Federal-Provincial-Territorial Working Group on Clean Technology Innovation & Jobs
We are pleased to provide this formal submission on behalf of the CanadaCleantech Alliance to the Federal-Provincial-Territorial Working Group on Clean Technology Innovation and Jobs.
The CanadaCleantech Alliance was established in March 2016 as a national partnership between BC Cleantech CEO Alliance, Écotech Québec, MaRS Discovery District and the Alberta Clean Technology Industry Alliance. Together, these cleantech organizations from British Columbia, Québec, Ontario and Alberta represent the majority of Canada’s cleantech sector including hundreds of companies, employing tens of thousands of employees, generating billions of dollars of annual revenues.
The creation of CanadaCleantech is a significant milestone for Canada’s cleantech sector. For the first time, provincial cleantech organizations have coalesced around the common purpose of building Canada’s cleantech sector into a globally competitive, economic powerhouse; and are working together to achieve that objective. One of the primary objectives of CanadaCleantech is to provide government with a strong and unified voice and sounding board for policies that influence this growing sector of our economy.
On April 14, 2016, CanadaCleantech issued an open letter to Prime Minister Trudeau describing the state of cleantech in Canada and outlining four recommendations that can have an immediate impact on Canada’s cleantech sector. The letter was signed by nearly 200 cleantech CEOs from coast to coast. This document builds on the April 14 letter.
In preparing these recommendations, we have focused on a small number of targeted, actionable and high impact recommendations with greatest potential to accelerate commercialization, growth, employment and scale across Canada’s cleantech sector. For each recommendation, we have described the problem, and proposed solutions, examples of existing programs and the potential impact. We have generally avoided recommendations regarding environmental policies and regulation which, though critically important to driving demand, are a longer term next step.
1. Mandate carbon neutral governments by 2025 to expand the domestic cleantech market. Canada’s domestic cleantech market is relatively small, with a limited number of early adopters. As a result, Canadian cleantech companies often are forced to go directly into international markets and thus are not benefiting from having local customers to demonstrate and showcase their solutions. At the same time, the Canada’s federal, provincial and territorial governments own and operate one of the nation’s largest networks of buildings, transportation fleets, ports and other infrastructure that will require retooling to meet greenhouse gas reduction goals. These governments can play a vital role in expanding the domestic market for clean technologies and adopting early stage technologies, while demonstrating global leadership in reducing greenhouse gas emissions from its own operations. By becoming less carbon intensive, the government will also operate more efficiently and lower its operating costs. We recommend the following:
a) Establish federal, provincial and territorial mandates requiring public sector organizations to operate at net-zero carbon emissions by 2025.
b) Establish federal, provincial and territorial “carbon transformation funds to finance cleantech deployments across government departments that achieve carbon neutral operations such as building retrofits, renewable energy generation and alternative transportation (estimated to require in the range of $500 - $1 billion in aggregate funds).
c) The fund should be designed to provide additional incentive for agencies that deploy early stage, emerging Canadian clean technologies to achieve the emissions reductions goals, not merely upgrading existing equipment, as a way to validate these technologies and create additional market pull.
d) Designate agencies such as crown corporations as host sites for cleantech demonstration projects that will become showcases for Canadian cleantech innovations. Provide the management of these agencies with the resources and incentives to become early adopters.
e) Encourage Canadian municipalities to adopt similar carbon neutral mandates and cleantech adoption programs.
f) An example of a successful program is BC’s Carbon Neutral Government Regulation and the accompanying $75 million BC Public Sector Energy Conservation Fund.
The impact of these recommendations would be threefold. First, it would accelerate commercialization by expanding the domestic market for Canadian clean technologies. Second, it would provide a showcase of Canadian cleantech demonstration to international buyers of cleantech solutions. Third, Canada would enhance its reputation as a global leader by becoming a carbon neutral federal government.
2. Establish a $1 billion cleantech loan guarantee program to make projects bankable. There is a major gap in financing cleantech projects deploying non-mature technologies. Deployment of cleantech solutions is often capital-intensive, requiring large sums of project debt to achieve even a single deployment. Canadian commercial banks and other lenders are risk averse and unwilling to finance these industrial-scale projects because the technology has yet to be fully commercially proven (i.e. pre-profit stage). This inability to take on technology risk for major capital projects is a significant barrier to commercialization and a competitive disadvantage for Canadian cleantech companies. We recommend the following:
a) Establish a $1 billion loan guarantee program to guarantee a portion of project debt to reduce the risk to banks and other lenders providing loans for early cleantech projects.
b) Select a Canadian, private sector fund manager(s) with extensive experience in cleantech capital markets and global financial networks to manage the fund.
c) Design the fund to support both domestic and international projects and to cover a range of project sizes from small (less than $5 million) to large (over $50 million).
d) Collaborate with experienced cleantech lenders such as Wells Fargo, Comerica, Generate Capital, Silicon Valley Bank and others to explore creative, out-of-the-box solutions.
e) Engage with Canadian financial institutions to understand and eliminate the barriers to cleantech lending.
f) Work with the provincial governments and municipalities to explore opportunities to syndicate on loan guarantee programs and project capital.
g) Encourage the Export Development Corporation of Canada and the Business Development Bank of Canada to establish complimentary cleantech project loan guarantee, equity and debt specifically designed to finance commercial cleantech projects.
