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The federal climate plan provides the clarity that Canada’s economy needs – The Globe and Mail

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Grant Bishop is associate director, research at the C.D. Howe Institute. He lives in Calgary.

The horse is out of the stable. Earlier this month, the federal government announced its plan for meeting Canada’s targets for greenhouse gas emissions under the Paris Agreement, the centrepiece of which is a carbon price of $170 per tonne of greenhouse gas emissions in 2030. Ottawa also announced that it will explore using border carbon adjustments to address “carbon leakage,” and will forgo a Clean Fuel Standard for gaseous fuels.

To those who are suspicious of Ottawa, this plan may feel like a jab at Canada’s beleaguered petroleum industry. And to be sure, the painful adjustments involved should not be downplayed. Based on today’s engineering, a $170-per-tonne carbon price would mean much higher costs for oil sands producers or gas-fired electricity generation. It would mean higher costs for heating homes with natural gas or buying gasoline.

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But hard as it may be to swallow for many, this plan is exactly what Canada needs.

Uncertainty around national emissions policy has long loomed as an economic threat to Canada. The plan provides our energy producers and consumers with a clear and credible path for future carbon pricing. It provides a partial remedy for mounting international concerns around Alberta’s oil sands. Global investors now see a credible projection for Canada to meet its Paris targets at this price, and investors and creditors can more confidently estimate the compliance costs facing companies and specific assets.

Technology, meanwhile, has transformed how we move, live and work, and it will continue to do so. What was impossible yesterday can become commonplace tomorrow. And innovation responds to incentives – such as a carbon price.

By announcing the trajectory for carbon pricing, Ottawa has anchored expectations. This helps companies and households make informed decisions about new investments or retrofits. Knowing the future price, companies can build business plans for transformations to reduce emissions. Engineers can propose new designs and calculate the savings these will yield.

The alternative to carbon pricing is regulating emissions from each and every activity. This runs the risk of government picking winners and losers based on political expedience or lobbying. Instead, in this climate plan, the federal government has largely chosen market forces over central planning.

This good feature nevertheless comes with important caveats.

First, the federal government should publish its greenhouse gas projections and energy-use assumptions for each sub-sector and province. A carbon price of $170 per tonne by 2030 roughly aligns with estimates by the Parliamentary Budget Office and EcoFiscal Commission for meeting Canada’s Paris targets. But Ottawa should allow us to peer under the hood and kick the tires on its modelling.

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For earlier projections, Environment and Climate Change Canada published detailed data tables. The projections that undergird Ottawa’s strategy should also be an open book, because more information helps markets work better.

Second, Ottawa did the right thing by kiboshing the Clean Fuel Standard (CFS) for gaseous fuels. Natural gas is much less carbon-intensive than liquid fuels, and an economy-wide carbon price is a better way of rationing natural gas use. The framework around carbon pricing also provides greater flexibility to offset impacts on households and trade-exposed industries that use natural gas.

Ottawa also published draft regulations for the CFS for liquids fuels last Friday. The “Liquids CFS” will create a market for reducing emissions, and specified activities (e.g., carbon capture and sequestration, substituting biofuels, or recharging electric vehicles) will generate credits. Fuel suppliers need credits to comply with prescribed reductions in the carbon intensity of a given liquid fuel (e.g., gasoline or diesel), and to work efficiently, the market will need good information. Indeed, the volatility of prices for credits under British Columbia’s Low Carbon Fuel Standard – which ranged from $33/tonne to $324/tonne during 2019 – reflects how large information gaps surround supply and demand in this market. The market for Liquids CFS credits will need much better disclosure.

Third, Ottawa must address carbon leakage. Border carbon adjustments (BCAs) involve imposing tariffs on the embedded emissions in imports and rebating carbon levies to exporters (analogous to GST rebates on exports). In this way, BCAs level the playing field between domestic and foreign producers. Ottawa’s contemplation of BCAs follows statements that the European Union and U.S. president-elect Joe Biden will pursue such measures.

Conceptually, BCAs are permissible under international trade law, but implementing BCAs is complex in practice. For example, for BCAs to comply with WTO rules, Canada would likely need to phase out the current pricing system for large emitters. As well, establishing default carbon intensities for each imported product and origin country will be data-intensive and difficult. Finally, unless Ottawa exclusively collects revenues from pricing carbon, the federal government would face fiscal and administrative challenges for rebating carbon levies to exporters.

