The Case for Optimism

Photo-rich magazine version coming soon. 

This article will appear in the Winter 2023 issue.

By Markham Hislop

Mustering optimism is difficult in the midst of an energy crisis, sky-high inflation, a war in Europe that could go nuclear, three years of a pandemic that never ends, and humans’ seeming inability to stop ravaging the Earth’s climate. But what if, instead, we got it right? If we harnessed new technologies to make life better and cleaner? If we built a new global industrial economy based upon clean energy? The proposition that a cleaner, more prosperous world is within our grasp is not as improbable as it sounds, and it suggests the possibility that our children may yet hope for a better future than their parents.

In fact, there are thinkers who believe that a brighter future is more probable, assuming we humans don’t screw it up.

Take economist Tony Seba, the former Stanford University lecturer and founder of think tank ReThinkX. Seba and his team investigate disruption caused by new innovations and technologies. In their view, humanity itself is being massively disrupted.

“We are on the cusp of the fastest, deepest, most consequential transformation of human civilization in history, a transformation every bit as significant as the move from foraging to cities and agriculture 10,000 years ago,” he writes with co-author James Abib in their book, Rethinking Humanity. “This is not, then, another Industrial Revolution, but a far more fundamental shift.”

Energy transition triggers economic transformation

“A new energy economy is emerging around the world as solar, wind, electric vehicles, and other low-carbon technologies flourish.” – the International Energy Agency, October 2021

When it comes to energy, the famously staid IEA appears to agree with Seba.

When the COVID-19 arrived in early 2020, the energy transition was already decades old and many of the new clean energy technologies were close to their inflection points on the adoption S-curve and beyond them. The pandemic served as the first shock to the international economy. The second arrived when Russia invaded Ukraine in 2022 and then cut off natural gas exports to Europe. Fossil-fuels-importing countries around the world quickly realized just how vulnerable they were to their suppliers’ military and trade aggression. They also realized that generating clean electricity from renewables and producing low-carbon fuels like hydrogen at home, or securing it from trusted allies, would insulate their economies from predatory behavior by bad actors.

The twin shocks galvanized governments, businesses, investors, regulators, and other decision-makers. The United States and Canada, in particular, woke up to an unpleasant fact: North America lagged far behind China in clean energy technology and industry. For example, 77% of the refining and processing capacity to turn critical minerals into battery metals is located in China. Lithium mined in the United States would likely have to be shipped to China for refining, then shipped back, which hardly makes for a competitive fledgling battery industry. Shipping minerals overseas for refining would also add to the emissions intensity of batteries; for example, MIT estimates that manufacturing the Tesla Model 3’s 80 kWh lithium-ion battery already creates between 3,120 kg and 15,680 kg of CO₂. Even Europe was further ahead thanks to several decades of aggressive climate policies.

One reason North America lags is that during the first two decades of the 21^st century, Canada (oil sands) and the US (shale production) invested heavily in hydrocarbon extraction instead of clean energy. Now it has to play catch-up.

A common estimate for the global cost of switching to clean energy technologies and reaching net-zero emissions by mid-century is $100 trillion USD. That means hundreds of billions (if not a trillion or two) of capital per year will be spent in North America on, for example, wind turbines and solar panels, building new wind turbine and solar panel factories, and then building or expanding the supply chains to serve those new factories. Imagine North America undertaking a similar process for heavy industry (e.g., steel, cement), transportation, and building retrofits. Now imagine North America doing all of that while in a race with Asia Pacific and Europe for dominance — or at least competitiveness — in these new and revamped markets.

The job is gargantuan, which is why both countries have revived (and are modernizing) an approach common before 1980: industrial policy and strategy. The idea is for government to collaborate with business and other stakeholders (like labor and civil society) to identify new industrial opportunities, then implement the necessary policies to turn those opportunities into projects with capital investment attached, hopefully building “industrial clusters” and the supply chains to support them. The US and Canada are taking somewhat different approaches.

In August 2022 President Joe Biden signed the $369 billion US Inflation Reduction Act, which, despite its name, was designed as a huge boost to the clean energy economy and the most ambitious climate policy ever enacted by the United States. The Act provided $128 billion for renewable energy and grid modernization, $30 billion for nuclear power, $14 billion for home energy efficiency upgrades, $22 billion for home energy supply improvements, and $37 billion for advanced manufacturing. Electric vehicle incentives of $13 billion were controversial because of a percentage of components had to be manufactured domestically or from a country with which the US had a free trade agreement. Like Canada.

Canada praised the Act and in the Fall Economic Statement created a number of programs to match the Americans. The $15 billion Canada Growth Fund was the centerpiece of the plan, along with 30% investment tax credits for clean technologies and clean hydrogen. More is promised for the spring budget. Critics pointed out that the Statement had missed perhaps the most important part of industrial policy — the strategic approach — and that the federal government was continuing a long history of Canadian economy policy by simply throwing money at the problem. Finance Minister Chrystia Freeland did promise “real muscular industrial policy” for clean energy, but the government’s policy has not yet caught up to its rhetoric.

