Energy use is a driving factor – and not just a by-product – of economic growth, according to a Fraser Institute report released May 15.
For this reason, argues the report, policies that raise the cost of energy or otherwise limit its use damage economic growth prospects over time.
“It’s obvious – energy drives economic growth,” said study co-author and Fraser Institute senior fellow Ross McKitrick. “Yet policy-makers across Canada continue to treat energy consumption as a bad thing, and act as though cutting energy use is an end in itself.
“They need to understand the long-term costs of this thinking.”
Many policies, such as renewable energy requirements, the mandated use of biofuels and strict appliance standards that are intended to limit energy use or increase its cost often have no possible environmental benefit, the report argues, but only serve to reduce competitiveness, rates of return and, ultimately, economic growth.
The study found that energy use in Canada increased by 50% since 1980, while the country’s gross domestic product (GDP) doubled in that period. Energy use around the world doubled while economic output increased by 600% over the past 34 years.
“These considerations are important to keep in mind as policymakers consider initiatives (especially related to renewable energy mandates, biofuels requirements, and so forth) which explicitly limit energy availability,” the report says.
The report argues that many policymakers believe that forcing investment in wind and solar generation systems, for example, which make energy more expensive, will lead to macroeconomic growth – but this isn’t consistent with the study’s conclusions.
“The evidence points in the opposite direction,” the report states.
“Policies that engineer increased energy scarcity are likely to lead to negative effects on future GDP growth.”
The full report can be found here.
