New C.D. Howe report a must-read in Alberta

If the latter day quest for the Holy Grail was about finding eternal youth, the modern day version for governments is finding the cheap, effective technology that lowers carbon footprints and doesn’t result in too much economic dislocation.

Even better is if it can help diversify an economy.

If anything, the Paris climate conference last year was an indication most governments around the world — including those of a few oil-producing countries — have realized the metaphorical low-carbon train has left the station and they have no choice but to be on it.

At a very high level, it’s clear that what’s underway is an energy revolution whose developments will reverberate for decades or even centuries to come — just like what happened when Winston Churchill decreed the Royal Navy would be fuelled by oil rather than coal.

One need only look at the developments already taking place — such as the batteries designed for homes, like the Tesla Powerwall, which could eventually see the electric-utility companies of today becoming sellers of these batteries to their customer base — as one example.

The challenge is how to make all this work: from the dislocation created by phasing out coal-fired power, to developing the right technologies, providing the incentives that cause consumers to change behaviour and finding the dollars to do both.

And a policy report released by the C.D. Howe Institute on Wednesday should serve as an interesting guide for what governments should and should not consider.

The most important step to take — according to the study’s author, David Popp, professor of public administration and international affairs at the Maxwell School at Syracuse University — is to put a price on carbon.

His preference, for the record, is that of a carbon tax because it provides more certainty for companies and thus more likely to foster long-term investment commitments compared with the cap and trade alternative.

Alberta, with its Climate Leadership Plan, has taken that first step with its carbon tax, which goes into effect on January 1, 2017.

The question is whether the other pieces of its plan — the subsidies to consumers to offset the tax, the commitment to reinvest a portion of the tax collected in new clean-tech opportunities and to promote energy efficiency — are enough to achieve the second objective of sustainable carbon reduction. The key here, says Popp, is to structure the policies to motivate consumers to change behaviour and adopt new, low-carbon technologies. That’s how the second goal of lowering a jurisdiction’s carbon footprint, and in Alberta’s case, diversify its economy, can be achieved because it creates demand by consumers for clean tech.

“Without policies that reflect the social cost of damages caused by pollution, newly developed low-emission technologies will not diffuse through the marketplace,” states the report.

Popp makes the point that if the government is going to take the initiative funding research and development in terms of new technologies, it needs to think about taking a role the private sector is likely to stay away from.

“This means the government should be supporting research and development that the private sector would not be interested in doing,” said Popp. The report uses the example of the U.S. Department of Energy helping small firms through its Small Business Innovation Research grants that have helped companies to prototype their new technologies and bring them to market.

The report states that these “one-time grants to small young firms that would otherwise have difficulty financing the fixed costs of commercialization are an example of government investment complementing that of the private sector.”

This approach ensures governments don’t crowd out the private sector but it also mirrors what the Alberta government did back in the 1970s when it chose to support research aimed at developing technologies for oilsands extraction.

The trick will be for the government to commit to the initiatives being funded that are longer term in nature — and not within the time frame of an election cycle.

Also important is the need for companies operating in the clean-tech space to realize the market is global, not continental or domestic. This is all about recognizing Alberta — and Canada — are small markets for clean tech potential and adoption. The U.S. might represent a huge untapped opportunity, but it has yet to put a price on carbon; until that price signal happens, the demand for low-carbon alternatives is not going to grow south of the border.

Firms won’t spring up if they are just ... limited to the Canadian market

“Firms won’t spring up if they are just going to be limited to the Canadian market because it is small,” said Popp. “Access to foreign markets is very important.”

It’s not unlike what the oilpatch is dealing with in terms of needing to access new markets to maximize the value of what it is producing. One could even argue that it would be in the country’s best interests if it could develop a viable, clean-tech industry that is independent of the U.S. market. They might want to look to a country like Sweden, which relies on trade, all of it value-added and none of it natural resource dependent.

That is the kind of bold step required if Alberta and Canada are to find the Holy Grail that achieves both a reduction in carbon emissions and economic diversification.