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A user’s guide to the end of the world (as we know it)

Author: RBC Thought Leadership

What if we knew that the world — the human world — would be so radically different within our lifetimes that we might not recognize daily life? What if we knew that children born in 2025 would never know the meaning of work, or income inequality, or deprivation?

What if the ensuing shocks were so profound — to society, business, government, even to our sense of self — that our future selves wished more than anything else they had prepared better for the day when algorithms and machines could do everything we do, only better and faster? And what if our future selves were to look back at 2024, to see it as the one clear moment in time when we saw the future and blinked?

The potential for those shocks is there. Artificial General Intelligence — software with human-like intelligence and the ability to self-teach — may be nearing a state where it can, at least theoretically, start to displace, at scale, the functions (mental, physical, perhaps even emotional) that have, for millennia, made humans the species we are.

Will the resulting shocks come in a decade or a century, or somewhere in between?

In the long arc of time, the timing may not matter, as we know today the clock is running out on the age in which man reigned over machine. We are on the edge of a new era of commingling and interoperability, an era which could see intelligent machines play a role in every aspect of life.

That era will present plenty of unknowns, and for that, society needs to start preparing.

To discuss how, a group of technologists, academics and executives gathered this spring in Asilomar, California, to confront our newest existential challenge: What if we succeed? What if, within a decade, AGI is capable of replicating every human task? And how, on earth, should we prepare?

The Setting

Past is prologue, and so may be true for AI in the quiet solitudes of Asilomar.

Jutting into the Pacific Ocean, around the corner from Monterey Bay, Asilomar is a sleepy retreat that can easily be bypassed for the spectacle of Pebble Beach on one side and chill vibe of Pacific Grove on the other. Indeed, it seems to embody the paradox that Gertrude Stein applied to her hometown of Oakland, not far away. There is no ‘there’ there.

In one direction lies the sea and its infinite promise, and in the other, beyond the coastal mountains, Silicon Valley and its exponential promise. It was here, at the edge of America, and in the throws of the second Industrial Revolution, that the great San Francisco architect Julia Morgan designed a retreat for the Young Women’s Christian Association, the first in the American West.

Morgan had already helped San Francisco rebuild from the Great Fire of 1906, and was well into the defining commission of her career, Hearst Castle, down the coast in San Simeon. In 1913, when Asilomar opened, the world was on the cusp of a technological revolution, one that would make airplanes, cars, telephones and movies the tent pegs of 20th century life.

Morgan had tried to give the YWCA a retreat from what was to come, with her wood-beam and vaulted ceiling “Chapel” and its engraved words, “the lord on high is mighty.” But she later recognized that the Roaring Twenties, and the rise of American modernism, would challenge that view of the almighty, as it gave god-like powers to a new scientific class immersed in the atom and electron.

Nearly a century later, a new generation of scientists, technologists and their backers, are seeking to equally reshape society, with AGI.
Can they prepare for the unknowns of a far more powerful tech revolution? Can they find ways for autonomous machines and their human dependents to co-habitat?

If they succeed, can their society reform capitalism, in ways that the first Roaring Twenties failed to do, to fairly distribute resources even though the means of production are controlled by machines? And will the rest of us find new ways to accept our finiteness in an infinite economy?

Looking over the rugged dunes that connect Asilomar with the setting sun, and the promise of tomorrow, the challenges of technology disruption may feel the same today as they did for Julia Morgan, to both harness modernity and keep it in its place. And yet a century on, this new revolution feels entirely different, with its exponential promises looking to be as profound as its existential threats.

Here are some of the considerations:

1. The promise of infinite surplus

Moore’s Law remains the guiding force of our times, allowing for the doubling of computing power every two years. In fact, over the past decade, compute power has doubled every six months. To date, human ingenuity has been able to keep pace with that kind of growth. We’ve figured out how to use computers, smart phones, and wired machines to our benefit. But the compounding of compute beyond this decade, into a new AGI realm, may be more challenging to human adaptation, especially as machines increasingly make their own decisions and gain physical mobility. We could see more biorobots in 25 years than humans, and far more virtual agents informing, advising, and eventually directing our daily lives.

