These 10 steps will strengthen Canada's economy and climate

The current health crisis has proven disruptive for every Canadian industry. For manufacturers, this disruption has been especially tough.

Canadian Manufacturers and Exporters (CME) recently forecast an overall decline in output of 5.7 per cent this year, making 2020 the worst year for domestic manufacturers since the 2008-09 recession. Although most expect growth to rebound next year, a slower global return to growth would hit Canadian manufacturers and exporters especially hard.

Yet while the forecasts are grim, Canadians have also borne witness during this pandemic to the critical role Canada’s manufacturers play in our economy. Global shortages of medical equipment have caused local manufacturers to pivot from making hockey supplies, education tools and plastic moulds to producing personal protective equipment (PPE), ventilators and hand sanitizer to support the COVID-19 fight. Guelph-based Danby has converted from manufacturing home appliances like refrigerators to making ventilators for Canadian hospitals. CCM Hockey in Quebec is making PPE for medical professionals. Craft distilleries from Nova Scotia to B.C. are now famously churning out hand sanitizer.

Manufacturing goods in Canada can support our resilience in times of crisis, and plays an important role in supporting jobs, communities and our economy.

The same can be said for Canada’s homegrown clean technology manufacturers. Once the COVID-19 crisis has passed, these homegrown manufacturers will once again be generating local jobs, building Canada’s resilience to climate change, and tapping into the fast-growing global markets for low-carbon and green solutions. We want Canadian clean technology manufacturers to win this prize, and so governments should take steps today to support them. But supporting a growing sector may mean little if Canada’s overall trade policy turns protectionist.

As supply chain vulnerabilities are exposed and the value of self-reliance becomes clearer in a crisis, it is smart policy to support our domestic manufacturers. The risk is that we do it in the wrong way: By pushing others away to reduce our exposure to crises. In a lower-carbon, more digitized future, this would only hurt Canadian businesses and consumers. Canada’s economy will need access to the world market to thrive. We can use this crisis as an opportunity to help ensure we grow the right way moving forward that will make us both safer and stronger.

“Made-in-Canada”: The good way and the bad way

Countries are now more aware than ever of the vulnerability of global supply chains. It is now painfully clear that most of what we buy comes from elsewhere, including the medical and protective equipment front-line workers desperately need. Governments and companies have begun to consider what steps to take to reduce the risks of this level of disruption occurring again.

From this discussion, notes Globe and Mail columnist Andrew Coyne, two schools of thought have emerged that take their own lessons from the crisis. The first is “be better prepared.” The second is “be less open.” The latter is based on the view that our open economy has increased our exposure to being affected by world events like pandemics and natural disasters. The solution is therefore to become less open; to rely more on domestic production and less on the world.

Protectionism is a bad idea in the best of times. When the going gets tough, it offers even worse prospects. This holds more truth in a low-carbon future. One reason why is that Canada’s clean technology manufacturing sector, the backbone of our future prosperity in a cleaner economy, would be especially hard-hit. The development of Canada’s clean technology industry will require greater economies of scale and more competition. Economies of scale allow for manufacturers to learn by doing, which lowers prices and develops expertise in areas like solar panel, wind turbine and battery manufacturing. Competition creates the push to make better products, which fuels innovation.

Zero-emission vehicle (ZEV) demand has grown exponentially with the rise of Tesla and BYD, pushing other auto manufacturers to design and build their own ZEVs, and increasing supply enough to allow governments to set ambitious, but realizable, ZEV-purchasing targets.

Becoming less open to trade makes it more difficult to take advantage of these forces and grow our clean-technology manufacturing sector. Our domestic market is not large enough to help a high volume of companies reach the scale needed to achieve the benefits of learning by doing. It is also not large enough to support the number of competitors needed to fuel the innovation required to build world-leading clean-technology companies.

Without access to world markets, Canada’s forecasted rate of investment in clean technology will slow, hurting job creation and increasing the cost for Canadians to meet our climate targets while growing our economy.

Making a stronger, cleaner economy

Protectionism isn’t the answer to supporting domestic clean technology manufacturers. However, there is still an urgent need for policies to support the growth of Canadian manufacturers in a way that maintains our access to world markets and helps build Canadian clean-tech champions.

