Challenges and Opportunities for Canadian Cleantech Post-COVID
- While Canada’s cleantech sector makes up a healthy percentage of the total GDP, it is growing at a slow rate.
- As government spending tightens after COVID-19, the cleantech sector will need to get creative about other sources of funding.
- The cleantech sector has an opportunity to take its cleantech expertise and services and turn them into exportable products.
As the COVID-19 crisis slows down, Canada’s cleantech sector must not miss out on capitalizing on accompanying opportunities. Alternative sources of funding will open up and new avenues for growing exports will present themselves. A creative and agile cleantech industry is needed for the post-COVID age.
How would you describe Canada’s cleantech industry and where we stand compared to other countries?
That is a great question, Tim. Thanks so much for having me here today. As Canada’s export credit agency, one of the key things EDC focuses on is the cleantech industry. It is very important to us. Canada is an energy-producing nation and we do a lot in fossil fuels. Clearly, as the world is moving to wean itself away from these fuels, we have turned a lot of our attention toward the cleantech industry.
How does that actually stack up inside Canada? The cleantech industry is a $70.5 billion industry. EDC wrote a paper on this in 2020 and itemized quite a few features of all this. This represents about 3% of the entire Canadian economy and so it is not small in terms of its overall stature. However, the growth is not as high as most would like it to be. It would be great to have a bigger footprint inside of the economy and be growing quite swiftly, but the industry grows at a rate of about 0.7% a year.
Canada’s cleantech sector is dominated by services—goods only represent 12% of the industry. EDC has been working on taking this industry and exporting it to the rest of the world. The predominant piece of the export story is while 12% of the industry represents the goods sector, such as the manufacturing leading-edge cleantech wares, Canada is not good at exporting our cleantech services. That gives you a bit of a broad-brush idea of the footprint of the cleantech sector in our economy.
Where do we stand relative to other economies? That is where we can take a bit of comfort because in the developed world, Canada is roughly even with the average country with a cleantech sector that is about 3% of the entire gross domestic product (GDP).
“Canada excels at attracting investment into leading-edge high-tech companies.”
Canada excels at attracting investment into leading-edge high-tech companies. In a survey that was done recently, only the US was ahead of Canada with 51% of its cleantech companies attracting investment. Canada had 11% of its companies do the same, coming in at number two on the list, ahead of Germany, which was at 10%, and the UK at 6%. All other countries fell below that.
What are the main challenges Canada’s cleantech companies face?
One of the inconvenient truths about the cleantech sector is that it is still quite dependent on government funding. There is nothing wrong with that; it is not a statement on policy or what have you. In order to get industries going off their feet and innovating to the point where they are self-sustaining, government funding has to be a part of the equation.
The pandemic period has required a lot of fiscal stimulus and so every economy in the developed world and most economies in the emerging world have made significant commitments over a relatively short period of time. This has increased the debt-to-GDP ratio of almost every country.
“The cleantech sector has to get creative about attracting alternative sources of funding.”
Government spending during COVID may put a pinch on public spending later, which the cleantech sector will have to watch out for. If that source of funding dries up, what other sources of financing might there be? One could look creatively into the private banking sector. As the private sector is moving more and more away from carbon-intensive sources of energy, does that not open up space in their portfolio for funding cleantech? The cleantech sector has to get creative about attracting alternative sources of funding.
Fiscal policy is one of the great areas of danger in terms of sources of funding but the second area of weakness is that after the pandemic, there is going to be a lot of competition for investment from various sources in the cleantech sector.
The pandemic itself created risk inside of global supply chains that have companies thinking about nearshoring or re-shoring supply chains. Companies are thinking of re-localizing things because they simply cannot bear the risk over the future. As such, there is a lot of competition for a scarce amount of investment dollars. Companies in the cleantech sector will have to contend with very strong demands or requirements for investment dollars. Public funding is not going to provide ample support as it has in the past.
What are Canada’s cleantech export opportunities and what can we do to capitalize on them?
That is a very interesting question, Tim. Services are a huge part of our cleantech sector and a reasonably large component of these services is research and development (R&D). One of the difficulties that Canada faces not just in the cleantech sector but in a number of different industries is Canada is very good at innovating but not as good at commercialization. If the bulk of our cleantech exports are in manufactured products that still represent a small sector that is not growing very well, is there a way in for services? Can we make a substantial commitment to cleantech research and development and turn that research output into products that can be commercialized? We may be able to feed the export machine with that.
That is not a risk, threat or some kind of deficiency, but it is latent potential inside the sector. It is a question of taking something that we are very good at to the next level.
“Canada has developed some best practices inside the cleantech cluster that would be welcomed with open arms throughout the rest of the world.”
Canada has a great amount of dynamism in terms of the services side of the cleantech sector, but we do not export those. The fact that services are a huge part of our industry must mean that we are doing something well but that it is very domesticated. Is there a way of shifting gears here and taking all of that expertise and leveraging it elsewhere? Canada has developed some best practices inside the cleantech cluster that would be welcomed with open arms throughout the rest of the world. This is a great economic opportunity.
What has to be done and by who to strengthen Canada’s cleantech industry?
It is a super question. There have been many great eye-openers gleaned from the COVID-19 crisis, but so let us rewind back a few years. One key learning from the global financial and economic crisis of 2008-09 is that we should not waste a good crisis.
One of the things that occurred during the financial crisis which turned the page for the cleantech sector was that as funds were earmarked for stimulus, there was a recognition around the world that a substantial portion of these funds could be devoted to cleantech industries. Funds went into cleaning up our environmental messes and making sure that we were far more economically and ecologically sustainable going forward. One of the places on the planet that took the lead on this was China. China realized that it was running out of breathable air, potable water and other necessities of life because of its unfettered expansion and its need to feed the machine. The situation was very dire in a lot of cities. There was a good amount of social activism that demanded something be done. For political stability among other things, China was forced into doing this and devoted hundreds of billions of dollars to the environmental cause. When China started doing that, western nations became very enthusiastic about the same thing.
In that sense, the recession was a great gift to the environmental industry. The same is true about the pandemic. As stimulus funds came into the economy, it enabled governments to earmark substantial portions of those funds to cleaning up our planet. Of course, that has created momentum for things like COP26 and the work that Mark Carney and others are doing to bring the financial sector around to channelling its funding in particular ways that benefit the cleantech sector.As we recover, we should think about all the momentum that has been created, and I do not think that competing forces are going to dampen that enthusiasm. There is a tremendous amount of political will around the world to keep the cleantech sector going.