Some forecasters believe that 80 per cent of jobs will be done by some form of AI within a generation. One result could be a near-infinite rise in economic output, as the world’s productive capacity soars. Services such as health care, education and financial advice could become free, universally available and ever-improving. Profound challenges — climate, cancer, crime — could be solved rapidly. And even as wages collapse with the end of work, spiking productivity rates and surging output should easily compensate, if effective distribution models are established.

While the promise of such surpluses may be foreseeable, the timing is not. Like all technological impacts, AI is following the course of a slow, steady explosion. That makes it harder for society to prepare, to change income models, tax regimes, and social expectations. Moreover, the course of AI adoption and its impacts are unlikely to be linear, especially when they run up against rigid social and economic models. A meandering path to AGI, with technological bursts and social reactions, may mean we get to AGI before society is ready for it.

Perhaps Transformational AI can help distribute the surpluses it creates, but only if we guide it to do both at the same speed.

What’s needed:
Dynamic research to track the displacement of labour and distribution of benefits across the economy.

2. What AI needs to learn

Many aspects of AI may not be as smart as we think, given the stumbles of ChatGPT. But it’s also showing all signs of being slow and steady, then fast and furious. The avalanche effect.

The technology is currently evolving through a rapid series of small steps, with few eureka moments. One reason: most models still focus on computation, rather than achieving goals. The chat bot explosion of the early 2020s has yet to expose deep thinking from machines, other than an impressive ability to accept prompts and respond.

We need to shift Large Language Models (LLMs) to algorithms that can learn from ordinary experiences, not just from neat data sets. Indeed, LLMs may need to search for greater challenges, and pursue the sorts of messes that literally don’t compute. AI may also need more time, tools, and space to test and learn from multiple hypotheses rather than the hard coding of symbolic reasoning. Ultimately, systems will need to get better at working with the wonders of the human mind, and the depths of intuition that machines can’t replicate. One suggestion: “Think of it more as parenting than programming.”

That kind of parental guidance — helping AI not touch the hot stove or poke the dog’s eye — can come through continuous deep learning and “efficient off-policy learning”; that is, allowing the models to colour outside the boundaries of their algorithms, to understand aberrations, and to engage in discordant and shallow data sets. This will require humans to accept that our relationship with AI increasingly will become continuous and not transactional; again, parenting, not daycare. And we may need to accept that passive systems will wake up to learning.

Ultimately, AI will need to develop its ability to anticipate and adjust. Prediction machines will need to become planning machines. And like most of us, there will need to be plans for failure. Hospitals, for instance, may need to add on-call data scientists to help manage algorithms that go awry or stop during a procedure because they don’t know what to do.

The growth of AI may be iterative, a journey of baby steps. But such is the rapidly incremental nature of innovation.

A bit like childhood.

What’s needed:
Open sharing of discoveries and data, when public interest is at stake, to ensure collective progress.

3. A concentration risk

You don’t need to be in Silicon Valley to hear the giant sucking sound of capital by AI. And it’s getting louder, as the colossi of chip, cloud, and compute devour more and more capital to finance their energy- and data-hungry learning models. As the big get bigger, they’re also starting to drive returns, which in turn is leading to more capital generation.

LLM spending is already estimated to have hit about $1 billion last year, and could reach $10 billion this year or next. Some suggested $100 billion could be spent annually on language models within five years. Intel is already spending $25 billion on chips. AI is having the same power in fundraising; last year saw $50 billion in venture funding and 38 new unicorns. OpenAI, the market darling, saw its valuation edge reach $80 billion.

And then there’s this calculation: If AGI increases economic productivity, in an optimistic forecast, the cash value of its benefits could be $124 quadrillion. Suddenly, a $7 trillion investment seems reasonable.

The centripetal force of AI is about more than money. The cloud behemoths are accumulating data and talent at rapid clips, and also amassing the resources to spend on supercomputers. It’s estimated fewer than 10,000 people are working on what can be considered “transformative” AI — anything that might lead to AGI — and most are serving the interests of a handful of firms. It’s said that Tesla’s dominance in automobile data, especially for autonomous vehicles, was one reason Apple — hardly a constrained enterprise — backed away from the its AV project.

