Thank you, Mr. Chair.
I would like to thank the committee members.
It's a pleasure to present again today in front of all of you.
At the Conference Board recently, we did a report called “The Cost of a Cleaner Future”, and a lot of what we talk about in the report is on electricity and the electrification of the economy.
My role today is to discuss with you the main results of this exercise, this analysis of Canada's options for a lower-carbon future. In doing so, I will draw heavily on the results of a joint research effort of the Conference Board and the Canadian Academy of Engineering. We partnered with the Canadian Academy of Engineering to develop these scenarios.
The analysis studies three distinct policy measures: the impact of carbon pricing and a shift in the electricity generation mix; the impact of substantially decarbonizing our electricity generation sector; and the impact of investments that will allow Canada to reduce its emissions by 60% by 2050. The key findings are a couple of main points here.
Carbon pricing and a shift in our electricity generation mix will have a small negative impact on the economy, but there are distributional impacts that will need to be considered by policy-makers.
The other key finding is that pricing carbon and decarbonizing our electricity system will need to be accompanied by trillions of dollars in spending on clean energy infrastructure and significant changes to the way we consume energy. In that context, changing public behaviour will play a crucial role. This will require significant participation by Canadians, and it needs to be made clear that they're part of the solution in this transition. This requires policy-makers to present and to make more clear the plan to reduce greenhouse gas emissions going forward.
These findings, as I've mentioned, are the result of a technical modelling exercise with the Canadian Academy of Engineering; the economic modelling that we do at the Conference Board, which is what we're known for; policy analysis; and I must say in this case, given the magnitude of what we're talking about, a fair share of head-scratching.
The main results were presented at our Reshaping Energy conference here in Ottawa last spring, which involved industry, government, and academic presenters. As you know, the Conference Board is a non-partisan evidence-based research organization. We're non-partisan in all of this. We try to bring the facts to inform the policy in the transition to a low-carbon world. That event was a good example of how the Conference Board does this.
There are two overarching messages.
Simply pricing carbon and moving away from fossil fuels are insufficient measures to achieve the deep reductions that we were talking about in the Paris agreement. While technology and innovation will play a role in the long term, they can't get us to the 2030 target given the relatively short window available to develop and adopt these solutions. The second overarching message is that, given that the required investment will be in the trillions of dollars, policy-makers need to communicate to Canadians the scale of what we're talking about in terms of this transformation that will have impacts on everyday life.
I don't want to get into the details of the report, but there are a couple of highlights that I think are important in the context of what we've talked about today and the zooming in on electrification. The report examines the impacts of carbon pricing and of the investments needed to help Canada achieve the deep reductions—significant reductions—in greenhouse gas emissions. It finds that even taxing carbon at $200 a tonne by 2025 would result in only a 1.5% reduction in greenhouse gas emissions outside of the power generation sector, so it's not that much. We're talking about much more if we want to make a bigger dent.
Carbon tax revenues, in the context of our scenarios, significantly add to government coffers. In fact, the rule of thumb here is $6 billion for each tranche of $10 a tonne for carbon. Our assumption in this scenario is that the revenues collected are expected to be put back into the economy through tax cuts and higher public spending and investment. The assumption that carbon revenues will be recycled into the economy is, frankly, the key reason why the total impact on the economy is small.
The research also quantifies the economic impact of making deep greenhouse gas emission reductions. The investment requirements are based on—as I mentioned—the work of the Canadian Academy of Engineering, under the overarching Trottier energy futures project analysis. Outlined in this technical piece of work are several technical pathways, and in fact, over eight scenarios.
Those scenarios were developed by a combination of engineers, the David Suzuki Foundation, and some academic researchers at McGill University, who are experts in technical modelling. They didn't get into the policy options to get there, but they really describe, if we put everything on the table that's available today, how deep the reductions could be. They have various scenarios going from 30% to 60% by 2050. Of course, the 30% reduction below 1990 levels by 2050 leaves us far away from the Paris agreement. The 60% gets us closer, but none of those scenarios gets to 80% according to the technical analysis that was done.
