The COVID-19 pandemic preoccupies our short-term planning, but longer-term existential challenges—notably climate change—continue to shape the global economy and society.
Recovery from the economic dislocation caused by the pandemic must align with reducing the negative impact of greenhouse gas (GHG) emissions. Through our work with global investors, we know that same vision is informing the way investment decisions are being made around the world. Fortunately, Canada offers what KPMG LLP calls a “playground for cleantech”, where investments into low-carbon energy and technology have great potential to rebuild the economy in a sustainable way.
The Cleantech Supply Chain disruption
The current pandemic, while it disrupted and even called into question the viability of global supply chains, is generating opportunities for industries that are resilient and future-focused. Advantage Canada: Reshaping Supply Chain Investment Opportunities After COVID-19, prepared by KPMG for Invest in Canada, identifies cleantech as one of three supply chains with the most significant opportunities emerging from the pandemic.
Cleantech is described by Natural Resources Canada as any product, service or process that reduces environmental effects. Throughout the energy sector, innovative technologies can be used to harness the energy of the sun, wind and oceans in ways that reduce carbon emissions. Cleantech can also include industries such as mining -- to supply nickel, copper and lithium for electric vehicle (EV) batteries, uranium for nuclear energy, and iron and neodymium for wind turbines.
The cleantech supply chain includes production, followed by distribution—often over hundreds or thousands of kilometres. It also includes final end-users, such as consumers and households. And the cleantech supply chain is about more than just one sector, it can also serve the manufacturing and agribusiness industries. Activities in this space require significant energy in their production processes but are also retooling to integrate low-carbon sources into their operations.
Canada is well positioned to flourish in the cleantech industry. In 2018, the industry accounted for 3.2% of Canada’s GDP. The fight against climate change are priorities for all levels of Canadian governments. Key business sectors, such as real estate, are also seeking more energy efficient options to address Canada's prevailing high heating and cooling costs.
Opportunities In Canada’s Cleantech Industry
The Canadian federal government is working to ensure that Canada is the most competitive jurisdiction in the world for clean technology companies. The federal government recently announced plans to launch a new fund to attract investments zero-emission product supply chains. In addition to the new fund, the federal government also plans to cut the corporate tax rate for these specific companies by 50 per cent.
These incentives will help global companies focus on a carbon-neutral future, such as those building zero-emission vehicles and batteries, to consider Canada as an attractive location. Canada is also introducing a clean-power fund that will help companies such as those transmitting surplus clean power to regions that are transitioning away from coal.
The electric vehicle sector already is lighting up with new opportunities. Ford is overhauling its Oakville, Ontario assembly plant to manufacture electric vehicles and batteries, and has partnered with government to do so. The Automotive Parts Manufacturers' Association of Canada recently launched the first, original, full-build, zero-emission concept vehicle completely developed in Canada, Project Arrow.
Canada’s Transition To A Low-Carbon Future
It is somewhat counter-intuitive that Canada’s current energy infrastructure, centered on extractive industries, is the springboard for investment in cleantech and associated supply chains. Canada's natural resource-based industries are becoming a leader in clean technology. The country's abundant wind, water and solar, in addition to natural gas and Lithium stocks, will allow rapid deployment and proof of feasibility of the new technologies.
Converting existing infrastructure to low-carbon production, distribution or transmission will creates an opportunity for investors with long-term investment horizons. In addition, investments in new infrastructure, such as carbon capture and storage, have the potential to pay off.
Canada’s Hydrogen Industry
Hydrogen is leading a new wave of cleantech innovation around the world, and Canada is a leader in the space. Canada is already one of the largest hydrogen producers in the world, with talented personnel and existing companies involved in innovative end-use applications and technologies. In addition to fuel-cell technology for transportation fleets such as buses, trucks and marine shipping, industries that require high heat or large-scale energy use benefit from hydrogen to power their operation.
Investment opportunities exist all along the hydrogen supply chain—from production, storage, and transportation to final use.
Our research tells us these opportunities—transformation of existing energy infrastructure and the break-out of hydrogen as a viable energy source—could start to take effect within 27 months of investors launching initiatives to capitalize on them.
The Canadian Advantage
Industry-specific opportunities in cleantech supply chains are further sheltered by inherent Canadian advantages, such as:
- Stable economy and society with the rule of law, ability to protect intellectual property, and predictable governance.
- A well-trained and diverse workforce—including 2.8 million STEM graduates—with expertise in energy extraction, manufacturing, agriculture and transport.
- Proven nation-wide expertise in logistics and infrastructure (especially rail and port) to facilitate exports.
- Trade agreements in place with most major international markets, especially with neighbouring proximity to the U.S. market.
Developing resilience in the Cleantech industry
The KPMG analysis did identify some risks to cleantech investments, many of which fall beyond Canada’s control. Border closures brought on by geopolitical uncertainty would negatively impact Canada’s ability to supply clean technology or energy to other markets. The unpredictability of climate change effects could result in new challenges or priorities to emerge.
However, the challenges in the cleantech industry present promise for international investors. Development of a national strategy to support industries such as hydrogen and lithium is underway, and investor concierge services (such as Invest in Canada) are available to facilitate opportunities. Canada’s comparatively small market requires early-stage capital to make investments viable, but it also allows early investors to shape the development of the sector.
In short, the cleantech industry offers investors the prospect of sustainable, secure and successful returns, while contributing to limiting the effects of climate change. It is a playground for investors.
If you’re a global company looking to invest in Canada, contact us to discuss your cleantech project.