Thank you so much, Mr. Chair. It's a pleasure to be here to kick-start this study on a topic that's important for the government and the country.
Julie and I have talked about using our deck to help frame some of your early consideration of this issue. If that's okay, I'll use the 10 or so minutes to guide you through our deck, after which we would be more than happy to entertain any questions, comments, or insights that you may wish to share on this matter.
I will assume everyone has an English or a French copy handy.
The first part lays out the broad vision and ambition the government has laid out in this regard, as we heard from the and cabinet members, including Minister , to have a dynamic and growing economy on the one hand and, on the other hand, to make sure we are able to make progress in terms of environmental outcomes.
That will be achieved in part thanks to investments in innovation and clean tech, which we see as an important contributor. That is why it featured so prominently in the context of the pan-Canadian framework discussions with our provinces over the past year, but will again, on a go-forward way basis through this particular set of initiatives.
In particular, I would like to draw your attention to the initiative announced by the Prime Minister along with 23 other world leaders.
It's called “Mission Innovation”. Many of you will be familiar with this, but just to make sure that we all have the same starting point in terms of our understanding of it, I will note that it has three main components.
The first one is the commitment from all of the signatory countries to double their level of investment in energy research and development over the next five years. Canada made that commitment as well.
The second is to attract a greater degree of private sector investment in this space. There, it is worth noting that the Gates foundation, along with a group of 28 large investors, committed to the Breakthrough Energy Coalition to again invest in that space. A billion-dollar fund was announced very recently. Canada is actively looking to attract those investments to Canada.
The third and all-important dimension is to look at ways to collaborate across the world to try to address some of those issues together. We have had a history of collaboration with the U.S., and the U.S. DOE in particular, but we'd like to expand this horizon of collaboration with other Mission Innovation countries. Canada, I would say, is quite active in bringing those parties together towards those common research areas.
The following slides summarize something that you as committee members will be all too familiar with, and that is the sheer importance of natural resource sectors in two regards.
The first is environmental performance. If we look at GHG emissions alone, the production and use of natural resources—from energy, forestry, and minerals and metals to agriculture and fisheries and oceans—accounts for the vast majority of our greenhouse gas emissions in our country. Whether we succeed or don't in this particular space matters a whole lot in terms of our accomplishing our climate change objectives, but it's also meaningful in terms of other environmental objectives.
First, it is crucial that we do our part to reduce negative impacts on the environment, be it water, air, or land. Second, it is important that we pay special attention to the natural resources sector because it is a key economic driver.
It accounts for roughly a fifth of Canada's GDP and is a very significant contributor to wealth in your respective ridings, right across both the urban and the rural areas of Canada.
On the next slide, we have a bit of a snapshot of those other important impacts in terms of jobs, but also in terms of public confidence. We all know that this is an area of concern for many of our citizens and for our clients abroad. Making sure that we really get ahead in environmental performance to gain that trust, that confidence, from our citizens and clients, we feel is really important.
Again, we feel that bringing about improved performance in terms of environmental outcomes is really important in that space. Obviously, it also drives a significant amount of revenues, both federally and provincially, as well as exports and investment. It's a big growth driver. That's the reason why, in budget 2016, the government announced a commitment to invest over a billion dollars to accelerate the pace of activity in the clean-tech sector.
Slide 5 provides an overview of the situation.
Over the years, we have seen a trend towards under-investing in R and D across the entire economy, but even more so in the resource sector.
That trend continued in the past year, and is certainly something we've been pausing on, given the sheer scale of the challenges we face.
Another dimension that was all too evident was the relatively low level of adoption of some of those technologies across the natural resources sectors. Again, that's something that we were not quite seized with.
Over the course of the past year, , along with officials and some of his cabinet colleagues, were quite active in soliciting people's ideas, views, and insights on this important set of activities that we're looking to do. Minister Carr held 11 ministerial round tables—the parliamentary secretary was active throughout those—with provinces and territories, with academic institutions, with industry, and also with indigenous leaders, who were quite active throughout those discussions.
At the officials level, we have engaged with over 350 stakeholders, both domestically and internationally, to try to identify issues but also good ideas and solutions. We also reached out to Canadians who felt passionately about this topic, both youth and people who were already engaged in the sector, to solicit their views. We launched LetsTalkCleanResources.ca, a website with very neat interactive features. It permitted Canadians to ask questions and volunteer views. It had a large amount of traffic.
Finally, we did what good public servants should be doing, namely, namely, we did a careful analysis and review of data and evidence to enrich our understanding of what's happening in Canada and also what's happening globally.
Sometimes when you engage and consult, you hear everything to the opposite, and it's kind of hard to make sense of it. Other times you actually have a clear consensus emerging. This has clearly been in the case in our engagement over the past months. I will strive to summarize it for you, so perhaps you will allow me to pause on each slide to give you a bit of an insight in terms of what people were telling us.
The first message, which we heard at every one of those round tables, was about the need for a country of our size, as a mid-sized country but a significant player in terms of natural resources, to make sure that we have clarity in terms of the vision and in terms of ensuring an alignment of efforts within the federal government but also among provinces, universities, and firms. That way we will have a clear understanding of what it is we're aiming for in terms of goals, targets, and efforts. That theme came through very clearly from all of the partners.
