Innovators here rank well against global competitors, but growth is stunted by Ottawa’s priorities, say analysts. Third in a week-long series.

There’s little to distinguish the Westport Assembly Centre from the outside. It’s one of many industrial buildings on Delta, B.C.’s Annacis Island, not far from a Tim Horton’s. Through the front doors a carpeted reception area leads to the shop floor. Here you can watch North America’s low-carbon transition happen in real time. It takes 76 minutes to retrofit a 15-litre diesel engine so that it runs on cleaner-burning natural gas. That 4,000-pound engine then spends 25 minutes in a testing cell across the room, revved by a computer at full torque and horsepower. Nearby is a large rectangular gas compressor. “It looks very unassuming – just a box,” production supervisor Matthew Szczecinski explained, when I visited last August, “but there’s some big pumps in there.”

Westport Innovations is one of the bigger players in Canada’s $10.6 billion clean technology – or “cleantech” – industry. The Vancouver-based company’s revenues last year exceeded $264 million, an 83 per cent increase over the year before. Westport’s success is based on a series of laboratory breakthroughs that have allowed it design some of the planet’s highest performing natural gas and alternative fuel truck engines. It has operations in Canada, the U.S., India and China. (Click here to read more about the company’s expansion into China, and the controversy surrounding natural gas). Boosters of Canadian cleantech believe there could be 20 companies in Westport’s league by the year 2020 – and overall industry revenues exceeding $60 billion.

Prime Minister Stephen Harper has different priorities. His Conservative government promotes oil sands development as key to Canada’s prosperity, while denying funding to clean technology. Environment Canada openly acknowledges the Tory climate strategy will only get the country halfway towards achieving the carbon targets it agreed to at Copenhagen. Meanwhile Canada’s cleantech industry receives international accolades. A Cleantech Group-WWF report from earlier this year ranked Canada seventh in the world for cleantech innovation. The country, it said, “scored surprisingly well,” especially given its “poor reputation at a federal level for political leadership on climate change.”

‘It opened my eyes’

Ian Philp once had a realization that changed his life. Philp is Canadian, a former speechwriter for Prime Minister Jean Chretien. He was in Iraq from 2005 to 2007 as part of a United Nations legal team. His job was to advise the Iraqi and Kurdish governments on how to rebuild their tattered country. Oil became a major source of conflict. The sectarian and ethnic struggles he witnessed over Iraq’s hydrocarbon wealth were fierce.

“It opened my eyes,” Philp said in an interview. “That was a very abundant resource…. Imagine the types of challenges we’ll face when we arrive at a position of true scarcity.” He decided to refocus his career. Philp now advises Canada’s federal government on climate change and energy legislation. “Canada has a vibrant and growing clean technology sector,” concluded an Action Canada report he recently co-authored, “but we currently lack the policy framework needed to reach our full potential.”

The global market for clean technology was worth $1 trillion in 2010. It may over the next eight years grow to $3 trillion, becoming one of the planet’s largest industries. (Research recently commissioned by the German government puts the global value at $5.1 trillion by 2025). Canada’s $10.6 billion cleantech industry represents about one per cent of the global market. Its hundreds of firms – many of them small and medium-sized – employed 44,000 workers in 2010. That was just 16 per cent less than the oil and gas extraction industry, according to Analytica Advisors, an Ottawa-based cleantech consultancy. If current growth rates are maintained, Canada’s annual cleantech revenues by 2020 could top $60 billion. An industry that big might provide 126,000 jobs. “This is a large economic opportunity that we’re very primed to take advantage of,” Philp said.

The problem is that Canada tends to treat its cleantech firms much the same way it treats its actors and musicians: not so interested until they’re successful elsewhere. It’s a bit of a catch-22, because international buyers want to see evidence that a firm has been able to sell its products in Canada. Unwillingness by governments or businesses to purchase domestic clean technology is the industry’s “number 1 barrier” to growth, a 2011 survey of Canadian cleantech firms found. This is a constant source of frustration for Celine Bak, founding partner of Analytica Advisors. “There’s a sort of infantilization of Canadian cleantech companies,” she said, “as though they aren’t fully fledged.”

