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Clean-Tech Torpor
August, 2010
The following is an excerpt from Measuring Up: Benchmarking Canada’s Competitiveness in a Low-Carbon World, a recent report from the National Roundtable on the Environment and the Economy – Editor.
Canada ranks sixth on the G8 low-carbon performance index, falling within a tightly grouped second tier that also includes the United States and Japan. France, Germany and the United Kingdom make up the first tier, while Italy and Russian fall into the third tier, which significantly lags the other G8 nations.
The performance gap between the leaders and followers is reflective of the energy and emissions profile of their economies, as well as their commitment to date in investing in enabling conditions for low-carbon growth. Overall performance is judged on five categories: emissions and energy; innovation; skills; investment; and policy and institutions.
Canada’s significant hydroelectric generation and nuclear capacity enables it to rank among the leaders in low-carbon energy, but it still has the second most emissions-intense economy in the G8. Canada’s energy-related emissions are growing at a pace that exceeds all other G8 nations, suggesting that Canada will face a significant challenge in meeting future carbon reduction obligations.
Energy production, consumption and trade are major components of a low-carbon economy. Reducing primary energy demand and shifting production from fossil-fuel generated energy to more low-emission sources will be necessary to achieve deep emission reduction targets.
FOSSIL-FUEL vs. LOW-CARBON SUPPLY
National energy emissions profiles are important indicators for determining carbon productivity, driving innovation and building competitive advantage in low-carbon goods, services and technologies. Improvement in carbon productivity can be achieved through fuel switching, accelerated GDP growth, energy efficiency, and carbon capture and storage along with other measures. The higher a nation’s score on this indicator, the more economic wealth it will be able to produce in a carbon-constrained future.
Canada ranks seventh in this indicator with the second worse carbon productivity in the G8, marginally behind the United States. As oil sands production increases, this gap will likely increase or at least remain wide. Looking at the number of tonnes of carbon dioxide (CO2) generated in the production of electricity per $1,000 of GDP (in US$), Canada basically tied with the US in second last place at 0.44 tonnes. France led at 0.16 tonnes.
Canadian energy producers may face new competitive burdens – so called border carbon adjustments – as a result of policy and market restrictions enacted by trade partners. Most domestic energy production cannot be relocated, and there are limits to Canada’s ability to dramatically shift to a less emissions-intensive production mix over the next two decades. Failing such a development, a 2009 study suggests that Canada could face an average 2.8% tariff on imports of goods and services if embodied carbon is taxed at $50 per tonne of CO2.
The share of low-carbon electricity is a measure of country’s electricity generation mix and an indicator of its ability to produce energy from sources that produce fewer emissions than fossil-fuel generation. Low-carbon electricity includes solar, wind, geothermal, biomass, large- and small-scale hydroelectric and nuclear. Power and transportation typically rank as the largest sources of CO2 emissions in developed nations so power sector decarbonization will be critical to the achievement of deep GHG emission cuts, in particular as energy demand increases over coming decades to drive future economic growth.
Canada ranks second in this indicator, largely because of its hydroelectric generating capacity. France tops the scale due to its high percentage of nuclear power.
Without significant growth in its renewable and nuclear generating capacity, Canada will be challenged to maintain its ranking in the face of projections for future growth in energy demand. Renewables currently make up a small percentage (3%) of Canada’s total supply and low-carbon electricity performance actually decreased somewhat since 1992. That said, all G8 nations may face challenges in raising their low-carbon generation penetration rates, especially as demand rises, prices increase and existing transmission grids become saturated.
INVESTMENT & VENTURE CAPITAL REQUIRED
Public and private investment in low-emission or clean technology (clean-tech) development will be crucial to propelling nations ahead in a strong competitive position in a low-carbon economy. Such investment will be essential to meet domestic GHG emission reduction targets.
While market and regulatory measures such as carbon pricing and renewable portfolio standards will create market demand for, and drive investment in, clean-tech development, government stimulus and direct investment can help lay a foundation for a low-carbon economy by acting as near-term catalysts of new clean-tech development and job creation.
Investments are required at all stages of technology and business development: angel investors, venture capitalists, banks and public funding all cater to unique funding needs. Nations with strong investment environments in low-carbon industries will generate capacity for building new firms and technologies to take full advantage of the transition.
The US has attracted nearly two-thirds of G8 clean-tech initial public offering since 2005, in terms of both dollars and deals. Canada falls in the middle range of average IPO value, but with only 5% of the value of total funding raised, it cannot be considered a significant player in the global IPO market. This should be of concern to Canadian based clean technology companies seeking access to global capital via domestic markets.
Other mechanisms such as public investment and regulatory developments will be needed to stimulate clean technology development and commercialization through the establishment of long-term price signals. As Deutsch Bank has recently emphasized, clean energy investors assess country-level risk when considering where to invest and seek out climate change regimes characterized by transparency, longevity and certainty.
Clean-tech venture capital spending is an indicator of private sector energy related investments in new companies selling products and services that offer competitive returns for investors and customers while providing solutions to global challenges. Clean-tech is a rapidly growing industry and is becoming a mainstream investment category. Research has shown that every $100 million of venture capital invested could result in 2,700 direct jobs as well as additional revenues and other indirect employment opportunities.
The US leads the G8 in clean-tech venture capital activity, capturing almost 80% of the total of these countries over the past five years. In 2009 alone, its investment more than doubled that of the United Kingdom and nearly tripled Canada.
ENERGY EFFICIENCY A FINANCE TOOL
Stimulus spending by government has been a major public finance tool used by all industrialized economies to climb out of the recent financial crisis and economic downturn. Many of trillions of dollars in global stimulus spending have been directed in the form of short-term stimulus aimed at kick-starting economic recovery and boosting GDP, rather than investing in longer-term low-carbon transition.
However, effective stimulus directed to low-carbon energy projects, energy efficiency and technology development can be useful to spur more low-carbon job creation and thus a more sustainable recovery. Canada ranks fourth in this indicator, allocating slightly more than 8% of budgets to low-carbon initiatives. France leads this indicator, with more than one-fifth of its stimulus budget directed to low-carbon energy projects and energy efficiency.
Canada’s stimulus priorities lie in the areas of low-carbon power and energy efficiency, and it is the only nation in the G8 to include nuclear in its stimulus plans. There is considerable variation across G8 countries in terms of how low-carbon stimulus dollars are being spent.
Energy efficiency accounts for nearly two-thirds of global investment in this area. Only the US and France have undertaken significant investment in renewables, with countries such as Japan and Germany focusing almost exclusively on investment in building energy efficiency.
Energy efficiency in buildings and renewables provide the highest low-carbon stimulus potential. Canada has directed the bulk of funding toward carbon capture and storage and nuclear, as well as rail and grid upgrades.
The complete text can be found on the National Roundtable on the Environment and the Economy web site at http://www.nrtee-trnee.com/eng/issues/programs/climate-prosperity/benchmarking/benchmarking-eng.pdf
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