The economic landscape of the 20th century was defined by one trend over all else: globalization. As companies and consumers sought ever-cheaper products, a new paradigm was born — underpinned by a growing Rolodex of free trade agreements.
Flash forward to the 2023 World Economic Forum meeting in Davos, where countries raised concerns over a “green trade war” following a flurry of regionally restricted economic agreements and clean energy subsidies.
So, what changed — and why?
If there was a tipping point, it likely occurred last summer. In the wake of America’s Inflation Reduction Act, we’re witnessing the beginnings of a new era of regionalization — or as Deputy Prime Minister Chrystia Freeland called it, “friend-shoring” — happening in lockstep with the clean energy transition.
Yes, there are other reasons for this trend, energy security chief among them. Reliance on Russian natural gas was an Achilles heel for Europe in need of desperate bandaging. And then there’s the fact that a single country has something of a clean energy monopoly: China’s wind, solar and battery supply chains represent more than 60 per cent of global production.
But perhaps most fundamental of all is a need for certainty. Certainty for increasingly low-carbon industries when price isn’t the only factor to consider (or rather, when they must also consider the price of climate change). Certainty with regards to achieving our climate targets. Certainty in a clean energy future.
Today, 133 countries around the world, representing 91 per cent of global GDP, have pledged to achieve net-zero emissions, but the pace, ambition and method of that change varies hugely between nations.
As a result, globalization’s once level playing field — where price was all that mattered — is no longer level.
Companies must increasingly contend with countries redefining their “values,” as the former governor of the banks of Canada and England Mark Carney recently put it. The lowest price is one value, but so is the lowest carbon footprint.
Accordingly, countries and companies that are adding this value to their exports and products by investing in cleaner production (or by putting a price on carbon) are seeking safe harbour.
Thus, we see a shift toward regionalization, particularly between countries with similar climate ambitions, as they forge trade partnerships that will ensure the low-carbon products they’re prioritizing will also find a fair price on the global (or regional) market.
An alignment of values, as it were.
This is certainly the direction Canada’s key trade partners are moving in. The fingerprints are everywhere in America’s Inflation Reduction Act, with its sweeping range of funds and policies aimed at promoting domestic cleantech manufacturing and the production of clean energy.
They’re also in the U.S.-European Union Global Arrangement on Sustainable Steel and Aluminum, Europe’s plans for carbon tariffs and its recently announced Net-Zero Industry Act — designed specifically to compete with America’s subsidy-laden climate bill.
Just this week, it was reported that the U.K. will propose a carbon border tax on imported steel to “level the playing field for British Steel and Tata Steel UK against competitors based in regions with lower environmental standards.”
Canada therefore faces a choice — and an opportunity — to cement climate-aligned trade relationships that will facilitate sustainable growth and prosperity.
Already, Canada produces some of the cleanest steel and aluminum in the world, while our relatively low-carbon electricity grid means many of the products produced and sourced here have a smaller carbon footprint than they do elsewhere.
And yet it’s an advantage that can swiftly slip away without timely investments and strategic policy choices.
Rather than debating whether Canada ships the last barrel of oil, we should be more concerned with whether we move the first shipments of green hydrogen (an agreement exists between Canada and Germany to do just that).
According to recent polling from Clean Energy Canada and Abacus Data, 83 per cent of Canadians believe it’s important that Canada invests in clean-energy-related economic opportunities in the wake of America’s Inflation Reduction Act. In fact, it was a view shared by large majorities in every region of the country and across the political spectrum — with strong support even in Alberta.
The world’s major economies are building cleaner futures, and they’re looking for trade partners with like-minded visions. Canada must be unequivocal that it shares this commitment — while taking the steps to prove it — before we lose our existing advantages and miss the boat on the biggest shift in global trade relations in a generation.
This post was co-authored by Trevor Melanson and originally appeared in Canada’s National Observer.