Will the concentration lead to an oligopoly or even monopoly in AI? And will that stifle competition? Or will there be an emergence of“bilateral oligopolies” — small groups of players at each link in the supply chain? That could lead to cartels or at least coalitions in, for instance, electricity supply, computing operations, and chip supplies. Governments could equally impose constraints — quotas, as an example — on dominant players, or at least require them to serve national needs first.

All of which comes with a caution: concentration of power is less dangerous than concentration of thought.

What’s needed:
Governments may need to consider an industrial policy mix for AI, to ensure a fair and strategic allocation of resources, including capital.

4. A risk to supply chains
There may be more than we can manage. Compute, chips, and labour are all in short supply, and traditional supply-demand models may no longer apply. For one, AI is creating exponential curves in demand through the unpredictability of its uses and needs. The steep cost of inferencing — the running of data in a live AI model — is only growing as those models get hungrier. The more they learn, the more they want to learn. A separate tech race is on, to develop more efficient chips, shrink the size of models, and compress the middleware that adds more weight to systems. In each of those areas, competition helps. And the explosion of capital for AI could help fuel that competition.

Structural (or infrastructural) inputs like electricity will be harder to fix. Much of the world is already in a hurry to produce more clean electricity to run factories and cities in a net-zero economy, and there’s a risk that capital-rich AI projects and their energy-hungry data centres will outbid the older parts of the economy trying to transition their energy models. In that scenario, the compute demands of AI could sideline the climate demands of society. In those cases, governments may need to assign scarce resources to a hierarchy of societal needs.

More positively, the enormous potential of the race for AGI, and the apparent economic potential, could prove to be an added incentive to the development and scaling of emerging energy sources like nuclear fusion.

A scarcity of inputs will also challenge the business and organizational adoption of AI, including transformational AI. Legacy industries, already operating with low margins, will continue to be challenged to compete, compute, and to buy the chips they may need. Such a scenario may lead many companies and public-sector organizations, as was the case in the Internet’s early years, to accept their place as slow adopters, using off-the-shelf enterprise software tools that can be useful for efficiency but less dynamic for innovation.

This will put further pressure on governments, to find ways to increase both supply and demand for AI in a broad range of sectors as well as public interest pursuits. As is often said of the Internet, we had an invention that was profound and powerful enough to cure cancer, and we used it instead to share photos. The same risk — individual preferences versus collective needs — could play out with AI and models; creating celebrity avatars rather than diagnosing health problems. In business, too, the next generation of AI needs to be focussed on discovery, not just automation. Collective research models, such as a DARPA or NASA for AI, could help coordinate university research and business application, and in turn develop ecosystems that ease supply chain constraints and open doors for emerging challengers.

Ultimately, AI should expand our vision, not shrink it.

What’s needed:
Incentives and initiatives to ensure the supply chains of AGI are focussed on societal needs, especially science, including the incomplete sciences of climate and behaviour.

5. A risk to robots
Mention AI on Main Street, and most conversations will quickly turn to robots and their rise. The early years of Transformational AI is painting a different picture. Many of the biggest private sector AI players have set aside their initial focus on blue-collar work — where robots are most needed — and turned instead to white-collar functions. For one, there’s quicker returns in the information economy. By its very nature, language models are also best at playing with words and numbers, the stuff of enterprise software. And it turns out, error rates are more acceptable in the information economy. We’re willing to accept fake news, or fake essays, a lot more than flawed buildings.

That’s not to suggest there’s no hope for robots outside warehouses. It’s just going to take longer. Big Tech is actively trying to develop software that can mimic human dexterity and senses. The prize is enormous. It just takes an ability to convert perception data into action data — what we might call reflex and instinct, as opposed to habit. In the coming years, we may see more “teleportation,” as people take possession of robots to help them learn. We could even see business models around Brain as a Service, in which enterprise software packages can be bought or licensed to command various aspects of the workplace, home, and community, or perhaps even ourselves.

The demand for robots, and other smart hardware, will only grow as populations age and eventually shrink. So, too, will our comfort interacting with machines, just as we’re comfortable conversing with our phones. (One retailer said their store tests show customers trust on-floor robots more than on-floor staff, for information.)

