Instead of competing directly with the U.S., Canada should develop a parallel clean-tech strategy

This op-ed was originally published by The Hill Times on October 16, 2023.

Our ability to invest big in clean tech and innovation is constrained. Amidst a challenging economic outlook, Ottawa needs to retain fiscal flexibility while finding ways to accelerate private investment in this industry. 

Over the past two decades, Canada has gained recognition as a global leader in clean technology with a strong emphasis on low-carbon innovations and start-ups. However, recent reports suggest that our country may be losing ground in this race.  

In a June 2023 Boston Consulting Group Report analyzing the current landscape of Canada’s clean-tech investments, the results underscored that while private climate-tech investments have increased four times since before the pandemic, approximately 83 per cent of Canadian-based private climate-tech investments leave the country—the majority of which move to the United States. Inevitably, this has raised concerns about our ability to mobilize private capital, and scale Canadian-made low-carbon innovations into readily deployable technologies. 

If the goal is to strengthen Canada’s position as a global clean-tech leader, the federal government must recognize that trying to outspend or subsidize the United States is not a sustainable strategy. Instead of competing directly with the U.S., Canada should focus on developing a complementary strategy. 

Canada’s ability to invest heavily in clean tech and innovation is currently constrained. With a looming recession and a challenging fiscal outlook, the federal government needs to retain fiscal flexibility while finding ways to accelerate private investment in clean technologies.  

RBC Capital Markets highlights that private sector investment in emissions reductions has slowly come to a halt for numerous reasons, including—but certainly not limited to—the intensive capital requirements, uncertainty surrounding carbon pricing, and a lack of policy clarity. Moreover, the passing of the subsidy-ladened Inflation Reduction Act (IRA) in the U.S., providing $370-billion in funding and incentives for green energy investments, puts it in a prime position to lure a growing number of our home-grown clean-tech founders south of the border.  

If Ottawa fails to reshape its clean-tech investment strategy, it does so at the risk of Canada’s competitive position in the new green economy. 

Despite these challenges, Canada’s clean-tech sector still holds promise. As of 2023, it ranks second, after the U.S., on the Global Cleantech Innovation Index, and is home to 12 of the top 100 cleantech ventures worldwide. TD Economics estimates that Canada has spent a total of C$139-billion since budget 2021, or five per cent of nominal GDP, on clean-tech initiatives. This compares favourably to the U.S. IRA which is estimated to have spent US$393-billion, or 1.5 per cent of nominal GDP. 

Shifting focus to our incentive structure, the federal government plans to commit C$8.6-billion by 2030 to the Investment Tax Credit. Additionally, the 2023 federal budget includes several tax credits and incentives supporting the proliferation of clean tech, such as the Clean Electricity Investment Tax Credit, the Clean Technology Manufacturing Tax Credit, and the Clean Hydrogen Investment Tax Credit.  

Instead of directly competing with the IRA, the federal government can take several concerted steps to accelerate private investment in clean growth opportunities: 

Strengthening Canada-U.S. Collaboration:  

The Canada-U.S. energy relationship plays a critical role in ensuring energy security, and driving economic prosperity for both countries. In addition to the potential for bilateral trade of Canada’s 83 per cent clean electricity, Canada and the U.S. should focus on expanding their energy trade, and working together on promising low-carbon technologies and clean electricity. It is worth noting that 88 per cent of Canada’s clean-tech sector growth has been driven by environmental and cleantech services, which can be leveraged to support the growth of migratory start-ups and establish a strong presence in American low-carbon supply chains. 

Leverage our existing technological strengths:  

Canada can focus on areas where it has a technological advantage to boost its export potential. By investing in domestically-owned nuclear intellectual property and exploring critical minerals, Canada can decarbonize its energy infrastructure and expand clean electricity production. Additionally, Carbon Capture, Utilization, and Storage (CCUS) technology holds great promise for our country. With ongoing policies being finalized, Canada’s support for CCUS in the oil and gas sector is expected to surpass that of the U.S. and provide carbon revenue certainty.  

Expand the battery advantage in the auto industry:  

As the only country in the Western Hemisphere with known reserves of all the minerals necessary to manufacture EV batteries, Canada is in an excellent position to negotiate with the U.S. to relax domestic content requirements and tap into existing American supply chains. Building off our critical mineral strategy, successful lobbying efforts have secured concessions to include Canada in IRA provisions. What does this mean? The federal government can tap into American EV supply chains and increase material efficiency by offering advanced battery manufacturing capacity. 

The window to secure Canada’s position in the new carbon economy is narrowing. By strengthening synergies rather than disunities, the federal government can create market signals that incentivize investment in clean-tech innovation, both domestic and foreign, all while enabling Canadian clean-tech to punch above its weight along the journey towards a net-zero future. 

This interactive dashboard monitors Canada’s progress toward a clean energy growth economy, tracking indicators under three themes: economy, environment, and society. Users can filter by energy segment and reference period.