By Jock Finlayson, ICBA Chief Economist
There appears to be a widespread view in some political, policy and academic circles that the economy is undergoing a fundamental and rapid transition, one driven by mounting worries over global warming and intensifying pressure to reduce the environmental impact of industrial and other forms of human activity. According to Canada’s leading environmental advocacy organizations, the economy is being refashioned by the dramatic growth of “clean/green” industries and an accelerating shift away from fossil fuels. This belief is reflected in the B.C. government’s energy, industrial development and climate change policies, notably the NDP’s signature (and very costly) CleanBC Plan. It also resonates in Justin Trudeau’s Ottawa, where policies to reduce greenhouse gas emissions and massive subsidies for industries deemed to fit the “green” label have been all the rage in the past several years.
This situation invites us to think further about the emerging “clean/green” economy. There are definitional uncertainties and some data limitations when studying this still-nascent sector. Fortunately, Statistics Canada’s annual environmental and clean technology account provides an excellent starting point for measuring the size, composition and growth of the clean/green economy.
It’s important to note that the clean/green sector is not directly captured by the North American Industrial Classification System (NAICS), which statisticians in the U.S. and Canada use to collect and organize data on production (or “output”) by the industries that make up the economy. Instead, statisticians and economic researchers must estimate the size of the clean/green economy by determining the contributions (value-added) made by an array of sub-industries whose output is judged to warrant inclusion in the sector. Statistics Canada provides the following background information:
“Environmental and clean technology products/services are defined as any process, product or service that reduces environmental impacts through any of the following three strategies: environmental protection activities that prevent, reduce or eliminate pollution or any other degradation of the environment; resource management activities that result in the more efficient use of natural resources, thus safeguarding against their depletion; and the use of goods that have been adapted to be significantly less energy or resource intensive than the industry standard.”
Statistics Canada’s environmental and clean technology account provides a way to quantify the economic contributions of industries that fall under the clean/green banner. Which industries fit the bill? According to Statistics Canada, they include renewable electricity (hydro, wind, solar), nuclear energy, bio-fuels production, energy storage, sewage and wastewater treatment, carbon capture and storage, waste management and remediation services, the manufacturing of clean technology products (such as pollution control equipment, water purifying systems, and fuel cells), and a host of scientific, technical, consulting and professional services that help to protect the environment and improve energy efficiency.
In addition, certain “construction services” are also included in the clean/green sector. In fact, construction represents one of the biggest components of Canada’s clean/green economy. Why is this the case? A few examples can help to explain. Consider, first, that a portion of construction industry output is allocated to satisfy “demand” to build and refurbish renewable and other carbon-free power facilities and systems. Second, another portion of the output of the construction industry is supplied to meet the demand for “green” buildings and for upgrading the existing building stock to increase energy efficiency and economize on the use of other scarce inputs (e.g., water). Third, Canadian construction companies also sell their services to businesses in industries which are engaged in carbon capture and energy storage projects and developing biofuels and hydrogen production facilities. Even the installation of EV charging stations involves some construction work. In these and other ways, a number of non-construction sectors of the Canadian economy create demand for construction services to help achieve their own environment-related objectives.
Sizing the Clean/Green Sector
How big is the clean/green economy? Today, it generates about 3% of Canada’s GDP and directly employs some 354,000 people – roughly 1.7% of total employment across the economy. Those numbers aren’t chump change, but they cast doubt on the notion — embraced by many environmentalists and some politicians — that the entire economy is being rapidly restructured due to the growth of clean/green industries.
Digging deeper into the data reveals that electricity produced from carbon-free sources – mainly hydro, nuclear and wind – constitutes the largest slice of Canada’s clean/green sector, based on its contribution to GDP. Waste management and remediation services are another significant chunk. Together, carbon-free electricity and waste management services make up about 40% of the total GDP attributable to Canada’s clean/green economy. Construction services amount to another 24% of the sector’s output; as noted above, these include construction and related work to develop renewable and other carbon-free electricity, reduce the carbon content of the built environment, and improve buildings’ energy efficiency. After accounting for carbon-free electricity generation, waste management and remediation services, and construction services, output from all the other industries that are part of the clean/green economy adds up to a bit more than 1 per cent of Canadian GDP.
The accompanying figure shows the distribution of the clean/green sector’s GDP by specific industry segment in 2023:
Apart from its rather modest size (3% of Canadian GDP and 1.7% of employment), it turns out that the clean/green economy isn’t expanding nearly as fast as some commentators and politicians suggest. Statistics Canada tracking finds that the inflation-adjusted value of the clean/green sector’s GDP decreased by 1% in 2023. Moreover, over the preceding two years (2021-2022), the sector grew more slowly than the Canadian economy. In fact, looking back over 5-10 years, there isn’t any evidence to support the often-heard claim that the clean/green sector has been growing explosively, at least as measured by GDP and employment. This runs counter to the narratives peddled by the Liberal government in Ottawa and the NDP administration in Victoria.
Focus on B.C. and Alberta
As in Canada as a whole, the clean/green economy comprises a small slice of aggregate economic activity in both British Columbia and Alberta.
In B.C.’s case, the province’s unusually large renewable power industry – which supplies almost all domestically generated electricity – is a big part of the clean/green economy, providing almost one-quarter of the sector’s GDP, with waste management and remediation services chipping in another 13%. Of interest, what Statistics Canada defines as “construction services” provides a whopping 31% of British Columbia’s clean/green sector GDP (in 2023). This is higher than the Canadian average and likely reflects, in part, the scale of ongoing capital spending and related construction work to build out and update generation facilities in B.C.’s renewable electricity industry. Manufactured clean technology products contributed just 5% of the B.C. sector’s GDP in 2023.
Turning to Alberta, renewable electricity makes up 14% of the province’s clean/green GDP, a considerably smaller share than in B.C. This reflects Alberta’s continued heavy reliance on fossil-fuel based electricity. Waste management and remediation services comprise 19% of the sector’s output, with manufactured clean technology products contributing another 7%. Construction services make up a hefty 31% of Alberta’s total clean/green sector GDP, the same share as in B.C. This includes construction work aimed at developing carbon capture and storage facilities, building renewable energy assets and infrastructure, and lessening the carbon footprint of other Alberta industries (e.g., upstream oil and gas production and pipelines).
Conclusion
The world is on a bumpy path to a lower-carbon future. The current global energy transition, like those that have occurred before, is likely to be slow-moving and won’t entail a sudden break with the established industrial structure. Clean/green industries will certainly grow and play a role in helping to mitigate and manage the effects of climate change. However, there is no reason to expect this relatively small (but politically-favoured) slice of the economy to replace the natural resource and manufacturing industries that dominate the Canadian export mix, including in Alberta and British Columbia. In setting climate change and energy policies, governments in Canada would be wise not to overlook the other 97 per cent of the economy.
