Economics 101: Canada’s role in decarbonization

By Eric Van Enk on May 20, 2023.

I could have titled this article “The Cost of Virtue Signalling, Part 2” as it’s linked to my first editorial which discussed Canada’s inability to grow our tax base due to forgoing economic development projects such as LNG.

Related to the needless economic damage resulting from failing to support industries such as LNG is Canada’s inability to influence the GHG emissions of other countries. The basic argument for virtue signalling is sacrificing economic development opportunities such as LNG provides Canada with credibility to influence larger countries to reduce their carbon footprint. What does the evidence tell us about the efficacy of this policy?

Ottawa’s recently released national inventory report shows Canada’s commitment to reduce GHG emissions by 40-45% from 2005 levels by 2030 is progressing. Canada’s 2021 emissions were 8.4% lower than 2005 levels.

Meanwhile, global GHG emissions surged to a record high in 2021 due to greater coal usage. On April 16, Canada failed to convince the rest of the G7 to set a timetable for phasing out coal-fired power plants at a meeting in Sapporo, Japan. Canada’s environmental leadership setback in Sapporo follows another recent failure – the European Union’s refusal to no longer consider woody biomass as a renewable energy source last fall. The evidence shows we can’t even influence G7 countries on environmental policies, never mind the world’s largest polluter, China.

As highlighted in the above chart, Canada’s share of global CO2 emissions, at 1.47%, is the lowest in over 110 years. What’s happening in countries representing 98.5% of emissions? Unsurprisingly, the majority of the 98.5% is coming from the largest countries in the world (U.S., China, India, etc.). Is the U.S. sacrificing its LNG opportunity in the name of environmental virtue signalling? Quite the opposite – the U.S. has quickly become the world’s third largest exporter of LNG behind Australia and Qatar; creating hundreds of thousands of jobs and injecting billions into their economy and tax base. Even as the Biden administration shifted the U.S. toward environmental leadership, they realized growing LNG exports compliments emission targets by displacing coal.

Is China, with over 35 times Canada’s population, sacrificing economic development in the name of environmental stewardship? No, China is currently building more than 40 new coal-fired power plants – prioritizing the security of energy supply over the environment.

The evidence is clear on two items: Canada accounts for less than 1.5% of global C02 emissions; and, attempting to influence countries to reduce emissions through virtue signalling is a failed strategy.

The federal government’s fixation with virtue signalling isn’t influencing larger countries to reduce emissions but it is forcing Canada further into debt by inhibiting the ability to grow our tax base. The 2023 federal budget released at the end of March forecasts massive deficits – breaking prior promises of balancing the budget in the foreseeable future. Large budget deficits also put upward pressure on inflation, but I’ll leave that topic for another time.

Eric Van Enk is a wealth adviser & associate portfolio manager with National Bank Financial in Medicine Hat. He is a graduate of the University of Calgary, as well as a CFA charter holder with 20 years of financial markets experience in New York, Toronto and Calgary. He can be reached at eric.vanenk@nbc.ca.

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