What will AI-powered robots, and other learning machines, be good for? If we get it wrong, we’ll end up developing self-teaching vacuum cleaners and toilet scrubbers first, rather than using Transformational AI to transform how the world’s economy operates. If we get it right, AGI can help remove transportation from the ground and sea, putting it in the air and freeing up our lands and waters for better uses. It can transform manufacturing, including through 3D printing. And most profoundly, it can change the way we live, with medical devices in our bodies learning as we age. Like the third Industrial Revolution — the computer age — which allowed us to shift en masse from a brawn economy to a brain economy, the advancement of Transformational AI can power the robots and smart machines in our lives to do more than make our lives more convenient and efficient.

They can help us leap into a new age of discovery.

What’s needed:
Robotics programs, including public supports, that drive innovation to the most important frontiers of human progress.

6. A transition risk

Utopia doesn’t have an on-ramp. If we’re to get to an AI-driven world, in which there’s infinite surpluses and machine-enabled peace and prosperity, we will have to endure a lot of bumpy detours and diversions.

In the world’s poorest countries, and indeed in the poorest regions of the world’s richest countries, labour is too abundant and cheap to replace with AI. Infrastructure and technology distribution will further impede the universal spread of AI. Paradoxically, where AI is needed most, it could be deployed least.

The dispersion of AI in advanced economies won’t come without disruptions, either, especially to workforces. Entire areas of expertise, and the trades and professions associated with them, could rapidly dwindle, along with the education programs that feed them. “Stranded expertise,” as it’s called.

During this transition, many of us will need to shift to “augmented work” in which we job-share with AI, exploring ways to make the most of each other as we co-habite roles. We will also need to prepare — psychologically as well as economically — for the day when we’re no longer needed in that role. Augmentation will give way to an advanced form of automation, in which the job and its constituent tasks continue to evolve in the hands of a machine.

Those with a growth mindset see far more opportunity. First of all, if AI is restricted to current human knowledge, it will have failed. Properly guided, Transformational AI should multiply our collective knowledge set, as well as our troves of creativity, which in turn will lead to more discoveries, more creations and more pursuits and jobs. As one small comparison, the microscope did not element any jobs; rather, it opened our collective eyes to frontiers and possibilities we had scarcely imagined.

Bumps, yes, but the transition is to a place of greater human engagement.

What’s needed:
Development programs for AI in low-income regions, as well as AI-powered learning programs across professions, trades, and jobs at risk.

7. A distribution risk

Even if we put AI in Utopia, it will be subject to human nature, which generally is not about sacrifice and sharing. Yes, once AGI becomes a universal reality, the potential surpluses of our economy could spell an end to hunger, poverty, and disease. But humans may not be content. We may still need and yearn for status hierarchies. Our happiness will remain relative. There will also be divisions between countries, as nations (xenophobic ones, especially) seek forms of differentiation to enhance national pride and self-worth. An AI-powered Olympics would be no fun if the optimal outcome was for every country to share the gold medal.

This kind of competition — or as Freud called it, “the narcissism of small differences” — may become more entrenched, and violent, if humans are unable to find other forms of meaning, beyond work. Regardless of the political economy of a country, basic instincts will be a challenge for AI to cope with — something communist states discovered about themselves and their Utopian dreams in George Orwell’s Animal Farm. (“All animals are equal, but some animals are more equal than others.”)

Even today, in the West at least, we have the best lives humanity has arguably ever lived, and yet we generally feel we don’t have enough. Social discontent has rarely been higher, and ironically, we know how to solve most of society’s shortcomings. In fact, we don’t need AI to figure out how to distribute wealth more equitably, as we did that some generations ago. Just open our borders more to trade and immigration, and find more systematic ways to distribute the surpluses of our economies. AI would tell us to do the same thing, presumably, and we would find reasons — relative prosperity — to reject it.

What’s needed:
More open trade policies, including for digital assets and IP, to allow for a freer flow of AI opportunities and benefits.

8. A risk to democratic capitalism

Capitalism exists by permission of democracy, and if the benefits of AI are not clearly and fairly distributed, the system that is financing its growth could be at risk. This could require capitalism to adjust as much as society needs to adjust to the powers of AI.

