Economy

The Climate Economy Is About to Explode

Published

2 years ago

October 5, 2022

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Late last month, analysts at the investment bank Credit Suisse published a research note about America’s new climate law that went nearly unnoticed. The Inflation Reduction Act, the bank argued, is even more important than has been recognized so far: The IRA will “will have a profound effect across industries in the next decade and beyond” and could ultimately shape the direction of the American economy, the bank said. The report shows how even after the bonanza of climate-bill coverage earlier this year, we’re still only beginning to understand how the law works and what it might mean for the economy.

The report made a few broad points in particular that are worth attending to: First, the IRA might spend twice as much as Congress thinks. Many of the IRA’s most important provisions, such as its incentives for electric vehicles and zero-carbon electricity, are “uncapped” tax credits. That means that as long as you meet their terms, the government will award them: There’s no budget or limit written into the law that restricts how much the government can spend. The widely cited figure for how much the IRA will spend to fight climate change—$374 billion—is in large part determined by the Congressional Budget Office’s estimate of how much those tax credits will get used.

But that estimate is wrong, the bank claims. In fact, so many people and businesses will use those tax credits that the IRA’s total spending is likely to be more than $800 billion, double what the CBO projects. And because federal spending tends to catalyze private investment, that could send total climate spending across the economy to roughly $1.7 trillion over the next 10 years. That’s significantly more money flowing into green-energy industries than the CBO projected, though it’s unclear if that additional money will lead to more carbon reductions than earlier analyses have projected.

Second, the U.S. is “poised to become the world’s leading energy provider,” according to the bank. America is already the world’s largest producer of oil and natural gas. The IRA could further enhance its advantage in all forms of energy production, giving it a “competitive advantage in low-cost clean electricity and hydrogen production, infrastructure, geologic storage, and human capital,” the report states. By 2029, U.S. solar and wind could be the cheapest in the world at less than $5 per megawatt-hour, the bank projects; it will also become competitive in hydrogen, carbon capture and storage, and wind turbines. (The law will help America’s battery industry, but the bank doesn’t see the U.S. becoming the world’s biggest battery producer, given that China already has such a dominant advantage.)

Perhaps rosiest of all was the bank’s view of major risks to the IRA. The bill passed with not even a single Republican vote, but the bank concludes that the GOP is relatively unlikely to repeal the law, even if they take the White House in 2024. That’s because it would hurt their own voters most: “Republican-leaning states are likely to see the most investment, job, and economic benefits from the IRA,” the report claims. Instead, the IRA is most likely to stumble because America still struggles with building out its energy infrastructure: The country might not be able to get government approval to permit enough power lines, green infrastructure, and carbon-injection wells for the law to matter, the bank said. This risk is all the more heightened now that Senator Joe Manchin’s permitting-reform bill—which, for all its flaws, would have clearly allowed for more renewable transmission construction—has failed. Powerful business groups are also lobbying to revise the most transmission-friendly sections from that bill if Congress revisits it.

The Credit Suisse report is truly remarkable. What stuck with me most was this declaration: For big corporations, the IRA “definitively changes the narrative from risk mitigation to opportunity capture.” In other words, companies should no longer worry that they might be unprepared for future climate regulation, such as a carbon tax. They should be scared of missing out on the economic growth that the energy transition (and the IRA) will bring about.

If the bill’s passage wasn’t signal enough, the report shows that climate change as a political issue—and frankly environmental protection more broadly—has arrived to a wholly new place. For decades, the country’s biggest climate advocates have tried to reduce the harm that the economy causes to the environment. Now they find themselves tasked with the biggest story in the economy itself.

Perhaps most strange, even if the United States slips into recession in the next year, the IRA will only become more important. Historically, economists and businesses have treated helping the environment as a product of prosperity—if the economy is good, then companies can afford to do the right thing. But the IRA’s programs and incentives will keep flowing no matter the macro environment, which makes betting on clean energy one of the most certain economic trends of the next few years. Clean energy is now the safe, smart, government-backed bet for conservative investors. It’s really a shocking reversal of the past 40 years. It is such a change that it hasn’t yet been metabolized by the world of people involved in the issue.

