October 24, 2005

Industry invests over $1 billion to cut GHG emissions

Canadian companies in the primary and manufacturing industries invested more than $1 billion on greenhouse gas (GHG) reduction technologies in 2002, and evidence suggests that suppliers of these technologies have begun reaping profits as their systems and equipment reach full commercialization. These and other findings are presented in a new analysis by Statistics Canada of industry spending on GHG technologies and related business opportunities.

Statistical monitoring of GHG reduction technologies is still relatively new: StatsCan's study is based on data from 2002 (the most recent available). However, it provides a baseline for evaluating the development, commercialization and adoption of this technology in Canada.

Three of the most energy-intensive sectors accounted for most of the GHG reduction technology spending in 2002. These included: oil and gas extraction ($244.9 million); pulp, paper and paperboard mills ($241.8 million); and electric power generation, transmission and distribution ($203.7 million).

The StatsCan report points out that industry response to reducing GHG emissions focuses largely on energy conservation and improving energy efficiency. As these sectors are among the large final emitters (LFEs) targeted by Canada's climate change plan for emission reductions, they stand to benefit from investing in GHG reduction technologies. By improving the energy efficiency of their production processes, they will reduce their overall energy intensity (amount of energy required per unit of production) and, consequently, their GHG emissions.

StatsCan reports that capital investments accounted for $583.3 million, just over half the total GHG reduction technology expenditures, with the oil and gas extraction industry's share making up 40% of this amount. This sector installed $230.9 million worth of GHG reduction technologies in 2002, investing mainly in solar energy, alternative fuel and energy-from-waste (EFW) systems and equipment.

Canadian companies spent $523 million on GHG reduction technology operating costs in 2002, including labour and energy and water use. The largest segment of this total, $175.9 million, was reported by the pulp, paper and paperboard industry, which directed its spending toward operation, repair and maintenance of cogeneration, EFW and fuel substitution technologies.

The electric power generation, transmission and distribution sector also reported significant operating expenditures related to GHG reduction technologies - $104.9 million, much of the total spent on small-scale hydroelectric systems. Like pulp and paper mills, this sector spent money on operating costs for cogeneration, EFW and fuel substitution technologies, adds the report.

It may be some time before the full emission reduction benefits associated with the technology investments are realized, says StatsCan; the effects may be spread over several years. In view of Canada's Kyoto Protocol commitment to reduce GHG emissions and the fact that both energy consumption and GHG emissions have increased since 1990, continued investment in GHG reduction technologies is essential.

Data available so far indicate that Canadian suppliers of GHG reduction technologies have begun earning revenues, as their systems and equipment have reached full commercialization, says the analysis. Some GHG reduction technologies, such as fuel cells and methane capture systems, began as demonstration projects and have become viable revenue sources with domestic and international markets.

In 2002, environmental businesses earned $364.3 million from the sales of GHG emission reduction technologies, over half this total accruing to small to medium enterprises (SMEs). Although the total was quite a bit below the earnings for conventional environmental goods and services, StatsCan notes that revenues from GHG reduction technologies rose 28% between 2000 and 2002, surpassing the growth rate in the more established markets for air and water pollution control technology.

This, says the report, signals room for growth in this segment of the environment industry. Notably, the export market is a promising area for Canadian suppliers of GHG reduction technologies, the total value of exports in 2002 having made up $139.5 million, or 38%, of GHG reduction technology revenues.

The analysis examines research and development (R&D) related to GHG emission reduction technologies, including barriers to expanded research in this area.

In 2002, R&D spending on renewable resources and energy conservation made up 30% of the total amount invested in energy-related R&D. The study points out that GHG reduction technologies must compete with conventional technology areas for a share of this spending.

The analysis also found that R&D on GHG reduction technology was done by companies in four industry segments: management, scientific and technical consulting services; scientific R&D services; architectural and engineering services; and machinery manufacturing. Between 2000 and 2002, only 2% of firms involved in the production of environmental goods and services were GHG product innovators.

R&D funding for GHG reduction technology came primarily from the federal government, in contrast to conventional industrial R&D, which was supported mainly by parent and affiliated companies.

The three leading barriers to the adoption of GHG reduction technologies were listed as: the high cost of equipment; lack of financing; and lack of available technology. This trio of factors, says the study, helps explain the most common obstacle cited by environmental companies involved in GHG reduction technology development, i.e. lack of market demand.

Other obstacles faced by these firms included lack of financing and the high cost of developing the technology. As a result, StatsCan found that most of the companies carrying out GHG reduction technology innovation in 2002 had already had some previous success in this area.

The StatsCan study, "Greenhouse Gas Reduction Technologies: Industry Expenditures and Business Opportunities," is available through the Products and Services section of StatsCan's Web site, www.statcan.ca, reference No 16-001-MIE.

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