Thank you very much, Mr. Chairman and members of the committee. It's a pleasure for me to speak to you this afternoon, and I thank you for the opportunity.
As the chair suggested, my career has been a combination of things. Most recently I spent some time in Ottawa with the National Research Council, but prior to that, I was in the venture capital business as an entrepreneur. Essentially all of it has been in technology commercialization and technology innovation.
I come here today representing an organization called EnergyINet. We are a not-for-profit, non-lobby, impartial consortium of government and industry devoted to the acceleration of energy technology innovation.
There is nothing particularly I'm asking today other than to try to present you with a picture of energy innovation in Canada and where it isn't as effective as it should be, and with some suggestions on how it can be improved.
First of all, it's obvious that energy supply and availability and security in the right form, in the right place, at the right time, to the right customers is critical to our industrial sector and in fact to our society as a whole. And you've no doubt heard this from many witnesses over the past few months. What I'd like to do is address a few comments to energy itself and why it's so important, and then talk about why innovation in the energy industry is not being pursued as effectively as it might be.
The first main slide, at the bottom of the first page, deals with an undeniable and essential link between energy consumption and economic prosperity. While we might alter the angle of that curve, there is no doubt that if we want to move from the bottom left corner of the page, we have to consume more energy, whether we like it or not. This is part of sustainability, and I use the word “sustainability” here to include economic sustainability and sustainability of our society and our way of life, in addition to the usual use of the term, which is just about environmental sustainability.
So is energy a bane or a boon? Well, as I've said, energy consumption correlates very strongly to our GDP and living standards, and it's clearly very important for a healthy manufacturing sector. One of the key points I'd like to make today is that energy production and consumption per se do not contribute meaningfully to global warming. If we took every joule of energy that is produced and converted it to heat--and thermodynamics determines that most of it is converted to heat--we would not warm the temperature of the planet by more than one-tenth or two of a degree. The byproducts of energy consumption and production are what contribute to global warming.
So increased energy use is not axiomatically problematic, and it is not contrary to responsible usage, sustainability, or a sound environmental set of policies. Indeed, energy helps solve many of the global world problems, whether they be social or environmental.
Desalination requires energy, carbon dioxide sequestration requires energy, and so on. So I put it to you that we should be actively accelerating energy production technologies while mitigating the byproducts of production and use to prevent further environmental deterioration. And this applies to both fossil and renewable and alternate fuels.
Rising energy global demand is driven not just by Canada--in fact, it is driven by Canada only in a minor way--but particularly by countries like China and India, and you've seen the statistics I've shown there. It is inevitable that global consumption of energy will rise. The good news is that, actually, we have plenty of energy resources in the world. It's simply a question of how we exploit and use them.
So really, some energy supply conclusions would be that we have sufficient energy resources in this world for hundreds of years, if not indefinitely. But the extraction technologies and the byproducts of these industries are problematic. There is no magic bullet solution. Every energy source will be needed, and fossil fuels--carbon energy sources--in particular will supply most of the world's energy needs for the next 100 to 200 years. There is no way around that.
Renewable energy sources will accelerate rapidly, and should, but they will comprise no more than about 20% of the world's energy consumption by 2050 if we do a good job of energy innovation.
So we have a couple of options in front of us. We can carry on with business as usual, which will lead to increasing geopolitical tensions, supply disruptions, deteriorating environmental and climate change, and increased market and supply instability, or we can enter an era of responsible and sustainable energy supply while we focus on fossil fuels, in particular, although we reduce their carbon footprint and we reduce collateral resource requirements, and by that I mean things like water. We need to integrate all energy sources with distribution networks and markets into a “systems thinking” approach to energy. We need to accelerate the development of unconventional and alternate energy resources, so that those can come on stream to gradually transition to a greener type of energy. And that puts a strong emphasis on energy technology development and deployment, but also on a responsive regulatory environment and a more certain and stable business environment, where the long-term investments in energy technology and energy technology projects can be made.
Again, I comment that we need to recognize that fossil fuels will supply most of the world’s energy for the next hundred years or so—we do need to recognize that—but that technology can do a tremendous amount to help mitigate any of the difficulties of using fossil fuels. To point out how technology can be used, I've given one example in the slide, the picture of resources—these are North Sea resources—that were first identified in 1976. The three different-coloured curves—I think they're in black and white in your copies—show just how technology alone doubled and doubled again the reserves that were available from that field.
Our challenge, therefore, is not how to use less energy, although I'm not arguing against energy efficiency and energy conservation as part of our solution to our energy challenges, but how to unleash technology innovation to increase energy supply while minimizing its environmental impacts. The solution to that is to integrate and balance an innovation supply chain for effective solutions delivery.
What do we mean by an innovation supply chain? What is it? On the next page, there's a slightly complex graphic, for which I apologize, but it shows how ideas eventually transform into products, from the bottom left to top right, and produce an economic benefit. That is a supply chain. It starts with knowledge and ends with a product with economic benefit. If we don't have a supply chain that works in exactly the same way as the traditional supply chains work, but a knowledge supply chain with good, integrated linkages and different performers along the way, we will not achieve the economic benefits from the millions of dollars that are spent at the front end of this process.
To compare Canada's innovation performance, take a look at the chart down below. This shows work that is conducted by a group consisting of both me and Lipsey from Simon Fraser, and even Michael Porter is involved with it. We actually present some metrics under which Canada is scaled against some of the best innovative economies in the world. And you see the best practice statistics suggesting an R and D ratio of three parts private to one part public. It isn't clear in that slide, but it should be three parts private sector R and D to one part public. You see where Canada's ratio is.
The result is that what we have in Canada is an imbalance of knowledge push over market pull. We have supply-side innovation economics—i.e., discover it and they will come. We do not have an integrated innovation supply chain. We do not share common vision and objectives between the parties involved in the innovation supply chain. We do not have holistic policies. We have more than 200 government programs focused on innovation, but almost all of them are too small or too difficult to apply for, as I note from my private sector colleagues. The organizations involved are diffuse and uncoordinated. And finally, the metrics and benchmarks we use are not agreed to or are different, depending on different parties. I can give examples of that. So we have an imbalanced supply chain, which is ineffective in delivering economic benefits, given the enormous amount of effort we've put into the front end.
Part of this is a funding dilemma. The next graph shows that the government provides most of the front end, where ideas are formed in university and government labs, while the private sector invests most of the money at the product end—hardly a surprise. The problem is that you have a gap in the middle, where funding for the most difficult part of innovation and technology transfer and technology commercialization, namely pilot plant and demonstration phase and the commercialization phase, is the most weakly funded. This is simply because it's an area where there's increased political risk. The numbers are high and the number of projects is small, so people get accused of picking winners and perhaps putting $100 million into something that doesn't work. But at the same time, it's also the area where the private sector perceives their highest financial risk to be. And so it requires, absolutely, a partnership between both.
The energy industry is one that doesn't differentiate its products. It produces commodities like gasolines or electrons, and so on and so forth, and therefore it's very difficult for them to see the returns from being highly innovative when their non-innovative competitor next door produces exactly the same product that can't be differentiated.
Finally, to summarize on what government should do in improving the innovation cycle, it is, above all, to share technology innovation and implementation risks, possibly by insurance mechanisms, and to strengthen Canada's innovation supply chain to improve the outputs of technological innovation. By focusing those on the energy industry, I can assure you that we will generate huge technology exports and contribute more perhaps to global sustainability than by any other cause.
Thank you, Mr. Chairman, for the opportunity to address the committee.