What’s being touted as an emissions cap on the oil and gas sector has significant potential to become a prosperity cap for Canadians and Indigenous communities.

When you first hear of a cap on oil and gas emissions, you might think “What’s wrong with a cap on emissions?” Energy is a high-emitting sector that says it is working hard to reduce emissions, so why would this be a problem?

The recently released Regulatory Framework for an Oil and Gas Sector Greenhouse Gas Emissions Cap is problematic for two main reasons: the first is that it fails a reasonableness test on sound public policy; but more importantly, it has high potential to create significant unintended consequences on prosperity because instead of capping emissions, it will likely cap prosperity through deterred investment and a potential production cut. Let’s tackle this first.

Most Canadians are supportive of decreasing pollution and GHG emissions, and I am too. But not at the price of a lower standard of living. The inaccurate and unrealistic assumptions used to develop the cap will deter investment given its complexity and uncompetitiveness. No other country in the world has placed this kind of limitation on its resource sector. Investment will therefore go elsewhere, and the emissions reductions investments in Canada will not occur, costing jobs, incomes, and tax revenues.

Even more negatively, the cap may very likely force the oil and gas sector to cut production to comply and avoid jail time (yes, potential jail time). Fewer fossil fuels will be produced. “What’s wrong with that?” you might ask. Well, given the size of the sector to our prosperity, there’s a lot wrong with that.

The oil and gas sector is by far Canada’s largest economic sector, larger than the automotive and banking sectors combined, in terms of GDP. It is the largest component of Canada’s exports, accounting for about 30 percent of the value of all activity. And it represents $12 billion in annual federal and provincial revenues.

The Conference Board of Canada recently modeled the impact of production cuts because of the cap. They found that it would lead to a one-time but permanent drop in Canadian economic activity of $22-40 billion. That is the provincial budgets of Saskatchewan and Nova Scotia combined. The report also noted that 82,000-152,000 jobs would be lost across many sectors and across the country. Wages would drop by an equivalent of $22,600 for every working Canadian. But, most importantly for broad prosperity, federal government revenues would decline $82-150 billion cumulatively between 2030 and 2040. That means fewer public services, less money for health care, social programs, and the well-being of Canadians. That is how a production cap becomes a prosperity cap.

All this will drive public tension. Much of the stress in Canadian society now is being driven by affordability issues. People are struggling to pay for food, rent, and necessities. For many Canadians, the idea of buying a home seems out of reach, people feel they might end up worse off than their parents, and many also feel poorer than they did a few short years ago. And they are right. Canadians’ standard of living has been stagnant for years and is currently below 2018 levels—and falling. A recent comparison of the top 26 countries in the world found that Canada ranks third from last in terms of real prosperity for average people: measured as how much you can buy for every hour worked (per capita GDP, purchasing power parity, adjusted for hours worked, for the economist crowd).

On the second broad critique, the cap is simply poorly crafted public policy. Good public policy is clear, efficient, fair, competitive, and doesn’t pick winners and losers. This policy fails every one of those tests. It is an unnecessary and punitive layer on top of Canada’s existing carbon pricing scheme, which has been endorsed by industry and the country’s most prominent and thoughtful economists and experts. The limits are based on unrealistic production projections and assumptions regarding the build-out of emissions reductions technologies and investments.

Sadly, it will serve to continue the tension between Alberta and the federal government since it is mostly oriented towards a single industrial activity largely happening in one part of the country. Finally, and more tragically, it will penalize Indigenous communities wanting to build a better future by participating in Canada’s resource sector opportunities. This list of policy assumptions, conditions, and likely outcomes gets a failing grade.

Instead, Canada’s emissions reduction policy should follow five key principles: cost-efficiency; simplicity and clarity; sector agnostic; regional fairness; and globally competitive. The federal government needs to scrap the proposed cap and go back to the drawing board using these key principles.

A striking scene took place last Friday—one that doesn’t typically generate much buzz for being an out-of-the-ordinary occurrence: a Canadian conservative addressing a chamber of commerce. But speaking with the Greater Vancouver Chamber of Commerce, Pierre Poilievre admitted that this was the first chamber of commerce or board of trade that he has met with since becoming the Conservative Party leader 18 months ago. In contrast, he said that he has visited five local union halls and 110 “shop floors” in that time.

