One of the main goals of clean growth is to drive down greenhouse gas emissions while increasing economic growth鈥攇enerating what we call 鈥渓ow-carbon growth鈥. This is not only an . It is increasingly an . The global low-carbon transition is accelerating, as governments make more the , and . If Canada doesn鈥檛 keep up, we could be hit by economic shocks and a gradual erosion of competitiveness that affects economic recovery and the prosperity of Canadians.
To date, Canada鈥檚 focus has been finding low-cost ways to . While this is important, we will not succeed on low-carbon growth without also focusing on the growth side of the equation. To figure out how to do this, we can draw on lessons from the evolution of productivity research.
is a key metric governments track. Increasing output achieved for a given set of inputs鈥攕uch as labour or machinery鈥攊s an important driver of economic growth. Achieving more output for a given amount of greenhouse gas emissions is not a vastly different goal.
, a recent 鈥渟econd wave鈥 of productivity research has challenged previous thinking, concluding that government policy needs to comprehensively focus on three components of growth:
- 鈥淭he Within鈥 鈥 increasing productivity within existing firms through technology adoption, innovation, and better managerial skills;
- 鈥淭he Between鈥 鈥 reallocating resources from low-productivity economic activity to high-productivity economic activity; and
- 鈥淭he Selection鈥 鈥 entry of high-productivity and exit of low-productivity firms.
What if we applied the same approach to low-carbon growth? Here are three ways to do it.
1. Increase low-carbon growth 鈥渨ithin鈥 firms
Climate change conversations tend to revolve around 鈥攕uch as gradually replacing fossil fuel power generation with renewable sources of energy. But this ignores the potential of individual firms to innovate, adjust, and adapt to new policy or market environments. High-emitting firms can adopt new technologies or processes that reduce their , or diversify product lines to incorporate lower-carbon alternatives. For example, global oil and gas giant recently announced it was shifting away from oil towards natural gas, hydrogen, and renewables. If firms were successful in one business line, there is no reason to think they won鈥檛 be competitive in another. In fact, distinctions between sectors may grow increasingly blurry over time (for instance, or ).
When we look at indicators of technology adoption in Canada, however, progress has been slow. There were 57 per cent more heavy-duty diesel vehicles on the road in 2018 than in 2005. Emissions from commercial buildings are once again on the rise. While there are differences across firms within these sectors, overall progress is not encouraging.
For Canadian firms to remain competitive in a low-carbon world, 鈥渢he within鈥 firm change needs to expand and accelerate.
2. Shift towards low-carbon-consistent economic activity
As global markets shift towards lower-carbon products, demand for high-carbon products will decline. But lower-carbon products still need natural resources, so the trajectory needs to be 鈥渓ow-carbon-consistent鈥 rather than purely low-carbon. This means ensuring that economic activity and trade shift toward areas where demand is growing, and away from areas where demand is declining.
It is not clear that Canada is shifting fast enough to reduce regional economic risks associated with the global low-carbon transition. The provinces only produce around one thousand dollars of GDP for every tonne of greenhouse gas (C02e) emitted, while Quebec produces almost four thousand dollars per tonne.
For provinces to reduce risks from global market transition, the shift 鈥渂etween鈥 high-carbon and low-carbon-consistent economic activities needs to speed up.
3. Support new low-carbon firms
An important source of low-carbon economic growth is new low-carbon firms entering the market. Entrepreneurs and start-ups are important sources of innovation, developing new technologies, products and services that can help existing firms reduce their emissions or provide new or better alternatives for consumers. While not all will succeed, the potential economic and job gains from producing the next 鈥溾 are big enough that it is worth placing some bets. It is a competitive field globally, and while many firms are , meaningful growth will require more .
Yet clean tech start-ups in . Many have trouble accessing financing in the middle stages of technology development. This period between the requires more capital investment and involves greater risk. The pandemic has exacerbated financing challenges. If burgeoning clean tech companies don鈥檛 survive, Canada will have lost a potential future source of growth, trade, jobs and income.
Sector GDP grew from $50 billion in 2012 to $60 billion in 2018. But over 80 per cent of that activity is concentrated in Ontario, Quebec, and British Columbia, and it is not clear Canada is reaching its .
To achieve clean growth across Canada, there needs to be greater 鈥渟election鈥 of low-carbon firms in the marketplace.
Government policies can accelerate progress
Just as productivity growth requires a comprehensive suite of policies, so does accelerating low-carbon growth. We are seeing some good examples already, such as federal support to reduce methane emissions from , the strong innovation focus in and the agreement between the governments of New Brunswick, Ontario, Saskatchewan and Alberta to work towards the that harness low-carbon nuclear energy to achieve climate change and economic development goals. But to reach a point where we see emissions turning down as the economy grows, governments will need to do a lot more. The coming wave of economic recovery plans offer an opportunity to drive low-carbon growth in ways that also generate the economic growth needed to pay off pandemic-related .