So inspired by the vigor of Credit Suisse’s forecast, let me venture a few predictions of my own. The number of Americans working in a climate-relevant industry is going to explode. It is going to undergo what you might call a techification. I was a nerd and a dreamer in high school in the late aughts, which meant I paid attention to the start-ups of that era—such as Twitter, Facebook, and Flickr—in their early years. I remember that fateful moment around 2010 when the valence of the industry switched—it was right around when The Social Network came out—and working in tech went from being a career choice for dorky optimists to the default career track for many ambitious college students. A similar switch is coming for companies working on climate change: The opportunity will be too large, the money too persuasive, the problems too intriguing.

Finally, those of us who have long worked in climate change—and here I include myself, who started covering this topic in 2015—should have some excitement and even humility about this deluge of new talent. Even setting its arduous politics aside, managing climate change is a legitimately difficult technical and cultural problem—it’s going to require as many attentive and enthusiastic brains as possible, and the path to decarbonizing always required an infusion of new workers, investment, and good will. If you don’t yet work in the industry, but have always cared about climate change as an issue, well, this is your moment to get involved. These companies are going to need engineers, yes, but also programmers, accountants, marketers, HR staff, general counsels—there is space for everyone now.

The fight against climate change is going to change more in the next four years than it has in the past 40. The great story of our lives is just beginning. Welcome aboard.

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Economy

S&P/TSX composite up more than 100 points, U.S. stocks also higher

Published

4 hours ago

September 26, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in the base metal sector, while U.S. stock markets were also higher.

The S&P/TSX composite index was 143.00 points at 24,048.88.

In New York, the Dow Jones industrial average was up 174.22 points at 42,088.97. The S&P 500 index was up 10.23 points at 5,732.49, while the Nasdaq composite was up 30.02 points at 18,112.23.

The Canadian dollar traded for 74.23 cents US compared with 74.28 cents US on Wednesday.

The November crude oil contract was down US$1.68 at US$68.01 per barrel and the November natural gas contract was down six cents at US$2.75 per mmBTU.

The December gold contract was up US$4.40 at US$2,689.10 an ounce and the December copper contract was up 13 cents at US$4.62 a pound.

This report by The Canadian Press was first published Sept. 26, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Economy to grow moderately, rates to fall below three per cent next year: Deloitte

Published

6 hours ago

September 26, 2024

Anne Joseph

Deloitte Canada expects economic growth to pick up next year as it forecasts the Bank of Canada to cut its key interest rate below three per cent by mid-2025.

In the company’s fall economic outlook released Thursday, it forecasts the central bank’s interest rate will fall to 3.75 per cent by the end of this year and a neutral rate of 2.75 per cent by mid next year.

Meanwhile, it expects the economy to grow moderately as softer labour market conditions persist, especially as many homeowners have yet to face higher rates when they refinance their loans.

“We do think that we’re going to be in for a decent year next year,” said Dawn Desjardins, chief economist at Deloitte Canada.

It appears Canada will successfully skirt a recession despite the impact of higher borrowing costs on the economy, said Desjardins.

“It’s hard to argue that the economy is just skating through this period of higher interest rates. But having said that, the overall numbers themselves continue to show the economy is expanding,” she said.

“Yes, the labour market has softened, but I don’t think we’re in any kind of crisis in the labour market at this time.”

The Bank of Canada has cut its benchmark rate three times so far this year as inflation has eased, and signalled more cuts are coming.

Inflation in Canada hit the central bank’s two per cent target in August, falling from 2.5 in July to reach its lowest level since February 2021.

However, higher rates have weighed on economic growth and the labour market.

Deloitte’s predicted 2.75 per cent neutral rate — the rate at which the central bank’s monetary policy is neither stimulating nor holding back the economy — is higher than where interest rates were hovering in the years before the COVID-19 pandemic.

Desjardins said the forecast aligns with the central bank’s own projections. There are a number of factors on the horizon that may pose increased risk to inflation, she said, such as climate change.