For centuries, the distribution of economic surpluses has been largely based on labour. More recently, economic rewards have gone disproportionally to the owners of capital, over labour. As AI, and the owners of the capital behind it, amass more economic benefits, and as labour rewards are diminished, social tensions and ensuing political pressures could grow. This could become even more acute in aging societies in which older, and less productive, generations hold the bulk of capital through their lifetime of savings, while labour-challenged younger generations are squeezed.

Could this lead governments to nationalize AI, in order to distribute the benefits more widely? Or will governments instead more aggressively tax the owners of capital, to redistribute their gains from AI? Perhaps modern capitalism won’t be needed anyway, since its AGI may replace the need for markets to determine equilibriums and drive the efficient allocation of resources. An algorithm can do that.

As AGI takes hold, governments could also be tempted by policies more associated with authoritarianism, to maintain control over the social and political consequences of emerging models. Fundamentally, democratic capitalism will be challenged to address this: Whoever controls the digital infrastructure behind AI — supercomputers, chips, energy sources — will control the future. In other words, the digital means of distribution will eclipse the means of production as the determinant of economic power.

Which leads to this question: in 2034, if Silicon Valley hasn’t taken over Washington, will Washington need to take over Silicon Valley?

What’s needed:
Businesses, investors, and governments need to rapidly develop new approaches to market economics, to ensure the rewards of capital and labour are properly assessed and allocated.

9. A risk to meaning

Technology has always challenged the meaning of life, and the purpose we each hold. Deus ex machina (“god from the machine”) goes back to Ancient Greece, and a seemingly instinctive association between the almighty and technology, both being stronger than us. In ancient theatre, the god from the machine usually brought resolution to the problems on centre stage and sent audiences home happy. AGI may be expected to do the same, even though the angst of human life may not compute.

Humans will need to prepare, perhaps rapidly, for a world in which work and deprivation are both remarkably scarce. That won’t put an end to human desires, even when everyone has sufficient food, housing, and clothing. We always need more. Especially in our minds and hearts. AGI may not anytime soon be able to speak to our emotional needs, for laughter, comfort, and love. Nor can it address the social isolation that can come from the end of workplaces, schools, and commercial centres.

Or can it?

AGI may actually not put an end to work, but rather enhance jobs and pursuits with more meaning. It will take the robotic out of every job, perhaps. This could lead to a new definition of work, in which jobs are as much social as economic functions. Call it a Seinfeldian world, as someone suggested, each of us busy with banter and errands. We’ll all be active, and rewarded accordingly, just not what exactly what we’re sure for.

Will that shift to leisurely work make us feel more inconsequential? And perhaps less essential? Will it lead to lethargy? Or anarchy?

Over the coming years and decades, as we pursue the final frontiers of technology, we will need to explore the inner frontiers of humanity, to determine what it means to be humans. We can love and preserve, as much as we today produce and provide. But that will require some new shared narratives of what the good life — and good work — can be.

Only humans can code that.

What’s needed:
Dismantle or at least refine labour market barriers and regulations, to allow for a more entrepreneurial, creative, and human approach to work.

10. A risk to regulation

The greatest risk in regulation may be our inclination to regulate the past against the future, and AGI is all about the future. That presents an important moment to challenge ourselves with what ifs:

  • What if there is only one AI model and it can be independently regulated?
  • What if we regulate the users and not the algorithms?
  • What if we declare and code all models with what good looks like? What if we declare and code all models with what bad looks like, including self-replication, break-ins and evil intent (e.g. bioweapon design)?
  • What if we ensure agents and models have “normative competence” to search for, and recognize, boundaries and laws?
  • What if we penalize, even threaten to shut down, models that go against good?
  • What if we use interoperability to monitor how models are doing, and ultimately allow models to measure and police themselves?
  • What if we allow models to share IP, to assist new entrants?
  • What if we require AI models that draw on data from public spaces — roads, social channels, education systems, for instance — to join data utilities?
  • What if we create regulatory safe harbours for areas of public importance, such as disease recognition?
  • What if we assign “personhood,” with rights and legal responsibilities, to agents and chatbots?
  • What if we apply principles rather than prescriptions to AI?
  • And ultimately, what if beneficial co-existence is not possible?