The main impact of addressing this issue would be to help Canadian cleantech companies achieve commercialization, deployment and scale faster and more efficiently to compete and win in global markets. The program itself should also be designed to be a profitable revolving fund(s) that would leverage billions more in private capital. Examples of existing programs include the US Department of Energy and the Swiss government loan guarantee program managed by Emerald Technology Ventures.
3. Allocate $500 million to establish Canada as a powerhouse of cleantech venture capital. Venture capital is the lifeblood of the cleantech industry. A strong, domestic, entrepreneurial and internationally-connected cleantech venture capital industry is essential to ensure sustained growth and development of Canada’s cleantech sector. Canada’s venture capital sector is disproportionately small compared to other countries, forcing our cleantech companies to raise capital from abroad. In addition, the traditional venture capital model is poorly suited to the cleantech sector and more effective models are required. We recommend the following:
a) Allocate $500 million to a national cleantech venture capital program.
b) Establish a public/private sector Investment Committee to manage and oversee the program,
establish fund selection criteria and allocate capital to individual cleantech venture funds.
c) Allocate capital to early, mid-stage and late stage venture funds to ensure capital supply is
balanced across the venture growth spectrum.
d) Allocate capital to domestically-based funds with the cleantech expertise, global networks
and business models specifically designed to support Canadian cleantech ventures. Avoid
allocating capital to foreign venture funds unless they have existing operations in Canada.
e) Pursue and prioritize alternative venture capital models that more closely align with the
cleantech mission compared to traditional venture funds. This includes funds with vertical market focus, partnerships with strategics, combined fund and incubator models, etc.
The impact of this program would be to create a world-class, domestic cleantech venture capital market supporting new and existing cleantech venture funds. This would attract new entrants to the market and leverage a minimum of $2 - 3 billion of private capital. The net result would be the creation of hundreds of new cleantech companies employing thousands of Canadians.
4. Invest $1.25 billion to transform Sustainable Development Technology Canada (SDTC). SDTC is an internationally recognized fund that plays a vital role in building Canada’s cleantech industry. In particular, SDTC’s model of supporting consortiums of technology companies and customers to implement pilots and demonstration projects fills a vital gap in the financing ecosystem. The $50 million mentioned in the 2016 Budget is a positive step but this needs to be increased to maximize impact and leverage. We recommend the following:
a) Recapitalize SDTC’s Sustainable Development Technology Fund with $150 million per year over five years.
b) Recapitalize, restructure and rename SDTC’s NextGen Biofuel Fund with $100 million per year over five years and a mandate to provide funding for “first” commercial cleantech projects (complimentary to #1 above) across all classes of clean technologies (i.e. not just biofuels).
c) For both SDTC funds, increase cost sharing to 50%, expand eligibility to include intellectual property (IP), business development and capital equipment. Streamline and simplify the application process where possible. Best practices from related models such as the US Department of Energy's Advanced Research Projects Agency-Energy should be incorporated into SDTC, rather than replicated in separate entities.
The impact of these recommendations would be to enable SDTC to build on its track record of supporting the growth and commercialization of Canada’s best cleantech companies, while leveraging billions of dollars of public and private capital.
5. Expand IRAP funding and SR&ED tax credits. The National Research Council’s Industrial Research Assistance Program (IRAP) has a successful track record funding research and development that leads directly to new cleantech products and solutions. IRAP is efficient, well-managed and achieves significant leverage of private sector dollars. However, IRAP funds for cleantech are limited and could be more strategically deployed. We recommend the following:
a) Increase IRAP funding in the range of $50 million per year over 5 years specifically for cleantech research, product development and commercialization.
b) Expand IRAP eligibility requirements beyond labour to include materials, consumables, intellectual property and other expenses related to research and product development.
c) Allocate a portion of the new IRAP funding to provide progressively larger grants (e.g. $500,000, $1 million, $2 million or more) to a select class of “high potential” cleantech companies with qualified and competent management teams who consistently out-perform peers in achieving commercialization milestones and are poised for rapid scale-up.
The impact of expanding IRAP’s mandate for cleantech would be to broadly increase the scale and velocity of product commercialization across the cleantech industry. It will also improve product outcomes by investing in high performing companies.
We also recommend that the government explore extending the eligibility of SR&ED tax credits to include costs related to commercializing cleantech innovations. Such a measure would support companies in their commercialization efforts and thus build sales and technical expertise to accelerate the marketing of cleantech innovations. This proposed extension would be available only to companies with fewer than 250 employees that have a solid commercialization plan in place and are developing or commercializing cleantech solutions that have intellectual property protection.
