Low-carbon Transition is a Necessity, Conference Board Concludes

Shawn McCarthy

Pricing carbon and phasing out fossil fuels will drive up costs for households and businesses, but the transition is necessary and will become more expensive if it is delayed, the Conference Board of Canada concluded in a report issued earlier this week.

The study looked at the cost of pricing carbon, decarbonizing the country’s electricity supply, and investing in clean energy technologies, energy efficiency, and promotion of energy-efficient lifestyles. “Its forecasts do not take into account the economic benefits that accrue from greater energy efficiency, either in industry or among households,” the Globe and Mail notes, with the business think tank saying it “had no way to forecast the impact from the development and widespread deployment of innovative technology.”

That said, “if these new technologies can be commercialized, it is possible that new sectors will emerge focused on products and services that promote clean energy and emissions reductions,” the Conference Board conceded. “These new sectors, not considered in this analysis, could help mitigate the negative effects of carbon pricing on the economy.”

“Yes, it will cost us to act, but it will cost us more to not act,” Public Policy Research Director and study author Len Coad told the Globe. “The eventual outcome [of not acting] means a different kind of adjustment: to a world that is hotter, drier, more violent, and with more frequent storms.”

While “the transition is very significant from Canada’s current industrial structure to a greener structure,” he said, “companies, individuals, and governments need to find the commitment to make this happen.”

Speaking to the Financial Post, Coad stated that “carbon-intensive industries are hit the hardest, consumers take a hit, and then we start to grow our way out of it again.” The Post headlined the story rather differently than the Globe, noting that “the introduction of a federal carbon tax could ‘shrink’ Canada’s GDP by as much as $3 billion in 2018 and lead to a slight depreciation of the Canadian dollar.” That would be $3 billion out of a GDP of more than $1.7 trillion in June 2016, according to Statistics Canada.

To meet its greenhouse gas reduction targets and make the transition to a low-carbon economy, Canada would have to invest $1.5 to $3.5 trillion between 2017 and 2050, the Conference Board found. “The shift would require heavy investment into increasing the adoption of electric vehicles and expanding current infrastructure,” the Post notes. “Meanwhile, power suppliers will need to double or even triple their current capacity while replacing coal and natural gas with cleaner supplies,” in what Coad called “a very massive transformation of the economy.”

Massive, but not necessarily painful. The study concluded that a carbon tax rising to C$80 per tonne by 2025 would shrink the economy 1.8%, reduce wages by 0.8%, and cut employment by 0.1%—once again, without factoring in the massive job benefits of investing in clean energy. The impacts of carbon pricing would be small but variable by region, the report said, with chemicals, mining and smelting, and pulp and paper emerging as the most vulnerable industry sectors.

The Conference Board urged the federal government to build long-term support for the energy transition by communicating both the costs and benefits to Canadians. “History has taught us that long-term change cannot be successfully imposed by governments,” the report stated. “Rather, it must be desired by the citizens.”

In a Globe and Mail opinion piece coinciding with the report release, Conference Board Senior Fellow Glen Hodgson says Canada can position itself as a clean energy superpower, much as it was touted as an “energy superpower” a decade ago. Competing sources of oil and gas, “structurally weaker” fossil prices, and inadequate access to global markets all challenge the country’s future status in energy markets, he writes. But the other factor is a low-carbon transition that is “now under way,” and “represents a fundamental, long-term structural change in how the world will consume and produce energy in the decades ahead.”

Hodgson recommends public policy support for what he sees as the three elements of a low-carbon energy strategy: becoming North America’s most efficient, “low-carbon” source of oil and gas production, building up the country’s expertise in a range of energy services, from research to finance, and developing carbon capture and storage, nuclear, and energy storage technologies.