Benchmarking – Chapter 3.2
Chapter 3
Canada and the G8 Indicators: Detailed Ranking of Canada’s Low-Carbon Performance
3.1 EMISSIONS AND ENERGY
3.2 INNOVATION
3.3 SKILLS
3.4 INVESTMENT
3.5 POLICY AND INSTITUTIONS
3.2 Innovation Category
CANADA RANKS 3RD IN THE INNOVATION CATEGORY. WHY THIS MATTERS:
Innovation is a key factor for economic competitiveness in any context. According to the World Economic Forum, “In the long run, standards of living can be expanded only with innovation.”[26] Innovation particularly matters for low-carbon performance and reducing GHG emissions. The acceleration and diffusion of less-GHG intensive technologies are imperative to a country’s successful low-carbon transition.[27] In what the U.K. Sainsbury Review[28] characterizes as a “race to the top,” countries have the opportunity to enter and create leadership in new and expanding markets (e.g., carbon capture and storage) by supporting technology advances through both government and private sector R&D funding.
Public- and private-sector investment in low-carbon energy R&D is an important driver of such technology development given the high costs and scales at stake. Public investment is of particular importance in the absence of comprehensive national and international climate and carbon pricing regimes. Countries must decide whether to invest in a wide range of energy technologies that could be deployed to address their particular national climate and energy circumstances, or to focus on specialized comparative strengths for domestic benefit or export purpose. Finally, to attract investment, encourage and reward innovation, and capture the benefits of technology development, deployment, and commercialization, a country’s intellectual property regime in the form of patent protection is foundationally important.
THE INDICATORS
Three indicators were selected for the Innovation category:
// LOW-CARBON ENERGY PATENTS
// ENERGY SECTOR BUSINESS EXPENDITURE ON R&D
// GOVERNMENT EXPENDITURE ON LOW-CARBON ENERGY R&D
Low-Carbon Energy Patents Indicator
LOW-CARBON ENERGY PATENTS per million people is an indicator of new technology development for low-emissions energy production. It is the gross number of patent applications filed under the Patent Cooperation Treaty related to renewable energy, fuel cells, and nuclear divided by population.
Patent grants are often cited as a measure of the inventive activity and effectiveness of R&D investments since they offer “a good indication of the results of innovative activity and allow for interesting cross-country comparisons.” [29] Patents protect competitors from copying the intellectual property of investors by offering exclusive rights to make, use, and sell an invention. Low-carbon energy patents serve as a proxy for technological innovation to meet growing demand for low-carbon energy sources. The scope of technologies included here includes geothermal, solar, wind, tidal and wave energy, fuel cells, hydroelectric and nuclear power, carbon capture and storage (CCS), and even building efficiency and transportation. It is estimated that international “cleantech” patent filings increased by 430% between 1998 and 2007.[30]
Canada ranks fourth in this indicator, marginally ahead of the U.K. Japan is the low-carbon patent leader. Canada’s relative strength in this indicator is reinforced by two additional comparative measurements: strength of the intellectual property (IP) regime and growth in low-carbon energy patents. Figure 7 illustrates findings regarding the strength of overall IP regimes in the G8 from the World Economic Forum. Canada receives a 5.5 ranking out of 7, surpassed only by France and Germany.
Canada has also experienced a strong growth rate in low-carbon patent registrations, surpassing all G8 countries over a ten-year period, as illustrated in Figure 8. It has steadily increased its performance to leapfrog past the U.S., and is now ranked in the company of strong patenting nations such as Germany and the U.K. With the expectation of more applications for cleantech patents, especially in the short term, the protection of intellectual property will be critical to helping companies—and by extension countries— prosper over time.[31]
Energy Sector Expenditure on R&D Indicator
ENERGY SECTOR EXPENDITURE ON R&D per GDP measures how much the private energy sector is spending on research and development as a percentage of GDP. It indicates both the intensity and capacity of that country’s private energy sector in investing in new energy innovation and technologies. The energy sectors include emissions-intensive oil and gas and coal sectors.
