Stimulating Economic Growth through Abundant Energy
— Published on July 21, 2020
- The economic downturn from COVID-19 is proving to be one of the steepest since the Great Depression of the 1930s and Canada is already experiencing negative economic impacts. Canada’s economy experienced a decline of 2.1% in the first quarter of 2020.
- Canada’s economy has seen sluggish economic growth in recent years, even prior to the onset of COVID-19. Between 2010 and 2019, real (inflationadjusted) gross domestic product (GDP) in Canada grew at an average annual rate of 2.2% compared to 2.8% in the 2000s and 2.4% in the 1990s. In fact, Canada’s economic growth over the past decade was weaker than several other developed countries including the United States, Germany and Japan.
- Given Canada’s slow economic growth over the past decade and the fact that this issue is only expected to worsen as a result of the COVID-19 pandemic, governments across Canada would be wise to adopt policies that support economic growth post-pandemic.
- Empirical research has examined the relationship between energy consumption and real gross domestic product (GDP) in Canada and has shown that energy abundance is an essential input for Canadian economic growth. Therefore, policies designed to reduce energy consumption artificially and/or increase energy costs will likely limit future economic growth. Similarly, policies favouring the abundant availability of energy will likely have a positive impact on future economic growth.
- Despite the important role that affordable energy plays in economic growth, federal and provincial governments in Canada have implemented policies that place artificial constraints on energy abundance. Ontario’s Green Energy Act, British Columbia’s conservation programs, and the federal government’s renewable energy targets are some examples.
- To promote economic growth and foster a robust economic recovery, a sound post-pandemic strategy would see governments abandon demand-side management programs and adopt policies that will foster abundant energy.
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