I'll just talk about the 60% reduction, because this is the most ambitious and the one we signed up for. The 60% reduction in emissions will require a $3.4-trillion investment. That's about $100 billion annually, or just to put it in context, about half of what Canada spends on non-residential business investment every year. It's a significant amount relative to what's spent today on other things. Just to put that amount in perspective, those big numbers at a certain point become meaningless, so I think that's kind of a way to see what it means in terms of relative spending that happens today.
Of course, in that—and I've talked about electrification being a central theme of this—more than half of the investment would be directed towards power generation to enable the electrification of Canada's economy. One challenge that needs to be kept in mind—and we've heard Stephen Poloz, the Governor of the Bank of Canada, talk many times about this—is that the potential growth of Canada's economy going forward is coming down, largely due to the aging of our labour force. In other words, when we talk about the potential of Canada's economy, we're approaching a capacity to grow at the level of 1.5% to 2% a year versus 3% to 3.5%, which we were used to hearing about a few years ago.
We're reaching the capacity of our economy to absorb new investment. What we're saying in the scenarios is that this new investment would have to crowd out other investments that would have taken place if this policy wasn't in place. In other words, or as a different way to present that, our capital is in place currently in the economy and our labour force is fully employed. There's no large pool of labour capital waiting to be redirected towards these new investments, so the simple fact is that Canada is unable to leverage the funds, capital, and labour resources required to generate these investments without taking funds and productive capacity away from other economic activity.
One element to keep in mind, which I think is really important in terms of the solutions going forward, is that all scenarios of emission reductions analyzed in our study do not account for carbon leakage. To the extent that trade adjustments include declining exports of carbon-intensive goods without corresponding reductions in consumption of those goods by our trading partners, the emissions reductions in Canada could be fully offset by increases elsewhere. In other words, if we don't produce it here, it could be produced somewhere else.
We've identified five priorities for action in our work. The first is end-user acceptance. I think it's impossible to overstate the importance of this. The policy-makers for that low-carbon transition journey need to clearly communicate what is needed from households and businesses to achieve large emissions reductions and communicate that society is ready to make those commitments. History has taught us that long-term change cannot be successfully imposed by governments; rather, it must be desired by their citizens.
The second point is the acceptance of large-scale projects. I think really central to the electrification context is that substantial investment in large-scale hydro, nuclear, and wind transmission projects is required in all parts of the country. Large-scale projects typically attract their share of controversy. Acceptance of these projects among environmentalist groups, indigenous groups, and the public is necessary.
The third point is that an effective environmental assessment process for large projects is needed. This takes time. Cumulative effects over time need to be included in these environmental studies. The development life cycle for a large project can easily extend over a decade, so this needs to be included in our policy objectives.
The fourth element is regulatory acceptance of the need for investment and cost recovery. Of course, it's a business decision to invest in these projects. Business needs certainty over the long run.
The final point, which is the greatest opportunity for Canada, is that we need to think of all of this transition to a low-carbon world and to a net-negative greenhouse gas emission in context. At the end of the day, this is what matters worldwide.
An effective made-in-Canada greenhouse gas reduction policy needs to consider the global competitiveness impact on trade, and the net change on world greenhouse gas emissions. This is particularly important in the context where Canada is an open economy, dependent on trade, which was built over the years by a key competitive advantage, with an abundance of natural resources and low energy prices, so of course our economic fabric today reflects that.
Policy options where Canada gets credited for net greenhouse gas reductions from exports of Canada's expertise in technological solutions represents a major opportunity for Canada. It demonstrates leadership, and it creates employment and economic opportunity for Canadians. It's something that hasn't been talked about yet. It used to be talked about in the nineties quite a bit when Rio and Kyoto were signed, but it hasn't come back on the radar screen. I would encourage you to seriously consider that as an option. That's a clear win-win for Canada and the planet.
Thank you.