There are formidable technical and economic obstacles to replacing fossil fuels with other forms of energy.
With the federal election fast approaching, we can expect to hear a lot about climate change, energy policy and how government can spur the development of a ‘low-carbon’ economy. These themes are central to the platforms of a number of the political parties contesting the election.
The discussion of these topics takes place against the backdrop of a widespread belief that the economy is undergoing a major transition, driven by mounting alarm over global warming and continued pressure to reduce the environmental impact of human activity.
According to some of Canada’s most prominent environmental organizations, the economy is being refashioned by the dramatic growth of ‘clean’ and/or ‘green’ industries, and an accelerating move away from fossil fuels.
There are reasons to question these claims.
First, like most countries, Canada remains overwhelmingly dependent on fossil fuels. Oil, refined petroleum products, natural gas and coal together satisfy almost 80 per cent of the country’s primary energy demand.
Canadian government projections suggest this share will indeed decline in the next 10 to 15 years, but only slightly. That reflects the formidable technical and economic obstacles to replacing fossil fuels with other forms of energy in areas like transportation, agriculture, the heating and cooling of buildings, and manufacturing and other industrial processes.
At the global level, the picture is similar. Fossil fuels supply the vast majority of the world’s energy, with little evidence of rapid change. In fact, the non-fossil-fuel share of the overall global energy mix hasn’t budged in the past 20 years, largely because of ongoing industrialization and steadily rising energy consumption in many emerging economies.
Fossil fuels supply the vast majority of the world’s energy, with little evidence of rapid change.
Second, while Canada’s ‘clean’ and/or ‘green’ economy is expanding, in truth it makes up only a small slice of total gross domestic product (GDP). We know this thanks to Statistics Canada’s work to build what it describes as the “environmental and clean technology products account,” which is a way to measure the economic impact and contribution of industries that fall under the clean/green label.
These industries include renewable electricity (e.g., hydro, wind, solar), biofuels, energy storage, sewage and wastewater treatment, waste management services, the manufacturing of various clean technology products (such as pollution control equipment, water purifying systems and fuel cells), and a host of scientific, technical, consulting and professional services that help to ensure high environmental standards and improve energy efficiency – among many other useful things.
How big is the clean/green economy?
Statistics Canada finds that it generates about three per cent of national GDP. That isn’t chump change but it pours cold water on the notion that the economy is being fundamentally restructured through the growth of ‘green’ industries.
The clean/green economy generates about 3% of national GDP.
Digging deeper into the data, electricity from clean sources – mainly hydro and wind – represents by far the largest share of the clean/green sector’s contribution to GDP, followed by waste management services. In fact, clean electricity and waste management services together are responsible for more than half of the GDP attributable to the clean/green economy. Output from all of the other industries that comprise the sector accounts for a little over one per cent of Canada’s GDP.
Finally, apart from its small size, the clean/green economy also isn’t growing nearly as fast as many people seem to believe. Statistics Canada calculates that the inflation-adjusted value of the green sector’s GDP rose by 5.2 per cent between 2007 and 2016. Over the same period, the Canadian economy grew by 14.4 per cent.
So, contrary to the narratives peddled by environmental groups, the clean/green sector is shrinking when measured against the backdrop of Canada’s $2.3-trillion economy.
None of this is to suggest that Canada and other advanced economies aren’t on a pathway to a lower-carbon future. The pressure on governments and companies to address climate change is intensifying, and both public policy and business strategy will have to respond.
But the current energy transition, like those that have occurred before, is destined to be slow-moving and is unlikely to entail a sudden break with established patterns of energy production and consumption.
In the meantime, Canadians should be skeptical of claims made by some politicians about the role of a supposedly booming clean/green sector in transforming the country’s economy.
Jock Finlayson is executive vice-president of the Business Council of British Columbia.
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