But even though it is an imperfect work-in-progress, the federal climate plan crucially and positively clarifies how Canada plans to achieve the Paris emissions targets. Ottawa has now provided a road map for businesses and households, but the real work remains ahead.

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Indian economy to get shot in the arm from federal budget: Reuters poll – The Journal Pioneer

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By Tushar Goenka and Shaloo Shrivastava

BENGALURU (Reuters) – India’s path to economic recovery will be stronger than previously thought as fiscal expansion and vaccine hopes help the country heal from COVID-19, a Reuters poll of economists showed.

The world’s second-most populous country has begun a huge vaccination drive and a steep fall in new coronavirus cases over the past few months is supporting a recovery in Asia’s third-largest economy.

Alongside that, nearly 60% of respondents, 18 of 31, who responded to an additional question in the Jan. 13-25 poll said India’s federal budget, due on Feb. 1, would help a significant economic recovery in financial year 2021/22 and has already sent stocks to record highs.

“We expect global economic activity to return to normality in fiscal Q2 and India to grow in fiscal 2021/22, with government stimulus packages expecting to contribute,” said Hugo Erken, head of international economics at Rabobank.

“There is a strong sentiment the budget will aim to continue expenditure as growth is the only way India can come out of recent setbacks.”

The poll of over 50 economists showed the economy would grow 9.5% next fiscal year – the highest since polling began for the year in March 2020 – after contracting 8.0% in the current fiscal year.

It was expected to grow 6.0% in fiscal year 2022/23. The poll predicted the economy would grow 21.1%, 9.1%, 5.9% and 5.5% in each quarter of the 2021/22 fiscal year, largely upgraded from a poll taken two months ago.

But when asked how long it would take for the economy to recover to its pre-COVID-19 level, 26 of 32 respondents said it would take up to two years, including six analysts said longer than that. Twelve analysts said within a year.

“There is a lack of fiscal space to boost growth sufficiently and India is unlikely to reach its pre-COVID-19 levels any time soon despite policy support,” said Sher Mehta, director at Virtuoso Economics.

“Economic momentum will struggle to gain traction as there are fears of stagflation and the possible end of monetary policy easing.”

The Reserve Bank of India, which has slashed its main repo rate by 115 basis points since March 2020 to cushion the shock from the coronavirus crisis, was expected to keep its benchmark lending rate at 4.0% through at least 2023.

That was a shift in expectations from a survey taken two months back when a 25 basis point cut to 3.75% was predicted in the April-June period.

WILL BORROW MORE

India’s government will focus on fiscal expansion in next week’s budget and revise its borrowing target higher for the 2021/22 fiscal year, prompted by the expected economic slowdown and weak jobs growth, according to the latest poll.

Government borrowing has ballooned due to pandemic spending while revenues have severely dampened.

The median forecast showed the government would revise its fiscal deficit target for next fiscal year up to 5.5% from 3.3% of gross domestic product.

Around 55% of economists, 18 of 33, who answered an additional question about the focus of the budget said it would be more on fiscal expansion than prudence.

“Tight fiscal policy can do lasting damage by hurting potential growth that would have been negatively affected on account of the pandemic,” said Abhishek Upadhyay, senior economist at ICICI Securities PD.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Tushar Goenka and Shaloo Shrivastava; Polling by Vivek Mishra and Md. Manzer Hussain; Editing by Jonathan Cable and Steve Orlofsky)

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Northern Development reports unexpected pandemic related benefits to Northern BC's economy – mycariboonow.com

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(Files by Dione Wearmouth-MyPGNow)

The 2020 State of the North Economic Report by Northern Development outlined some surprising impacts the pandemic had on Northern BC’s economy.

According to the report, the overall impact of COVID-19 has been more moderate in the North as the region’s economy doesn’t depend as heavily on hospitality and recreation.

“Our economy in the North is more traditionally on industries like mining, forestry, oil and gas and clean energy,” explained Joel McKay, CEO of Northern Development, “and those particular sectors weren’t hit as hard by the shutdowns involved with the pandemic.”

Since there are fewer service-sector jobs that were heavily impacted by the changing provincial health guidelines, the North was better off than other areas of the province.

The forestry sector managed to do surprisingly well in the North throughout 2020, as the pandemic presented a unique opportunity to the sector.

“Once COVID hit, a lot of people at home took on home improvement and renovation projects and housing starts remained relatively strong, both of which are key indicators of the lumber being manufactured in BC,” noted McKay.

This led to the price of lumber reaching a record high last summer.

