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2.2.1 Long-term National Economic Growth Prospects
Getting to 2050: Canada's Transition to a Low-emission Future — Advice for Long-term Reductions of Greenhouse Gases and Air Pollutants
While all forecasts of economic growth are inherently uncertain, Canada can nevertheless expect that the size of the economy will more than double between now and 2050. Current growth projections, accounting for demographic trends, immigration and productivity changes all point to continued prosperity for Canada through mid-century with annual economic growth averaging in the order of 1.5% to 2%.[31] An important question is how deep carbon reductions may alter this prosperity. With a climate change policy that enables cost-effective emission reductions through broad-based emission pricing and in a world where Canada's major trading partners undertake similar deep GHG emission reductions, it is reasonable to conclude that Canada's economy will continue to thrive with a relatively limited impact on economic growth. This assertion holds for a variety of assumptions about the pace of economic growth as well as the pace and depth of emission reductions (i.e., our modelled pathways). The assertion does not hold, however, if Canada acts alone and out of step with its major trading partners. Figure 9, below, provides an overview of the possible magnitude of the impact on national economic growth that may be expected under alternative pathways for a 65% reduction below current levels in 2050.[32] While recognizing the uncertainty in these long-term projections, we conclude that the economy will continue to grow, albeit at a slower pace in certain periods. Specifically, our modelling implies that over this period about one to two years of economic growth may be "lost" due to a climate change policy that seeks deep GHG reductions. This means that with the economy growing at an annual rate of about 2% between now and 2050, one to two of these years of growth will be lost over the entire 43-year period. In effect, the likely impact on economic growth limited and not significant under our modelled pathways. The reduction in the size of the economy would be smaller for a lower target, such as 45%, and higher with deeper domestic reductions. It also seems plausible that having access to international trading with emission reduction costs below domestic levels, the impact on economic growth would be lessened even more.
Executive Summary
1 Introduction
1.1 Purpose
1.1.1 Clean Air Act Reference and NRTEE’s Advice
1.1.2 Federal Regulatory Framework and NRTEE’s Reference
1.1.3 Conceptual Framework
1.2 Important Context and Assumptions of the NRTEE’s Greenhouse Gas Advice
1.3 Transition to 2050
2 Managing the Transition to a Low-emission Future
2.1 Enabling Conditions for Managing the Transition
2.1.1 A Note on Our Modelling, Assumptions and Caveats
2.1.2 Canada Acting in Concert with the World
2.1.3 Policy Certainty Beyond the Short Term is Central
2.1.4 An Economy-wide Emission Price with Complementary Policies
2.1.5 Technology Deployment Will Be Imperative
2.1.6 Air Pollutant Reductions and an Integrated Approach
2.2 Understanding the Economic Risk and Uncertainties of the Transition
2.2.1 Long-term National Economic Growth Prospects
2.2.2 Regional and Sectoral Outcomes
2.2.3 The Importance of the Enabling Conditions
3 Key Findings and Recommendations
4 Looking Ahead
5 Appendix
5.1 Letter of Reference from the Minister of Environment
5.2 NRTEE Approach to the Reference
5.3 Glossary
5.4 Research Commissioned by the NRTEE in Support of the Reference
5.5 Key Attributes of the Energy Economy Model – CIMS
5.6 Messages from Regional Meetings Across Canada
5.7 Meeting Participants – NRTEE’s Research on
Clean Air and Climate Change - 2007
Figure 9: Comparison of changes in total GDP to 2050
(in 2003 dollars)
Fast and Slow Start to 65% reduction (from current levels) in 2050
| GDP in 2011 ($trillion) | GDP in 2050 ($trillion) | "Years of lost growth" between now and 2050 | |
| BAU | ~$1.441 | ~$2.968 | |
| Slow start (-65%) | ~$2.934 | ~2 | |
| Fast start (-65%) | ~$2.957 | ~1 |
While the eventual size of the economy could be somewhat similar under the alternative pathways, our assessment found that the annual fluctuations in gross domestic product (GDP) will likely not be uniform between 2011 and 2050 or between the pathways. The bulk of the transitions and possible dislocations occur around 2030, with the economy restabilizing at about forecast levels along its new less-GHG-intensive path by 2050. With an early start, fewer transitional fluctuations occur before 2030 but are later intensified. Conversely, with a fast start, the fluctuations are more pronounced before 2030, but then ameliorate with time. This implies that under a fast start pathway more economic dislocation can be expected in the medium term with the gain of a higher overall level of economic activity in 2050. Thus, the chosen pace of emission reductions will most likely involve a trade-off between medium-term transitional impacts (such as dislocations) and longer-term economic growth.
We acknowledge the following important caveats about these predictions of GDP impact. The model used is not a general equilibrium model, and focuses mostly on key energy-consuming sectors of the economy. Implicitly, the model assumes that other economic activity is unaffected by policies. Furthermore, the model does not capture the effects of a GHG policy on the labour or capital markets. Therefore, these estimates of GDP should be interpreted as the impacts on economic activity that would occur if the activity from sectors excluded from CIMS is held constant. In reality, a climate policy is likely to have feedback on activities excluded from CIMS. Finally, although GDP is used as a standard measure of the change in economic activity, it is not a direct measure of the change in human welfare. Finally, our findings say little about other important macroeconomic effects such as income, savings and investment trade-offs for low-carbon technologies, capital formation, changes in prices and employment.