The second message was that Canada needs to be a bit more bold in its research portfolio. The sentiment is that we're doing a good job in making marginal improvements across multiple industries and sectors, but we are perhaps not pushing enough the solutions that are more transformative in nature. For instance, in terms of GHG impact, we're looking at not just a reduction 1%, 2%, 3%, or 4% here and there. We're looking at sharp and dramatic reductions in the order of 50%, 60%, or 70% so that eventually we can meet those medium- to longer-term targets that Canada and the rest of the world are striving for. Trying to stretch our legs, so to speak, to go toward more transformative technologies, was certainly something we heard, and we took good note of that. Higher-risk, higher-impact measures were viewed as important.
The third message, which echoes what I was referencing earlier, was the importance of teaming up with some of our international partners. This is in many ways not just a challenge for Canada; it's a global challenge that we're trying to tackle. We might as well team up with the Americans, with the Europeans, the Chinese, and other partners who are willing and able to help us meet the ambitions we set for ourselves.
The fourth message, which is one that I'm sure committee members have heard before and will undoubtedly hear throughout the course of the deliberations, was the need to have proper support throughout the so-called valley of death. In many cases we've seen great ideas that have not gotten the proper level of support and funding—for demonstration projects, for instance. We know that large companies will never endeavour to do a large-scale project until it has been tested at a large enough scale that they can be reassured that this thing will work. Similarly, having the proper level of risk capital, before the venture capitalist and traditional financing industry is able to pick it up, is a source of worry for many of our firms involved, especially the smaller firms.
The fifth message we heard, particularly from our small and medium-sized enterprises, is that they're at times a bit confused of whom to interact with within the federal government in particular. When they hear about the work that is done by the various departments and BDC, EDC, and SDTC, for them it's all alphabet soup, and they're getting a bit lost in terms of who does what. They expressed the desire to have a single window, a single point of contact, where an inventor or an established firm looking for assistance to get some money for R and D work, or looking for funding for a demonstration project, or looking for help to export their product or services around the world could find out whom to talk to or who could help them.
The last point was that Canada is an important market, but it's just too small for them to sustain themselves, let alone prosper. They have to export their products and services across the continent and around the world.
These, I would say, were the key risks or concerns that were expressed throughout those discussions.
I understand that the committee also expressed an interest in what policy instruments we're considering to address the risks I described. On slide 8 you see the key steps in the spectrum, in terms of innovation, from basic research all the way to applied research, demos, market development and broader adoption. How can we make sure that along the entire innovation spectrum we're doing what's right to help advance those technologies? There, to put things simply, we're looking at the dual sets of instruments, the so-called technology-push measures and the market-pull instruments. The basic message or the sentiment there is that a single measure won't do. We have to look at a panoply or a multiplicity of measures to really have a chance of succeeding in that complex base.
Very briefly, on the technology-push side there is direct funding for R and D. Every OECD country has some kind of element of support. Why? Because there's clear market failure in this case, in which a small firm would not be able to capture all of the gains or benefits of a given technology. Unless there's some kind of public support, there's a disincentive for them to invest, and the risks are quite significant. If you strike out on it, you go bankrupt. So it's pretty hard for them to shoulder that risk entirely on their own.
Our research facilities, whether they're university research facilities or national labs, are a key competitive asset. As a country, we're fortunate to have those, but let's make sure that we make full use of those assets to help firms and the country overall to make progress. In many of those domains—I'm thinking of energy in particular—it's very expensive to have this kind of pilot plant apparatus and expertise to run those pieces of equipment, and unless they have access to those multi-million dollar facilities.... They won't be able to do that in their garage.
Support for breakthroughs, which I spoke to earlier, and both domestic and global codes and standards can also be very powerful drivers for adoption. There the message was that they felt that Canada is sometimes too nice. Sometimes we have to lift our shoulders and make sure that we defend our firms' interests and our country's interests a bit more forcefully.
In terms of market-pull instruments, obviously the government has made a very clear commitment with regard to carbon pricing, and that certainly is a helpful driver for adoption. When we're talking about regulations, methane, for instance, is a good example. Greening of government operations is an important one, and we heard quite a bit about that during our consultations, especially with regard to the tools around government procurement. The government procures a lot of stuff each and every year, and using that very tool was seen as an important signal and driver for early adoption. There are also tax incentives. For the green infrastructure program, as you know, there's a $20 billion envelope, which can again have a significant impact. Providing support for access to markets and capital is also seen as important.
I won't go through slide 9 in detail, but I mentioned some of our unique lab infrastructure in our national labs. We have those four CanmetMATERIALS labs and energy labs. I understand that the committee is considering regional visits, and we'd be more than happy to welcome you to see what's out there and the kinds of scientific expertise available to support our firms and universities and to carry out the work.
With that, Mr. Chair, I will pause here. Thank you.
That is a complex set of issues, which I could see you dipping into even more in your follow-up conversation. You're very right when you say that electrification is a major topic of focus, not just in Canada, but around the world. Maybe I could attempt to give you some nuggets of answers, and then you can tell me if I did a good enough job.
