Earlier this week, Alacrity had the pleasure of hosting Pat White from L-Spark in Ottawa. L-Spark, an Alacrity Partner, is a leading Ontario Technology Incubator & Accelerator, focused on Enterprise SaaS.
While discussing L-Spark’s companies, and the relative differences between Ontario and B.C., we touched on CleanTech. While CleanTech companies are always of interest, we recognized that simple things such as code efficiencies that reduce server loads and cumulatively reduce energy consumption need to be factored into assessments. Simply supporting clean technology companies is not enough, we need to push all technology companies to reduce their carbon footprint in every way.
We having been spending a fair amount of time looking at the B.C. CleanTech marketplace recently. For context, we decided to compare it to Ontario’s industry. The Ontario market is significantly larger than BC, and government’s strategic support of clean technology industries is markedly different from the B.C. approach.
CleanTech Benefits from Ontario’s Climate Action Plan
Over the month of May we learned a lot more about both Ontario’s proposed Cap-and-Trade system as well as Ontario’s plans for spending the proceeds of the sale of emissions credits. The biggest winner seems to be the green building sector which, if the leaked document is passed as-is, will receive over $3.8 billion in stimulus money between now and 2021. There are also significant benefits to the biofuels and biogas sector.
The Government of Ontario’s Busy Week of Climate Change Releases
On May 18th the government of Ontario passed the Climate Change Mitigation and Low-Carbon Economy Act. They subsequently released more details on the regulations governing its Cap-and-Trade program governing greenhouse gas (GHG) emissions and leaked information on how it is considering spending the proceeds of the approximately $1.8 billion CAD per year received from auctioning off GHG emission credits. The contents of the leaked Climate Action Plan document is generating the majority of the publicity, initially spawning sensational opinion pieces in both the Financial Post and Globe and Mail including “Ontario’s big, green assisted economic suicide plan” and “Electric cars and unicorns: Ontario’s new green scheme”. After the initial reaction, Ontario and the rest of Canada are now having a serious discussion on how to drive the development and adoption of Clean Technology (CleanTech) and realize the economic benefits. Some are skeptical of the ideas in Ontario’s leaked Climate Action Plan; Ontario’s previous effort in stimulating the creation of a home-grown solar and wind turbine manufacturing industry through a feed-in-tariff system had limited results.
Ontario Joins Quebec and California in the Western Climate Initiative
First let’s give the cap-and-trade system its due as it will be the system that drives the long term success of CleanTech in Ontario. While cap-and-trade in Ontario technically begins January 1, 2017, there is a lengthy transition period that lasts until the end of 2020. Over this period a decreasing number of annual GHG allowances will be distributed to major emitters free of change, similar to what has happened in Quebec and California. In addition, emitters have until 2020 to reconcile their emissions allowances and actual emissions over the 2017-2020 period.
Ontario’s first auction of emission allowances will occur in March 2017 and joint auctions with Quebec and California start in June 2017. With the addition of Ontario, the Western Climate Initiative’s GHG emissions market has grown. Ontario represents approximately 3.5% of the combined US and Canadian GDP and 2.3% of the combined greenhouse gas emissions. The emissions market of the Western Climate Initiative now covers over 17% of combined US and Canadian GDP and almost 10% of combined greenhouse gas emissions.
It’s a challenging set of regulations to get your head around (it’s a great time to be a sustainability lawyer or consultant). Its impacts will differ by individual sector and individual organization. The recently released Impact Modelling and Analysis of Ontario Cap-and-Trade Program report looked at over 80 different organizational profiles and found that, while the average organization would only see a small decrease in profits (1.5%) as a result of the cap, the best and worst cases were quite different. The best case was a 35.3% increase in profit (as a result of the sale of emissions allocations) and the worst case was a 9.8% decrease in profits. Given a potential 45% swing in profits we expect smart organizations are going to see this change as an opportunity rather than just another regulation to comply with.
Money for Green-Building, Biofuels and Electric Cars
For entrepreneurs who don’t have technology that directly targets major GHG emitters, the most interesting part of Ontario’s overall GHG strategy is not the cap-and-trade system itself but what the province plans to do with the approximately $1.8 billion CAD that the auction of emissions credits is expected to generate annually. Unlike British Columbia, which has invested the proceeds of its Carbon Tax into the reduction of other taxes, Ontario plans on reinvesting much of the proceeds as stimulus money to drive green-building, clean technology development, incentives for electric car use and many other programs.
These stimulus packages are necessary in part because, at 2017-2020’s currently forecasted prices of $18-20 CAD per megatonne Co2e, the system will have a negligible impact on end-consumer consumption habits. It will influence large emitters but isn’t going to change decisions at the gas pump or the thermostat. So the Ontario government is trying to affect those decisions through a mixture of stimulus and regulation, $7 billion dollars of it over four years.
It’s an ambitious plan according to what was leaked, and some have expressed concern over how much it tries to engineer the Ontario economy. Regardless, it presents a significant opportunity for CleanTech entrepreneurs as Ontario makes this adjustment. In particular, if you have a technology that can be used to increase home energy efficiency there will be a marked increase in demand. $250 million is directed to pay for mandatory energy efficiency audits and almost $1.9 billion will be allocated to support home energy efficiency retrofits.
One interesting component of the plan is to add a renewable content requirement for natural gas. While some regions already mandate the addition of biofuels in gasoline, we are not aware of anywhere that has imposed a similar requirement on natural gas. This could prove to be a boon to biogas companies such as Vancouver’s Nexterra.
Electric cars are also a focal point of the stimulus. Significant rebates are planned for the purchase of an electric vehicle or home charging station. Biofuel producers will be interested in the plan to reduce the carbon footprint of gasoline by 5% by 2020 and offer incentives to fuel retailers to sell fuels with a high amount of biodiesel or ethanol.
Research and development has not been forgotten. A combined $375 million is earmarked for research and development of low-carbon technologies with a focus on developing lower-carbon cars and trucks. This is presumably an attempt to kick-start Ontario’s sagging auto industry.
A Pivotal Moment for Ontario
These next four years will be pivotal for the Ontario CleanTech sector. When it comes to CleanTech that serves larger emitters influenced by GHG cap-and-trade, the path is more clear. Most economists agree that Cap-and-Trade is a viable way to decrease emissions provided it is implemented properly. The pace of change for larger emitters will be determined in part by how quickly Ontario throttles back its GHG allowances. While the rate of decrease is set in principle, there is considerable room for the Ontario government to issue extra allowances to industries struggling to compete globally. The Ontario government should resist this temptation as much as possible, use of these exemptions has been a significant problem for the EU’s Cap-and-Trade system, watering down its effectiveness.
When it comes to small emitter decisions at the gas pump or thermostat, the Ontario government hopes that through regulations, incentives and stimulus the province can become Canada’s CleanTech hub for green-building and low-carbon mobility (such as electric car manufacturing). This could very well happen, but it is not going to happen through government stimulus alone. It will depend on a network of investors, entrepreneurs and policymakers to craft the CleanTech industry of Canada’s future.
