Ottawa’s Buy Clean strategy starts to take shape - but not fast enough for global competition

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As the federal government looks for ways to bolster Canadian competitiveness with the United States and other countries investing hugely in the transition to a low-carbon economy, it has only just started to use one of the more useful tools at its disposal: its own purchasing power.

For years, there have been calls from domestic industries – especially heavy ones such as steel, cement and aluminum – for Ottawa to make environmental standards a bigger factor in how infrastructure contracts are awarded, the way that governments in Europe and elsewhere are increasingly doing. The idea is to both reward Canadian companies already making building materials more sustainably than cheaper imports (particularly from China), and to help demonstrate and scale up new lower-carbon products that can then be sold to the private sector and exported.

Those requests have taken on extra urgency since U.S. President Joe Biden’s administration began aggressively tailoring hundreds of billions of dollars in new climate-related spending toward rewarding U.S. or North American companies, rather than overseas ones. While Ottawa is typically less willing than Washington to be overtly protectionist, there is hope that a Buy Clean strategy could serve some of the same purpose without running afoul of international trade laws.

There were modest signs of the government moving in that direction last week at a climate conference in Toronto, where Treasury Board president Mona Fortier and Environment Minister Steven Guilbeault rolled out a pair of measures. One will restrict federal contracts over $25-million to companies that disclose their greenhouse-gas emissions and set reduction targets. The other will establish emissions-reduction standards for products used in federal construction projects, starting with concrete, which will need to have carbon intensity at least 10-per-cent below the industry average.

Those plans represent some meaningful effort to push through bureaucratic inertia that makes it difficult to change the practice of primarily awarding contracts to whoever is promising the lowest price, and factor more complex considerations into the equation.

But even so, the Greening Government Strategy – Ottawa’s umbrella for such policies – still looks anemic relative to the competitiveness imperatives at hand. And it will probably remain that way unless Finance Minister Chrystia Freeland puts some money behind it in this spring’s budget – particularly to push green purchasing policies down through other levels of government with which Ottawa partners on infrastructure projects.

The most obvious shortcoming is the pace. While other industries are taking some encouragement from the emissions-reduction requirements being applied to concrete (and from Ottawa starting to require carbon-intensity disclosure for all building materials), they’re not sure when they’ll get similar standards.

“The government is starting to consult with us,” said Canadian Steel Producers Association president and chief executive Catherine Cobden, “but we remain concerned with how long this will take.”

But a more fundamental problem is that, even if Ottawa moves with uncharacteristic speed, the type of federal policies trumpeted last week will have very limited scope.

That’s because the federal government itself directly handles only a sliver (about 4 per cent) of all public infrastructure spending in Canada.

It funds a much bigger portion than that, with Ottawa spending roughly $180-billion over a 12-year span on infrastructure ranging from roads and bridges to public transit, housing and electrical capacity. But the bulk of it is on projects led by provincial and municipal governments or Crown corporations, which are not subject to the low-carbon rules that Ottawa is putting in place and mostly lack comparable policies.

In the long run, that dynamic should probably be addressed by making low-carbon purchasing a condition of federal funding. But that would be tough to impose immediately. The lower levels of government also tend to be more cash-strapped than Ottawa, making it harder for them to stray from prioritizing the cheapest options, and many lack the capacity to implement complex green-purchasing processes.

Probably more realistic in the near-term is to offer carrots for starting to put those policies in place, which was the thrust of a recent prebudget submission by the Buy Clean Industry Alliance, a coalition of sectors (including steel, cement, aluminum and forestry) spearheaded by environmental group Clean Energy Canada.

It proposes that Ottawa commit $100-million a year to topping up funding (by up to 2 per cent) for federally backed infrastructure projects that set low-carbon standards, similar to an incentive introduced in the United States through the Inflation Reduction Act.

It also suggests a much smaller fund ($15-million) to help lower levels of government with the staffing and technical demands of factoring carbon intensity into their purchases, along with another $300-million to help demonstrate usage of early-stage low-carbon products.

These specific pitches are not gospel; there are other ways that these sorts of policies could be designed.

But it’s notable that relative to other budget measures under consideration – including what could be needed for Ottawa to even try to keep pace with other massive U.S. clean-technology subsidies – the proposals do not involve especially large sums of money.

And the value seems high, in terms of addressing the array of competitive challenges laid out by sectoral leaders in recent interviews.

For some, particularly steel, it’s primarily about confronting cheap competition. Per Ms. Cobden, offshore imports (primarily from China, and to a lesser extent countries such as India and Vietnam) have grown from less than 20 per cent to more than 40 per cent of the total Canadian steel market in the past few years – with U.S. trade protections contributing to the product being dumped here. Factoring environmental performance into government purchases wouldn’t be a panacea, she said, but it would help, given more sustainable manufacturing processes and clean electricity supply.

The cement sector has some similar concerns about cheap imports, particularly as carbon pricing rises here. But its bigger hope, industry association president Adam Auer said, is that Buy Clean policies will help de-risk innovation – from adjusting cement mixes to installing carbon-capture technology – that position Canadian companies to be competitive as more markets seek to decarbonize.

For some others, it’s about wanting government to substitute their relatively sustainable materials for more carbon-intensive ones in its construction projects. That includes aluminum, of which Canada is a major producer, but mostly for export markets. It also applies to the forestry industry, which contends that wood doesn’t get enough consideration for large construction projects, despite carbon-sequestration potential.

No degree of federal purchasing policy will be a silver bullet for all this.

Nor should what Ottawa is doing be completely written off.

If it sufficiently follows through with sectors beyond concrete, and the carbon-intensity standards’ stringency is steadily increased (which is supposed to be the plan), it could create a little more of a reliable market for some lower-carbon domestic materials. And it could help persuade a few other public or private purchasers to choose products they now consider too untested or expensive.

But it won’t hold up against international competition, as a true national Buy Clean strategy, unless Ottawa proves more willing to flex its financial muscle.