Starting in the area of transportation and the government and country as a whole, we have strong support from the Provinces of Quebec, Ontario, and B.C. Many provinces are seeing the importance of looking at electrification of transportation as a key area of focus, whether it's for buses or vehicles or in having the proper infrastructure in place, the charging infrastructure, which we've invested in over the past year, as have the provinces.
We think it's really important to address the issue around range anxiety, which is one of the key elements why consumers are a bit hesitant to pull the trigger in buying those vehicles. Also, it's about developing the proper technologies to manage potentially hundreds of thousands of vehicles on the grid. That's a big draw on the power systems. The utilities are scratching their heads in trying to figure out how they will respond to this. We've been working with them to develop software solutions and practical solutions to do it progressively but to be ready to respond.
You mentioned other domains. I would mention mining. We have electrically powered mining equipment underground. It's one area that some leading companies are looking to actively pursue, including here in Ontario. That did raise interesting issues, as we found out in our discussions, around some regulations that actually make it basically impossible to do that, unless they're changed. They are not federal regs, but it doesn't matter from the firm's perspective. Someone has to help them address those; otherwise, they won't be picked up. The manufacturers are prepared to play ball and the companies are prepared to play ball, but now we have to make sure the regs catch up to that industry development. That's one domain that we've been pursuing actively.
More generally, as we move toward adopting more and more renewable power in our grid—and Canada is fortunate to have quite a bit of it—especially those sources of energy that are intermittent, such as wind or solar, we note that the energy output fluctuates based on the time of day or the amount of wind. When you have 5% to 10% of that in your energy grid, it's probably manageable, but as you increase such percentages into the teens or twenties, or even higher, it does create added challenges for the operators. We've been working quite actively on forecasting techniques and on how we can manage bigger areas of production so as to deal with this.
One very promising area that Canada and the world are investing a lot in is energy storage. Again, this is to make sure that the source of energy is more stable. That's true for overall networks, but it's also true especially for smaller or more remote communities. Whether they're first nations, remote communities, or off-the-grid systems, having renewable solutions, along with energy storage, is really important. In our view, it's one of the early opportunities, as was referenced in the PCF, on which the federal and provincial governments want to place a particular emphasis, because those communities pay a lot for their energy. In those communities, 50¢ to 60¢ per kilowatt is fairly commonplace. We think there are solutions that could be implemented in short order.
That's a longish answer, but....
Maybe I'll start with the codes and standards issue. It sounds like a pretty technical and not so sexy topic, but it's mighty important. We've seen and heard countless stories about some of our competitors—who will remain nameless—who very deliberately made sure that their heat pump standards were mimicking the global standards. This makes it rather difficult for our local manufacturers to penetrate those markets.
Again, it's a global game. Those partners are very deliberate, and we have to make sure that we are equally forceful, not just looking at our own codes and standards in Canada, but also playing a more active role in the global arena to make sure that we help define those global codes so that, at the very least, our firms can sell their gear and are not excluded right off the bat before they can even get to the marketplace.
It really calls for us to work between our manufacturers and our codes and standards colleagues to make sure that we are there to defend more actively, in various global forums.... Some of those discussions are very technical, and you have to dispatch engineers to go through these, but unless you're willing to invest that time and effort, you're going to be shut out from those markets.
Once the codes and standards are established, it's pretty hard to change them. They're typically there for years, if not decades, and then the market is just taken away from those firms. So being attentive to this, I think certainly deserves clearer attention.
On your question regarding the valley of death and what to do on that, the two things I can probably focus most attention on are around demonstration projects. We heard from our consultation in the pan-Canadian framework that this is a clear area where there is a lack of funds. Those things cost a pretty penny.
You mentioned your involvement in the oil and gas sector, Mr. Chair. Having a demonstration project in that space typically costs $20 million, $50 million, $75 million, or $100 million a pop. There are many technologies there that need to be demonstrated, so it is a significant commitment on the part of the firms sponsoring this and the potential adopters. Often they're reluctant to jump in unless governments are willing to shoulder the cost, especially for the first of a kind, because the technology risks are significant and delays are often occurring, so nobody wants to be first and everybody is waiting for one another. At the end of the day, our industry is not well served. That's certainly a priority area.
The other one I would flag is around risk capital for that kind of pre-commercial stage, where, again, financial institutions don't want to go there because there is still some hesitation about a new product or a new service. This is where they are looking for government assistance, and we do have some funding programs in this regard from SDTC, which has had a record of support in this area. It helps fill that void before a venture capitalist picks it up.
We don't have very deep capital markets for venture capital in Canada. It's just a fact. Our firms end up relying on other sources of funding, or they have to go to the U.S. to seek that capital. I was in San Francisco for a clean-tech event with Julie, and we saw a lot of our Canadian companies knocking on the doors of U.S. institutions and banks to fund them. It's the same in New York or Boston. Some might argue that it's not necessarily a bad thing, but it would be nice if the financial sector in Canada was able to stretch its funding envelope to help some of our firms here.