Innovation Strategy: Canada is making a bet on the future
- Canada does a great job of developing ventures, but entrepreneurs do not have enough oxygen – financing – to get to commercialization. This is particularly problematic given the long commercialization cycle in cleantech.
- The private sector is going to focus its innovation investments on things that are nearer-term and closer to commercialization. However, you also need a public investment that can focus on the longer-term and make the big plays.
- Environmental NGOs (ENGOs) are crucial for turning policy into practice at an early stage and identifying market failures and mobilizing groups around solving them.
The Canadian Government spends roughly $100 billion a year on various levels of procurement. Earmarking 1% or even 0.1% of these funds explicitly to procure from innovative SMEs would be dramatically more than what is currently available for supporting the commercialization of cleantech in Canada.
Where would you position Canada within the highly competitive global cleantech industry?
We lead in certain areas and we are behind in others. In terms of developing ventures, our numbers are very good. Canada has consistently raised its rating in the yearly Global Cleantech Innovation Index – we are now fourth overall. The key sources of this positive national trend are recent federal political announcements such as the presence of a carbon price, the big shift towards decarbonisation in the transportation sector, and the tremendous uptick in public financial support for innovation. Just in Alberta, a province of 4 million people, we have a number of unique support mechanisms for innovation including Alberta Innovates’ Technology Voucher Program for promising early stage technology. Another example is the $0.5 billion Emissions Reduction Alberta (ERA), which funds the implementation of low-carbon cleantech. ERA is one of the largest carbon funds in the world and a major supporter of pre-commercial cleantech deployed in Alberta.
“Canada does a great job of developing ventures, but entrepreneurs do not have enough oxygen – financing – to get to commercialization.”
As a whole Canada is very well positioned, but what we do poorly is capitalization. While we have a lot of ventures per capita – on a per GDP basis we probably have more ventures per capita than the US – we have not done a great job of capitalizing on those companies. A recent study Sustainable Development Technology Canada (SDTC) commissioned from Cycle Capital looked at venture capital trends in the cleantech space. They found that on a per venture basis, Canadian companies tend to raise only half as much money as comparable ventures at a similar stage in the US. What that suggests is Canada does a great job of developing ventures, but entrepreneurs do not have enough oxygen – financing – to get to commercialization. This is particularly problematic given the long commercialization cycle in cleantech.
There is a lot of talk globally about innovation across all key economic sectors. What are the innovation outcomes that Canadian industries are looking to achieve?
There is meaningful homegrown demand for innovation, on how we ensure that our incumbent industries like oil and gas, mining and forestry maintain global competitiveness over time, for example. This is in the face of both competition from other countries in those sectors as well as the potential for global decarbonisation to affect those markets. If you are producing cement, for example, and California decides that it is only going to accept cement with a certain carbon intensity, is Canada going to be able to obtain market access based on existing production pathways? The first step is making sure that we are competitive within our existing industries.
“We are in an era of profound change. How Canada repositions itself is the overriding concern for a government looking to ensure we remain prosperous over the longer-term.”
As a longer-term question, what is Canada’s storyline going to be if we are in a world that is phasing out the combustion of hydrocarbons? There is a very strong consensus that, somewhere between 2050 and 2080, developed nations have to be at 80% decarbonisation, potentially even in a negative carbon situation. How do we get there and what does that mean for the composition of industries in this country if we are no longer producing oil and gas for transportation? What is the role of hydrocarbons in a post-carbon world? If we are going to be a global producer of food for 9 or 10 billion people, how do we position ourselves for that as well as deal with the potential changes in climate and hydrology? We are in an era of profound change. How Canada repositions itself is the overriding concern for a government looking to ensure we remain prosperous over the longer-term.
In Canada, how do we execute on this balanced ambition of short-term competiveness and long-term innovation?
Public procurement that supports innovators is key. The number one thing we could do – bigger than any individual program announced by the government – is explicitly tolerate a certain amount of failure within our public procurement system. The Canadian Government spends roughly $100 billion a year on various levels of procurement. Earmarking 1% or even 0.1% of these funds explicitly to procure from innovative small to medium-sized enterprises would be dramatically more than what is currently available for supporting the commercialization of cleantech in Canada. That could be a major catalyzer of commercialization for entrepreneurs. Currently we have a program called the Build in Canada Innovation Program (BCIP). It requires early stage firms to provide the BCIP with a proposal, and then BCIP is responsible for shopping firms around to government departments. Since 2010, BCIP has banked over 200 contracts totalling $76 million. Therefore, we would be talking about a significant gain for Canadian industry simply by earmarking a 1% increment from public procurement. The federal government recently announced a new $100M procurement program, called “Innovative Solutions Canada”. Through it, specific departments are working with this funding to invite submissions of solutions to problems such as improving wireless connectivity in connected vehicles, with winning businesses being guaranteed to have the federal government – Defense, Infrastructure or Industry Canada – as their first customer.