The emerging frontiers of AI regulation are no longer in the distance, and governments (democratic ones, at least) will be challenged to catch up. Fearing the worst, they may throw in the towel and shut down AGI efforts — or leave it in the hands of incumbent oligopolies that may be easier to negotiate with and police. It’s surely the case that AGI is too novel a concept to allow for regulatory capture. And yet, the incumbents, and their regulators, are party to the rise of algorithms that may soon be too complex and inscrutable for them to understand, and dangerously irreversible.

There is no easy way at it, other than, perhaps, to remind ourselves that science is inherently about experiment, guided by universal principles, including Do No Harm. Societies, in a range of political systems, have harnessed the benefits of science — space, medical, nuclear, biological — by following such principles. Ultimately, we may need to place the same confidence in the scientists working on AGI. If we don’t, other countries and regimes will not likely let up in their pursuit of this new frontier for intelligence. We may be better to work together, and over time, as was the case in the atomic age, place faith in science and a bit of skepticism in each other.

As the political code suggests, trust but verify.

What’s needed:
In the near term, a clear and replicable taxonomy and code for AI regulators to model and share. In the longer term, international conventions and systems for AI governance.

11. A risk to global security

Scientists hate to be politicized. Too late. AI is rapidly becoming a central political issue, and a growing geopolitical one. The G7 is making AI one of its top priorities, in part to ensure there’s a coherent and collective approach to keep China and Russia from achieving supremacy. The United States and Britain have made AI a central file for their heads of government, as nuclear security was in decades past. They’re not alone. The United Arab Emirates, among other emerging economic powers, has made AI a national ambition, while its close ally India is seeking to do the same with what may be the fastest growing tech stack anywhere. Those challengers to the West may find their own common ground, in a “Third Way” model that is neither Chinese, nor American-centric.

A space race in AI may be healthy for competition, and innovation, but it’s also a risk to global security, as self-learning models strive to compete with each other based on national standards and goals, not universal ones. This rivalrous approach to AI could deepen as countries put more resources behind national strategies designed to create a competitive advantage. Potentially worse may be national restrictions (and hoarding) of key AI inputs, including compute power and chips. Without greater global governance, the odds of mishaps — intentional or accidental — will grow.

Fortunately, the world has nearly a century of experience in successful multilateral governance, which while flawed, has helped prevent nuclear strikes, the proliferation of biological weapons, and ultimately another world war. Even conventions on child labour, land mines, and summary executions have had their effect. Similar approaches to AI governance may soon be needed.

Unfortunately, the post-war institutions that have successfully governed conduct in so many areas since the 1940s are themselves under attack. If the major powers are losing confidence in the World Trade Organization, why would they lean into a World AI Organization? As in previous generations, it may be up to scientists and business leaders to build bridges with all countries pursuing AI goals, including those that may have difficult political relationships with others. As the Churchillian credo of diplomacy says, jaw jaw is better than war war. In that spirit, we will need more alignment, between East, West, North, and South, on the goals — and dangers — of AI. We will also need more public confidence in AI, for people to see the value in its development as well as global governance, understanding its weaponization would be fatal.

Ultimately, AI for all will require all for AI.

What’s needed:
Track 2 diplomacy to bring together scientists, business leaders and academics from rival countries, paving the way for a Track 1.5 effort with government officials.

12. A risk to society

Not far from the barren dunes and windswept groves of Asilomar, the great midcentury American writer John Steinbeck worked on The Grapes of Wrath and Cannery Row. Those classics captured America at a crossroads, scarred by Depression, challenged by a changing world order, and yet inspired by the technological gusto from the Roaring Twenties. Writing of an emergent superpower, Steinbeck noted that the best qualities that Americans seek in people — kindness, honesty, openness — are not what they value in the market. And what we seek in markets — sharpness, acquisitiveness, self-interest — are what we consider failures in people. In other words, we seek in a system what we don’t want in each other, failing to appreciate a system is a function of its parts.

Can AI change that, taking the best of humanity and applying it to the worst of society? It won’t be easy given the dyspeptic mood of publics almost anywhere. It will be even harder in a political environment that seems to eschew kindness and celebrate sharpness.

