Philip Cross: There's no green shift in the latest investment intentions - Financial Post

Canada’s future economy is going to look a lot like its past economy — despite a much-hyped transition to renewable energy

Windmills generate electricity in the windy rolling foothills of the Rocky Mountains near the town of Pincher Creek, Alta. Photo by REUTERS/Todd Korol files

Statistics Canada released its annual survey of investment intentions last Friday. The results were largely ignored in the wake of Russia’s invasion of Ukraine but are worth analyzing for the light they shed on the Canadian economy’s future — which is pretty much the same as the Canadian economy’s past.

Casual readers of Statcan’s analysis could be forgiven if they formed the wrong impression of what is driving investment in Canada. On the whole, its analysis describes a Canada moving to a future fundamentally reshaped by the pandemic’s impact on health care, as well as a green shift to mass transit and clean energy. Statcan’s headline was that investment is being fuelled by “strong public sector spending.” Several paragraphs recite a roll call of public transit projects, hospitals and new long-term care facilities for the elderly. Another long section is devoted to so-called “clean” energy projects across Canada, although no total is given so it is unclear how much these affect overall investment.

But the reality of investment in Canada is quite different from Statcan’s portrayal of it. In fact, investment intentions for 2022 are rising more in the private sector than in the public sector — up $13.2 billion, compared to just $10.3 billion. And far from transitioning to green energy, Canada is increasing its investments in fossil fuels by a hefty $5.4 billion to at least $44.0 billion, or nearly one-quarter of all private investment (and that excludes investments in coal and other power plants for which data is not available).

Fossil fuels remain the backbone of Canada’s energy industry, no matter how much Minister of Environment and Climate Change Steven Guilbeault spews agitprop about our shift to a green economy. Oil and gas exploration and extraction lead overall investment with capital spending of $30.3 billion in 2022. And investment in pipelines, at $11.3 billion, is the second highest it has been, despite relentless attempts by environmentalists and some governments to block them. Another $2.4 billion is going to oil refining and retailing. All this planned investment was before oil and gas prices shot up after the war in Ukraine began.

The world’s shunning of Russia’s oil and gas means Canada has missed the boat by not investing even more in its fossil fuel infrastructure in recent years to be better positioned to fill the gap in European supplies. More pipelines and LNG terminals on Canada’s east coast could be helping to wean Europe from Russian energy, but instead it is Americans who are poised to capture this market. A recent article in The Wall Street Journal boasted “America takes pole position on oil and gas” — while Canada takes its usual place in the pack. Once again, empty political posturing by Canadian leaders has meant forfeiting energy markets to American firms, with no net impact on global greenhouse emissions.

Mining, another traditional resource industry with few green credentials, makes the second largest contribution to business investment growth in 2022, with a gain of $1.9 billion. The gold mining industry plans the biggest increase, though investment is at historically high levels for copper, nickel, iron ore, and potash. Gold and potash likely will receive a further boost from Putin’s folly in Ukraine as Russia is a large supplier of both commodities.

Another sign that a green shift is not the driving force in investment is that air transport plans a $600 million increase in investment, almost returning to its pre-pandemic level. Airlines clearly expect to start flying again despite air travel’s big carbon footprint. Most other industries plan modest increases of a few hundred million in investment, nothing like the billions going to resource projects. Statcan draws attention to manufacturing investment in machinery and equipment but, overall, manufacturers are not actually changing their spending. Electric utilities do plan to invest $25.6 billion, but that’s nowhere near the levels needed if they really believed Canadians will be transitioning en masse to electric vehicles.

On balance, investment intentions suggest Canada’s future economy is going to look a lot like its past economy — despite the pandemic and a much-hyped transition to renewable energy. Oil and gas will remain our largest industry and fossil fuels the basis for the energy infrastructure needed to support our energy-dependent lifestyle and exports. As detailed by energy guru Daniel Yergin, transitions between energy sources require decades to complete because of the massive investment in existing technologies. Governments and environmentalists may delude themselves that the pandemic is spurring a rapid transition to a green economy, but the business sector has a more realistic understanding of how little the fundamentals of Canada’s economy have changed.

Philip Cross is a senior fellow at the Macdonald-Laurier Institute.