April 20, 2022

By: Mohsina Atiq, Anik Islam, John McNally

As Canada embarks on its path to achieving net-zero emissions by 2050, Smart Prosperity Institute and Future Skills Centre have come together to identify some of the most important implications of this transition. In our latest analysis, we aim to establish that achieving a net-zero future is not only good for the climate and the economy, but also for the labour market.

In order to realize the twin objectives of reducing emissions and increasing economic growth, Canada needs to focus attention on building and nurturing human capital. As jobs are created, the labour force needs to be dynamic, inclusive, and responsive to the skill requirements of the jobs climate action will create. If the labour force is not skilled enough to work these jobs, it will not only create unemployment and labour shortages, but also derail the country’s net-zero ambitions. In short, to achieve its objectives, Canada needs to align its labour market with its net-zero goal.

Why is it important to talk about the net-zero labour market?

The flagship net-zero report from the International Energy Agency (IEA) - Net Zero by 2050 Roadmap - not only outlined a potential pathway to reach net-zero emissions, but also identified the impact on employment resulting from changes in investment and expenditure on energy. In their scenario, transitioning to a net-zero future would create 14 million clean energy jobs while those in the oil, gas and coal sectors would fall by 5 million, leading to a net increase of almost 9 million jobs globally. These jobs would not be concentrated in the same sectors and the skill sets might not be easily and directly transferable, requiring government action and support to manage these transitions in a just and equitable manner.

Similar modelling analyses globally, as well as in Canada, indicate that the workforce will grow substantially overall as a result of successfully reducing emissions across sectors. However, these impacts will be uneven, and research also documents precisely how transitioning towards a net-zero future impacts individuals, sectors and communities within labour markets. While there are several channels through which impacts occur, both direct as well as indirect, what is clear is that both the number of jobs as well as how they are performed is going to change. For example, skills training institutions have already begun offering skills training courses for automotive technicians to learn maintenance of zero emissions vehicles (ZEVs). While these are welcome developments, it also presents an important opportunity to address some of the longstanding issues within the Canadian labour market.

Globalization of competition, technological advances, and changes in Canada’s demographic structure have been exerting pressure on the inclusion of diverse populations within the labour market, quality of work, and replacement of retiring workers with new entrants. These challenges were recognized to be a norm almost twenty years ago, and have persisted. In recent years, there have been efforts to supplement the domestic workforce through immigration, but current projections show that it will still be insufficient to cover expected labour force shortfalls, even before increasing levels of ambition in policy areas like housing and climate action are accounted for.

The COVID-19 pandemic, along with Canada’s ambitions to decarbonize, together have added another layer of complexity in terms of understanding labour market issues. Thanks to the pandemic, certain sectors (and workers) have suffered more than others. Within a transition to a net-zero economy, effects are expected to be similarly unevenly distributed by workers and sectors. For instance, as Canada decarbonizes, resource-dependent sectors like oil extraction, gas extraction, and coal-fired electricity generation will lose jobs, while others like manufacturing, construction, and transportation will expand as a result of new technological developments that use non-fossil fuel energy sources. This combination of uneven impacts across the sectors and regions of the national economy accentuate the need to understand these impacts in the future to allow policymakers to design labour and skills policies and training programmes that account for both the structural issues, as well as emerging issues, within the labour market.        

How do we design workforce policy solutions for an uncertain future?

Several analyses have suggested that transitioning to a low-carbon or net-zero economy is good for economic growth. However, transition pathways can vary, and there is uncertainty around which trajectory Canada could take to reach net-zero emissions by 2050. Reports from groups such as the Canadian Climate Institute and RBC have modelled many pathways for Canada, and it is understood that each unique trajectory will have its own impacts on the labour market. This uncertainty around the nature of Canada’s decarbonization pathway will need to be accounted for in policymaking, or workers and communities risk not receiving the support they need.

One of the ways to confront this future uncertainty is to conduct a foresight exercise to explore a range of plausible futures instead of prescriptively predicting the future (i.e. forecasting). As succinctly explained by the OECD, the objective of foresight exercises is ‘not to ‘get the future right’, but to expand and reframe the range of plausible developments that need to be taken into consideration.’ An upcoming Smart Prosperity Institute and Future Skills Centre report conducts a foresight exercise (scenario modelling) to evaluate how different decarbonization pathways might impact skills and labour demand in the future as Canada advances its climate ambitions. For a distinct set of futures, we model the jobs created across different sectors and provinces in Canada. We then analyze the skills needed for these future jobs, in order to identify where skills demand will be greatest in the years to come across each scenario, and which skills are most common across all scenarios. This methodology allows us to highlight where investments in skills training and education are most likely to be important, regardless of the specific trajectory Canada takes to reaching net-zero.

Preparing an agile workforce for the future

One of the key takeaways from our jobs modelling and skills analysis work is that while the transition to a net-zero future is good for the economy and the labour market, these jobs will not get filled on their own. It will be critical, in the years to come, for labour and skills policies to consider the dual challenge of attracting sufficient new workers to fill open positions, and ensuring the entire workforce has access to the skills training and education needed to fill these opportunities. This will require thoughtful coordination from policymakers, skills training institutes and employers to ensure they are strategic about attracting new entrants. It will also require wrestling with existing economic challenges, such as labour supply shortages already being faced in key sectors to account for expected and needed job growth.

Despite these challenges, and this uncertainty, the economic opportunity for Canada is enormous. Climate action, if advanced at levels needed, will create millions of new jobs across the country, advance new opportunities for economic growth and innovation, and can support greater inclusivity if appropriate steps are taken to address structural and systemic barriers to accessing economic opportunities for equity-seeking groups. The responsibility falls on Canada’s decision-makers to ensure that a historic barrier to economic growth - skilled workforce shortages - do not serve as the next barrier to a clean growth future.