Rather than focusing on the COVID-19 spread or opening the economy, the Canadian Prime Minister is using his pandemic recovery plan as a smokescreen for his environmentalist agenda. Contrary to feel-good platitudes, a quick transformation to a carbon-neutral economy guarantees neither an economic rebound nor an end to climate change.
As Nobel Laureate James Buchanan said, “economics and economists must make the categorical distinction between science fiction and potentially attainable reality.” Unfortunately for Canadians, the proposed green energy plan—as outlined in his Throne Speech in late September—is the former. Its implementation, part of a $50 billion spending spree, is likely to cause profound and lasting damage.
On October 18, Global News revealed the results of a June poll conducted by the federal government. Only 2.5 percent of respondents thought climate change was the foremost issue to address. In contrast, 41 percent pointed to COVID-19 and health as the top concerns; 15 percent said the economy should receive the greatest attention.
Canadians do favour a more environmentally friendly economy, as more than half of respondents agreed with the desire to reduce greenhouse gas emissions. However, they also weigh the costs, and they prioritize an economy that can ensure quality of life and create job opportunities.
Spending for Naught
Rather than addressing constituent wishes, the prime minister has transformed his green agenda into a touted recovery plan. He has disregarded fiscal prudence and stated “this is not the time for austerity.” Ironically, the International Monetary Fund recently released its semiannual report. It reveals the Liberal Party government is running the largest budget deficit in the world, as a percentage of GDP, and in all Canadian history.
The deficit is currently at 19.9 percent of GDP, and the IMF projects it to rise to 57.3 percent by the end of the year. To illustrate the magnitude of government spending, consider that our deficit is projected to exceed that of the United States by 10 percent, even though its population is almost 10 times larger.
Canada’s prime minister’s plan includes a 30 percent reduction of Canada’s emissions by 2030 compared to 2005 levels; legislation for net-zero emissions by 2050; and a second carbon tax that will “require all supplies of fossil fuel to reduce carbon content.”
Bjørn Lomborg, a political scientist and author, has estimated that striving to achieve the Paris climate goals will cost up to $2 trillion a year—yet have little effect on slowing climate change. Consider that Canada contributes less than 1.5 percent of global greenhouse-gas emissions. Its annual emissions are equivalent to that of China’s for one month, so one can hardly see Canada having a meaningful impact.
Legislating a net-zero emissions target is also grandstanding. Canada has not met even its 2020 target.
The Hidden Cost
Economist Robert Lyman explains that net-zero-emissions legislation would allow environmentalists to drag to court any economic development that increased use of oil, natural gas, and/or coal. That translates to almost every conceivable project, regardless of whether competitively priced alternatives exist.
In addition, since firms would have to keep track of emissions at every stage of the application process, compliance costs would shoot through the roof. Expect the competitiveness of Canadian firms to plummet, as many investments will be vulnerable to the opposition of politically motivated groups. Firms would inevitably offload the costs onto consumers.
Companies that fail to meet the requirements of the clean fuel standard would pay a carbon tax of $350 per ton. According to University of Calgary economist Jack Mintz, this second carbon tax “would substantially increase heating and transportation costs for households and businesses.”
A report released by Canadians for Affordable Energy estimates the proposed regulation would result in approximately 30,000 job losses across the nation, and it poses a capital-flight risk of $22 billion. The tax would also increase gasoline costs by 10–20 percent and natural gas by up to 4 percent.
No Time for Experiments
As part of their green strategy, the prime minister and the Minister of Infrastructure and Communities have announced a $10 billion, three-year Canada Infrastructure Bank (CIB) plan. This includes $2.5 billion to support renewable-energy storage and generation and $500 million for the CIB to directly support project development.
The Prime Minister and Infrastructure Minister dubiously claim this plan would create 60,000 jobs. However, such job-creation projection studies often overstate net benefits and downplay job destruction. As economists Robert Michaels and Robert Murphy of the Institute for Energy Research have argued, “artificially pumping up employment in the energy sector per se—and thereby driving down productivity, while driving up costs to the broader economy—is counterproductive to overall net job creation and economic growth.”
Green energy sourced from wind and solar power is still expensive and unreliable. Given limited battery storage capacity, fossil-fuel-powered plants remain crucial. Waving the wand of taxpayer money will not change this reality.
Policies that expand the availability of energy are a key driver of economic growth. A 2014 paper by the Fraser Institute found that “real per capita income is constrained by policies that restrict energy availability and/or increase energy costs, and growth in energy abundance leads to growth in GDP per capita.… [P]olicies that deliberately limit energy availability will likely have negative macroeconomic consequences.”
Rather than capitalizing on COVID-19 to launch environmental crusades, Canada’s resource industries need our support. The energy sector is Canada’s largest employer, and research from the Canadian Energy Center shows energy is the biggest contributing sector to the Canadian economy, accounting for $221 billion or 10.6 percent of GDP in 2018.
Prioritizing renewable energy—while ignoring the evidence on performance—only serves to hamstring the economy, harm the poor, and anger taxpayers who have to shoulder the burden of utopian visions.
Caitlin Rose Morgante, from Toronto, studies economics at Boston University and is a research associate with the Frontier Centre for Public Policy.
Photo by Joshua Rawson-Harris on Unsplash.