His message matched the overall tone he has adopted towards big business in his time as leader—which is to say he was not afraid to mince words in criticizing “utterly useless” corporate lobbyists and the business leaders who fail to stand up for workers.

Rather, he claimed that if he becomes prime minister his “daily obsession” will be to advance the interests of the “working-class” people of this country.

What is behind the strident rhetoric? And does this signal a fundamental shift in the Conservative Party’s adherence to free-market principles?

To answer the first question first, astute political observers have recently homed in on the dismal state of Canada’s GDP per capita. They rightly point out that the powerful statistic is one of the best measures of how individuals and families are experiencing the economy. And as far as it goes, things aren’t looking good. As Pierre Poilievre might put it, people don’t just need jobs, they need powerful paycheques. And when the cost of living is rising as the economy falters, Canadians’ paycheques are feeling…weak.

But as prognosticators begin to chart out what the potential future prime minister would do about the economy, this focus by him and many of his new candidates on cost-of-living—sometimes pejoratively described as economic populism—is leading many to worry that when it comes to governing, he’ll put sloganeering before sound economic principles. They’re concerned he’ll sacrifice solid financial management at the altar of political pandering, avoiding unpopular decisions and attacking, maybe even penalising, the very drivers of economic growth. 

It’s true that Poilievre’s economic policy is likely to be influenced by recent global trends and new externalities—from the rise of China as a bad-faith trading partner to the impact of new technologies on work and culture. And there’s no question that Poilievre’s campaign messaging isn’t especially friendly to the corporate class. But a plan that isn’t tied to real people’s experience of the economy is worthless.

Poilievre and his team are responding to almost a decade of political decision-making that saw workers with weakening paycheques and consumers with rising costs play second fiddle to virtue signalling global climate deals, and climbing taxes, regulations, and winner-picking corporate welfare. For them, fighting for workers means restoring the conditions in which free enterprise can flourish by restoring the baseline conditions for fair dealing. Poilievre may campaign like an economic populist, but when it comes down to it, he’ll govern like a modern fiscal conservative.

It’s hard to blame Canada’s business community for feeling trepidatious about what’s to come. More than a year into his leadership, Poilievre made sure to remind Bay Street executives at a C.D. Howe lunch that he wasn’t all that interested in spending his time meeting with them. Just last week his newest star member of Parliament, Jamil Jivani, took the opportunity in his victory speech to warn “liberal elites” in business to get their priorities straight and worry less about DEI and more about their workers.

It’s not that this commentary is mere rhetoric. Indeed, Poilievre and Jivani are quite serious about the priorities they’re setting. But rather than assuming a focus on these themes will lead to economic interventionism, it’s worth thinking through what underpins them. 

Conservatives know that for wages to go up and prices to go down or stop growing so fast (in other words, to get at that pesky GDP-per-capita problem), our economy needs to grow—especially if our population continues to grow. Left-wing populists may believe the best way to make one person’s piece of the pie bigger is to make another’s smaller, but conservatives—even pro-worker conservatives—understand that the better approach is to make the pie bigger. To make matters more complicated, much of what anemic growth we have had in Canada has been a result of our housing bubble, which Poilievre and his team are planning to help deflate.

Finally, the Conservatives want to “fix the budget.” It’s the third of their top four priorities if you assume their slogans are indicative. And while any meaningful path to balance will include finding savings, more importantly, it will involve driving revenue through economic growth, which, for a frequent Milton Friedman quoter, is going to have to come from lower taxes and deregulation. In other words, Poilievre won’t be able to achieve the Canada that he wants for workers and consumers without growth-oriented, traditionally pro-business policies.

There will no doubt be instances—like weighing whether to approve a merger or takeover or deciding whether to legislate workers back to their jobs—where free market principles will have to be weighed against competing common goods like national security or labour rights. And of course, if a company’s idea of pro-business policy is for the government to preserve protected regulatory status, tax treatment, or a funding envelope, then that is an argument for crony capitalism, not a growth agenda. Business leaders may need to come to terms with not being the heroes of a potential Poilievre government’s economic story.

After all, prioritizing the interests of a small elite is part of how our country got into this mess. But casual watchers should not mistake Poilievre’s distaste for corporate Canada’s trendier priorities with a fundamental discomfort with free market capitalism. In fact, it’s the opposite. For Poilievre, fiscal conservatism and economic populism aren’t incompatible, they’re a match made in heaven.