEA.