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Economy

Opinion: Canadian export industry at risk in shift to low-carbon economy – The Globe and Mail

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Jock Finlayson is senior policy adviser at the Business Council of British Columbia. David Williams is the council’s vice-president of policy.

In its new report Transforming Canada’s economy for a low-carbon future, the Canadian Institute for Climate Choices provides a sober assessment of where the country stands. Among other things, the report notes the heavy weighting of energy and energy-intensive industries in Canada’s economy.

If anything, the institute underplays the challenges confronting Canada on the journey to a low-carbon future. Examining the composition of exports suggests it will be difficult to significantly reduce greenhouse gas emissions across the country’s industrial base – especially within such a brief time frame as five to 10 years.

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Pre-COVID, natural-resource industries and transportation-equipment manufacturing together accounted for roughly 70 per cent of Canada’s merchandise exports – and for more than half of total exports of goods and services combined. Natural-resource products alone make up more than half of merchandise exports.

Factoring in other energy-intensive manufacturing industries, such as aluminum, pulp and paper, chemicals and petrochemicals, fertilizers and iron and steel, further underscores the country’s dependence on a handful of traded-goods industries for export earnings. Most of these industries emit significant quantities of greenhouse gases and/or rely on fossil-fuel energy inputs for the manufacturing and shipment of the goods they produce.

For a trade-dependent economy, the health of export industries warrants policy makers’ close attention. Export patterns hold vital information about where Canada possesses comparative advantages. Many of the industries in which Canada has long been globally competitive serve the world’s energy consumers or are energy- and raw materials-intensive. The Canadian economy therefore faces major risks as the world tackles climate change and our own governments make it harder to extract, process and add value to our abundant natural resources by implementing costly new regulatory and fiscal measures.

Politicians often opine about the business opportunities that come with addressing carbon emissions. Such opportunities do exist and are growing. But a sense of perspective is needed. Natural-resource production is Canada’s highest productivity industry – by far. The sector contributes $330 of value-added output for every hour worked, on average, and $1,300 in the case of unconventional oil and gas. It is a fantasy to believe Canada, within the span of a decade or even two, can replace its highest-productivity industries with other business activities that contribute only $30 to $90 of value-added an hour, such as many service sectors, and not experience a step-down in living standards in the process.

Tracking trends in Canada’s merchandise trade balance is a useful way to see the role of natural-resource industries in our economy and to gauge how living standards may be affected if these industries wither because of shifts in global markets and/or domestic policy.

According to Scotiabank Economics’ latest commodity price report, all major categories of internationally traded natural resources saw sizable price increases through the first three quarters of 2021. Canada’s merchandise trade balance has moved into surplus on the back of rising exports of oil, gas, coal, metals, non-metallic minerals and forest products. Canada’s improving merchandise trade balance is set to make a sorely needed contribution to GDP growth in 2021 and likely in 2022 – with developments in natural-resource markets being the principal reason.

Too often, the centrality of natural-resource industries in Canada’s economic base is breezily dismissed. The high value-added and unmatched export earnings generated in these sectors cascade through the rest of the economy, helping to underpin domestic demand for non-traded goods and services and to pay for both imports and public services.

Canada needs thoughtful regulatory, tax and carbon-mitigation policies to encourage the transition to a less carbon-intensive economy. At the same time, policy makers must avoid undermining Canada’s role as a trusted supplier of energy, minerals/metals, foodstuffs and other raw materials. The world consumes these products and will keep buying them – hopefully from us. Yes, it’s a complex balancing act. But Canadian living standards depend on getting it right.

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Economy

Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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Economy

Opinion: The future economy will suffer if Canada axes the carbon tax – The Globe and Mail

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Open this photo in gallery:

Poilievre holds a press conference regarding his “Axe the Tax” message from the roof a parking garage in St. John’s on Oct.27, 2023.Paul Daly/The Canadian Press

Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral student at the University of California, Berkeley.

The carbon tax is the single most effective climate policy that Canada has. But the tax is also an important industrial strategy, one that bets correctly on the growing need for greener energy globally and the fact that upstart Canadian companies must rise to meet these needs.

That is why it is such a shame our leaders are sacrificing it for political gains.

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The fact that carbon taxes address a key market failure in the energy industry – polluters are not incentivized to consider the broader societal costs of their pollution – is so well understood by economists that an undergraduate could explain its merits. Experts agree on the effectiveness of the policy for reducing emissions almost as much as they agree on climate change itself.

It is not just that pollution is bad for us. That a patchwork of policies supporting clean industries is proliferating across the United States, China and the European Union means that Canada needs its own hospitable ecosystem for clean-energy companies to set up shop and eventually compete abroad. The earlier we nurture such industries, the more benefits our energy and adjacent sectors can reap down the line.

