Most Canadians support this goal, as recent extreme-weather events have raised awareness of the potential damage from climate change. Capital markets are increasingly signalling that funds will be directed toward industries and activities that have lower emissions intensities. Financial-system regulators are starting to require that banks and insurers report their direct and indirect exposures to climate risk, which may alter domestic financing. Environmental, social, and governance (ESG) considerations are progressively being incorporated into consumer, business, and policy decisions. All of this creates a powerful incentive for firms across Canada—particularly those in high-emissions industries such as oil and gas—to have plans for how they’ll curtail carbon output and contribute to government-set goals.
With the right set of policies and investments, our economy can continue to grow at only a slightly slower pace
Make no mistake, meeting our emissions targets will require significant transformation of our economy. A common worry is that Canada’s economy cannot bear the cost of migration to a low-carbon future. However, our work shows that with the right set of policies and investments our economy can continue to grow at only a slightly slower pace. Transformation to a low-carbon economy will require maximizing technology use and investments. Delaying action will likely serve only to increase transition costs and can lead to lesser gains that could otherwise result from being a leader in this green shift. Strong direction, public support, bold action, substantive investment, and significant collaboration between the public and private sectors will be needed to help ensure we make the most of the opportunity ahead.
The federal government’s carbon-pricing plan will be critical for economically efficient change. Part of these revenues should go to consumers to maintain public support, but a greater share will likely need to be allocated to businesses and green investments to accelerate the adoption of clean technology. If revenues from carbon pricing are recycled into the economy, with a greater focus on channeling the revenue to investment, the costs of moving to a low-carbon future can be minimized. Indeed, modelling by Deloitte’s Canadian economics team using its General Equilibrium model show that from now to 2030, Canadian economic growth will be reduced by only about 0.1 percentage point per annum.
Canada needs to go on a carbon diet
A key challenge is that the current public discourse on climate change is focused on the transition to a low-carbon future rather than on the future reality and its benefits. Consider this analogy: No one likes dieting, because it’s difficult—you can’t eat what you want, you’ll feel hungry, your willpower will be challenged, etc.—and thus it’s perceived negatively. However, the final result can be a healthier, more resilient body. In much the same way, Canada needs to go on a carbon diet.
The country’s economy in a net-zero future will no doubt be prosperous. Over the last half-century, there’s been a substantial shift from manufacturing and extraction toward services; over the next half-century, the economy’s industrial and sectorial mix will continue to change, with low-carbon-emitting industries prospering. This research aimed to look beyond 2030 to see what that future could look like. To do this, we relied on results from two additional models to determine first, what technologies will help us achieve net-zero and second, what Canada’s economy will look like as we move into the phase of dramatic emission reductions after 2030.
We can be a market leader in clean-technology areas such as hydrogen and carbon capture and storage
Of course, the path forward is not straightforward or without challenges. Regrettably, there will likely be stranded-assets costs, which is economic jargon that, in this case, refers to replacing some still-productive capital with new investments that lower emissions. And the investments required to get us to net-zero are significant—equal to between 5% to 6% of the economy—and we need to start thinking about how and who will fund that investment. But it’s also possible that these new technologies and investments will create their own innovations that, in turn, enhance productivity.
Adaptation costs will abate over time, and the resulting transformation will create significant opportunities for Canada: We can be a market leader in clean-technology areas such as hydrogen and carbon capture and storage. Our domestic oil and gas sector can be environmentally sustainable. We’ll have a well-developed green-energy sector. Canada will be able to export its newly created environmentally sustainable technology, technical services, and know-how. The country will have climate-resilient infrastructure. We’ll be a more attractive destination for international talent and capital. All of these benefits can support Canada’s sustainable economic growth and, in turn, a rising standard of living from coast to coast to coast.
The time has come for the country to pull together and figure out how we’ll achieve this overall goal.
Canada will be able to export its newly created environmentally sustainable technology, technical services, and know-how