This might be changing. A recently expanded federal program will allow the government to purchase $40 million worth of “innovative” – though not explicitly “clean” – goods and services each year. Still, it’s just a fraction of the $15 billion Canada’s federal departments spend annually on procurement. For comparison: Austria, Denmark, Finland, Germany, the U.K., Sweden and the Netherlands award more than 55 per cent of total government contracts to energy-efficient buildings, electric cars and other green industries.

What troubles Bak more though is the reticence of Canada’s corporate sector. About nine per cent of Canada’s 720 cleantech firms, for instance, have developed ways of making oil sands production cleaner. “What we hear,” Bak says, “is that nobody from the oil sands is taking their calls.”

Admired from afar

It may sometimes be easier to get recognized outside Canada’s borders. Earlier this year, a Cleantech Group-WWF report ranked Canada’s clean technology industry 7th out of 38 countries. Strong research institutions, bold entrepreneurs and healthy cleantech markets, especially in Ontario, are helping commercialize “innovations crucial to global emissions reductions,” it read. A lack of federal leadership on global warming is not. “While climate change policies are key drivers for cleantech innovation,” the report read, “the two are not always one and the same, as the case of Canada demonstrates.”

By 2020, Canada will fall 50 per cent short of meeting the climate target it agreed to at the Copenhagen talks (a 17 per cent reduction of carbon emissions below 2005 levels). That was the conclusion of an Environment Canada report released this summer, which tallied the impact of every federal and provincial climate initiative. Forthcoming oil and gas regulations will shrink that gap, it reads. And Canada has made progress since last year, when it was projected to achieve only one-quarter of its 2020 target.

Yet Harper’s Conservative government has repeatedly dismissed the one policy option that academics, enviros and even oil executives say is vital to Canada’s low-carbon transition: a national price on carbon. “We have a government smart enough to reject dumb ideas like a $20-billion carbon tax,” Prime Minister Harper told Parliament this fall.

Ontario’s green revolution

Absent strong direction from above, each province has built its own climate change strategy. One of the biggest success stories comes from Ontario. Coal provided 19 per cent of Ontario’s power just five years ago. Last year it was less than 3 per cent. The province is set to completely phase coal out of its electricity supply by 2014, the first jurisdiction in North America to do so. Electricity from natural gas has doubled, and renewable energy is growing fast. “Ontario’s action on coal,” the Canadian Association of Physicians for the Environment has said, “serves as an extraordinary example of what can be done when citizens, health professionals, and a receptive government collaborate.”

Ontario’s installed wind capacity tripled during the same time period. That’s due to the Green Energy Act, which the province adopted in 2009, just eight months after the Lehman Brothers’ collapse in New York helped set off the global recession. “Ontario had suffered,” Leo Tasca, manager of the province’s renewable energy unit, said in an interview. “The auto sector really contracted, lots of people were looking at very difficult circumstances. This was really born out of that.”

The centerpiece of the Green Energy Act is a “feed-in-tariff.” This policy guarantees government and utilities pay set prices for wind, solar, hydro and bio-energy, making them more cost-competitive with traditional forms of energy. Since 2009, Tasca said, the policy has helped attract more than $20 billion in private investment related to green energy. Ontario’s financial support for innovation-based companies (initiatives well-exceeding $555 million) has also made a discernable impact. The province now has 221 cleantech companies, compared to 110 just three years ago. Its “vibrant clean technology sector” was one of the reasons Corporate Knights magazine recently named Ontario the “greenest” province in Canada.

