Related Expertise: Climate Change and Sustainability

Canada Can Lead the World in Low-Carbon Tech—If It Avoids the Sins of the Past

By Jason GreenVinay ShandalWendi BacklerKeith Halliday, and Rachit Sharma

As much as US$21 trillion in new investment in both mature and newer low-carbon technologies will be needed globally over the next ten years. Canada could capture a sizeable share of this space—if we take the right steps now. As the country’s burgeoning innovation sector makes clear, our challenge is not a lack of raw entrepreneurial talent, it’s helping young ventures transition from start-up to scale-up. Without significant action from the public and private sector, Canada risks squandering an opportunity that could galvanize the country’s economic growth for decades to come.

First the good news. A global study of private investment by Boston Consulting Group’s Center for Growth and Innovation Analytics found that Canadian ventures are well represented across 13 key low-carbon tech sectors. The Canadian innovators behind these young companies are doing an admirable job of propelling their businesses to leadership positions at the venture stage. HTEC, Svante, Amp and Li-Cycle, for example, all attracted major funding over the past 12 months, making 2021 a banner year for private investment in the country’s low-carbon tech industry.

In addition, Canadian low-carbon tech ventures are attracting a greater mix of investment in carbon capture, hydrogen, biofuels and climate analytics than their peers in Europe, the US or Asia-Pacific. BCG data shows they have claimed 8% or more of private investment worldwide since 2016. This is a hefty multiple of Canada’s roughly 2% share of the global economy. (See Exhibit 1.)

However, Canada’s history with past tech shifts suggests that while our venture record is strong, our scale-up record is poor. After a generation of internet innovation, for example, Shopify is the only Canadian company on the list of scale-ups with market capitalizations of more than US$50 billion.

Historically, a major reason has been a lack of sustained attention and investment from Canada’s public and private sectors. Worryingly, we’re seeing this pattern play out in the low-carbon space. BCG research shows that 80% of Canadian private investment—across the corporate sector, venture capital, private equity and financial institutions—currently goes to ventures located outside Canada.

It will be a regrettable irony if Canada ends up importing key low carbon tech from other places instead of fanning a booming economy in an area where we have already cultivated significant home-grown advantage. Committed public and private sector action now can help the country’s low-carbon leaders go from promising start-ups to world champions over the next 5-10 years. That investment could help offset the climate transition’s pressure on our energy exports.

To help young businesses achieve scale, Canada’s public and private sector should take three steps.

The first is for corporate Canada to ramp up venture investments and partnerships. Such programs can help established corporations stay up to date with the latest technology developments, support their own decarbonization agendas and create upside from early investments. Our research found that only 9% of private-sector investment in Canadian low-carbon ventures come from the corporate sector, versus 16% in the US, 30% in Europe and 53% in Asia-Pacific. In addition, while a small number of Canadian energy companies have invested significant amounts in low-carbon ventures directly and through venture funds, analysis of direct investment shows that industry leaders in other countries tend to be more ambitious and engaged than their Canadian counterparts.

A barrier for some investors is the fact that many low-carbon technologies are capital intensive and present a different risk profile than that of other high-technology sectors. But rather than seeing this profile as a limiting factor, corporate investors should view it as an opportunity to fine-tune their risk management approaches. Canadian industrial players, for example, can leverage their scale and sophisticated engineering capabilities to assess and de-risk potential investments.

The second step is for Canadian companies and government agencies to host more demonstration projects and at-scale deployments domestically. The demo stage is critical to help ventures acquire needed learning, prove their concepts and build credibility among the next wave of buyers. Right now, many top Canadian ventures are running flagship growth projects and partnerships in other countries. For example, two Canadian carbon-capture leaders have major projects in the United States. Most of Ballard’s fuel cells are being tested on non-Canadian roads. General Fusion’s demonstration plant will be in England and CarbonCure is laying low-carbon cement in a partnership with the Hawaii Department of Transportation. While these global projects are a positive sign that Canada’s young technologies have worldwide appeal, the fact that so many are hosted outside our borders reinforces a theme we hear from Canadian innovators: that our country’s corporations and government agencies are often cautious in backing new technology.

By boosting collaboration and deploying capital and purchasing power creatively, corporate Canada, investors and our governments could galvanize major economic opportunity. Perhaps a Canadian freeway could be surfaced by CarbonCure, Canadian government buildings could use BrainBox AI to reduce their emissions, or our heavy transport, buses and industries could use a major hydrogen hub for energy. Such technology partnerships could also help Canadian companies and governments accelerate their own decarbonization efforts.

The final opportunity is to improve the innovation environment in Canada. Although this topic has been widely discussed over the years, including in BCG’s executive roundtable series in 2018, the same issues continue to surface in our conversations with innovators. To win the low-carbon future, we must get serious about addressing tax issues, low levels of corporate R&D, access to risk capital, and the brain drain of talent to the US.

Low-carbon tech is a major opportunity for Canada—We have the chance to fill the global league tables with green unicorn names by 2030. But global competition is fierce. To win, Canada must make the transition from enthusiastic backer of innovation to steadfast supporter of scale.