On November 7, our Senior Director of Technology Adoption, Heather Crochetiere, shared her thoughts on the challenges and opportunities for Canadian competitiveness and decarbonization in light of global policy shifts like the U.S. IRA and CBAM in Europe, at the Decarb Connect conference in Toronto. Here’s Heather’s take:
The U.S. Inflation Reduction Act (IRA) and Europe’s Carbon Border Adjustment Mechanism (CBAM) represent two sides of the decarbonization coin—a generous carrot in the U.S. and a hard-hitting stick in Europe. This divergence in global policy is creating new headwinds and opportunities for Canadian industrials and innovators. To further complicate the matter, election cycles and the potential associated policy changes make it hard to predict the global policy landscape. How does Canada remain competitive in a rapidly shifting global context, while supporting our own industries to decarbonize?
The U.S. Carrot and the EU Stick: What Canada Can Learn
The IRA’s substantial incentives have encouraged Canadian innovators to tap into the capital-rich environment south of the border. With national adoption remaining slow, Canadians have leveraged this to attract American clients who benefit directly from IRA tax breaks. The IRA also includes higher financial incentives to establish facilities on US soil, leading to operations moving out of Canada. It remains to be seen how the November 2024 election results will impact the IRA's influence.
Meanwhile, CBAM in Europe introduces a new dimension for Canadian exporters. If Canadian industrials do not decarbonize rapidly, they risk paying higher tariffs when exporting to the EU. This presents a challenge but also an incentive for industries to adopt low-carbon technologies. Canada has the opportunity to become an innovation exporter, supporting other global markets with less stringent carbon pricing mechanisms to decarbonize the products they export into the EU to avoid facing higher tariffs. CBAM provides more certainty for Canadian exporters as this policy continues to roll out and will be expanded to include additional commodities.
So how do we ensure that we’re not left behind when it comes to cleantech and industrial decarbonization?
It’s a complex question, but here are the key opportunities we see:
1. Lead by Example
Domestic cleantech adoption in Canada is notoriously an uphill battle. Innovators have a difficult time finding customers at home, and many leave to find clients in other markets. In particular, the public sector is a huge potential client for Canadian cleantech innovation and should be leading the charge when it comes to adopting these solutions to meet net zero goals and supporting the economy. So why the lag?
Risk aversion, cost, regulatory frameworks, and capacity and knowledge gaps are among the key pain points we hear from public sector end-users. Foresight’s soon-to-launch Cleantech Adoption Platform will help overcome these barriers, driving domestic cleantech adoption and supporting the scaling of Canadian ventures to tackle global decarbonization.
Canada’s own path toward decarbonization will depend on our ability to take risks, backed by the right incentives. Policies that reward innovation, combined with mechanisms to de-risk projects, could make Canada a leader in the net zero economy.
2. Ecosystem Collaboration
Challenges like financing, technology development, and risk-sharing can all be tackled with increased cross-sector collaboration. Facilitating collaboration is one of our key pillars, and it can lead to significant impact.
For example, rather than focusing too narrowly on specific technologies, our BC Net Zero Innovation Network (BCNZIN) brings together ecosystem members to tackle shared challenges and build entire supply chains. One such initiative is our Wood Fibre Insulation Manufacturing working group. Wood fibre insulation is seeing increasing demand in North America, yet there’s currently no West Coast producers. BCNZIN’s working group is tackling this head on using a four-pronged collaborative approach:
- Convening forestry companies to understand the potentially lucrative business model for using their byproducts for wood fibre insulation.
- Connecting stakeholders and rights holders to understand the business model for a regional processing facility to manufacture wood fibre insulation in BC.
- Engaging end-users to ensure there’s a market to feed this product into.
- Encouraging companies to share facilities, such as co-located plants with shared carbon capture and storage (CCUS) infrastructure, which would reduce costs and distribute risk.
Adoption Sprints are another great ecosystem collaboration tactic that bring together the right players at the right time, and speed up cleantech adoption. Our ARCTIC Hot Water Production Challenge with Canada’s Oil Sands Innovation Alliance (COSIA) and Alberta Innovates shortened the oil and gas industry’s typical 10-20 year adoption timeline down to just 6-7.
Our Adoption Sprint model ensured the process was efficient and effective to move solutions through the adoption funnel. Moreover, COSIA, government partners, and industry leaders all contributed expertise and funding, reducing risk at each development phase.
Read the full case study here.
3. Capital Investments and Innovative Business Models
Last year, we heard from 10-15 Canadian scale-ups say they needed $25-100M each to deliver on Purchase Orders. Large-scale decarbonization projects are capital-intensive. Despite programs like the Canada Growth Fund and the new Investment Tax Credits, many projects still face significant hurdles to reach Final Investment Decisions (FIDs).
Decarbonization work needs to happen and is here to stay. This work isn’t getting any cheaper as we lose the runway for action and at some point, the risk of not doing anything overtakes the risk of waiting for certainty. Yet, some industries are taking calculated risks. For example, we can compare the approaches taken by Pathways Alliance vs. Strathcona when negotiating deals with the Canada Growth Fund. Pathways Alliance is looking for backstop carbon pricing, providing security for projects tied to carbon markets. Meanwhile, Strathcona reached an agreement with the Canada Growth Fund back in July by taking a proactive approach, betting on the growing global demand for carbon credits driven by companies like Microsoft. Strathcona’s investment signals confidence in market-driven carbon pricing, avoiding the need to wait for government policy.
We need a mix of funding to scale up decarbonizing solutions. The federal government and consumers should encourage risk-averse institutional investors like banks, pension funds, and large investors to support cleantech, especially in the critical early stages when risk is highest.
4. Parallel Investments
Without adequate infrastructure, demand for decarbonization technologies lags. Citing a lack of market interest, several companies have recently delayed or canceled electric vehicle battery plants and production of EVs altogether at Canadian plants. Range anxiety and lack of charging infrastructure are among the reasons for cooling consumer demand. Investments in EV charging networks, clean grids, and green supply chains would combat these pain points, driving demand and creating more opportunities for Canadian innovation. With the right infrastructure in place, industries and consumers across sectors would be better positioned to adopt new technologies at scale.
Furthermore, Canada must invest in skilled labour and engineering resources to avoid bottlenecks for deploying decarbonization initiatives. For example, a recent Energy Futures Lab report looked at CCUS technology adoption, warning that labour shortages pose a substantial challenge as large-scale projects ramp up.
While CCUS projects demand many skills common to the current energy sector, they also require new expertise that current training programs don’t yet address. Traditional engineering programs that could provide foundational skills have seen cuts, and new programs are still years from approval and funding. Without immediate investment in workforce development, Canada risks local shortages in the skilled labour and engineering talent needed to support the clean energy economy.
Final thoughts
Canada has the tools, resources, and innovation to seize this opportunity. By learning from global leaders and making strategic moves to streamline support for cleantech, we can position ourselves as a major player in the global decarbonization landscape. The time to act is now, with policies that work for the long-term and a vision that empowers Canadian industries to lead on the world stage.
