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 – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
