October 25, 2021

By Mike Moffatt & John McNally

 

The Smart Prosperity Institute applauds the formation of the Coalition for a Better Future, which is dedicated to “developing an ambitious economic vision for Canada”. We share the view that a national conversation is required to achieve a consensus on the actions Canada needs to take to ensure a better future for all Canadians.

In the view of the Smart Prosperity Institute, to ensure a better future for all Canadians, we start by defining what success looks like. What is it that we should be trying to achieve?

Our vision statement guides everything we do at the Institute when thinking through our objectives:

[Our vision is a] stronger, cleaner economy that builds a better future for all Canadians. We are dedicated to realizing a thriving economy, healthy environment and high-quality of life, achieved through decoupling environmental harm from economic success.

This statement has three components: thriving economy, healthy environment, and high quality of life. Each involves big questions we believe any movement to create a better future should directly address:

1) Thriving economy: How can Canada create the conditions for the emergence and growth of world-class business clusters, in a rapidly decarbonizing global economy?

2) Healthy environment: How can Canada accelerate the clean innovation and adoption necessary to both grow the clean economy and solve global environmental challenges?

3) High-quality of life: How can Canada ensure that all Canadians, and all parts of Canada, have the opportunity to contribute to, and benefit from, a more sustainable economy?

These three questions are interconnected, and any answer to one will have impacts on the two others as well. Solutions to these challenges must be well aligned to advance a clean economy in which all individuals, and regions, have the opportunity to contribute to, and participate in, the country’s success.

This blog provides an overview of our thinking on the challenges Canada faces in creating a more inclusive and sustainable future. Any group focussed on ensuring Canada’s future must recognize, acknowledge and reflect on the scale of these challenges before effective solutions to address them can be proposed.

 

1. Creating the conditions for the emergence and growth of world-class business clusters, in a rapidly decarbonizing global economy

The global economy is changing. The world’s three largest greenhouse emitters, representing close to 50% of global GDP, have committed to reach net-zero emissions by the year 2060 at the latest. Clean solutions represent a $26 trillion market by 2030, positioning Canada’s commitments to reduce its own greenhouse gas emissions as the future driver of our national prosperity.

Reducing emissions and producing clean economy solutions presents both opportunities and challenges for Canadian companies. In order for policymakers to help businesses and business owners navigate this period of change, and support the growth of the companies that will create jobs and profits in the coming years, they need to ensure the economy is providing entrepreneurs with the building blocks they need to meet customer demand and grow their operations.

In recent years, economic research has identified that the environments most conducive for the creation and growth of companies are the ones where businesses have what they need to succeed: Access to skilled workers, well-structured tax and regulatory systems, high-quality infrastructure, local suppliers, effective public policy, regional competitors and collaborators, and low cost financing. These elements, all specialized to support a particular industry, are all important for growth. In environments like these, business clusters form and a region becomes “the place to be” for that industry in a manner that helps recruit talent, attract capital, and create jobs. Silicon Valley’s technology sector, Northern Sweden’s forestry sector,[1] Detroit’s automotive manufacturing sector, and the Pearl Delta’s advanced manufacturing industry are all examples of successful clusters where ecosystems have emerged to support the creation and growth of companies[2].

To support the emergence and growth of business clusters in Canada, the following considerations need to be addressed:

 

How can Canada ensure firms have access to the skilled labour they need to grow?

The growth of Canadian companies will depend on their ability to hire the talent they need. This means policies aimed at supporting education for young workers, skills training for older workers seeking career changes, and immigration policy focused on recruiting talent need to be aligned with the country’s economic opportunities and needs. In the coming years, Canada will need to ensure that companies can hire the best available talent by lowering the barriers to entry to joining the workforce for new Canadians, and marginalized communities, which will be especially important as Canada’s workforce ages. We need to ensure that housing is available and attainable for workers of all income levels in all regions, including a clear focus on meeting this goal in communities experiencing job growth. Policies aimed at ensuring a high quality of life, fostering safe and comfortable places to raise a family, and creating affordability in areas from food, to transportation, to childcare will be crucial to ensure the country’s high quality of life remains a selling point for skilled workers.

 

How can Canada ensure companies have access to the kinds of capital they need?

