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Canada’s shift to net-zero emissions likely to drive higher inflation

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Solar-powered homes, electric tractors and hydrogen-cell trucking fleets: Canada has big net-zero ambitions, but getting there will require trillions of dollars in investment and will likely fuel hotter inflation for years to come, economists said.

Over the last decade, Canadian business investment has sagged, running well below historic levels and leading to excess supply in the economy, which pushed down inflation and allowed for structurally lower interest rates.

But that trend is set to reverse, said David Dodge, an economist and former Bank of Canada governor, as spending ramps up during the so-called green transition.

“We have major investment efforts to deal with climate change and to convert everywhere from the use of fossil fuel,” Dodge said in an interview with Reuters.

This spending will lead to a “tendency for prices to have some upward pressure rather than some downward pressure” starting as soon as next year, said Dodge, who headed Canada’s central bank from 2001 to 2008.

Economists around the world already are warning of greenflation, higher energy prices and consumer costs as the global economy shifts to cleaner energy sources. Stronger business investment, demand for skilled higher-wage workers, and more innovation spending will also fuel price increases.

But hotter inflation will lead to higher interest rates, a worrisome risk for Canada’s highly-indebted households, which are weighed down by C$2.5 trillion ($2 trillion) in debt, more than the country’s annual output.

Canadian inflation is at an 18-year high of 4.7%, while the Bank of Canada‘s key interest rate has been at a record low of 0.25% since March 2020. The central bank has signaled it could hike as soon as April, but money markets are not ruling out an increase as soon as this month.

HUGE BILL

Canada, the world’s fourth-largest oil producer, has pledged to reduce emissions 40%-45% below 2005 levels by 2030 and committed to achieving net-zero emissions by 2050.

The Royal Bank of Canada says getting to the net-zero target will cost C$2 trillion over three decades. Ian Lee, a professor in the Sprott School of Business at Carleton University in Ottawa, thinks it could cost more, pointing to the sheer prevalence of natural gas as a heating and industrial fuel.

“We’re talking about rebuilding the entire energy-based economy, from oil and gas to electric, and so it’s going to be at a scale never before experienced,” Lee said.

“I have no doubt it will be inflationary,” Lee added. “You do anything at that scale, and it’s going to be inflationary.”

Roughly 54% of Canadian homes are heated with fossil fuels, mostly natural gas, with 40% of them using electric heat, according to official data. Fossil fuels – mostly natural gas and coal – are used to generate 18% of Canada’s electricity.

Homes, schools, businesses and industrial complexes will need to run on renewable electricity rather than gas. Cars, trucks, farm equipment and entire transport and industrial vehicle fleets will need to make the shift to electric.

Heightened demand for electricity will also require a major expansion of the power grid.

But some economists argue it is not clear the inflation bump will be persistent, pointing to how rapidly energy costs can fall once renewables are in place.

“Germany came in and basically subsidized everyone to put solar panels on their roof. That had a large negative impact on inflation because, obviously, it brought down power prices,” said Stephen Brown, senior Canada economist at Capital Economics.

Ultimately, the climate-related restructuring may in the short term feel “hard to swallow,” Bank of Canada Deputy Governor Toni Gravelle said during a panel at the COP26 climate change conference in November.

“But in the long term, you have actually a lot more jobs, you have an economy that’s much more flexible … It’s a win-win at the end of the day,” he said.

($1 = 1.2457 Canadian dollars)

 

(Reporting by Julie Gordon in Ottawa; Editing by Steve Scherer and Paul Simao)

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In the news today: Canadians watch as Americans head to the polls

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Here is a roundup of stories from The Canadian Press designed to bring you up to speed…

Canadians watch as Americans head to the polls

Millions of Americans are heading to the polls Tuesday as a chaotic presidential campaign reaches its peak in a deeply divided United States, where voters in only a handful of battleground states will choose the country’s path forward.

Vice-President Kamala Harris and former president Donald Trump have presented starkly different visions for America’s future, but polling shows the two remain in a dead heat.

Canada’s ambassador to the United States Kirsten Hillman has been travelling across America meeting with key members of the Republican and Democratic teams to prepare for any outcome. On election night, after her embassy duties are finished, she’ll be watching the results with her husband and friends,

A shared history and 8,891-kilometre border will not shield Canada from the election’s outcome. Both candidates have proposed protectionist policies, but experts warn if the Republican leader prevails the relationship between the neighbours could be much more difficult.

A cause for concern in Canada and around the world is Trump’s proposed 10 per cent across-the-board tariff. A Canadian Chamber of Commerce report suggests those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

Here’s what else we’re watching…

5 things for Canadians to watch in U.S. election

Americans are facing a decision about the future of their country and no matter which president they choose, Canada cannot escape the pull of political polarization from its closest neighbour.

Vice-President Kamala Harris and former president Donald Trump present starkly different paths forward for the United States and the race for the White House appears to be extremely close.

The U.S. is Canada’s largest trading partner and its next president will be in charge during the review of the Canada-U.S.-Mexico agreement in 2026.

Harris has campaigned on the fact that she voted against the trilateral agreement, saying it didn’t do enough to protect American workers or the environment. The vice-president is largely expected to maintain President Joe Biden’s Buy American procurement rules.

The centrepiece of Trump’s agenda is a proposed 10 per cent across-the-board tariff.

B.C. ports shuttered as lockout takes hold

One of Canada’s most vital trade arteries is cut off as employers at most of British Columbia’s ports lock out their workers in a dispute involving about 700 unionized foremen.