The biggest challenge for Canada is we are too small of a market. We are not, as a whole, significant enough to be the proving ground for a lot of these technologies. So regardless of what we do, we really have to be focused on export-led growth. Unfortunately, and for a variety of good reasons, government spreads its attention across many jurisdictions and doesn’t place enough emphasis on supporting longer-term relationships between a handful of high-priority jurisdictions enough. Focus is ultimately how you are going to have success. For example, there is a very unique program here in Alberta called the German-Canadian Centre for Innovation and Research (GCCIR). Its mandate is to create B2B partnerships between Alberta and Germany. To support this initiative, it provides $250,000 to both the Alberta-based company as well as the Germany-based company. We have seen two successful partnerships emerge through GCCIR just in the cleantech space. Eguana Technologies, a solar inverter manufacturer based in Alberta, partnered with Siemens on the back of this mandate. Boreal Laser, another Alberta based technology play focused on pipeline integrity, found a German laser provider that improved the quality of Boreal’s product. There is a secretariat at GCCIR – people who wake up each day thinking about how to make these bilateral partnerships a success – working to facilitate those kinds of partnerships.
“There is a very strong consensus that, somewhere between 2050 and 2080, developed nations have to be at 80% decarbonisation, potentially even in a negative carbon situation. How do we get there and what does that mean for the composition of industries in this country?”
If you want to play globally, you have to be focused around your unique competencies or comparative advantages and play to those. In that context, the supercluster call for proposals from the Innovation Science and Economic Development Ministry under Minister Bains has been very interesting. The proposal call catalyzes competition, and forces big-picture and long term thinking within industry sectors like agriculture, oil and gas, and manufacturing. It essentially says, “Tell us what your long-term innovation vision is.” We recognize that the private sector is going to focus its innovation investments on things that are nearer-term and closer to commercialization. However, you also need a public investment that can focus on the longer-term and make the big plays. Canada is making a bet on the future and it will be very interesting to see if those five or six bets that will ultimately be supported are going to be transformative.
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What is the role of the environmental non-governmental organization (ENGO) sector in Canada’s clean energy movement, and what is Canada lacking in the non-governmental space?
ENGOs are very good at taking concepts that are out there in the ether and turning them into practical applications at an early stage. For example, there was a time in the early 1990s when countries were being asked to prepare greenhouse gas (GHG) inventories. Then some of the leading companies started thinking about their global GHG footprint as well. In Canada, the Pembina Institute helped some of those early leaders like Shell and TD prepare their first inventories. We were partially in the dark, figuring out how to do this in parallel with a lot of others from around the world. Today, the idea of a GHG inventory has become commoditized. You make an RFP and get about a dozen bids from everybody from Deloitte to Joe Accountant down the road, and you will get a largely consistent, internationally credible GHG inventory. ENGOs like the Pembina Institute are very important at that early stage for helping bring ideas from policy into practice.
“Public procurement that supports innovators is key. The number one thing we could do – bigger than any individual program announced by the government – is explicitly tolerate a certain amount of failure within our public procurement system.”
ENGOs are also really good at identifying market failures and mobilizing groups around solving them. For example, we have been effective in leading Canada to a national carbon price and that is going to have a transformative impact on the country in the longer-term. So, effectively helping to reduce that political opposition to solving a market failure is something that we do very well. Ultimately, the limitation is you cannot go any faster than culture and politics will allow. We have been incredibly hampered by a culture in Canada that underfunds the think tank work that is so critical to public policy innovation. I worked in Washington as well as in Europe for many years at some very well funded think tanks that do really effective policy analysis work. The Brookings Institute or Adelphi Research, for example, have been very successful in helping government and industry navigate those big public policy questions in a way that supports the national interest while getting things done. Pembina has become an increasingly effective and well-resourced organization as well, but the scale of the challenges goes far beyond the willingness of our society to pay for the analytical work. Yet the decisions that we are being asked to make as a public are billion-dollar and trillion-dollar decisions that reshape the economy and energy system. So the limited amount of deep policy analysis in Canada really hurts us.
What are ACTia’s key achievements in recent years and what are its key challenges today?
Up until recently, there was no government or economic interest in supporting the growth of the cleantech sector in Alberta. It was only with the collapse in global energy prices that people turned their attention to the innovation ecosystem. That turning of attention now means that an organization like ACTia is able to attract support and move forward. We have spent this last year figuring out which subsectors of cleantech are areas in which Alberta could be a global leader and what are the necessary ingredients for enabling their success. Now, we are turning our attention to growing our membership in a formal way, because we have a clear sense of what our value proposition is to industry. For example, we just did an industry-investor matchmaking session in Edmonton on the shoulders of Emissions Reduction Alberta’s SPARK Conference. We had 80 applicants of whom we were able to create matching opportunities for roughly 30 ventures. The session included over a dozen investors from various parts of Canada as well as 2 blue chip companies: Shell and 3M. It was probably the most significant investor connection event for cleantech companies in the province outside of the Banff Venture Forum. I believe in very short order, we will start to see greater interest in Alberta for clean technology.
“The decisions that we are being asked to make as a public are billion-dollar and trillion-dollar decisions that reshape the economy and energy system. So the limited amount of deep policy analysis in Canada really hurts us.”
Another notable highlight is the launch of the Creative Destruction Lab here in Alberta. Our colleagues at University of Calgary worked with the Rainforest Group, which is a volunteer organization led by some of the province’s leading ICT entrepreneurs. Creative Destruction Lab has been an effective model for helping accelerate companies to commercial outcomes, both here in Canada and in the US. They have just done their first intake and the level of activity that they are seeing in clean technology is a tremendous indicator of Alberta’s potential. It is a great proving ground for a lot of these technology plays, so watch this space. Alberta has not been discovered yet, but it is going to be very soon.