Benchmarking – Chapter 3.4
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
3.4 INVESTMENT CATEGORY
CANADA RANKS 4TH IN THE INVESTMENT CATEGORY. WHY THIS MATTERS:
Public and private investment in low-emission or clean technology development will be crucial to propelling nations ahead to a strong competitive position in a low-carbon economy. Such investment will be essential to meet domestic GHG emission reduction targets. While market and regulatory measures, such as carbon pricing and renewable portfolio standards, will create market demand for and drive investment in cleantech development, government stimulus and direct investment can help lay a foundation for a low-carbon economy by acting as near-term catalysts of new cleantech development and job creation.
The IEA estimates that the total technology investment required to avoid dangerous climate change is more than US$1 trillion per annum.[46] Global private investment in renewable energy and energy-efficient technologies is estimated to reach $450 billion annually by 2012 and $600 billion by 2020.[47] HSBC Global Research found that global climate change–related revenues rose by 75% in 2008, to US$30 billion, and has estimated that by 2020 revenues from the equity market could reach US$2 trillion.[48] Previous NRTEE research on carbon pricing for Canada estimated that investment would need to increase by $2 billion per year between 2010 and 2020 to meet the federal government’s GHG reduction targets. [f], [49]
Investments are required at all stages of technology and business development: angel investors, venture capitalists, banks, and public funding all cater to unique funding needs. The Toronto Stock Exchange (TSX) is developing a global competitive advantage as a place for investment in clean technologies and the renewable power sector.[50] Nations with strong investment environments in low-carbon industries will generate capacity for building new firms and technologies to take full advantage of the transition.
THE INDICATORS
Three indicators were selected for the Investment category:
// CLEAN TECHNOLOGY INITIAL PUBLIC OFFERING (IPO)
// CLEAN TECHNOLOGY VENTURE CAPITAL (VC)
// LOW-CARBON STIMULUS SPENDING
Clean Technology Initial Public Offering (IPO) by Millions of US$ Indicator
CLEAN TECHNOLOGY INITIAL PUBLIC OFFERING (IPO) BY MILLIONS OF US$ is a measure of the market attractiveness of clean technology companies and their ability to raise funding through equity markets. It is defined as the average IPO value for cleantech firms. This measure relates to IPOs within a particular country, and does not necessarily mean that the issuing companies are from that nation.
This indicator is a measure of the average amount of money raised in public markets for clean technology companies—a higher score on this measure is an indication of the amount of equity market capital being raised, on average, in that country by cleantech firms. IPOs are important to consider as they are indicative of a company reaching the point in its life cycle where it is successful enough to attract equity investment to grow. Financial capital is crucial for market and business development, and the presence of investors willing to take bets on cleantech firms indicates, among other things, the level of confidence that investors have in the domestic clean technology marketplace.
Canada ranks fourth on this indicator, in the middle of the G8 pack; France is first principally due to a large IPO in 2006 (the base year) that inflated its ranking. The worldwide cleantech IPO market is dominated by the U.S., with Germany coming in a distant second.
The U.S. has attracted nearly two-thirds of G8 cleantech IPO activity since 2005, in terms of both dollars and deals, as shown in Figure 15. Canada falls in the middle range of average IPO value, but with only 5% of the value of total funding raised, it cannot be considered a significant player in the global IPO market. This should be of concern to Canadian-based clean technology companies seeking access to global capital via domestic markets. It suggests that other mechanisms such as public investment and regulatory developments will be the key drivers of clean technology development and commercialization in this country through the establishment of long-term price signals. As Deutchse Bank has recently emphasized, clean energy investors assess country-level risk when considering where to invest, and seek out climate change regimes characterized by transparency, longevity and certainty.[51]
IPO activity has decreased over the past three years—likely due to the global economic recession—although there are recent signs of new activity and investor interest in the sector. As Figure 16 shows, Canada did not have any cleantech IPOs in 2008, but had two deals in 2009.
Clean Technology Venture Capital Indicator
CLEAN TECHNOLOGY VENTURE CAPITAL spending measures total venture capital spending dedicated to clean technology, represented as a share of GDP. It is an important measure of the strength of a country’s cleantech sector and ability to accelerate growth of early stage technologies.
Cleantech venture capital (VC) spending is an indicator of private sector energy-related investment in new companies selling products and services that “offer competitive returns for investors and customers while providing solutions to global challenges.”[52] Countries that score well on this indicator are helping to create an innovative and entrepreneurial environment, as well as generate employment, which will position them well in the transition to a low-carbon economy. As such, it is an important measure of the strength of a country’s cleantech sector and its ability to accelerate growth of early-stage technologies.
Canada ranks third on this indicator, quite behind the U.S. but competitive with the U.K. and closely followed by Germany; all other countries are well behind.
Cleantech is a rapidly growing industry and is becoming a mainstream investment category. Research has shown that every $100 million of VC invested could result in 2700 direct jobs, as well as additional revenues and other indirect employment opportu– nities.[53] VC is an important source of financing for early stage, high-growth potential firms with significant upfront expenses that are too small to raise capital in public markets, and with limited ability to secure debt financing. The U.S. leads the G8 in cleantech VC activity, capturing almost 80% of the total of these countries over the past five years, as illustrated in Figure 17. In 2009 alone, its investments more than doubled those of the U.K., and nearly tripled Canada’s.
Low-Carbon Stimulus Spending Indicator
LOW-CARBON STIMULUS SPENDING is an indicator of a country’s investments in positioning for both a low-carbon economic recovery and long-term low-carbon transition. It is defined as the percentage allocation of total announced economic stimulus spending in the period starting 2009 by all levels of government directed to low-carbon power initiatives, including renewables; CCS; energy efficiency in buildings and vehicles; and rail and grid upgrades.
Stimulus spending by governments has been a major public finance tool used by all industrialized economies to climb out of the recent financial crisis and economic downturn. Many of the trillions of dollars in global stimulus spending have been directed in the form
of short-term stimulus aimed at kick-starting economic recovery and boosting GDP, rather than investing in longer-term low-carbon transition. However, effective stimulus directed to low-carbon energy projects, energy efficiency in buildings, and technology development can be useful to spur more low-carbon job creation and thus a more sustainable recovery.
Canada ranks fourth in this indicator, allocating just over 8% of budgets to low-carbon initiatives; France leads this indicator, with over one-fifth of its stimulus budget directed to low-carbon energy projects and energy efficiency. Figure 18 illustrates the magnitude of each country’s green stimulus package.
Canada’s stimulus priorities lie in the areas of low-carbon power and energy efficiency, and it is the only nation in the G8 to include nuclear in its stimulus plans. There is considerable variation across the G8 countries in terms of how low-carbon stimulus dollars are being spent. Energy efficiency accounts for nearly two-thirds of global investment in this area. As shown in Figure 19, only the U.S. and France have undertaken significant investment in renewables, with countries such as Japan and Germany focusing almost exclusively on investment in building energy efficiency. Energy efficiency in buildings and renewables rank highest in terms of low-carbon stimulus potential. Canada has directed the bulk of its funding toward CCS and nuclear, as well as rail and grid upgrades.
The London School of Economics has devised a methodology for evaluating the potential for a country’s stimulus measures to drive a low-carbon economic transition. The criteria for evaluation are timeliness, long-term social returns, positive lock-in effects, job creation potential, focus on economic slack, and extent to which the spending is temporary.[54]
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