The discussion up to this point has been about the transition to a low-carbon future.
However, it’s important to stress that once the journey is complete, the headwind on growth from conversion costs will die down—after which, Canada’s prosperity will be fuelled by a more diversified and lower-carbon economy.
The Deloitte Economics Institute has been using its D.climate models to run simulations of economic growth and emissions for countries around the world. Canada is among those covered by this analysis.
This global initiative uses standardized assumptions that show what happens over the next 50 years to countries under a scenario where global temperatures rise 3°C versus one where emissions reduction limits the temperature rise to close to 1.5°C. These scenarios show that climate inaction is no free lunch. A world in which global temperatures rise by 3°C is a world of significantly lower global growth. The institute's modelling suggests the economic damages caused by 3°C of global warming reduces global GDP by 8% by 2070. The costs to limiting emissions need to be compared to an appropriate baseline that considers the cost of inaction.
A world in which global temperatures rise by 3°C is a world of significantly lower global growth
This modelling shows there are transition costs resulting from shifts to lower-carbon emissions. The resulting drag on the economy until 2030 is consistent with the modelling discussed earlier in this paper (i.e., a scenario involving carbon-pricing policy and with a forecast period of 2019–2030). When considering the sheer scale of the economic and industrial transformation that must take place to reach net-zero emissions and the future benefit of avoiding climate change impacts, a transition cost that peaks at 0.9% of GDP would seem manageable. Further, by taking action to limit warming to close to 1.5°C, Canada is helping to reduce the worst effects of climate change and avoiding climate damages.
In the current analysis, transition costs peak around 2037 and decrease thereafter (see figure 10). There’s a positive net economic impact as of 2060, with numbers continuing to climb thereafter. Thus, rapid decarbonization creates structural adjustment costs, but ambitious early action leads to future economic dividends. In this model, the Canadian economy will grow by $30 billion by 2070, compared to a world without climate action.
Rapid decarbonization creates structural adjustment costs, but ambitious early action leads to future economic dividends
