June 4, 2007

Going green won't be business as usual, says Global Outlook report

Responding to emerging environment issues, governments in the major developed nations are changing regulations, taxes and subsidies to achieve ambitious long-term environmental and energy conservation targets, says Scotia Economics' latest Global Outlook report, titled "Going Green... Don't Plan On Business As Usual."

"These policy actions will have a big impact on industrial competitiveness and relative economic performance among regions," says Scotiabank's chief economist, Warren Jestin.

Adapting to the fallout from climate change, which can take the form of severe droughts and other extreme weather conditions, also carries enormous costs, says the report. By 2020, the European Union (EU) is aiming to reduce greenhouse gas (GHG) emissions by at least 20% from 1990 levels, derive 20% of its energy from renewable sources and trim 20% of its primary energy consumption. Achieving these goals will be a big challenge since they require massive public and private investments and the integration of EU power markets.

In the U.S., President Bush has committed to reducing national gasoline usage by 20% over the next decade. This goal is also aimed at restraining petroleum imports, currently costing that country more than $300 billion (U.S.) annually.

Moreover, in the absence of national targets for reducing emissions, California and other states are tightening emission limits and mandating the use of alternative energy sources such as wind and solar.

The greening of the policy agenda has rapidly gathered momentum in Canada as well. "Ottawa and the provinces are setting new environmental targets and unveiling multi-billion-dollar spending initiatives," Jestin points out, adding that the new federal accelerated depreciation incentive for machinery and equipment purchases also will help support energy-efficient investments.

Jestin further notes that "Ottawa has opened the door to equivalency agreements that will allow each Province and Territory to lead its own clean air agenda. This flexible approach recognizes both the unprecedented co-operation required among all levels of government and each jurisdiction's different industrial structure, prior policy settings and resources.

"But as Kermit the Frog told us years ago, it's not that easy bein' green," Jestin adds. A wide array of technologies and processes is being championed to mitigate environmental impact, yet the path from innovation to implementation is often not smooth.

"Globally, meaningful progress requires major adjustments in all nations. China, the second-largest annual producer of GHG emissions after the U.S., India, and many other emerging industrial nations rely on coal-burning power generation to help fuel their fast-track growth. These emerging nations are going to have a very difficult time implementing, let alone affording, the huge expenditures needed to reduce pollution intensity and improve energy efficiency," he says.

Canada's potential as an energy superpower hinges on developing its massive non-conventional petroleum resources, largely in Alberta. As oil sands output ramps up, investment in new technology will be needed to limit the relatively high GHG emissions from their extraction. While a number of options have been proposed to meet the substantial power demands of major resource developments, all of the alternatives carry multi-billion-dollar price tags.

New environmental requirements are not the only factors altering the competitive landscape, notes the report. Intense global competition, the soaring loonie, high energy prices, and on a longer-term basis, the aging of the baby boom generation, greatly complicate strategic planning. At the same time, the green agenda will unleash enormous business and employment opportunities.

The Global Outlook report may be viewed on-line at www.scotiabank.com.

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