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Philip Cross: Canada should commit to doubling its GDP by 2050

Commentary

The Hub launched with a core mission of getting Canadians thinking about the future. We’ve been stuck in the doldrums, pessimistic and polarized, for too long. To lay out a roadmap for the next 30 years of Canadian life, we asked our contributors to pinpoint the most consequential issue, idea or technology for the country in 2050. This series of essays by leading thinkers will illuminate Canada’s next frontier.

The unfolding federal election campaign will inevitably be marked by a series of competing spending promises with little or no concern for how the different political parties will pay for them. The entire exercise will merely presume that the Canada’s economy will grow enough now and into the future to throw off the revenues to cover these growing demands on government.

It’s a huge omission — and indeed a huge mistake — to take economic growth for granted. We need a means to reorient our political and policy debates to achieving higher rates of economic growth as a foundation for a more innovative and more prosperous society.

One policy tool that may help to better focus policymaking on economic growth is the use of clear, measurable targets similar to what the current government is doing climate change in general and its goal of net zero emissions in particular. Setting such targets can not only enable more informed policymaking (including accounting for trade-offs and opportunity costs), but it can also help to shift the broader political dialogue to the best means of growing Canada’s economy over the long-term.

The federal government recently announced a more ambitious goal for CO2 emission reductions of 36 percent by 2030, on the way to its aspirational 2050 target of zero net emissions. To achieve this goal, the government proposed “to develop and apply a climate lens that ensures climate considerations are integrated throughout federal government decision-making.”

Targets are nothing new to guide government actions. The federal government has had annual immigration targets for decades. Inflation targeting is the foundation of the Bank of Canada’s monetary policy. Budget deficit targets helped governments deal with the fiscal crises of the 1990s and may yet prove indispensable in dealing with today’s record deficits.

Indeed, one of the current government’s problems is it has had no fixed fiscal target, instead shifting constantly from an absolute level of temporary deficits to the deficit as a percent of GDP, then to the debt relative to GDP and finally to vague “fiscal guardrails” and the abandonment of meaningful targets altogether.

But given the proven usefulness of targets in other areas, perhaps it is time the federal government set a long-term target for Canada’s GDP. After all, GDP is the key to creating the incomes that drive employment gains and generating the tax revenues to finance most government operations.

A forthcoming paper from the Macdonald-Laurier Institute proposes the federal government prioritize the goal of doubling Canada’s 2020 level of real GDP by the year 2050. Just as with climate considerations, the government should “develop and apply an economic lens that ensures growth considerations are integrated throughout federal government decision-making.”

The goal of doubling GDP in three decades may sound audacious but it actually only requires annual average growth of about 2.5 percent, which should be attainable. While above our recent average of 2.0 percent, it remains well within the growth rate Canada has managed to sustain over long periods in the not-so-distant past.

Establishing a goal of higher growth would force governments to be more cognizant of the consequences for growth of all its actions, including the many policies that focus on redistribution and various initiatives to curb greenhouse gas emissions.

Trade-offs exist between many environmental programs and the economy. In many instances, we do in fact have to choose between competing objectives. For example, while more energy efficiency and less waste are clearly beneficial, the long-term increase in our living standards has relied upon affordable energy. Unless alternative energy sources can be substituted for cheap fossil fuels at an equally low-cost, our standard of living will suffer. The corollary is plans to lower emissions with costly energy sources necessarily involve a trade-off that lowers economic growth.

Setting long-term goals for growing the economy also would help governments focus on the long-term determinants of growth. Starting with the 2008-2009 global financial crisis, followed by the 2015 oil price shock, and now the pandemic that began in 2020, governments have become chronically over-reliant on policies that attempt to stimulate the economy in the short-run but ultimately damage the economy’s ability to grow in the longer-term.

A solution must be found where both economic and climate goals can be achieved at the same time.

Moreover, economic, demographic, and environmental policies should be examined together because they are intertwined. Professor Ross McKitrick outlined the difficulty of reducing emissions in a growing society. Overall greenhouse gas emissions are a function of the carbon intensity of our economy and the growth of real income and population, which by themselves raise carbon consumption, making it more difficult to meet emissions targets. To achieve the promised 36 percent cut in emissions by 2030 requires an average annual decline of 3.8 percent in emissions from their actual level in 2019. Achieving such a reduction will be challenging enough for Canada, which despite years of lip service about the need to reduce emissions has struggled just to stop them from growing (Canada is hardly unique in that regard).

However, as McKitrick observes, if population growth increases by 1 percent a year and GDP per capita increases by 1.5 percent annually, then carbon intensity would have to fall by 5.8 percent a year by 2030. Lowering emissions intensity by 46 percent in such a short period is unrealistic with tools such as carbon pricing and regulation; for example, it would require the implementation of a carbon tax of well above $200 per tonne very soon, which would inevitably slow GDP growth.

Unrealistic climate goals will almost certainly lead to bad policies that cause harmful unintended outcomes for both the economy and the environment. As 2030 approaches and Canada remains well short of its climate goals, pressure will build to curb the growth of our population and economy as a short-cut to reach elusive emission targets. However, less population growth necessarily would mean reducing immigration, which would in turn accelerate the ageing of our population and further aggravate the slowdown of economic growth.

A major benefit of a binding target for GDP is to prevent such a sacrifice of long-term income growth to attain emissions targets. A solution must be found where both economic and climate goals can be achieved at the same time.

In the long-term, technological innovation is the only viable solution to reducing emissions intensity while maintaining real income growth. The recent pandemic showed that our society’s faith in technology was justified. We really had no other plan for dealing with the COVID-19 virus, as wearing masks, social distancing, and other societal restrictions could not have been sustained much longer without devastating impacts, especially for young people. This confidence in vaccine technology was rewarded with the development of multiple vaccines in record time.

