Jock Finlayson is a senior policy advisor to the Business Council of British Columbia. David Williams is the vice chairman of the committee for policy.

The Canadian Institute for Climate Options has made a sober assessment of the country's current situation in its new report "Transforming Canada's Economy for a Low-Carbon Future." Among them, the report pointed out that energy and energy-intensive industries account for a large proportion of the Canadian economy.

If anything, the institute underestimated the challenges Canada faces on its way to a low-carbon future. Examining the composition of exports shows that it will be difficult to drastically reduce greenhouse gas emissions from industrial bases across the country—especially in a time frame of 5 to 10 years.

Before the outbreak of the new coronavirus, the natural resource industry and transportation equipment manufacturing together accounted for approximately 70% of Canada’s merchandise exports and more than half of the total exports of goods and services. Natural resource products alone account for more than half of commodity exports.

Taking into account other energy-intensive manufacturing industries, such as aluminum, pulp and paper, chemicals and petrochemicals, fertilizers and steel, further highlights the country’s dependence on export earnings from a few traded commodity industries. Most of these industries emit large amounts of greenhouse gases and/or rely on fossil fuel energy inputs to manufacture and transport the goods they produce.

For economies that rely on trade, the health of the export industry deserves close attention from policymakers. The export model contains important information about where Canada has a comparative advantage. Canada has long been globally competitive in many industries that serve the world's energy consumers, or are energy and raw material-intensive industries. Therefore, as the world responds to climate change, the Canadian economy faces major risks, and our own government has made it more difficult to extract, process, and add value to our rich natural resources by implementing costly new regulatory and fiscal measures.

Politicians often express their opinions on the business opportunities brought about by carbon emissions. Such opportunities do exist and are growing. But a sense of perspective is needed. To date, natural resource production is the most productive industry in Canada. The department contributes an average of US$330 of value-added output per hour worked, and US$1,300 for unconventional oil and gas. It is believed that within ten years or even two years, Canada can replace its most productive industries, such as many service industries, with other business activities that contribute only US$30 to US$90 per hour of added value, instead of experiencing a decline in living standards in the process.

Tracking trends in Canada’s merchandise trade balance is a useful way to understand the role of natural resource industries in our economy and measure how these industries will wither due to changes in global markets and/or domestic policies that will affect living standards.

According to the latest commodity price report of Scotiabank Economics, by the first three quarters of 2021, the prices of all major international trade natural resources have risen sharply. Due to the increase in exports of oil, natural gas, and coal, Canada’s merchandise trade balance has turned into a surplus, metals, non-metallic minerals and forest products. The improvement of Canada's merchandise trade balance will make a much-needed contribution to GDP growth in 2021 and 2022-the development of natural resource markets is the main reason.

The centrality of the natural resource industry in Canada's economic foundation is often overlooked lightly. The high value-added and unparalleled export revenue generated by these sectors will have a cascading effect in other economic sectors, helping to support domestic demand for non-traded goods and services, and paying for imports and public services.

Canada needs thoughtful regulation, taxation and carbon reduction policies to encourage the transition to a less carbon-intensive economy. At the same time, policymakers must avoid weakening Canada’s role as a trusted supplier of energy, minerals/metals, food and other raw materials. The world is consuming these products and will continue to buy them-hoping to buy from us. Yes, this is a complex balancing act. But the standard of living in Canada depends on whether it is correct.

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