Opinion: Getting Canada to net-zero will cost several fortunes (2024)

Even a government-funded research institute thinks the costs will equal years' worth of GDP. Politicians need to start talking about that

Author of the article:

Robert Lyman, Special to Financial Post

Published May 15, 2024Last updated 3days ago4 minute read

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Opinion: Getting Canada to net-zero will cost several fortunes (1)

By Robert Lyman

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Among the many questions about the federal government’s policies virtually eliminate Canada’s greenhouse gas (GHG) emissions by 2050, one of the hardest to answer concerns the costs to governments, businesses and consumers. This is due partly to a serious failure of governance. The federal and provincial governments have failed to provide Canadians with an inventory of the measures they have implemented, their costs, their intended beneficiaries and their effectiveness. Governments regularly pay homage to “transparency and accountability” but have largely ignored them in their climate policies.

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Opinion: Getting Canada to net-zero will cost several fortunes (2)

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The Canadian Climate Institute is a non-profit research organization, mostly funded by the federal government, that promotes acceleration of Canada’s efforts to reach net-zero emissions. It contracted with Navius Research to develop the “Climate Action Tracker,” an on-line list of current and planned climate measures and related expenditures. The expenditure figures are sometimes speculative, the list is not complete, and it’s not always clear how Navius decided what is a climate measure and what isn’t. These and other quibbles aside, Canadians should be grateful someone has finally made this effort.

According to the tracker, funding has been approved for no fewer than 112 federal and 364 provincial and territorial climate policy measures. From 2020-28 the monies involved in this astonishing number of initiatives are $172.8 billion for the federal measures and $303 billion for the provinces and territories, for a grand total of $476 billion. That’s more than the province of Quebec spent on health care over the past decade.

Investment tax credits are basically a federal tax incentive for business investment. They let individuals or businesses deduct a certain percentage of investment costs from their taxes. Typically, these tax credits shift up to half the capital costs of a project from the investor to the general taxpayer. They account for the largest of the climate-related expenditures. The Investment Tax Credit for Clean Electricity will entail an estimated $25.7 billion to 2030; that for Clean Hydrogen, $17.7 billion; for Clean Technology Manufacturing, $11 billion; for Investment in Clean Technology, $6.7 billion; and so on. The three largest direct expenditure programs are the Canada Infrastructure Bank Funding ($25 billion to 2030), the Canada Growth Fund ($15 billion) and the Public Transit Fund ($14.9 billion).

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As impressive as these numbers are, they are dwarfed by estimates for combined government and private-sector spending required to hit net-zero by 2050. In 2022 RBC estimated it would be about $2 trillion. That year’s federal budget projected that reaching net zero would require investments ranging from $125 billion to $140 billion per year every year until 2050 — somewhere between $3.4 trillion and $5.2 trillion in total. Other authorities have published estimates of the spending needed just to decarbonize Canadian electricity generation and then completely electrify the economy — i.e., not counting the cost of eliminating emissions in all transport modes, oil and gas production, industry, buildings and agriculture) — and they are generally in that same range.

How big are these numbers? Canada’s GDP was just over $2.1 trillion in 2022, so the range of estimates to attain net-zero is between one and two-and-a-half years of Canada’s entire income. Two trillion dollars is $50,000 for every one of Canada’s 40 million current residents, or about $118,000 for every household. If you were to spend $40 per second, it would take you 1,584 years to spend $2 trillion and 4,118 years to spend $5.2 trillion.

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Carbon taxes virtually monopolize public discussion of the cost of emissions reductions but in fact account for only a small part of the total. According to a 2021 report by Ross McKitrick and Elmira Aliakbari for the Fraser Institute, by 2030 carbon tax rebates to taxpayers will slightly surpass carbon tax revenues to governments. However, a key finding of the Fraser Institute analysis is that the rising carbon tax will cause pronounced reductions in revenues elsewhere in the tax system, which means that to sustain household carbon tax rebates to the extent it has promised the government will have to go further into deficit. In fact, the shortfall could add about $22 billion annually to government debt.

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The staggering size of the numbers involved in the estimates suggests current debates over climate policy need to refocus on spending, accountability and cost-effectiveness, as well as overlap and duplication, assuming there will be a genuine effort to reduce costs. There is also, of course, the question of how much effect, if any, these enormous expenditures may have on global temperatures. The answer, unfortunately, is almost none.

Financial Post

Robert Lyman is a retired energy economist.

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