November 29, 2021

By Teslin Augustine, Harshini Ramesh & John McNally

 

Clean technology (cleantech) is going to be a critical driver of Canadian jobs, growth, and revenues in the coming decades. To support the growth of companies building cleantech, governments will need to leverage every policy tool at their disposal to support entrepreneurs in building the companies that will employ Canadians and support innovation.

One oft-cited, high-potential policy solution is to use the federal procurement system to support cleantech companies in Canada. This has so far fallen short of its potential, but it remains an important tool to deploy in a net-zero transition. For upcoming work from Smart Prosperity Institute, which will be publicly released early next year, we interviewed leading clean technology thinkers, procurement specialists, and a host of experts on this topic. Here are a few key points that were identified as critical to understanding cleantech procurement in Canada, and for developing recommendations to improve the efficacy of the Canadian public procurement system.

 

1 - Buying clean technology is more complicated than it seems

To support greater public purchasing of clean technologies, it is not enough to account for environmental damages through an instrument like a carbon price. Clean technologies represent a set of solutions that sit at the intersection of three challenges the federal government’s procurement system has historically grappled with:

  • First, clean technologies offer environmental advantages, which are not always accounted for in public procurement.
  • Second, clean technology companies are disproportionately small-to-medium sized enterprises (SMEs), which have historically struggled to sell to the federal government.
  • Third, clean technology is generally newer and more innovative, which requires the federal procurement system to support greater purchasing of new technologies.

For any solution to successfully support greater purchasing of cleantech, it must readily tackle all three challenges at once, and account for how they intersect. A policy like carbon pricing, while important, only tackles one of these challenges: The barriers to greater cleantech procurement are defined by the size of the companies that manufacture them, and the kinds of products they make, as well as by the market’s lack of considering environmental impacts. This means that advancing a solution that accounts for improvements in environmental performance, without also accounting for the barriers faced by SMEs and innovators, is not likely to yield the desired outcome.

 

2 - Recommendations need to be based in how procurement decisions are made

The types of goods and services that Canada procures are a result of the way it evaluates purchasing decisions as a buyer, the policies and stakeholders involved, and the way that the procurement system behaves as a whole. Recommendations that aim to change this, therefore, need to understand how the system works, or it risks not being implementable in practice.

For example, it is unlikely that solely offering more money for procurement spending will result in a greater uptake of cleantech by the government. This is because having more capital to spend does not necessarily change the buying process. Often, the barriers to purchasing a given product are a result of non-financial barriers such as regulations governing purchasing decisions, perceptions of acceptable behaviour within trade agreements, what form of procurement instrument is used by a department, or how bids are compiled and submitted. None of these can be addressed by throwing money at the problem.

Our upcoming research takes a systemic approach to procurement decision-making to better understand how these barriers intersect, and where intervention might be constructive. Overall, a key finding is that recommendations need to be targeted, creative, and thoughtful if they seek to change long-established practices and norms within the procurement process of the federal government.

 

3 - Specific programs are sometimes needed to help connect identified supply and demand.

A critical finding of our upcoming work is that while there are a host of barriers for any new product or service to be purchased by governments, there are also a number of solutions that have improved procurement outcomes for other technologies, or in other countries. These recommendations are typically process- and practice-based solutions. They are grounded in the realities of the procurement system, and make an effort to connect existing supply with identified demand in a way that the current process is unable to do.

The gap between supply and demand often occurs because governments do not always understand what industry is offering, and industry often does not understand how procurement systems function. This information gap on both sides leads to gaps between what the market can provide, and what is otherwise being bought. Policies that connect those two dots can attribute their success to helping markets work the way they are supposed to. By building supports that achieve this, policy can support the creation of an interface that helps governments and industry better coordinate and collaborate to ensure procurement is taking advantage of innovations developed by the market.

One model is used by Coordinated Access National Health Network (CANHealth), an informal buyers group of companies, hospitals, private clinics, home care organizations, and health authorities that have come together to support the development and adoption of innovative Canadian health care technologies. The buyers group helps address discoordination within the Canadian market that has historically led Canadian companies being outcompeted by American firms. This program has seen success in expediting the translation of new cost- and life-saving technologies into Canadian health care facilities, and offers valuable lessons on the importance of coordination amongst buyers and sellers to solve domestic challenges.

Another important model is used by the US’s Small Business Innovation Research program which helps innovative small businesses commercialize their products.  This helps companies transition out of the stage of needing to repeatedly pilot solutions without it necessarily leading to a buyer’s contract. This program is specifically tailored to challenges where both supply and demand have been identified by the market, but there is no formal program to connect the two sides. Programs like these offer insights into the importance of programs that support commercialization in driving innovation, as they help plug this supply-demand gap.

These two models represent solutions that ensure the procurement system can better achieve the outcomes it seeks, while also ensuring the Canadian government supports Canadian innovators and supports job creation within domestic borders. Helpfully, it also advances lessons that can support clean innovation.

 

Change the practices and the processes, not the price tag

Our upcoming report tackles all three of these challenges and expands on these points, along with a host of others, while detailing several barriers and recommendations to support more purchasing of novel, innovative solutions by federal procurement officers and agencies. Its focus is on clean technology, but the insights generated and recommendations made seek to be useful across all sectors creating and selling innovative or environmentally-friendly goods and services. We look forward to sharing this work and to contributing to this ongoing discussion in the new year.

John McNally

Senior Research Associate

Harshini Ramesh

Research Associate

Teslin Augustine

Research Associate