We at Smart Prosperity Institute have been doing a lot of thinking about clean innovation. Stay tuned for our comprehensive 150-page playbook on how governments can accelerate clean innovation across all sectors of the Canadian economy, out this spring.
January 16, 2018
By Will Scott
While you may not see it at this year’s winter Olympics, the clean innovation race is on.
The global transition to a lower-carbon, lower-pollution and more-resource efficient economy means big business opportunities, and governments all over the world want to make sure their countries are in on the action. Who will emerge as leaders in the clean innovation race, and what can a government do to help domestic clean innovators reach the podium?
Last spring, Smart Prosperity Institute introduced a model for understanding the clean innovation system. The model identifies four specific policy areas that governments can use in combination to accelerate clean innovation: (1) PUSH policies that drive new ideas out of the gate, (2) GROW policies that help ideas overcome hurdles and develop into marketable products, (3) PULL policies that stimulate markets and create fans waiting at the finish line, and (4) STRENGTHEN policies that help the innovation system run more effectively.
PUSH: From Idea to Product
Successful innovation begins with an idea. However, the well-known market failure of knowledge spillovers means that innovators aren’t able to capture the full value of their idea, limiting the amount of research that occurs. Further, evidence suggests that clean technologies have greater spillover effects than other technologies. PUSH policies help innovators overcome knowledge spillovers and get their ideas out of the gate. They may come in the form of research grants, public research institutions, or tax incentives for business R&D, among others.
One example of the role PUSH policies can play is seen in Vancouver-based Axine Water Technologies. With early research into an industrial wastewater treatment solution, Axine was able to utilize grant money from the B.C. Innovation Council, a long-term research partnership with the University of Victoria, and a federal tax credit for increasing R&D to help PUSH the technology from idea to reality.
GROW: From Product to Market Entry
This initial PUSH isn’t enough to carry an idea to the finish line. Innovations must pass through additional stages of demonstration, deployment and diffusion in order to become profit generators and job creators. With each stage comes new hurdles that require financing to overcome, often in the form of a new prototype or demonstration plant. These hurdles stand particularly high for clean innovations that face high capital requirements with long payback periods, meaning even the most promising innovations can struggle to attract financing. Governments can help businesses to overcome these hurdles through GROW policies such as direct financing, loan guarantees, and business development support.
Consider Mississauga-based Temporal Power, a contender in the global race for energy storage solutions, critical for unlocking the potential of renewable energy systems. Temporal developed an innovative energy storage system using fly-wheels, and after demonstrating the technology in Ontario, Temporal wanted to take its solution to the international market. Temporal was able to secure an innovative financing solution from Export Development Canada in order to reassure its first export customers, and is now operating in Aruba, with sights set around the globe.
PULL: From Market Entry to Mass Production
As ideas approach the end of the innovation race – the open market – clean innovations face a unique challenge: without regulations or a price on pollution, companies don’t stand to profit from clean innovation (this is known as the environmental externality market failure). For example, while a new smartphone will have hordes of adoring fans waiting to purchase it, a new product that looks the same but reduces pollution won’t draw the same crowds since pollution isn’t something that is typically paid for. PULL policies, such as pollution pricing, help jumpstart customer demand by giving “clean” real economic value.
Take Montreal-based Enerkem. The company’s waste-to-fuel technology has helped Edmonton divert 40% of its waste, converting it instead into ethanol and methanol, which is then used or sold as a renewable fuel. This particular use of Enerkem’s technology came about because of two game-changing PULL policies: (1) the City of Edmonton’s waste diversion regulations, and (2) Alberta’s Renewable Fuel Standard, which drove new demand for the facility and the ethanol it produces, and also helped attract investors.
STRENGTHEN: From Fledgling Market to Economic Engine
As any athlete will tell you, what happens off the track is equally important to what happens on it. While in their case it may come in the form of strength training, nutrition, and recovery, in the clean innovation race this means sector strategies, business and technical skills development, institutional design, innovation networks and clusters, and better data and evaluation.
Consider Ontario’s MaRS Discovery District, a clean technology incubator, partner and networking hub that has supported the development of numerous burgeoning start-ups, from CircuitMeter and its groundbreaking energy monitoring solution to GreenMantra and its low-grade-plastic recycling technology.
If Canada is to compete among world leaders, STRENGTHEN policies are needed to fill in the gaps to address market barriers, ensure policies are pulling in the same direction, and bolster the clean innovation system as a whole.
As countries move towards a clean economy, many technological races will be run, and the success of Canadian companies to capture a share of these emerging markets will depend, in part, upon how effectively public institutions can support them. Recent announcements at both the federal and provincial levels mark important steps in creating this support system.