The BC Maritime Employers Association says it defensively locked out members of the International Longshore and Warehouse Union Local 514 after the union began strike activity yesterday.

However, union president Frank Morena says the employers grossly overreacted to the union’s original plan for an overtime ban, adding that its negotiators are ready to re-engage in talks at any time.

Canadian political and business leaders have expressed concern with another work stoppage at the ports, after job action from the big railways earlier this year and a 13-day strike in a separate labour dispute last year.

The Greater Vancouver Board of Trade says it is relaunching its Port Shutdown Calculator, a tool to illustrate the economic damage caused by the labour dispute and introduced during the job action last year.

UN refugee chief: cutback wise amid housing crisis

The head of the United Nations refugee agency says it is wise of Canada to scale back the number of new refugees it plans to resettle if that helps stabilize the housing market and prevents backlash against newcomers.

Filippo Grandi, the UN High Commissioner for Refugees, met with the prime minister in Ottawa on Monday.

His visit comes a little more than a week after the federal government announced plans to cut overall immigration levels by 20 per cent for 2025 — a cut that includes refugees and protected persons.

The move has drawn condemnation from migrant groups, including the Canadian Council for Refugees, who called the new plan dangerous and a betrayal.

Grandi says Canada remains a global leader in resettlement, but says that pro-refugee sentiment is fragile in an economic or housing crisis and it would be “really negative” to see it destroyed.

N.S. memorial honours service of eight brothers

A new memorial recently dedicated in a small Nova Scotia community honours eight brothers whose story of service in the Second World War had been all but lost to local memory.

The Harvie brothers from Gormanville, N.S., all served in Europe — six returned home, while two died and are buried overseas.

A black granite monument is now inscribed with the names and photos of Avard, Burrell, Edmund, Ernest, Ervin, Garnet, Marven and Victor Harvie. It stands in a small memorial park just up the road from their hometown, beside the Royal Canadian Legion branch in Noel, N.S.

The number eight is inscribed prominently in the middle of the memorial.

The monument in the town about 70 kilometres north of Halifax is the brainchild of legion president Jeff Thurber, who only became aware of the Harvie brothers’ remarkable story around the time of his branch’s Remembrance Day service last year. That was when he happened to see them mentioned in a memorial book kept by the legion.

This report by The Canadian Press was first published Nov. 5, 2024.



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Demonstration outside Brampton Hindu temple broken up after weapons spotted: police

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A Hindu temple in Brampton, Ont., where violence erupted over the weekend was the site of another demonstration on Monday night that police broke up after they say weapons were spotted in the crowd.

Peel Regional Police said in social-media updates that the demonstration was declared an unlawful assembly shortly before 10 p.m., after officers saw weapons “within the demonstration.”

Police say the demonstration converged at an intersection outside the Hindu Sabha Mandir temple, shutting down traffic along Gore Road in both directions, before crowds dispersed by 1 a.m.

Pro-Hindu groups who shared details of Monday’s demonstration suggested it came in response to Sikh separatists who protested a visit by Indian consular officials to the temple on Sunday.

Three people were arrested and a Peel police officer was suspended after Sunday’s protest, with social-media videos seeming to show fist fights and people striking each other with poles on what appeared to be grounds of the temple.

In response to Monday’s demonstration, Brampton Mayor Patrick Brown shared a video of a man he accused of trying to “direct violence against those of Sikh faith.”

“Agitators trying to incite violence need to be dealt with promptly and swiftly with the full extent of our hate laws,” Brown said in a Tuesday morning post on X.

The Canadian Press has not independently verified the contents of the video posts on social media.

Before Monday’s demonstration, Indian Prime Minister Narendra Modi had condemned Sunday’s violence as a deliberate attack on a Hindu temple and an attempt to intimidate diplomats.

Canada expelled six Indian diplomats last month for allegations that they used their positions to collect information on Canadians in the Sikh separatist movement, and then passed the details on to criminal gangs who targeted the individuals directly.

India, which has rejected those allegations, has long accused Canada of harbouring terrorists involved in a Sikh separatist movement calling for an independent country called Khalistan. Canadian officials have said related extradition requests from India often lack adequate proof.

This report by The Canadian Press was first published Nov. 5, 2024.

The Canadian Press. All rights reserved.



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B.C. ports shuttered as lockout takes hold in latest labour dispute

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VANCOUVER – One of Canada’s most vital trade arteries is cut off as employers at most of British Columbia’s ports lock out their workers in a dispute involving about 700 unionized foremen.

The BC Maritime Employers Association says it defensively locked out members of the International Longshore and Warehouse Union Local 514 after the union began strike activity yesterday.

However, union president Frank Morena says the employers grossly overreacted to the union’s original plan for an overtime ban, adding that its negotiators are ready to re-engage in talks at any time.

Canadian political and business leaders have expressed concern with another work stoppage at the ports, after job action from the big railways earlier this year and a 13-day strike in a separate labour dispute last year.

The Greater Vancouver Board of Trade says it is relaunching its Port Shutdown Calculator, a tool to illustrate the economic damage caused by the labour dispute and introduced during the job action last year.

Board president Bridgitte Anderson says the latest port shutdown will disrupt $800 million worth of goods daily, with every hour of the closure fuelling inflation.

“This shutdown is the latest in a long line of highly damaging labour disputes that have hurt Canada’s economy and international reputation,” Anderson says.

“Through the Port Shutdown Calculator, we want to demonstrate the profound and escalating impact of this labour dispute.”

The employers and the workers represented by Local 514 have been without a contract since March 2023.

This report by The Canadian Press was first published Nov. 5, 2024.

The Canadian Press. All rights reserved.



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