MPs see resource industry’s problems as potential boon for clean tech

Clean technology and traditional resource industries like oil and gas may seem like strange bedfellows but federal politicians hope closer ties between the sectors will enable Canada to meet two of its biggest challenges: reducing greenhouse gas (GHG) emissions and creating jobs.

That’s the rationale behind a 32-page study by the Standing Committee on Natural Resources that identifies policy tools that can reduce the risk of commercializing and scaling up technology solutions that will help cut the country’s greenhouse gas emissions by 30% below 2005 levels by 2030 – while also making the natural resources sector more globally competitive. The production and use of natural resources, including energy, forestry, mining and agriculture, account for the vast majority of Canada’s GHG emissions.

The unanimous report, De-risking the Adoption of Clean Technology in Canada’s Natural Resources Sector, heard from 52 witnesses from industry, government, academia and civil society. Tabled in the House of Commons June 9, the report is part of a broader study and related reports examining innovation, sustainable solutions and economic opportunities in Canada’s oil and gas, mining and nuclear sectors.

The Liberal government has championed clean tech as a key engine for Canada’s future economic prosperity.

“Clean technology will underpin our transition to a sustainable energy system,” says Tom Rand, managing partner of ArcTern Ventures and senior advisor, clean tech at MaRS Discovery District. “The same way that the Internet underpins the modern economy today, clean tech will underpin the modern economy in the future and our transition to a sustainable energy system. And if we get ahead of the curve then we will be sellers of this technology globally, instead of buyers.”

Included among the report’s eight recommendations is a call for greater collaboration between industry, government and the financial sector in de-risking technology through the perilous commercialization gap, and funding clean tech through its full innovation cycle.

On the tax credit side, the committee says SR&ED and flow-through programs should include commercialization incentives. Currently, the SR&ED applies to investments related only to a specific set of R&D activities and the flow-through tax credit covers mostly projects for natural resources exploration.

Access to capital a perennial issue

Rand says none of the recommendations are surprising or controversial, describing them as reflecting “the common sense understanding of the industry as a whole”.

“This isn’t rocket science. The industry has been saying these kinds of things for a long time,” he says. “The question is which of them are going to get implemented and how. It’s about execution now.”

One of clean tech’s leading policy experts, Céline Bak, says the report’s recommendations — if acted upon — could help companies scale technologies that reduce the resource industry’s environmental footprint and increase its productivity.

“Canada’s resource productivity overall is not very strong. We need a wakeup call and one of the benefits clean technology brings is to increase productivity of water, energy, carbon and biomass – all of those inputs,” says Bak, president of Analytica Advisors and senior fellow with the global economy program of the Centre for International Governance Innovation.

The report identifies access to capital as one of the biggest challenges facing the scaling up and adoption of clean tech. It calls for new project development programs to support firms in demonstrating and/or scaling up their innovations or to cover the performance risk of new technologies, as well as stimulating clean tech markets through government procurement, especially for small and mid-sized companies.

Bak has long supported new financial instruments to cover the performance risk of new technologies as the world transitions to a low-carbon economy. She envisions a new entity, similar to Canada Mortgage and Housing Corporation, to encourage more aggressive financing and growth. She points to policies in Germany which favour industrial, rather than consumer risk underwriting. And while Germany’s home ownership rate is lower than Canada’s, its capital markets are larger.

“This type of fund could be last in and first out in the sense that if there were a performance problem for a particular technology within an application in the federal government, then the government could provide that guarantee,” Bak told the committee March 9. Such a fund would have the additional benefit of teaching bankers how to underwrite performance risk, something currently not done.

While Bak lauded the committee for releasing what she described as “the most comprehensive public report” yet on clean tech commercialization in Canada, she cautioned that it will be Finance Canada that decides on the bigger impediments to commercialization, including $6 billion annually in fossil fuel subsidies that undermine the business case for clean tech.

“This report could be a very strong foundation for a report by the Finance Committee to examine the alignment of Canada’s financial sector to a low carbon economy,” Bak told RE$EARCH MONEY.

According to Rand, the best opportunity in the short term for dealing with large, high risk projects is $1.4 billion announced in Budget 2017 for clean tech capital – an amount he says “is enough to support commercialization” in the sector. The Business Development Bank of Canada and Export Development Canada will manage the new funds, which include $450 million through EDC for “first-of-a-kind commercial projects”. The government’s investments will be leveraged by contributions from the private sector, and possibly the provinces.

“This is what I see as the low hanging fruit for moving forward quickly. The money has been allocated, they’ve picked their targets, they’ve picked their partners, they’re staffing up and their mandate is coming down any week,” adds Rand. “How that money gets out the door and who gets it is absolutely critical. It requires BDC and EDC to have a very narrow mandate or this money might disappear down the rabbit hole under business as usual.”

During his testimony to the committee, Rand recommended that the $1.4 billion target first-of-its-kind large scale commercial projects, between $50 million to $100 million, that have offtake agreements with global partners as the plant is built and production ramps up.

Picking technology winners

In addition to policies that increase access to capital, Bak says Canada needs to identify foundational technologies that will underpin a low-carbon economy.

“It’s important to have civil society and the private sector – the translational anchors – involved in that process and to do so in a way that is transparent and inclusive beyond the scientific community, without relaxing the scientific standard and criteria for the identification of new fields.”

“We need to feel there is a burning platform,” she adds. “We need to find people who are prepared to take this risk on, whether they are people who identify with the challenge of the science or people who identify with the challenge of finance,” she adds. “The minister of science could play an important part and I think the minister of finance should as well.”

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