Canadian companies need access to capital to finance the projects they seek to build. Attracting capital to projects requires working with investors who have knowledge of the kinds of projects Canada wants to advance, a high enough risk tolerance to fund clean economy investments, a tax system that recognizes the value of those investments, and a sense of certainty about the direction of Canadian climate policy. Some of these challenges - such as creating policy certainty and lowering barriers to investment - need to be led by governments to send clear signals to investors.

 

How can Canada ensure companies have access to new markets?

In the 21st century, new markets can have many meanings: They can be geographic or digital. They can be in the private or public sector. They can even emerge from changes in the needs of existing clients, who are responding to shifts in consumer preferences and the regulatory environment. Supporting access to new markets will require meeting the leading environmental and social standards that other countries will set, as well as creating ambitious standards domestically to ensure capital can be driven to emerging investment opportunities, such as natural climate solutions. Canada will also need to ensure effective protections for data and intellectual property to enable local innovators’ access to the foundational resources necessary to the development of any new technology.

 

2. Accelerating the clean innovation and adoption necessary to solve global environmental challenges

Canada’s environmental challenges are numerous. We need to reduce greenhouse gas emissions, adapt to the impacts of a changing climate, conserve nature and biodiversity, and dramatically reduce and remove both waste and pollution from our economy. Addressing each of these challenges will require the development and use of clean and innovative technologies, solutions, and products. In order to ensure that Canadian companies and businesses can produce the solutions needed at the scale needed to meet targets and advance a transition, Canada will need to appropriately price negative externalities and ensure it has the correct policy framework in place to drive innovation. The goods and services created will not just solve domestic environmental challenges, but also allow Canadian companies to compete for the $26 trillion global opportunity for clean growth solutions.

 

How can Canada support clean innovation?

Supporting clean innovation in Canada requires a host of policy instruments that serve to push forward innovators, generate market pull, strengthen the business environment, and grow the resources that businesses need and use to innovate. Smart Prosperity’s work has focussed on the need for these strong policy signals to create, drive and shape markets, and recently has emphasized the importance of offering a strategic focus to where government policies or support could generate the greatest economic benefit. This more strategic lens is an imperative for helping Canadian governments recognize where policies and public investments to support clean innovation should be directed, or prioritized, to ensure Canada can remain competitive and advance quickly in the global race to net-zero emissions. This more strategic focus is key to supporting the creation of business clusters which could specialize in clean growth and environmental solutions. Cluster development also necessitates other supports, such as strong protections for Canadian-generated intellectual property (IP) and Canadian-generated user data, to ensure the economic benefits of our innovations flow back to Canadians. Canada also needs to ensure it equips the workforce with the skills needed to drive the invention and adoption of new technologies, focussing on skills needs in a future that is zero emissions, zero waste, inclusive and digitized.

 

How can Canada reduce waste and pollution?

As Canada looks to reduce waste and pollution in its environment over the long-term, it will need to consider shifting towards more circular business models and practices that help decouple resource growth from resource use. In this future, in which Canada can play a leading role in developing technologies and solutions for this more circular economy, Canada will need to ensure leading businesses coordinate and collaborate with governments and civil society to scale solutions. Additionally, the country will need to implement leading policies to help correct the low-cost of waste generation, drive more investment into technological solutions, and attract capital into emerging projects that improve health, protect the environment, and spur innovation in growing sectors.

 

How can Canada conserve nature and biodiversity?

Natural systems contribute directly to 12% of GDP via forestry, oceans, and agriculture. Canada’s challenge in conserving nature and biodiversity requires substantive investment and action on the part of both governments and the private sector. Ensuring capital flows to projects that meaningfully contribute to both outcomes requires helping support the development of newer markets for ecosystem services through generating data, working with investors, helping brokers in putting deals together, and ensuring communities across the country work with industry, government, indigenous communities, and civil society partners to put together policies that help overcome the barriers to investment.

 

3. How can Canada ensure that all Canadians, and all parts of Canada, have the opportunity to contribute to, and benefit from, a more sustainable economy?

At SPI, we believe in the need to create a stronger, cleaner economy that builds a better future for everyone living in Canada. This is not only because it is the right thing to do, but because diversity, equity, and inclusion leads to the creation of new, innovative solutions, and drives economic growth. For Canada to be able to build a thriving economy, healthy environment and high-quality of life, we will need the talents of all Canadians. As Bank of Canada Governor Tiff Macklem has stated, “reduced economic participation will lower our potential growth, limiting living standards for everyone”. In order for governments to obtain the social license they need to advance needed reforms, they need to ensure Canadians recognize that they will not be left behind by these changes.