This comes after a particularly hard 2019 for forestry, as nine mills closed permanently in Northern BC, resulting in over 1,000 lost jobs.

According to the report, lumber prices are expected to remain relatively high through the end of 2020 and into 2021.

McKay also explained that major energy projects including Site C, Coastal Gaslink projects and the LNG Canada site had a major impact on the North’s economy last year.

“The multi-year construction horizon, the thousands of workers, all the companies and businesses in places like Prince George that are working to support the construction of those projects meant that there was money flowing in the North,” he explained, “which saved the North’s economic bacon.”

Even though the tourism and hospitality sectors didn’t see as many visitors in 2020,  there were many construction workers that came and supported businesses such as restaurants and hotels.

“These three projects are expected to bring people to spend money in the North for the next 4 to 5 years,” McKay added.

Commodity prices for some base and precious metals such as copper spiked as well, which presented an opportunity for the mining industry to thrive in the North.

“That’s driving renewed interest in exploration activity and also some projects that are well established could also start being built for the first time,” McKay added, “we single out the Blackwater project south of Vanderhoof in the report.”

He explained that the Blackwater project could create significant long-term construction jobs filled by people that will spend money on hospitality businesses in the North.

Even though 2020 presented some significant opportunities for economic development in the North, the report explained the region will continue to face economic challenges for some time.

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Indian economy to get shot in the arm from federal budget: Reuters poll – TheChronicleHerald.ca

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By Tushar Goenka and Shaloo Shrivastava

BENGALURU (Reuters) – India’s path to economic recovery will be stronger than previously thought as fiscal expansion and vaccine hopes help the country heal from COVID-19, a Reuters poll of economists showed.

The world’s second-most populous country has begun a huge vaccination drive and a steep fall in new coronavirus cases over the past few months is supporting a recovery in Asia’s third-largest economy.

Alongside that, nearly 60% of respondents, 18 of 31, who responded to an additional question in the Jan. 13-25 poll said India’s federal budget, due on Feb. 1, would help a significant economic recovery in financial year 2021/22 and has already sent stocks to record highs.

“We expect global economic activity to return to normality in fiscal Q2 and India to grow in fiscal 2021/22, with government stimulus packages expecting to contribute,” said Hugo Erken, head of international economics at Rabobank.

“There is a strong sentiment the budget will aim to continue expenditure as growth is the only way India can come out of recent setbacks.”

The poll of over 50 economists showed the economy would grow 9.5% next fiscal year – the highest since polling began for the year in March 2020 – after contracting 8.0% in the current fiscal year.

It was expected to grow 6.0% in fiscal year 2022/23. The poll predicted the economy would grow 21.1%, 9.1%, 5.9% and 5.5% in each quarter of the 2021/22 fiscal year, largely upgraded from a poll taken two months ago.

But when asked how long it would take for the economy to recover to its pre-COVID-19 level, 26 of 32 respondents said it would take up to two years, including six analysts said longer than that. Twelve analysts said within a year.

“There is a lack of fiscal space to boost growth sufficiently and India is unlikely to reach its pre-COVID-19 levels any time soon despite policy support,” said Sher Mehta, director at Virtuoso Economics.

“Economic momentum will struggle to gain traction as there are fears of stagflation and the possible end of monetary policy easing.”

The Reserve Bank of India, which has slashed its main repo rate by 115 basis points since March 2020 to cushion the shock from the coronavirus crisis, was expected to keep its benchmark lending rate at 4.0% through at least 2023.

That was a shift in expectations from a survey taken two months back when a 25 basis point cut to 3.75% was predicted in the April-June period.

WILL BORROW MORE

India’s government will focus on fiscal expansion in next week’s budget and revise its borrowing target higher for the 2021/22 fiscal year, prompted by the expected economic slowdown and weak jobs growth, according to the latest poll.

Government borrowing has ballooned due to pandemic spending while revenues have severely dampened.

The median forecast showed the government would revise its fiscal deficit target for next fiscal year up to 5.5% from 3.3% of gross domestic product.

Around 55% of economists, 18 of 33, who answered an additional question about the focus of the budget said it would be more on fiscal expansion than prudence.

“Tight fiscal policy can do lasting damage by hurting potential growth that would have been negatively affected on account of the pandemic,” said Abhishek Upadhyay, senior economist at ICICI Securities PD.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Tushar Goenka and Shaloo Shrivastava; Polling by Vivek Mishra and Md. Manzer Hussain; Editing by Jonathan Cable and Steve Orlofsky)

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