Coyne coyly misses the point on Canada's Clean Tech opportunity

Want to improve Canada’s productivity? Create more intellectual property at scale.

In the wake of NDP Leader Jagmeet Singh’s capitulation on Canada’s carbon tax scheme, my most recent Toronto Star column tried to allay concerns that all is lost when it comes to our ability to materially impact global emissions. No one can deny that the 2050 Paris Accord ensures that many industrialized nations are going to spend trillions on products and services that are designed to reduce the world’s carbon footprint — this represents an opportunity for Canada to seize, whichever political party you intend to vote for in 2025.

Even if you think the climate change crisis is a hoax, there’s no denying the intellectual and business opportunity the topic presents for Canadian researchers, entrepreneurs and investors. Want to improve Canada’s productivity? Create more intellectual property at scale. Want to save the turtles? Develop a scalable innovation that can defer, if not diminish, global warming.

Not that I needed to be reminded, but marshaling an argument for a solution to a problem isn’t the same as actually trying to fix it yourself (don’t get excited - that’s all I’m comfortable doing right now). Dueling newspaper columns may well be just future fish wrapping, but given the potential influence that Canada’s two largest newspapers may have on shaping the conversation around key issues, I don’t want to pass up the chance to set some facts straight.

In a piece posted yesterday, Globe and Mail Columnist Andrew Coyne opined that:

The Conservative position, as near as anyone can make it out – that climate change should be fought, if at all, not by harnessing the power of the free market, but by central planning, a mix of command-and-control regulation and government subsidy – would appear instead to have won the day.

Whether that’s true or not isn’t germane to this post, or the larger challenge. The list of industrialized nations currently using a material carbon tax to reduce carbon emissions is short (Liechtenstein, Switzerland, Sweden, Finland, Norway and the Netherlands - source: World Bank); and as experienced investors will preach, being early is usually the same as being wrong. As for Quebec’s “Cap and Trade” system, one has to wonder if that Province would find it as appealing a carbon reduction strategy in the absence of the God-given geographic luxury that flows from the James Bay Project (Editor’s note: should we point out that Quebec’s GHG emissions are down only 8% since 2005, while Ontario’s decreased by 23% over the same period?).

Via Twitter, Mr. Coyne chortled that my Star column argued for “central planning.”

Not at all. The carbon tax is a sideshow, and I’m advocating for a different call to arms. Mr. Coyne argues for “transparency” around the price of pollution, but adding 50 cents to the cost of a litre of gas in Etobicoke, Ontario puts economic theory ahead of our global reality.

If Canadians cut our 1.5% share of global carbon emissions to zero tomorrow, some combination of China, India, Indonesia, South Korea and Vietnam will quickly backfill our environmental sacrifice as they continue to build new coal plants. We are fools to ignore that reality (also a reminder of just how wrong Prime Minister Justin Trudeau was to think there was “no business case” for new Canadian LNG plants). You may sincerely believe that every signatory will eventually abide by their Paris Accord agreements, even if that requires one to ignore just how many armies have crossed international borders in anger since the start of the 20th century.

All will become clear in 2050.

We can hope and pray that political leaders will live up to the climate promises of their predecessors, but there’s no guarantee. In the meantime, I think there’s a more effective path to help the world reduce GHG emissions.

Mr. Coyne is, as I’ve written previously, a far better newspaper columnist and political observer than I’ll ever be (see prior post “Do we want to be led by ‘Humans,’ or Actors?” July 15-24). That’s why I shouldn’t have to remind him that over the last 150 years, Canadians have made many ground-breaking discoveries and technological advancements with a memorable global impact: the telephone, the lightbulb, sonar, Insulin, the electron microscope, the world’s first pacemaker, Imax cameras, the cystic fibrosis gene, the Canadarm as well as the first Ebola vaccine.

And who can forget the ubiquitous Blackberry, even if that breakthrough was almost 30 years ago?

In 2023, Canada spent about $49 billion on research and development, according to Stats Canada (about double the 2003 figure). Of that $49B, $18.9B was earmarked by Federal ($8.2B) and Provincial governments ($2.2B), along with the “higher education sector” ($8.5B). All of that capital comes from we taxpayers, one way or another.

It’s evident that few of the projects those funds backed wound up being commercialized, and certainly not in the areas of the economy that might contribute to reducing the world’s carbon footprint.

How do I know? According to the CVCA, Canadian Clean Tech entrepreneurs raised about $1B from VCs in 2023 (15% of all dollars raised), about half of which went into lower risk thermal and geothermal deals; those figures would have included project finance deals and not just new innovations. All told, there were only 75 different Clean Tech financings last year, representing 11% of all of the VC deals. By comparison, 312 ICT deals closed in 2023. A dichotomy that reflects the domestic investing ecosystem, not the size of the global end market opportunity.

Clean Tech deal sizes were down last year, too, with an average of $15M. Well shy of the sector’s record high of $23M, set in 2022. It’s also much lower than the average Life Science round, which came in at $24M. Insufficient local risk capital usually leads to smaller deal sizes, and part of the problem is that Canada has but a small handful of Clean Tech VC funds.

None of these dynamics make sense given the multi-Trillion dollar global opportunity represented by the Paris 2050 climate targets. Mr. Coyne need not take my word for it. Here’s a snippet from the BCG report I cited in my Star piece:

Climate technologies—technologies that accelerate decarbonization—are essential to limiting global warming. Despite the many attractive opportunities for investing in clean tech, global investments continue to fall short. As a result, many of today’s companies lack the technologies they need to decarbonize their operations and value chains. At the current level of investment, the second wave of climate technology innovation will follow the long and winding path of wind and solar: scaling up and reducing carbon emissions over 20 to 30 years.

That’s got nothing to do with “central planning,” Mr. Coyne. Neither the dollar amount, the number of Clean Tech financings, nor the focus of most university researchers, reflect the global market opportunity for Canadian innovators.

MRM

(this post, like all blogs, is an Opinion Piece)