“These are costly things that we’re going to have to deal with and will be embedded in prices. So that’s sort of how we get to this 2.75 (per cent).”

The report says the global backdrop continues to be challenging, with no clear ends to the wars in Ukraine and the Middle East, growing trade frictions and an uncertain impact of the U.S. election on policy.

Consumers and businesses alike are still facing a lot of uncertainty, said Desjardins.

The heightened uncertainty, including from the looming U.S. election in November, makes businesses reticent to invest, she said, but added more clarity should come in the new year.

“We’ll see inflation coming down and interest rates coming down. So those are two powerful factors that will support an improvement in confidence both from the consumer side as well as the business side as we go through next year,” she said.

In its report, Deloitte said it’s still optimistic about Canada’s economy next year.

“Lower rates will ease the burden on the highly indebted household sector sufficiently to support a pickup in spending and a housing market recovery,” it said in the report. “After two years of subpar growth, we look for the economy to hit its stride in 2025.”

Deloitte said despite the easing of overall inflation, shelter prices — especially rent — “remain too high for comfort.” However, it also said interest rate cuts are expected to “rejuvenate construction activity,” with home-building activity set to rise throughout 2025.

While rate cuts should help stimulate the housing market, Deloitte said it expects the recovery to be modest amid poor affordability.

Desjardins said without a significant boost to housing supply, the affordability issue is unlikely to subside.

“We know that Canada has a pretty significant supply deficit on the housing side,” she said.

“The housing cannot be created overnight.”

However, she also doesn’t see house prices significantly increasing.

“I think we’re going to see some easing up on demand from new Canadians as we move forward. So that might give a little bit of a relief,” she said.

This report by The Canadian Press was first published Sept. 26, 2024.

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Economy

S&P/TSX composite moves lower Wednesday, U.S. stock markets mixed

Published

23 hours ago

September 25, 2024

Anne Joseph

TORONTO – Canada’s main stock index edged lower on Wednesday, weighed down by the energy sector as the price of oil fell, while U.S. stock markets were mixed, with the S&P 500 and Dow slipping from the records set the day before.

The S&P/TSX composite index closed down 46.34 points at 23,905.88.

In New York, the Dow Jones industrial average was down 293.47 points at 41,914.75. The S&P 500 index was down 10.67 points at 5,722.26, while the Nasdaq composite was up 7.68 points at 18,082.20.

It was a quieter day as investors anticipated important economic data to come later in the week, said Jennifer Tozser, senior wealth adviser and portfolio manager with Tozser Wealth Management at National Bank Financial Wealth Management.

The next report on U.S. GDP is scheduled for release Thursday, while Friday will bring the Personal Consumption Expenditures index.

Investors will be looking for hints in the data on what the U.S. Federal Reserve might do next, Tozser said.

“Now everybody’s just sitting there looking to see if tomorrow’s economic data suggests not only how many more cuts are to come, but how fast and what magnitude.”

Last week, the U.S. Federal Reserve cut its key interest rate by half a percentage point, the first cut since its hiking campaign to fight inflation.

Meanwhile, the Bank of Canada has already cut its key rate three times this year, as the Canadian economy and labour market have softened faster than in the U.S.

Central banks in both Canada and the U.S. are set to keep cutting interest rates, but Tozser said the path is less certain south of the border.

Lower rates and the promise of more cuts on the horizon are helping boost the recent sectoral rotation in markets, said Tozser, with a broader group of companies seeing gains as attention on the Magnificent Seven stocks eases.

“We’re seeing strength in the overall economy, not just those few leaders that have been able to swim against the tide,” she said.

Large tech companies like Nvidia have led gains this year on the back of optimism over artificial intelligence.

The Canadian dollar traded for 74.28 cents US compared with 74.25 cents US on Tuesday.

The November crude oil contract was down US$1.87 at US$69.69 per barrel and the November natural gas contract was up three cents at US$2.82 per mmBTU.

The December gold contract was up US$7.70 at US$2,684.70 an ounceand the December copper contract was down less than a penny at $4.49 a pound.

This report by The Canadian Press was first published Sept. 25, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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