The people in charge of investing your money for the long term are in the throes of a wrenching internal conflict that is reshaping Canada and the world.
While new federal incentives for low-carbon investment as part of a COVID-19 recovery play a part, those in the know say the private sector is already embroiled in its own painful energy investment transition.
Part of the agony of the split in this country is that it inflames the long-term political fault line between those regions that depend on the oil and gas sector for their livelihood and those that don’t.
Sophisticated new analysis shows that the interests of the fossil fuel-based economy so important to places like Alberta no longer coincide with the well-being of the country’s centres of finance and industry, principally — but not only — in Ontario.
A changing mood in Ontario
As French energy giant Total adds its name to the list of companies expecting oil demand to peak in a decade as electricity use doubles, finance specialist Ryan Riordan sees a changing mood within the Ontario investment sector and within the Ontario government, which so recently fought an election against carbon pricing, low-carbon energy and the green transition.
“I think particularly the provincial government is at an inflection point,” Riordan, associate professor of finance at Queen’s University in Kingston, Ont., and author of a new research-based report for the Institute for Sustainable Finance, said in a phone interview last week.
In the spring of 2019, Ontario’s Progressive Conservative government required gas stations to display anti-carbon tax stickers in response to a levy imposed by the federal Liberals — a move that was struck down by a court in September. (Patrick Morrell/CBC)
Riordan’s research shows that it’s become increasingly clear that the success of Ontario’s financial and industrial sectors depends on a quick move toward a low-carbon transition.
What others have called “fossil-fuel entanglement” has meant the province and even Canada’s respected pension and banking sectors may have been acting against their own best interests by investing in a fossil-fuel sector that could see sharp losses.
Riordan said the institute’s research has shown that carefully targeted, a relatively modest $13 billion a year for 10 years from Ottawa is enough to accelerate a nationwide burst of private-sector low-carbon investment that is already underway.
“It’s just hard to ignore what’s gone on in the world in the last three or four years, and I think that’s also had an impact on people in Ontario,” he said.
While forest fires, storms and melting ice may be the apparent cause, Riordan — a longtime finance guy who began his career on the European trading desk of HSBC before getting into high-level financial modelling — observes that market trends have become increasingly obvious.
The Exxon Mobil signal
“The biggest one was Exxon Mobil leaving the Dow Jones index,” he said, noting that the company that had been on the exclusive list of top U.S. industrial giants for close to 100 years was kicked off last month after market capitalization fell from $340 billion US five years ago to $160 billion.
“I think that’s just the tip of the iceberg, and this is just not what’s on most institutional investors’ wish lists,” Riordan said, contrasting the oil giant’s decline with the soaring market cap of tech companies that don’t depend on carbon.
Darren Woods, CEO of Exxon Mobil, at the New York Stock Exchange in 2017. A month ago, the company was removed from the Dow Jones Industrial Average after a sharp fall in its value. (Brendan McDermid/Reuters)
On Friday after our interview, the Financial Times reported that the clean energy group NextEra had become more valuable than Exxon.
Now, new developments — including expectations that Ford will build electric cars in Oakville — are forcing Ontario into the realization that its future economic advantage is more closely aligned with making the shift to a low-carbon economy based on an entirely different energy source.
“We have 80 per cent zero-emission electricity right now in Canada,” said Merran Smith, executive director of Clean Energy Canada, a research group at Simon Fraser University in Burnaby, B.C.
Canadian nickel miners are already producing low-carbon nickel, a crucial step for electric automakers committed to greening the production chain.
Smith points to the Borden mine near Chapleau, Ont., on its way to becoming the first all-electric underground mine in Canada. Many Ontario manufacturers can make similar boasts.
The Borden gold mine near Chapleau, Ont., has taken delivery of this battery electric drilling vehicle as it moves to become the first all-electric underground mine in Canada. (Newmont)
But some analysts fear that another keystone of the Ontario economy, the long-term investment sector — the smart money that manages insurance and pension money 20 or 30 years into the future — is still struggling to make the transition.
As former Bank of Canada and Bank of England governor Mark Carney has repeatedly warned, decarbonizing the global economy means that at some point in the coming decades, the value of fossil-fuel assets will fall toward zero.
‘Those assets will diminish in value’
Adam Scott, director of Shift, a group that monitors the way Canadian pension funds invest their money, worries that institutional investors, including the Canada Pension Plan, have not done enough to secure their assets against a precipitous decline.
In its annual report on sustainable investing, published last week, the CPP boasts that “investments in global renewable energy companies more than doubled to $6.6 billion.”
But Scott points out that a lot of money is being invested in fossil-fuel companies in the expectation that they will complete the energy transition, even if such energy companies simply have no credible path to accomplish the change.
“There is a mindset that ‘we can’t abandon this sector; we have to somehow protect it,'” said Scott who observes that over a long period when the oil and gas sector was the motor of the Canadian economy, many investment leaders also spent time in the energy sector.
Scott said CPP and other finance giants are trying hard to find new investments to replace their enormous portfolios of oil and gas firms and are having many successes, but they are struggling to find enough of the enormous investments they need outside the traditional energy sector they know so well.
“We are already seeing a rapid repricing of [fossil energy] assets because of COVID, but that’s just a taste of what’s going to come from climate,” Scott said. “It’s inevitable that those assets will diminish in value.”
While inevitably the Alberta oil and gas economy will continue to suffer from the rush for the door, he said, the success of the Ontario-centred finance sector will depend on getting out of those positions before they lose their value.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