The mind-boggling reach of Transformational AI can seem like too much for any society to comprehend and absorb. Democracy, most of all, may be challenged to mediate those existential challenges. The risks to our personal and collective security, the dangers of concentration, the unknowns of distribution, and the highly variable outcomes of regulation — each of these could tip the public’s mind away from AI. That is, if Transformational AI is not too fantastical for the public to consider seriously. That is, if it’s not too late to reverse what’s been started. That is, if we can untangle what’s smarter, faster, and more aware than its creators.

And if we can, do we know how to move collectively and at speed? As a society, we weren’t ready for the COVID-19 pandemic, which was predictable and precedented. Facing the unprecedented, we will need to find a different path. We can start by breaking down challenges into actionable and meaningful opportunities, and to frame the AGI discussion in the realities of today and tomorrow, rather than the extraordinary projections of a future time. Governments and their publics care most about the here and now, which is a good place to meet. Taking a page from nuclear science, we can also develop the muscles and rigours of safety precautions and monitoring. And we can build bridges with scores of countries to ensure this is a human-scale endeavour, not the purview of an elite band. Steinbeck wrote, in Cannery Row, “Man’s right to kill himself is inviolable, but sometimes a friend can make it unnecessary.” That may sound morbid, but it was framed in the spirit of a community that was overwhelmed by the changing world around it. Friendship, they discovered, was one of humanity’s great powers.

It may yet be what prepares us for the age of AGI.

