Green Recovery 101: Governments and the manufacturing sector must work together

The stakes are high for the economic recovery, but it has never been higher for the Canadian manufacturing industry. What the federal government does in the months following the long-awaited throne speech has the chance to either leapfrog or derail our producing sector.

The main focus needs to absolutely be on containing the COVID-19 pandemic and alleviating the immediate brunt of its economic and social impact. But as the federal and provincial governments look into the mid- and long-term, they need to realize that they will heavily rely on the manufacturing sector to pull a long-lasting recovery.

In recent history, it has never been more important to align economic growth with goods produced. The foundation of any economy stems from what a country consumes domestically and what it can competitively export to other markets. The producing sector in a country as rich in natural resources as Canada is core to that foundation. Investing wisely and sustainably in manufacturing would also trigger the much-needed recalibration to the service and financial sectors.

Manufacturing has, on average, higher job multipliers than other sectors mainly because once a production is set up competitively, it will either integrate into or generate the creation of more wholesome supply chains. For example, jobs in the mining and manufacturing sectors have on average a seven to 10 times multiplier effect on additional jobs created. Logically, these supply chains will need services (logistics, warehousing) and these services will inevitably need supporting services (housing, restaurants, banking, etc). For this reason, it is vital that we get this right in the context of the “big reset” and set Canada back to a sustainable growth path.

The federal government has struggled in the past five years to engage constructively with the manufacturing sector. It has juggled with its green agenda and the need to keep its traditional industries running at the same time. In a way, the transition has been left to companies to manage on their own and at their own costs, “supported” only by stricter regulations and additional taxes. Interestingly, in Germany, the traditional energy players are reinventing themselves precisely due to government support, with incentives and rewards for first-movers and early-adopters of more sustainable technologies. There is no light switch for a transition. It is a process that needs co-ordination and collaboration, despite the fast pace required, given the climate emergency. The time is ripe to roll up the sleeves and come up with a viable transition together, and here are some examples how.

The oil and gas sector is ready to play its part. It harbours some of the most innovative, transformational and adaptive workforces. It is also the owner of some incredible infrastructure in the country — infrastructure that will become very valuable for an energy transformation. If one thinks about hydrogen and what it needs to succeed as an energy fuel, this is infrastructure and accessibility. Oil and gas companies have both. Pipelines and gas stations, these will be key to get hydrogen to vehicles and other power sources.

Interestingly, the discussion about hydrogen has been simplified to a “solve it all” solution for a clean energy transition. Not so fast. Traditional hydrogen production may yield clean fuel to burn, but its production footprint still has some ways to go before being considered carbon neutral. Many companies, including BASF, have been looking for ways to minimize or completely neutralize emissions in hydrogen production. Methane pyrolysis is one of the most promising technologies, and would enable the production of hydrogen emissions-free and with a byproduct of solid carbon, which has many applications, including energy storage. This technology when coupled with Canada’s already clean renewable or natural gas-based power grids would truly bring about one of the cleanest productions of fuel and energy globally. We need early adopters of this technology to push it forward.

The same way the federal government signalled its support for retrofits addressing energy efficiency in buildings, so too will the energy sector need government support to make necessary adjustments to transition from its current operations. We need tools that incentivize early adoption of new technologies and not measures that stifle investment decisions. An example of this could be a financing mechanism that reduces the front-load investment cost with forgivable loan structures and grants, where job creation and future tax revenue would compensate the initial government support. As milestones are achieved, loans are forgiven. Even more importantly, we do not have the luxury to wait for new companies to come and set up camp in Canada, we must work with current incumbents to accelerate their transition and protect the incredible workforce that already deploys in the market and the communities they service. The social value that these companies create cannot be underestimated, especially under the current pandemic crisis.

As if Canada’s fortune would not be enough as a lead producer of clean hydrogen, Canada is in a wonderful position to shape the electrification of mobility globally. With countries trying to catch up to China’s leading position in the battery space, it would be great to see Canada emerging as a strong player in this sector. There are few countries, or maybe none, that could claim the ability to produce lithium-ion batteries for electric vehicles within its own jurisdiction. All the minerals necessary for an electric-vehicle battery exist in Canada. This is not only a unique claim, but also speaks to sustainable and ethical sourcing of battery components.

To take advantage of this, there would need to be significant sectorial support to repurpose mines and finance heavy front-loaded investments in full-value chains. This would represent a renaissance to a sector that has been slowly bleeding out of Canada. Not only would the boom occur in the mining sector, but it would surely spill over into other related sectors, namely automotive. It is refreshing to see lately the government embracing this multi-industry opportunity and being vocal about its intention to aggressively support these producing sectors.

The devil, of course, is in the details in a smart transition to the green recovery. It is not a click-of-a-button exercise. There is no easy fix. But the opportunities are vast for Canada. We need the government and the manufacturing sector working together to jointly set forth the path to a green economy. The solution must not be taxing and regulating, but, instead, incentivizing and rewarding early adopters and newcomers.

The laggards will need to follow or be left behind. It is about smart regulation that leaves room for innovation to flourish and find new sustainable ways to produce. Canada has all it needs to start the process, but it must take advantage of this crisis moment and pivot to measures that under normal circumstances would be considered unpopular. A sizable anchor investment now from the government into key manufacturing sectors would play a positive, domino effect for the development of industry clusters and subsequent investments that would grow organically.

Canadians should not overanalyze the throne speech. Rather, they should focus and be critical about the actions that follow. We are at a crossroads where social value and climate change need to play into how we address our future, even in the manufacturing sector. The time is now to boost this change through broad collaboration between the sector and our federal and provincial governments.