Here are 10 recommendations for non-protectionist solutions the government can consider in the coming months to build a stronger foundation for a cleaner, safer economic future.

Stop doing counter-productive things

1. Abolish import tariffs on clean-technology manufacturing inputs. A recent analysis by the Toronto Board of Trade identified that elimination of 29 tariffs on clean-technology inputs would save manufacturers tens of millions of dollars in compliance costs every year, along with the $37 million in tariffs they paid to import those inputs.

2. Identify internal trade barriers that impair the clean-tech sector. There are obvious candidates. One is a lack of a true national securities regulator. Another is the many interprovincial barriers to trade. This is an opportunity for the federal government to continue to work with provinces to align efficiency and regulatory standards, similar to work started by the Regulatory Reconciliation and Cooperation Table.

Helping companies “Make-in-Canada”

3. Make Canada the most attractive place to start and grow a clean-tech business. The federal government should expand the use of investor tax credits and flow-through shares for clean-technology companies. They should also lower the corporate tax rate by 50 per cent for zero-emission solutions manufacturers, as promised in the Liberal government’s 2019 election platform.

4. Ensure Canadians have the skills needed to work in the clean-tech sector. Skills training is critical to ensure Canadian workers are the ones building a cleaner economy. Skills training programs can be particularly helpful right now for one demographic: Women under 25, who have been unemployed in this crisis at higher rates than any other demographic. Programs to increase the number of women in the skilled trades, who made up only 14 per cent of apprenticeships in 2018, should be prioritized.

Helping companies “Buy-from-Canada”

5. Help large businesses adopt clean technologies. The federal government should expand the use of Accelerated Cost of Capital Allowances (ACCA) for all firms making clean-technology investments. This could also be coupled with a small tax credit for firms, to encourage even faster adoption of clean technologies.

6. Help SMEs adopt clean technologies. The major barriers for small- to medium-sized companies to adopt clean technology is a lack of financing, and a lack of internal capacity to spend time applying for government programs that offer it. The federal government should boost existing loan-guarantee programs to support adoption of clean-tech across sectors, and ensure funding is allocated through third-parties, like regional development agencies, local electricity and natural gas utilities, and industry associations that can work directly with companies and entrepreneurs to get money where it is needed quickly.

7. Help consumers adopt clean technologies. The use of income or purchase tax credits are great incentives to support clean technology adoption, and are already successfully used for ZEVs across Canada. Creating federal tax credits for home-heat pumps, energy-efficiency retrofits and new energy-efficient appliances are all examples of smart extensions of successful policies.

8. Use government procurement to support demand. Government procurement at every level can be a powerful demand driver for domestically produced clean technology. The federal government can give loans to support municipalities in electrifying their corporate and public transit vehicles, help provinces electrify school buses, and help local utilities invest to modernize their electricity grids. The key will be pairing adoption measures with manufacturing incentives to ensure the high-quality clean tech used to decarbonize Canada is built by Canadian workers.

The enabling role of climate policy

9. Set out a clear path for increasing the carbon price. Carbon pricing helps grow the market for clean technology by adding in the negative impacts of climate change. It also sends a long-term market signal that helps companies plan their future investments. One of the best ways the federal government could support domestic clean-technology manufacturing is by laying out a path today for future carbon price increases that are currently set to stop at $50/tonne in 2022. This would offer price certainty for businesses to help them plan for the transition, and support a shift of investment and workers into sectors with more favourable long-term growth prospects.

10. Set out a clear path for all other climate policies. The same is true for all other emission-reduction regulations: Companies can’t support a transition if they don’t know where the country is going or how fast it intends to get there. Policy certainty around ZEVs has been supported with purchasing mandates that have helped businesses plan asset purchasing and stock turnover rates for corporate fleets. Clearly laying out what will happen with regulations like fuel-efficiency standards for vehicles and methane standards for oil and gas would have similar effects, and would help companies know in advance what the rules of the market will be moving forward.

Canada’s future as a domestic clean-technology giant cannot happen if we turn inward. Protectionism hurts Canadian businesses and workers and slows the market forces that are necessary to help the country meet its climate targets. For Canada to thrive in a low-carbon future, we must maintain both the spirit of community shown in this crisis and our dedication to an open world to benefit workers, communities and our shared low-carbon future.