What Canada can learn from Britain, where there’s boom amid the gloom

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John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).

Like Canada’s, Britain’s economy is in the doldrums, with falling per capita income. In a desperate attempt to win votes and revive the economy before an imminent election, Prime Minister Rishi Sunak last year announced he would roll back some of the country’s net-zero targets, describing them as “unacceptable costs” for “hard-working British people.” Instead, he said he would “max out” the country’s oil and gas reserves by authorizing the issuance of new drilling licences in the North Sea.

This sort of language will sound familiar to Canadians, given the demands some politicians are making to scrap the carbon tax as an unneeded cost and instead to rely on abundant fossil fuels to drive growth. So it’s worth looking at Britain’s lessons – because while Mr. Sunak’s measures may possibly garner him a few votes (and they may not even do that), it’s pretty clear they’ll harm the economy.

For starters, politicians who decry the costs of green policies neglect to mention their benefits. I’m not even talking about the obvious benefits, such as clean air, a safer climate, healthier ecosystems or fewer forest fires. Let’s just focus on making money. The ambitious decarbonization policies adopted by British governments prior to Mr. Sunak’s U-turn created a demand for investment, technology, inventions and new skills in what is one of the country’s most dynamic subsectors.

As a result, while Britain is in recession, the net-zero segment of the economy is booming, having grown by 9 per cent last year alone. As venture capital pours in to exploit these new opportunities, London has turned into Europe’s leading climate-tech hub, annual investment in the sector having grown 20-fold in just a decade. Imagine where the country might be if it put more of its eggs into this basket.

With supportive government policies, Canada could reach a similar lift-off. Recent studies from Pitchbook and KPMG on venture capital find that green energy and cleantech now dominate this space but that Canada is punching below its weight, attracting less funding proportionately than the U.S., Britain, Israel or India. But that could easily be changed. There is an ecosystem of Canadian startups in green energy, cleantech and AI, in cities such as Calgary and Edmonton. This could be catalyzed, because the U.S.’s experience with the Inflation Reduction Act has shown that government investment can create opportunities for private firms and thereby encourage more private investment.

Meanwhile, those opportunities will only multiply. A huge transfer of wealth will soon begin, as millennials inherit the money accumulated by the baby boom generation, and wealth managers expect sustainable investment to grow consequently in importance. Research shows that Gen Z especially will be even more inclined to engage in high-risk, venture-capital investing in new technologies, especially sustainable technology. This is turning into the wave of the future, and Canada could ride it if it wanted.

In contrast, the outlook for the carbon-based economy is quite different. One of the reasons oil and gas prices are rising so quickly right now, and that the majors are paying such big dividends, is that supply is growing slowly. Not only is capacity growing slowly but in some parts of the world, particularly places such as China and Europe where decarbonization is moving most rapidly, it is actually contracting. The long-term demand patterns of an increasingly decarbonized global economy don’t justify the heavy investments of the past. So with relatively less investment happening, there’s more cash available for dividend payments.

Banking on oil and gas would thus give the economy a lift, for sure, but it would also be one that petered out in a matter of years. Meanwhile, to the extent it also inhibited a future growth pole in the economy, it would ultimately leave the country worse off.

The fact is, we live in a world of constant change, and in our time a major change is toward the decarbonization of the world economy. A nation can choose to swim with that tide or against it. Even oil-rich Gulf states are riding it, investing their energy windfalls in greening their economies and mining the critical minerals needed in the energy transition. Canada, with its advantages in research and skills-formation, could stand atop this wave if it wanted.

And if it chose otherwise? We already know what happens to a country that opts to focus on its existing industrial advantage to the neglect of new ones, because the 20th century produced a famous example of another resource-rich country that did just that: Argentina. Good times while they lasted, though.

So the next time someone talks about the cost of decarbonization policies and the gains that will come from scrapping them, ask them to also answer the question: What will be the future bill for this short-lived party, and who’ll get to pay it? Because there will be a bill.