Nevertheless, Canada and the US have recognized that they are behind in the race to build clean energy economies and have begun to act. And North America is not without its own competitive advantages. A big one is innovation.

Innovation

While the US may have lost its manufacturing and industrial advantage to China, the Americans still lead the world in spending on science and research. “From the Internet to biotech and even shale gas, the US [government] has been the key driver of innovation-led growth — willing to invest in the most uncertain phase of the innovation cycle and let business hop on for the easier ride down the way,” is how noted economist Marianna Muzzucato describes the American approach to innovation. The Inflation Reduction Act is a new spin on an old strategy.

Canada has historically not done a good job supporting innovation, relying instead on foreign companies to invest and introduce new technologies. But over the past decade or so, Canada has been quietly nurturing an “innovation ecosystem” of public and private actors. If that ecosystem can be activated to exploit opportunities created by the restructuring of global supply chains and the American pivot to clean energy, Canada may be facing a once-in-a-century chance to diversify beyond exports of raw materials like oil and gas, wood, agriculture, and minerals.

Here are some examples of Canadian innovation:

Provincial agency Alberta Innovates is a year or two from commercializing a process to turn oil sands bitumen, which has the consistency of peanut butter, into the feedstock for manufacturing low-cost, light-weight carbon fibre. The innovation comes as EV makers struggle to lower the weight of their heavy vehicles.

The Alberta Carbon Conversion Technology Centre is home to several startups transforming captured CO₂ from a nearby gas power plant into cloth, vodka, soap, and even improved concrete. In 2026 Alberta utility Capital Power will be using captured CO₂ to make carbon nanotubes, which are already used to manufacture common products like bicycle frames, automobiles, and tennis rackets.

Halifax-based Salient Energy makes a zinc-ion battery to replace lithium-ion for power utility and home energy storage. Zinc-ion is up to half the cost and uses minerals that are common to North America. CEO Ryan Brown says large-scale production of the new battery will start in the next year or two.

Tony Seba’s first study, in 2017, was about Transportation-as-a-Service (TaaS) — the use of autonomous robo-taxis to replace private car ownership. The technology hasn’t developed as fast as he thought, but American companies like GM-owned Cruise are slowly scaling up.

Canadian startup 7 Generation Capital offers a unique wrinkle on the TaaS business model by providing trucking fleets with electric delivery vans and trucks, the charging infrastructure, and even drivers. The turnkey innovation helps logistics companies electrify their fleets faster by reducing up-front capital costs and making the switch to electric easier.

Vancouver has emerged as an important cluster for hydrogen-demand technologies like fuel cells, anchored by industry leader Ballard Power Systems, which was formed in 1979. Alberta is planning to build hydrogen supply clusters using a hub model. Production will start with blue hydrogen (natural gas, carbon capture), then transition to green hydrogen (clean electricity, water, electrolyzers) as technology costs fall later this decade.

Ontario’s auto industry is busy transitioning to the manufacture of electric vehicles. Not only are existing factories being re-designed, but many new battery plants were announced in 2022. Quebec, with its abundant supply of clean and inexpensive hydropower, is also receiving its share of battery plant investments, spurred in part by its thriving electric bus and truck manufacturing sector.

Conclusion

The early 2020s were a tipping point as the twin shocks of the pandemic and Russian militarism triggered the race to build clean energy industry. The focus has now shifted from policy solutions to innovation, capital deployment, the creation of new industrial clusters and their supply chains, and the training and re-training of workers for the new energy economy. Building and deploying new energy technologies, more than any other factor, may finally help the global economy to wean itself from fossil fuels and reach the Paris Agreement targets.

The United States has finally engaged wholeheartedly in the clean energy race. Canada is not quite there yet as much work remains to be done, especially by provincial governments, many of which have been reluctant to enact climate policy and slow to spot the economic opportunities created by the frantic global expansion of clean energy industry.

Seba thinks humanity is “on the cusp of the fastest, deepest, most consequential transformation of human civilization in history,” and our brief survey of the global economic transformation triggered by the energy transition supports that argument. But as Seba also points out in his book, realizing the potential of the transformation will require humanity to make good decisions. Will we rise to the challenge? We owe it to the next generation to get it right.

Markham Hislop is a Canadian energy/climate journalist with Energi Media and host of the Energi Talks podcast. He also conducts video interviews with energy experts, writes the Markham On Energy energy politics analysis columns, and writes about the energy future. He is frequently interviewed on Canadian radio and television about energy transition issues. This and Markham’s other articles in this magazine issue are products of work that Energi Media has been conducting in partnership with Green Teacher on effective education and communication about the energy transition.

To learn more about the energy transition, check out Energi Media’s Energi Student Resources portal and their learners’ page The Global Energy Transition Explained.