 

What are the barriers to full participation in a stronger and cleaner economy, and how can they be eliminated?

The Smart Prosperity Institute is currently working to improve understanding of how equity, diversity, and inclusion considerations can be integrated with, and directly inform, its research at the forefront of environmental and economic policy development. This research agenda, led by Dr. Aline Coutinho, recognizes that to ensure full participation in a clean economy, from employment to entrepreneurship to consumption, it is imperative to identify and remove systemic barriers to inclusion. This requires a deep understanding of those barriers and their underlying causes. We recommend that the Coalition consider a series of questions posed by Dr. Coutinho:

  • Who has been systematically (dis)empowered as we transition to a net-zero carbon economy?
  • What barriers to equity and inclusion are unique to each local context, and what barriers appear frequently across different settings?
  • How should we design and implement policies so they can advance inclusion and justice in low-carbon transitions?
  • How can we empower, elevate the voices, and build capacity of equity-seeking groups in economic and environmental policy and decision-making?

 

How can the economic benefits of a stronger and cleaner economy be fairly shared?

Reducing inequality and raising the living standards for all Canadians, is critical to ensuring a fairer future. While these goals can be achieved, to a certain level, through redistributive tax and transfer policies, policymakers should also consider the role of ‘predistribution’ approaches. Predistribution is the practice of designing labour and other policies in a way that steers market outcomes towards more equitable distributions of income and opportunity. Solutions that support more equal outcomes need to reckon with existing barriers to these outcomes, and ensure they address the question “who do these opportunities benefit?”

 

How can well designed clean growth policy improve the lives of traditionally marginalized and disadvantaged Canadians?

The potential benefits (and costs) associated with a stronger, cleaner economy are not always solely material. Many benefits contribute to increased quality of life in other areas. Improved human health, for example, is often a benefit in investments that reduce carbon emissions. Policymakers should identify these potential non-economic benefits (and costs) of clean economy policies to ensure they advance projects and policies that directly improve the lives of a larger number of people. Beyond simply benefiting communities, emphasizing the benefits can also help redress historic and unjust harms. It is well-known that low-income, racialized, and immigrant groups and communities are at higher risks of exposure to environmental degradation and pollution. Therefore, a clean growth agenda should include quantifiable goals and indicators that advance and monitor the transition to a more equitable, inclusive, and cleaner economy.

 

How can we ensure that every community and region in Canada is included within a transition to zero emissions and zero waste?

A rapidly changing global economy creates opportunities for some sectors, and challenges for others, which are felt at a regional level. For growth to be truly equitable, policymakers must find ways to ensure growth occurs in all parts of Canada, including those with high employment in sectors undergoing a transition for broader market or societal reasons. Canada has experienced both successes and failures when it comes to these types of economic transitions. One example of both failure and success is the reduced employment in the Canadian manufacturing sector from 2004 to 2009, which saw sectoral employment fall by over 500,000 jobs in just a few years, primarily in Quebec and Ontario. However, communities near Toronto and Montreal were able to virtually replace these jobs, at comparable pay rates, with jobs in the construction, warehousing, and trucking sectors. This was not the case in Southwestern Ontario, where communities that experienced job losses have endured significant economic hardship. Policymakers must identify regions at risk of being left behind, including regions in Western, Northern, Central and Atlantic Canada, and design place-based economic growth plans, initiatives, and policies to ensure communities have the support and resources they need to champion their own future prosperity.

 

Looking forward

Smart Prosperity Institute supports the creation of a future that is sustainable, inclusive, and prosperous for all who work and live in Canada. It is our view that shaping this future requires reckoning with the challenges the country faces, outlined in the three overarching questions above.

Each of these challenges will need to be navigated through thoughtful government policy, a clear and level-headed assessment of the challenges at hand, and innovative solutions to economic challenges. The country’s economic future depends on our shared capacity to problem solve our greatest challenges, and we are energized to contribute to a debate that moves these ideas forward.

 

[1] Coutinho, Jefferson & Moffatt. Unreleased. “Renewal and reinvention of Alberta’s hydrocarbon cluster.” Smart Prosperity Institute and Energy Futures Lab. Ottawa.

[2] Breznitz, D. 2021. “Innovation in real places: Strategies for prosperity in an unforgiving world.” Oxford University Press. United Kingdom.

Mike Moffatt

Senior Director, Policy and Innovation

John McNally

Senior Research Associate