It is very likely that the environmentally inclined economist Mariana Mazzucato, whose new book, Mission Economy, hits the shelves today in Britain, would have a certain sympathy for Alberta Premier Jason Kenney’s failed multi-billion-dollar bet on the Keystone XL pipeline. At least in principle.
Kenney has not been forthcoming on the details of the estimated $7.5 billion in Alberta taxpayer money in direct investment and loan guarantees that he contributed to the project. But as Mazzucato’s research has shown, taking risks that no one else will is a crucial government investment strategy for building a successful economy. Governments, she argues, must pick winners.
But this week, there are clear indicators the bets are changing.
U.S. president Joe Biden began laying out a plan to fight the climate crisis, after last week revoking the Keystone XL permit and rejoining the Paris climate accord. The world’s biggest asset manager, BlackRock, told businesses to go carbon neutral or be left behind.
Also this week, a new report from Canada’s private-sector funded Transition Accelerator insists governments must continue to pick winners to rebuild Canada’s economy, and has some suggestions of what that should look like.
Betting, but not on pipelines
To be sure, there is a school of thought that cautions against picking winners, saying market forces are more efficient, with less taxpayer money on the line.
But James Meadowcroft, the Transition Accellerator report’s lead author, says governments can take risks that the private sector won’t.
“It isn’t true that governments can’t pick winners,” said Meadowcroft, who is also a professor in the school of public policy at Carleton University in Ottawa.
“They do pick them all the time all around the world.”
But rather than focusing on pipelines and other fossil fuel infrastructure that already have broad business support, Meadowcroft said it is essential that Canadian governments instead focus their risk investments on climate change technologies and industries that are struggling against powerful established players.
Meadowcroft points to Mazzucato’s previous book, The Entrepreneurial State, where she shows that while governments have put money into schemes that didn’t work out, the current crop of blockbuster businesses from Apple to Tesla, and technologies from the internet to GPS, were specifically picked and then supported by government grants.
“In order to engage with innovation you have to welcome failure,” Mazzucato once told CBC News, referring to Solyndra, the U.S. government-backed solar company that critics often point to as an example of failed public investment. Her point: without Solyndra you wouldn’t have Apple or Tesla.
“You wouldn’t have the oilsands if the Alberta and federal governments hadn’t for more than 20 years pumped huge amounts of money in to develop cost competitive technologies,” said Meadowcroft.
But now, with Biden’s new plan laid out Wednesday that includes a commitment to phasing out dependence on oil and gas and eliminating fossil fuel subsidies, Canadian governments may be compelled to employ similar huge amounts of money in a different way.
While Kenney’s bet on Keystone XL did not pan out, Meadowcroft insists that in boosting the economy following the COVID-19 recession, provincial and federal governments have an opportunity to create jobs while supporting corporate champions that are leading the way to a new net-zero carbon economy.
Canadian climate winners
Among the targets Meadowcroft sees that are worth betting on — and where Canada has companies with world-beating potential — include the electric power sector, decarbonizing buildings, cement manufacturing, plus the oil and gas sector itself where the Transition Accelerator has been a major player in promoting Alberta’s hydrogen economy.
But perhaps the most important area for government investment is in electric vehicles, where Canada has several important players with room to grow.
“It turns out that Canada actually is one of the best-positioned economies in the world in terms of the electric vehicle supply chain,” said Meadowcroft. From mining for minerals such as copper and nickel needed in batteries, through a workforce skilled in software and electronics, to battery production to assembly plants, this is a sector where strategic government investment could have an immediate effect on the economy, he said.
At the same time it can boost the transition to electric cars and trucks, which is one of the biggest remaining carbon producers after the energy sector itself.
Despite its shrinking relative clout in the economy as a whole, the fossil fuel sector remains a powerful lobby deeply embedded in Canadian business. Amr Addas, an expert in sustainable investment and a consultant to Scotiabank, says that is part of the reason why so far, governments have been tempted to back them with taxpayer cash. Like many other analysts he is convinced that the high-cost, high-carbon oilsands cannot keep producing without “massive subsidies.”
Besides the cost, that could become more difficult as Biden bans fossil fuel subsidies in the U.S. At the same time Addas points out that this week’s comments by Blackrock CEO Larry Fink are just one example of big money looking to find investments that avoid the long term risk entailed in the fossil fuel sector.
And Addas says there is no reason that governments cannot use its money instead to offer financing to support traditional energy giants like Suncor to transition to green technology.
“The reason that those companies are a potential part of the solution, not only a problem, is that they have the expertise for these mega projects,” said Addas. “They have that project management skill.”
Follow Don Pittis on Twitter @don_pittis