Going Green... Don't Plan On Business As Usual, according to Scotiabank's Chief Economist
08:17 EDT Tuesday, May 15, 2007
TORONTO, May 15 /CNW/ - Responding to emerging environment issues, governments in the major developed nations are changing regulations, taxes and subsidies to achieve ambitious long-term environmental and energy conservation targets, according to Scotia Economics' latest flagship report, Global Outlook, entitled Going Green... Don't Plan On Business As Usual.
"These policy actions will have a big impact on industrial competitiveness and relative economic performance among regions," said Warren Jestin Chief Economist, Scotiabank. Adapting to the fallout from climate change, which can take the form of severe droughts and other extreme weather conditions, also carries enormous costs.
By 2020, the European Union (EU) is aiming to reduce greenhouse gas (GHG) emissions by at least 20 per cent from 1990 levels, derive 20 per cent of its energy from renewable sources and trim 20 per cent of its primary energy consumption. Achieving these goals will be a big challenge since they require massive public and private investments and the integration of EU power markets.
In the U.S., President Bush has committed to reducing national gasoline usage by 20 per cent over the next decade, a goal also aimed at restraining petroleum imports that currently exceed US$300 billion annually. In the absence of national targets for reducing emissions, California and other states are tightening emission limits and mandating the use of alternative energy sources such as wind and solar.
The greening of the policy agenda has rapidly gathered momentum in Canada as well. "Ottawa and the Provinces are setting new environmental targets and unveiling multi-billion-dollar spending initiatives," said Jestin. The new federal accelerated depreciation incentive for machinery and equipment purchases also will help support energy-efficient investments.
Jestin reports that "Ottawa has opened the door to equivalency agreements that will allow each Province and Territory to lead its own clean air agenda. This flexible approach recognizes both the unprecedented co-operation required among all levels of government and each jurisdiction's different industrial structure, prior policy settings and resources."
"But as Kermit the Frog told us years ago, it's not that easy bein' green," said Jestin. A wide array of technologies and processes is being championed to mitigate environmental impact, yet the path from innovation to implementation is often not smooth.
"Globally, meaningful progress requires major adjustments in all nations. China, the second-largest annual producer of GHG emissions after the U.S., India, and many other emerging industrial nations rely on coal-burning power generation to help fuel their fast-track growth," adds Jestin. "These emerging nations are going to have a very difficult time implementing, let alone affording, the huge expenditures needed to reduce pollution intensity and improve energy efficiency."
Canada's potential as an energy super-power hinges on developing its massive non-conventional petroleum resources, largely in Alberta. As oil sands output ramps up, investment in new technology will be needed to limit the relatively high GHG emissions from their extraction. While a number of options have been proposed to meet the substantial power demands of major resource developments, all of the alternatives carry multi-billion-dollar price tags.
New environmental requirements are not the only factors altering the competitive landscape. Intense global competition, the soaring loonie, high energy prices, and on a longer-term basis, the aging of the baby boom generation, greatly complicate strategic planning. At the same time, the green agenda will unleash enormous business and employment opportunities.
From a Canadian perspective, the gradually decelerating trend in domestic activity that emerged in mid-2006 has continued into the early part of 2007. This more moderate economic profile is expected to persist, with output growth averaging just 2.3 per cent this year and 2.7 per cent in 2008. The downgrading in growth expectations remains centred on the manufacturing sector, which is grappling with intense international competition and the rise in the Canadian dollar in recent years.
"Given the moderation in U.S. growth now underway and the renewed strengthening in the Canadian dollar, further production cuts and factory job losses are likely in the coming months," said Mr. Jestin. "Looking further ahead, however, these cost cutting measures alongside an accelerated pace of business investment should eventually put the sector on a firmer footing. It should also begin to narrow the wide performance gap between the manufacturing-dominated economies of Central Canada and the resource-rich Western provinces."
After three straight years of robust expansion, U.S. real economic growth will likely drop to an average of around 2.5 per cent over the next two years as the continuing downturn in the housing sector puts greater pressure on consumer spending. The external sector should prove supportive, however, as a weakening U.S. dollar and ongoing strong foreign demand point to continuing gains in export volumes.
The developing Americas region as a whole will post a slower, yet more sustainable, economic expansion. Growth differentials between the more stable, better-performing economies, Brazil, Chile, Mexico, Peru and Colombia, and the post-crisis fast-growing countries, Argentina and Venezuela, will tend to narrow.
Western Europe is on a moderate growth trajectory averaging around two - 2.5 per cent through 2008. Nevertheless, the combination of higher interest rates, an appreciating euro, slower growth in overseas markets and fiscal deficit reduction will dampen the rate of expansion.
Japan is also on track to record moderate GDP growth of about 2 per cent. The impetus will come largely from business investment and foreign trade, as the government remains focused on spending restraint, and consumer spending gains will remain subdued. Developing Asia, led by China and India, will remain in the top ranks of the global growth charts.
From a provincial perspective, British Columbia should remain near the top of the growth pack this year and next, led by activity in the construction sector. Large-scale expansion in the oil sands will continue to spur growth in Alberta as the construction boom spills over into the non-resource and service sectors. Saskatchewan's economy is expected to grow by close to three per cent this year and next, benefiting in part from strong support from the mining sector and the impact of increased North American biofuel production. Manitoba should also witness steady growth through 2008 mainly due to public investment in infrastructure, as well as expansion of hydroelectric and wind power capacity.
The expansions in Ontario and Quebec are expected to lag the national average in both 2007 and 2008, as their beleaguered manufacturing sectors continue to weigh on production. However, Ontario's large service and construction sectors will help keep the province moving ahead, while Quebec will benefit from expanded hydro investments.
New Brunswick's economy will be supported by several energy-related construction projects underway, and by the mining sector that is being buoyed by strong global demand and high commodity prices. Nova Scotia will also benefit from increased energy and metal mining production. Newfoundland and Labrador should rival Alberta for the top growth spot in 2007 as output rebounds in the offshore oil, and metal mining sectors. Prince Edward Island will likely lag the other Atlantic provinces because of a lack of major construction projects, though food and aerospace manufacturing should continue to expand.
To view a recent Webcast of Scotiabank's Chief Economist, Warren Jestin, and ScotiaMcLeod's Director of Equity Trading, Fred Ketchen, presenting the Global Outlook, visit
www.scotiabank.com.
The Global Outlook and other Scotia Economics publications are available at
www.scotiabank.com and on Bloomberg at SCOE.
Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.
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