Canada’s climate tech potential at risk, says new BCG report

 Canada’s climate tech potential at risk, says new BCG report

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Global consulting giant Boston Consulting Group (BCG) has issued a new report suggesting that Canada’s climate tech sector is at risk of falling behind in the global order. The report, titled “Climate Tech: The Canadian Venture Opportunity”, discusses Canada’s potential to lead & risks it faces in the field, which includes technologies like direct air or cement carbon capture, solid-state batteries, and sustainable fuels. These technologies are vital for reducing greenhouse gas (GHG) emissions, and also crucial for meeting Canada’s 2030 and 2050 climate goals.

A key objective of the Paris Agreement is to limit global warming to 1.5 degree celsius. However, global GHG emissions are tracking towards a 2.1 degree warming trajectory currently. This could mean severe and irreversible impact on climate, including Arctic ice melting, rise in sea levels, heat waves, and crop yield losses, as well as tremendous financial impact on global citizens.

Against this backdrop, Canada has committed to cut its GHG emissions by 40% by 2030 and achieve net zero by 2050. The achievement of these goals requires a focused and sustained investment in climate tech in Canada.

Also read: Orennia gets US$25M for energy transition analytics platform

Canada’s climate tech scenario has a lot of promise

The BCG report says that there’s been a fourfold increase in Canadian climate tech investment since pre-pandemic times. Canada’s climate tech private investment reached US$2.4 billion in 2022 and US$2.3 billion in 2021, up from US$533 million in 2020 and US$580 million in 2019. These figures represent about 2.8% and 2.3% of global climate tech investment in 2021 and 2022, respectively. This is more than a ‘fair share’, considering Canada’s contribution to global GDP in those years was only 1.5%.

In addition, Canada also has a strong presence in maturing tech sectors like sustainable fuels, electric vehicles, and utility-scale storage. In the last five years, Canada produced the third-highest number of climate tech startups (454) among the analyzed peer group. It also has one of the highest numbers of tech startups per capita within the peer group of countries.

Further, Canada also boasts of a robust climate tech talent pool and a high number of related startups. It also leads globally in the share of post-secondary STEM graduates, among countries leading in STEM output.

Also read: Clean energy firm CHAR Tech gets CA$6.6M from ArcelorMittal

Barriers to Canada’s climate tech growth are pulling it down

The BCG report also identifies barriers to Canada’s climate tech growth. Despite the positives discussed above, Canada is losing over 80% of its climate tech investment to overseas markets. A staggering 83% of private Canadian climate tech investment goes overseas, primarily to the US and the UK. BCG says a 6-9 times jump in Canada’s climate tech investment is required to meet its 2050 net zero targets.

Moreover, as per International Energy Agency’s ‘Net Zero by 2050’ report, 50% of Canada’s emission reduction requirements for net zero are expected from technologies that are currently in the demonstration or
prototype stages. BCG says that there’s no time for Canada to wait for climate technologies to be proven elsewhere, and the country needs to produce tech itself.

However, the country is second-to-last in per capita R&D investment due to low corporate spending. The US sees 2.8x more private investment per capita than Canada, while Europe receives 5x and Asia-Pacific 8x more.

The report suggests this trend could lead to a talent drain and the redirection of Canadian funds to foreign markets. That would ultimately put Canada’s emission reduction targets at risk.

Also read: Three Canadian startups in Venture for ClimateTech latest cohort

Lack of domestic investment is a major gap in the system

The companies BCG interviewed cited Corporate Canada’s conservatism and an ambition gap between Canadian and American entrepreneurs as key constraints. Canadian startups are often acquired by American companies or they move major demonstration projects to the US or the UK. As per the report, these issues, along with lower graduation rates in climate-focused areas and the brain drain of STEM graduates, could hinder climate tech development in Canada.

The study highlights the diverse range of initiatives for green technology funding and talent development happening globally. It cites the substantial funds allocated in the US Inflation Reduction Act, to the efforts of Clean Denmark, and to Start-Up Chile. Against this backdrop, to compete globally, Canada must make significant changes and corporations need to prioritize domestic climate tech. BCG says Canadian investors should focus more domestically by developing a clear climate thesis and bridging the growth financing gap. The government would also need to incentivize R&D funding and attract more demonstration projects and scale-up capital.

Overall, as per BCG, climate tech presents both thrilling growth opportunities and unpredictability for individual companies and investors in Canada.

Also read: Clean energy innovations get CA$5.2M more support from BC


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