Fraser Institute
Among federal government policymakers and much of the environmental advocacy community, thereâs a common belief that the Canadian economy is undergoing a fundamental and rapid transition, driven by efforts to tackle climate change and lessen the environmental impact of human activity more broadly. According to this view, Canadaâs almost $3 trillion economy is being refashioned by the dramatic growth of âclean/greenâ industries and an accompanying forced march away from fossil fuels.
To support this politically-inspired transition, the Trudeau government has legislated an escalating national backstop carbon tax and introduced a host of regulatory measures for electricity generation, vehicle efficiency, fuel standards, energy use in buildings, agriculture and much more. Together with the Ontario and Quebec governments, Ottawa is also earmarking unimaginable sums of money for a handful of industries that produce carbon-free energy and low-emissions products and technologies. These vast subsidies and incentives will likely spur the growth of the favoured industries, while adding to Canadaâs mounting government debt and creating more distortions in an already mind-numbingly complex tax system.
All of this invites us to think further about the emerging âclean/greenâ economy championed by many politicians and civil society activists. Can this sector grow at a pace that revives Canadaâs increasingly moribund economy and fosters a much-needed surge in flagging business investment?
A look at Statistics Canadaâs Environmental and Clean Technology Products Economic Account sheds some light on the issue. The account charts the size, growth and composition of the nascent clean/green economy by quantifying the economic contributions of industries that fall under the clean/green label. According to Statistics Canadaâs framework, these industries include renewable and other carbon-free sources of electricity (hydro, wind, solar, nuclear), bio-fuels production, energy storage, sewage and wastewater treatment, carbon capture and storage, waste management services, the development and manufacturing of clean technology products (such as batteries for electric vehicles, pollution control equipment, water purifying systems and fuel cells) and an array of scientific, technical and professional services that help protect the environment and improve energy efficiency.
Using this definition, how big is Canadaâs clean economy? Today, it amounts to about 3 per cent of gross domestic product (GDP) and directly employs 314,000 Canadiansâroughly 1.6 per cent of all jobs. Those numbers arenât chump change, but they cast doubt on the notion that the economy is being quickly restructured owing to the ascension of clean technologies, renewable electricity and other green industriesâdriven in part by mandates and subsidies adopted by governments.
A deeper dive into the data indicates that electricity generated from carbon-free sources (mainly hydro and nuclear) represents the largest slice of Canadaâs clean/green sector in economic terms. Waste management also accounts for a sizable portion. In fact, carbon-free electricity and waste management services together comprise more than 40 per cent of the economic activity attributable to the clean economy. âGreenâ construction makes up another one-fifth of the sectorâs output. The other industries in the clean economy collectively produce a little over 1 per cent of GDP.
What about exports? Canadaâs annual exports of âcleanâ products and carbon-free energy total some $18 billion, out of total goods exports that exceeded $750 billion in 2021. By comparison, exports of crude oil, oil products and natural gasâby far Canadaâs biggest export categoryâare on course to reach $200 billion by mid-decade.
Apart from its fairly small size, the clean/green economy isnât expanding nearly as fast as some politicians and environmentalists appear to believe. Statistics Canada dryly reports that the âsectorâs share of national GDP has remained relatively stable since the beginning of the time series in 2007.â To say the least, this finding doesnât square with feverish claims of a âgreen transformationâ advanced by some politicians and media members.
The world is on a long journey to a lower-carbon future. The current energy transition, like those that have occurred before, will likely be slow-moving and probably wonât bring about a sudden break with the established industrial structure, even with epic government intervention. Green industries will certainly grow and play a role in helping mitigate climate change. However, thereâs no reason to expect the clean/green sector to soon replace the traditional energy, natural resource and manufacturing industries that continue to dominate Canadaâs export mix.
In setting climate and energy policy, the officials inhabiting Prime Minister Trudeauâs Ottawa dream palace would be wise not to overlook the other 97 per cent of our economy.
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