Canada Must Prepare Now for the Post-carbon Economy
October 11, 2017
Last week, TransCanada Corp. aborted the $15.7-billion Energy East Pipeline project citing regulatory hurdles. Despite the $1-billion loss, the company made a wise financial decision. It is unlikely TransCanada could have earned a significant return on its investment.
The economics of energy cannot be denied: We are entering a post-carbon economy. The energy transition is underway. The question is, how will Canada’s economy continue to thrive?
Canada’s largest companies still depend on hydrocarbon value chains. But unsubsidized solar and wind energy are now cheaper than coal, oil, and even natural gas, according to Lazard. Indeed, on Oct. 4, the International Energy Agency (IEA) released a new report showing that worldwide solar capacity grew 50 per cent in 2016, faster than any other fuel source. The IEA notes that “…contract prices for solar PV and wind power purchase agreements are increasingly comparable or lower than generation cost of newly built gas and coal power plants.”
Meanwhile, the price of storing and delivering renewable energy is falling quickly. Battery packs cost roughly $200 (U.S.) a kilowatt-hour (kwh) today but could hit $109 by 2025, Bloomberg reports, making electric vehicles more affordable than gasoline-fuelled equivalents. Market forces are phasing out hydrocarbons.
To understand the magnitude of this energy transition, we must place it in historical context. Until circa 1900, horses were the most “advanced” form of mass transportation. Yet, their manure created a public health threat, a breeding ground for diseases, in cities like London and New York. Fossil-fuel-powered cars offered a relatively clean energy alternative. But that was for a world population of 1.65 billion.
Over the past century, we filled Earth’s atmosphere with unprecedented levels of carbon dioxide. Climate change is to the early 21st century what horse manure was to the early 20th century – a problem of scale. Our goods, services, and infrastructure were designed for a 1900 population. Somehow, we must serve a population of 9.7 billion people by 2050 without making planet Earth uninhabitable. That is what the energy transition is about. It’s an enormous challenge but also a great opportunity.
Here are three suggestions for Canada’s resource-based industries to thrive during the transition and transform themselves into “post-carbon” powerhouses:
Find reuse cases for hydrocarbons
Cargill, the U.S. food giant, and Calysta, a biotech startup, provide an outstanding example. They partnered to produce a new feed for fish, livestock, and pets. Essentially, they turn natural gas into protein that is non-GMO and animal-free. It reduces emissions, requires less water than feed crops, and takes up no farmland. Closer to home, Hui Wang at the University of Saskatchewan has patented one of the first commercially viable catalysts for synthesizing carbon dioxide and methane back into usable liquid fuels. If we apply these types of cleantech innovations to Canada’s natural resources, we can reuse them in sustainable, valuable ways.
Fund cross-disciplinary projects
Canadian companies must work with multidisciplinary partners to excel in sustainable industrial innovation. The growing economy around graphene, a carbon-based nanomaterial, illustrates this well.
Researchers have shown that graphene has the potential to replace 14 rare earth metals found in common electronics like smartphones and tablets. It also has applications for fuel cells, saltwater filters, and futuristic materials like graphene-composite spider silks. If we could capture it efficiently, the surplus of carbon dioxide in our atmosphere would fuel these projects, creating value and reducing the greenhouse effect simultaneously. These applications require collaboration among nanotechnologists, engineers, public-health scientists, chemists, and biologists, among many others. Cross-pollinating ideas is just a better way to innovate.
Build networks, not scale
We cannot expect big companies to drive innovation the way they did in the 20th century. When I speak with top engineering students at North American and European universities, they say they don’t want to work for large companies. They want to work in startups. Large companies cannot access younger talent the old way – with status and juicy paycheques.
Instead, big firms must remodel into networks of small, capital-efficient startups. General Electric (GE) is on the right track with FastWorks, an enterprise twist on lean startup methodology. GE Appliances used to revise products every five years, writes consultant Brad Powers in the Harvard Business Review. Now, a small, cross-functional team might have three months to produce a “minimum viable product” with a small budget.
If a Fortune 50 company with nearly 300,000 employees can go lean, Canadian companies can do it, too. However, not all innovation needs to happen inside a traditional, full-time employee model. Rather than trying to hire university students themselves, large companies should seed their startup projects. The new ventures will function as lean R&D groups yet maintain the independence their members value. The network model would build upon the agile methodologies that have deconstructed goliath, hierarchical companies like GE into small, self-organizing teams.
Canadian companies have one shot to adapt to the post-carbon economy. Leaders who invest in reuse cases, cross-disciplinary innovation and networks will lead our economy. Those who just invest in cost-cutting and efficiency will not endure.
The market has said loud and clear that 9.7 billion human beings want a healthy, safe, and comfortable future on this planet. Canada’s economy can serve that future. The energy transition could become an engine of prosperity depending on what actions we take today.
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