That’s the good news. In reality the feed-in-tariff hasn’t functioned as smoothly as its proponents claim. “Large developers crowded out small, community-based projects. Transmission and distribution infrastructure couldn’t keep up. Hydro One dragged its feet. Communities were marginalized,” Toronto Star columnist and Corporate Knights editor Tyler Hamilton recently argued. But even worse in his opinion was the province’s decision to put the entire program on hold as it underwent a lengthy mandatory review. “Does the government not understand how the business world operates?” Hamilton added. “You can’t put a market on hold for a year and have investors sit idly by.”

Partisan critics of the Green Energy Act, meanwhile, remain ever vocal. “The current policies are driving up the price of electricity,” Ontario Opposition leader Tim Hudak argued this past summer. That sentiment nearly won him the 2011 provincial election. In the lead-up to October vote, public polling put his Conservative party far ahead of the ruling Liberals. Hudak had promised to scrap Ontario’s feed-in-tariff, and other green programs. The Green Energy Act so dominated the 2011 election that John Podesta, former adviser to President Barack Obama, publicly warned that its repeal “would be a mistake.” When Premier Dalton McGuinty’s Liberals triumphed that November, their victory was cast in global terms. Renewable energy, argued an analysis from Ernst & Young, had survived “a key test in North America.”

Budget ‘short-sighted’

The view from outside Canada’s borders isn’t always the most revealing one. A New York Times op-ed last July declared British Columbia’s carbon tax to be the “best climate policy in the world.” Not only does such a policy make it more expensive to pollute, the authors argued, but it also helps “steer investment into clean technology.” A 2011 survey of B.C.’s $2.5 billion cleantech industry showed a different perspective. Many of the province’s roughly 200 cleantech firms are small operations struggling to get off the ground. Financial support from the province or feds – whether in the form of tax credits, research assistance or direct funding – matters more in their world than B.C.’s carbon tax. “It was one of the lower priorities,” said KPMG’s Lorne Burns, co-author of a report summarizing the survey. “Other programs have more of a direct impact.”

One of Canada’s most highly regarded cleantech programs is now facing an uncertain future. Sustainable Technology Development Canada (SDTC) has for a decade directly addressed an age-old problem: how to turn a promising invention into a viable business. The agency in total has allocated $560 million in federal funding to more than 228 projects. Each dollar it invests in an emerging clean technology helps attract on average $13 in private funding.

“They were absolutely fantastic,” John Nenniger, a Calgary-based cleantech entrepreneur, said of SDTC in an interview with The Tyee last spring. The firm he founded and leads is developing technology that could drastically reduce carbon emissions and water demands from oil sands production. N-Solv Corp has received more than $15 million from SDTC. But even more important than the money, Nenniger said, was the mentoring that came along with it. “It’s a psychologically challenging thing to put new ideas out there for public scrutiny,” he said. “A lot of people treat you like a nutcase.”

SDTC took a big blow from the federal government last spring. In the lead-up to Canada’s 2012 budget, the agency had asked Harper’s Conservatives for $550 million over five years. The money would’ve allowed SDTC to continue supporting the country’s most promising clean technologies. Its funding request was denied. The agency still has $500 million to fund biofuels projects, but the cleantech fund, its bread and butter, will run out by the end of the year. “Absolutely it’s a challenge,” Vicky Sharpe, SDTC president and CEO, said in an interview. She’s been talking with various government players about alternate funding models. “We’re optimistic,” Sharpe said.

Others wonder about the federal government’s priorities. “Disgraceful,” is how Hamilton described the funding denial. “Ultimately,” said Philp, the former legal adviser in Iraq, “I think it’s shortsighted.” He added: “[SDTC] has spent a number of years building up a base of expertise and resources. They’re known around the world for the work they do.”

Yet few Canadians are aware of that work. That’s one of the biggest challenges for the country’s cleantech industry. It’s impossible to care about something you don’t even know exists.

Tomorrow: Green Dragon vs. Green Maple Leaf: Comparing the two nation’s policies promoting green technology. Find the previous pieces in this series here.