We need to have the same confidence and resolute pursuit of technological solutions to greenhouse gas emissions without slowing economic growth. Setting the goal of doubling GDP by 2050 reinforces that necessity.

The quality of Vinho Verde wines is on the rise, but the prices are not

Commentary

The last working trip I took before COVID shut down the world was to the city of Porto and the surrounding countryside of Northern Portugal to investigate the wines of Vinho Verde.

Porto was vibrant and full of tourists. The city was having a something of a moment and it was fun to be caught up in that energy. It was the end of October, and the nights were cool and breezy from the Atlantic and the days were warm when the sun shone and balmy when the clouds came in off the ocean.

In the wine world, Porto, which situated at the mouth of the Douro River, is best known for its namesake fortified wine, Port. It’s made from big flavoured red grapes from upriver. But while the English named Port Houses still dominate the left bank of the river with their giant 18th and 19th century warehouses, the city is itself in an entirely different wine region.

That’s Vinho Verde, known for its refreshing whites. Like Porto’s rejuvenation, the wines of Vinho Verde are changing for the better, though thankfully, they remain some of the best bargains on the wine store shelf.

Vinho Verde means “green wine,” and it was traditionally made to be drunk young. The traditional style, which can still be found, was for a low alcohol, slightly sweet and slightly fizzy and highly acidic wine. In the 21st century, like in much of Portugal, the producers of Vinho Verde are opting to make wines that fit better to modern tastes: bone dry and a bit rounder on the palate.

The Commisáo of producers, who were my hosts and paid for the trip, regulate and guarantee the quality of the region’s wines. They would like consumers to shift the meaning of Vinho Verde from green wine to wine from the green country. The region takes up the very northwest corner of Portugal, where the cooling influence of the Atlantic is evident in the greenery of its hills. Grapes are grown on the hills that make up the river valleys in this part of the country. These include the Douro itself towards the southern limit of Vinho Verde, and the Minho, which makes up the northern border of the country with Spain. Cool air from the ocean travels up the valleys and keeps the white wine grapes from over-ripening and losing acidity. There is some red wine production in Vinho Verde, but most producers concentrate on the whites.

There are six grapes that can be used to make white Vinho Verde: Alvarinho, Arinto, Avesso, Azal, Loureiro and Trajadura. Most Vinho Verde is made with Alvarinho and some combination and permutation involving some or all of the other grapes, except Avesso (see why below). Alvarinho is the same grape the Spanish call Albariño, and the Rías Baxais wine region in Galicia, Spain is literally across the Minho River from Vinho Verde.

That Portuguese left bank of the river makes up the prestigious sub-region of Monção and Melgaço, named after two nearby towns. This is the headland, as it were of Vinho Verde, and all the larger houses will make an Alvarinho and/or Alvarinho blend with grapes from Monçao and Melgaço. When made in the modern style, often as a 100 percent Alvarinho wine, they are crisp and refreshing with notes of apples and lemons, and often a bit of a salty character winos like me call “minerality.”

Moving down the coast towards Porto, the wines of the Lima subregion are often dominated by, or made exclusively with, the Loureiro grape. The Lima River Valley is known for its fogs and is considered a particularly cool climate by Portuguese standards, as it is heavily influenced by the North Atlantic. These wines are often a little bit rounder and fuller than the ones dominated by Alvarhino, and can take on characteristics of all manner of citrus fruit and sometimes floral notes.

Loureiro is also widely planted across the whole of the Vinho Verde region, and more and more wineries are either making wines from just this grape. These are making their way to Canada and if you see a wine advertising that it’s the dominant grape in the blend on the label at your local shop, it’s probably from a forward thinking producer and it may well be worth a try.

The last variety of grape from Vinho Verde that I try and keep my eyes open for is Avesso. Avesso literally means “inside out,” but figuratively it means contrary or hard to get along with. This is because, although Avesso is prized for its depth of flavour that can move into flavours of quince or stone fruits, and its ability to take treatment in oak. It is notoriously hard to grow outside of a few prize vineyards.

Most of these vineyards are in the sub-region of Baião, in the Douro Valley. Baião is almost at the Southern limit of the Vinho Verde region and fairly up river from Porto, so it enjoys a warmer climate that suits this late ripening grape. It takes well to the hard granite soil there and at the Quinta de Santa Teresa estate, perched high above the river, I saw Avesso vines rooted in the rocks that were more than 200 years old.

Baião also borders the Douro region, famous for making Port and big red table wines. This spurs both rivalry from the producers of the former and investment from the successful producers of the latter. If I see Avesso mentioned on a wine label I take it as a pretty good hallmark of quality and indicative of a wine that’s likely to be interesting.

The classic pairing with Vinho Verde is seafood, of any kind. While I was in Northern Portugal, I also drank it with all sorts of bounty from the land, especially pork; often cured hams and sausages or stews and roasts. It also works well as an aperitif with salty snacks.

As a consumer, I am pleased to report that while the quality of Vinho Verde wines is on the rise, the prices are generally not. Many excellent wines from the region are well under $20 and very good ones go for much less. This makes these white wines from Northern Portugal a pretty low risk venture and often well worth a try.

Three reputable houses that are carried more or less across this country are Aveleda, Quinta da Lixa and Soalheiro.

The Comissão de Viticultura da Região dos Vinhos Verdes has an excellent website resource that goes in much wider and deeper than this column, with information on all the regions, grapes and producers. It can be found at vinhoverde.pt.