6. Streamline immigration programs to attract global talent into the Canadian cleantech market. Cleantech companies depend on the ability to attract world-class talent to their teams and must be able to do so in a nimble manner. While Canada has a strong talent pool, particularly in technical and engineering disciplines, the global workforce is increasingly mobile and top teams are assembled from around the world. To achieve its full potential, Canada will need to attract the best and brightest talent from around the world. In particular Canada’s cleantech industry has an urgent need for experience entrepreneurs, C-level and V-level executive talent across the industry especially in commercial disciplines such as sales, marketing, business development, product management. The current process to hire non-Canadian talent is cumbersome, time consuming, expensive and frequently unsuccessful. This often results in Canadian companies giving up on importing talent and instead setting up operations outside of Canada. We recommend the following:
a) Establish a public/private sector working group to develop a specific set of recommendations to streamline the immigration process and make Canada a global destination for the top cleantech talent.
b) Finalize recommendations for adoption by early 2017.
The impact of this initiative will be a stronger and more competitive Canadian cleantech workforce that will lead to better performing companies, faster commercialization, increased access to markets and capital, etc. It will also help keep companies from moving operations outside Canada.
7. Create an internationally-comparable, widely accessible national cleantech data and reporting system. We have ambitious plans and need a powerful system of data collection to track and report on the results of cleantech programs and investments. The current national level data is insufficient for various reasons, including that it is non-cleantech sector specific, does not provide company-level data, and/or does not collect the necessary information to identify the factors that are enabling or impeding company success, or that enables cross-jurisdictional benchmarking. It is also difficult to access, which impedes external analysis. Current federal data collection relies on NAICS, which, while useful for broad comparison and trends, will not enable us to easily break out the types of clean technologies (e.g., energy storage vs. water treatment, etc.), nor understand the markets they sell into. It is also limited in its ability to separate out environmental services firms vs. cleantech product and IP based firms. The data is typically up to 4 years old, potentially half an economic cycle out, and does not reflect any of the activity of the incubation and support ecosystem that enables cleantech companies. Firm-level data should be collected annually, at a minimum, and must include data on support programs used. This is essential for providing a deep understanding of the specific patterns of financing and growth, identifying the systemic gaps we need to close, and enabling comparison between other global markets. We recommend the following:
a) The federal government provides funding in Budget 2017 for national, individual company level data collection and aggregation from the network of the incubation organizations.
b) Ensure that a qualified, Canadian organization manages the process of collecting, analyzing and reporting on cleantech data working directly with the cleantech industry.
c) Ensure that the data is collected annually and it is transparent and available to all stakeholders in a timely manner. It is very important that non-confidential, anonymized and aggregated data be made available on an open data platform.
d) Ensure the data collection system is consistent with international best practices on innovation sector data collection, is designed specifically to collect and report on cleantech specific requirements and enables cross-jurisdictional benchmarking.
e) The data collection and reporting system should build on a system-wide data partnership with partners having the necessary legal, privacy and data management frameworks for non- proprietary and open use of the data, plus the expertise and global research partners to provide both firm and ecosystem focused analysis.
The impact of addressing this issue will be to provide critical industry data, analysis and reporting to decision makers in government and industry to better understand the impact of investments in program and policies in terms of industry growth, employment, revenue, exports and other key metrics plus identify the patterns of company growth and the use of incubation and finance services to identify gaps and best align disparate partner resources. It will also help benchmark Canada’s cleantech industry against international competition and provide the supporting data for our global marketing strategy and Canada’s cleantech brand.
We appreciate the opportunity to present our ideas and recommendations. We are available to meet with the Working Group at its earliest convenience and we commit to providing feedback and consulting with our members on the design and implementation of final programs.
While addressing these recommendations is an important first step, there is much more work to be done to transition Canada to a more efficient, low carbon economy and to drive demand for clean technologies across the Canadian economy. For example, we see opportunities to connect the deep technical expertise in our national labs to our technology entrepreneurs to help develop technologies more quickly, and for future work in areas such as zero emission vehicle and building standards, resource industry adoption and methane reduction solutions and technologies. There are also significant thinking and work to be done on creating market pull and enabling technology adoption.
In the meantime, addressing the recommendations above will be a powerful start and will send a strong message to Canadians and the rest of the world that we intend to compete in and win the cleantech innovation race. It will also enhance Canada’s reputation as a global leader, innovation hub and exporter of clean technologies that can address the world’s most difficult challenges.
To invest in cleantech is to invest in a diversified, innovative, knowledge-based economy. The implementation of our recommendations would also have a tremendous impact on Canada’s natural resource sectors, such as forest products, mining, energy, fisheries and agriculture that can become world leaders in innovation and sustainability.
We have fallen precipitously behind other OECD nations in business enterprise research and development and other key metrics of innovation. This trend must be reversed, and investing in cleantech is a critical component of any strategy to move Canada towards a more innovative, knowledge- based economy.
Sincerely on behalf of CanadaCleantech,
Jonathan Rhone, Chair, BC Cleantech CEO Alliance
Denis Leclerc, President & CEO, Écotech Québec
Jane Kearns, Senior Advisor, Cleantech MaRS Discovery District
Jason Switzer, Executive Director, Alberta Clean Technology Industry Alliance