This indicator acts as a proxy for a country’s energy sector capacity and willingness to develop low-carbon energy solutions. It also indicates how conducive the private sector environment is in that country for future low-emission energy R&D investment. Private R&D investment in this sector typically focuses on the development and refinement of existing and operational technologies, as opposed to basic research for long-term technology development. It is difficult for industry, particularly within competitive or highly regulated markets, to justify and recoup the cost of large, upfront R&D investments that a low-carbon transition requires. This is particularly so without comprehensive carbon pricing regimes.
Canada ranks sixth on this indicator, spending only $2.60 on R&D for every US$1,000 of GDP; Japan is the uncontested leader ranking first in this and two other indicators for this category. It outpaces Germany (2nd) by one-sixth, and more than triples spending by Canada’s energy sector. Japan’s private-sector investment ranking in energy sector R&D is attributable to its level of investment in nuclear research, reinforcing government spending here also. As a result of its commodity base, Canada is primarily focused on fossil-fuel R&D, although nuclear and renewable-energy technology research has seen growth over the past decade.
While Canada ranks near the bottom of this indicator in terms of actual spending, it has experienced the highest growth rate among G8 nations since 1995 in absolute dollars, significantly outpacing its competitors, as shown in Figure 9. Given the realities of the sector in terms of huge capital investment requirements and its ability to recoup investments (as a result of low margins), this spending growth increase suggests that as this sector expanded it has maintained a focus on technology development. Nevertheless, this has proved insufficient for Canada to do better than its current sixth-place rank compared to its G8 competitors.
This may not be surprising when considering overall business expenditures in Canada on R&D as a proportion of GDP. Canadian business spending on R&D of about 1% of GDP has consistently ranked below the OECD average of 1.6% and is only about half of what the U.S. spends.[32]
Government Expenditure on Low-Carbon Energy R&D Indicator
GOVERNMENT EXPENDITURE ON LOW-CARBON ENERGY R&D addresses the need for public sector support for encouraging innovation in energy technologies in general and low-carbon technologies in particular. Government support of fundamental research is an important indicator of a nation’s leadership in basic technology research and in driving productivity improvements.
Government support for R&D has been a key feature of growth and progress in the energy sector. The timelines required to scale up operability and to reach demonstration and commercialization status and the economics of such technologies mean that government support is critically important at early stages of the technology life cycle. According to the International Energy Agency (IEA), public sector investment in R&D is generally directed to stages of technology development that are of high risk and return, whereas the private sector tends to cover later stages of innovation.[33] Early stage innovation expenditure is critical for the survival of young technologies and firms, so government support of R&D is an important indicator of a nation’s leadership in basic technology research and in driving productivity improvements. Government support is considered to play an essential role in the nurturing and long-term development of new, “high-risk” low-carbon technologies.
Canada ranks third on this indicator. As is the case for first-ranked Japan and second-ranked France, this is due to investments in expensive nuclear energy research compared with other areas of energy R&D. Although nuclear investment has experienced a significant decline over the past 15 years, it still accounts for the majority of government R&D spending, with the exception of the U.K. Figure 10 breaks down these figures between renewables and other low-carbon investments. For every thousand dollars of GDP (in US$), Canada spent 35 cents in low-carbon energy R&D. Investments in basic research for renewable energy technologies lag significantly by comparison with other low-carbon energy R&D across all G8 countries, with only small differences among nations. Canada ties Italy and the U.K. for leadership in renewable energy technology investment. In the same time period renewable investment has increased slightly (on a relative, per GDP basis), a trend that will need to shift for a successful low-carbon transition.
The results are reinforced by other recent studies on Canada’s innovation performance. Canada’s Expert Panel on Business Innovation has found that we have a serious productivity growth problem, not due to lack of a skilled workforce or capital investment, but to weak business innovation. We tend to be technology followers, not leaders. [34] This general finding was reinforced in a recent benchmarking analysis conducted by the Conference Board of Canada, which ranked Canada 14th out of 17 peer countries.[35] Figure 11 from the OECD demonstrates Canada’s comparative performance for gross domestic expenditures on R&D overall as a percentage of GDP. It indicates that within the G8 group of nations (less Russia), Canada spends approximately 2% of GDP on R&D, 5th in the G8 comparison.
Canada has taken recent steps to increase funding for CCS projects, an important contributor to GHG emissions reductions. Over $800 million has been announced in federal support for CCS for three large-scale projects. Provincial support from Alberta and Saskatchewan has also been committed.[36]
© 2013