Research by the UN Environment Program suggested that the global market for green trade could exceed $2-trillion by 2020, and this increasingly looks to be a conservative estimate.Brent Lewin/Bloomberg
Glen Hodgson is senior fellow at the Conference Board of Canada. Brent Dowdall is senior manager at the Conference Board of Canada.
The expansion of the climate-change policy agenda in Canada and throughout most of the world creates growing interest in clean technology and services that can reduce greenhouse gas (GHG) emissions and other negative environmental effects. Much of the clean-tech discussion in Canada has focused on the domestic market for the production and consumption of low-carbon energy. But there is a much larger business opportunity waiting in the international green-trade market.
Green, or clean, technology is only the starting point for analyzing what constitutes green trade. The global green, or low-carbon, market is growing, and it will only continue to rise. Global trade in climate-friendly technologies exceeded $250-billion in 2015. Research by the United Nations Environment Program suggested the global market for green trade could exceed $2-trillion (U.S.) by 2020, and this increasingly looks to be a conservative estimate.
For Canadian businesses and policy makers, the focus should not be on the domestic market, which is less than 2 per cent of global GDP. A strong green export strategy for Canadian firms will look to energy-transforming markets – such as the European Union, California and other U.S. states with low-carbon goals, China and elsewhere in Asia – to seek growth opportunities and to understand the latest trends in lower-carbon production and consumption, regulation, monitoring and enforcement.
The Conference Board of Canada expects that actively engaging in green trade would allow Canadian companies, and society as a whole, to capture the benefits of both the green economy and of international trade and investment. A steady transition to a lower-carbon domestic economy could allow Canadian clean tech and other companies to gain what is known as the first-mover advantage – putting them a step ahead of global competitors. Firms and their many suppliers would be able to reach customers around the world for sales of their "green and clean" products and services. This would enable these firms to expand to an optimal operating scale, and Canadian "green buyers" would have access to the best available products and services at desirable prices. But we are also late to the party: firms in Europe, China and elsewhere have already seized the initiative to sell into the growing lower-carbon market globally.
International talks have not yet yielded a common definition of what green trade encompasses. As a result, there is no common measurement of green trade, or agreed data sets. But the lack of a common technical definition today should not hold us back from scoping out and evaluating the many potential elements of green trade.
Research from the Conference Board of Canada's Global Commence Centre shows that Canada has a competitive edge in a few technologies – including wind and solar power, energy-efficient turbines, and waste management. Clean Trade: Canada's Global Opportunities in Climate-Friendly Technologies assesses Canadian export strengths and performance in climate-friendly technologies and identifies 17 climate-friendly products and related services where Canada has a competitive edge, representing 76 per cent of Canada's climate-friendly goods exports in 2015.
There are multiple dimensions to a green-trade strategy. Clean-technology products are designed to reduce GHG emissions and other negative environmental effects, and are best understood. The next level is the role of green services, which are essential to the successful use of clean technology. For instance, most technology needs accompanying installation, training, maintenance and support to work effectively.
Integrating clean products and services into global value chains, the dominant model for international business, is the next stage. Further dimensions are to assess "integrative trade" – specifically services delivered by foreign direct investment and sales from foreign affiliates – and to consider GHG emissions and other environmental effects over the life cycle of traded goods, focusing on energy as a key input.
What's the role for government policy in the clean technology sector?
The sector is not well understood compared with many mature sectors of the Canadian economy. Financial and commercial markets may have a hard time defining and assessing the risks and opportunities presented by new clean tech and services. Public policy makers can support access to sufficient financing at all stages of development and production of green technology; serve as early domestic buyers, to help green-tech firms prove their value before entering global markets; and help firms reach those international markets, through trade promotion and by explicitly including high environmental standards in the North American free-trade agreement and future trade deals.
In short, green trade is both a contributor to reducing the potential impact of climate change and a global growth opportunity. Firms and governments should be looking at all possible ways to seize it.