But with high fixed costs of entry and non-negligible technological hurdles, domestic clean energy is still at a significant disadvantage relative to fossil fuels.

A nuclear energy company considering a reactor project in Canada, for example, must contend with the fact that the upfront investments are enormous, and they may not pay off for years, while incumbent oil and gas firms benefit from low fixed costs, faster economies of scale and established technology.

The carbon tax cannot address these problems on its own, but it does help level the playing field by encouraging demand and capital to flow toward where we need it most. Comparable policies like green subsidies are also useful, but second-best; they weaken the government’s balance sheet and in certain cases can even make emissions worse.

Unfortunately, these arguments hold little sway for Pierre Poilievre’s Conservatives, who called for a vote of no-confidence on the dubious basis that the carbon tax is driving the cost-of-living crisis. Nor is it of much consequence to provincial leaders, who have fought the federal government hard on implementing the tax.

Not only is this attack a misleading characterization of the tax’s impact, it is also a deeply political gambit. Most expected the vote to fail. Yet by centering the next election on the carbon tax debate, Mr. Poilievre is hedging against the possibility of a new Liberal candidate, one who lacks the Trudeau baggage but still holds the line on the tax.

With the reality of inflation, a housing crisis and a general atmosphere of Trudeau-exhaustion, Mr. Poilievre has plenty of ammunition for an election campaign that does not leave our climate and our clean industries at risk. The temptation to do what is popular is ever-present in politics. Leadership is knowing when not to.

Nor are the Liberals innocent on this front. The Trudeau government deserves credit for pushing the tax through in the first place, and for structuring it as revenue-neutral. But the government’s attempt to woo Atlantic voters with the heating oil exemption has eroded its credibility and opened a vulnerable flank for Conservative attacks.

Thus, Canadian businesses are faced with the possibility of a Conservative government which has promised to eliminate the tax altogether. This kind of uncertainty is a treacherous environment for nascent companies and existing companies on the precipice of investing billions of dollars in clean tech and processes, under the expectation that demand for their fossil fuel counterparts are being kept at bay.

The tax alone is not enough; the government and opposition need to show the private sector that it can be consistent about this new policy regime long enough for these green investments to pay off. Otherwise, innovation in these much-needed technologies will remain stagnant in Canada, and markets for clean energy will be dominated by our more forward-thinking competitors.

A carbon tax is not a panacea for our climate woes, but it is central to any attempt to protect a rapidly warming planet and to develop the right businesses for that future. We can only hope that the next generation of Canadian leaders will have a little more vision.

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Economy

Business leaders say housing biggest risk to economy: KPMG survey – BNN Bloomberg

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Business leaders see the housing crisis as the biggest risk to the economy, a new survey from KPMG Canada shows.

It found 94 per cent of respondents agreed that high housing costs and a lack of supply are the top risk, and that housing should be a main focus in the upcoming federal budget. The survey questioned 534 businesses.

Housing issues are forcing businesses to boost pay to better attract talent and budget for higher labour costs, agreed 87 per cent of respondents. 

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“What we’re seeing in the survey is that the businesses are needing to pay more to enable their workers to absorb these higher costs of living,” said Caroline Charest, an economist and Montreal-based partner at KPMG.

The need to pay more not only directly affects business finances, but is also making it harder to tamp down the inflation that is keeping interest rates high, said Charest.

High housing costs and interest rates are straining households that are already struggling under high debt, she said.

“It leaves household balance sheets more vulnerable, in particular, in a period of economic slowdown. So it creates areas of vulnerability in the economy.”

Higher housing costs are themselves a big contributor to inflation, also making it harder to get the measure down to allow for lower rates ahead, she said. 

Businesses have been raising the alarm for some time. 

A report out last year from the Ontario Chamber of Commerce also emphasized how much the housing crisis is affecting how well businesses can attract talent. 

Almost 90 per cent of businesses want to see more public-private collaboration to help solve the crisis, the KPMG survey found.

“How can we work bringing all stakeholders, that being governments, not-for-profit organizations and the community and the private sector together, to find solutions to develop new models to deliver housing,” said Charest.

“That came out pretty strong from our survey of businesses.”

The federal government has been working to roll out more funding supports for other levels of government, and introduced measures like a GST rebate for rental housing construction, but it only has limited direct control on the file. 

Part of the federal funding has been to link funding to measures provinces and municipalities adopt that could help boost supply. 

The vast majority of respondents to the KPMG survey supported tax measures to make housing payments more affordable, such as making mortgage interest tax deductible, but also want to maintain the capital gains tax exemption for a primary residence.

The survey of companies was conducted in February using Sago’s Methodify online research platform. Respondents were business owners or executive-level decision makers.

About a third of the leaders are at companies with revenue over $500 million, about half have revenue between $100 million and $500 million, with the rest below. 

This report by The Canadian Press was first published March 27, 2024.

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