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Canada has a growth problem. The economic momentum that propelled the country through the 20th century has faded in the 21st, and appears to have worsened since the pandemic. Higher interest rates have slowed per-capita output since 2019, but the problems run deeper than that. Our economy is now smaller than it was in 2019 when adjusted for inflation and immigration, and pretty much in the same place it was a decade ago. Globally, we’ve fallen behind most major economies since 2000. At the turn of the century, the economic output of the average Canadian was on par with Australia. Today, Australians are almost 10% more productive, while their economy has grown 50% per person faster than Canada’s over the quarter century. We’re further behind the United States. Canada is 30% less productive than the U.S. and closer to lower-income states like Alabama in terms of economic performance than tech-rich California or New York. The result: We’ve fallen from the 6th most productive economy in the Organisation for Economic Co-operation and Development in 1970 to the 18th as of 2022. Pretty much every Canadian has something at stake. The productivity gap with the U.S. stands at about $20,000 per person a year, putting Canadians’ wages roughly 8% below their U.S. counterparts. The gap has been even more taxing for capital. Anyone who invested $1,000 in Canada’s main stock index in 2000 would have $4,400 today; the same investment in the U.S. S&P 500 index would be worth $6000—a more than 35% difference. Our relatively low productivity —the amount of production and income generated per hour worked in the economy— has been held back by a shortfall in investment, especially outside real estate, construction and public services like hospitals. As a result, we’ve not been able to capitalize on the immigration boom that has added seven million people—most of them working-age and well-educated—since the turn of the century and offset the retirement wave of baby boomers. The deindustrialization of many parts of Canada has cut into the country’s overall prosperity. Manufacturing is half what it was to the economy in 2000, while mining has also shrunk. Oil and gas—once powerhouses of investment and growth—are showing signs of renewed strength, but investment levels remain far below what they were a decade ago. Agriculture has been a rare standout, as we’ll explore later in this report. A positive change in productivity could be the most significant factor in lifting economic growth, and the prosperity that goes with it. We have the natural and human resources that much of the world is looking for, and our access to major markets—Europe, Asia, and critically, the U.S.—is the envy of the world. With those strengths, Canada’s growth challenge can quickly become a growth opportunity, with significant benefits for Canadians. Simply closing the productivity gap with the U.S. would add roughly $20,000 of GDP per person per year.
Slowing Canadian GDP growth led by softening productivity gains
Average annual percent change, business sector (sum of bars equals per-year GDP growth)
Statistics Canada, RBC Economics
Boosting productivity is not simple, of course. Canada is a large, geographically diverse, resource-rich country with a dispersed population, and that creates unique infrastructure, regulatory and investment challenges. Administrative burdens across multiple levels of government have created inefficiencies and increased internal trade barriers. Infrastructure chokepoints and red tape make international trade more difficult than it should be. Even the mobility of skilled workers—hard enough given our geographic expanse—can be limited by the way provinces, industries and professional groups try to control labour supplies. Those issues all contribute to lower Canadian business investment and with that, lower growth. Moreover, in recent economic cycles, a growing share of savings and investment has flowed to real estate and construction, which, while needed and beneficial for many reasons, are both relatively inefficient and can hold back the overall productive growth of an economy. The same can be true for small businesses, which account for 98% of total businesses and historically have been less productive. Those businesses are foundational to the country and are part of many Canadian’ communities, but if they’re not growing and becoming more competitive, they can limit the overall economy’s potential. It wasn’t always this way. Canada’s productivity growth averaged 5% per year in the 1950s as wartime technologies were adapted for civilian use—powering virtually all GDP growth that decade. Productivity growth stayed strong (3.5% per year) in the 1960s as automation of the manufacturing sector continued, along with a boost from the 1965 Auto Pact between Canada and the U.S. that opened a new door to freer trade. That trajectory faded during the turbulent economic times of the 1970s and 1980s, although innovations like container shipping and expanding global trade led to further gains in growth and productivity in the 1990s. These challenges can seem daunting. But the solutions are also clear and attainable and don’t require many trade-offs. Growth-minded policies can benefit all parts of society including both investors and workers. Among the most compelling options for governments, businesses, unions and industry groups:
  • Cutting red tape and reducing internal trade barriers. This doesn’t have to mean lowering standards but rather improving consistency and rules across jurisdictions to make project approval times and costs more predictable.
  • Better utilization of immigrant skills. All population and workforce growth is going to come from immigration, and we need a better system to match education and skills with jobs.
  • Improving tax competitiveness. Canada’s tax competitiveness has been slipping. Our level of taxation overall is lower than other more productive economies, but broader reforms to reduce complexity and the cost of tax compliance could help to attract more investment.
  • Adopting new technologies. “Smarter” investments like artificial intelligence can help but adoption rates are low in Canada. Making it easier to invest in new technologies is critical to maintaining global competitiveness.
  • Capitalizing on a highly educated workforce. Canada’s highly educated workforce is uniquely positioned to benefit from a global shift to a more services-based economy. Canada needs to ensure investments in education are generating a return.
Every federal government over the last quarter-century, and many of the provinces have studied the challenges of competitiveness, growth and productivity. And they’ve each discovered, sometimes in hindsight, that there’s no simple policy playbook. This report examines some of the steps that can be taken to enhance growth, but one of the most powerful tools is not a tool at all; it’s a mindset. If Canadians developed a collective focus on the economy of the future—one that rewards innovation, celebrates competitiveness, invests in both people and technology, and efficiently delivers returns—the productivity puzzle may become easier to solve. And with it, growth will return.
  • Canada’s productivity vs. the U.S. has been sliding since 1980s
  • Natural resources lead Canada’s productivity gains vs. U.S.

How we got here: Canada’s journey to low productivity

Some of the causes of Canada’s long-term slowdown in economic growth are well-known and clear. Let‘s start with an inefficient regulatory and administrative approval system at all levels of government, which has unintentionally increased internal barriers to trade and growth. Infrastructure chokepoints and red tape further make international trade more difficult than it should be. Those have contributed to lower Canadian business investment, and with that, an overweight of capital going to buildings and construction, which, while valuable to the economy, don’t do as much for growth as machinery and intellectual property do. Moreover, many policies have favoured small businesses over growth companies and large enterprises, which, in turn, limits our overall productivity growth.
Canadian businesses invest less Canadian businesses invest substantially less than in the U.S.—about half as much per worker in aggregate. That underperformance intensified following the 2008-09 global financial crisis and through the oil price collapse of 2015, and worsened following the pandemic as higher interest rates hit the Canadian economy harder than the U.S. In sum, the contribution to productivity growth from capital investment in Canada since the 2008/09 financial crisis has been less than half the average over the decade before. Added to this, weak recent investment trends suggest further underperformance in the decade ahead. Of course, part of the slowing in investment has been from a pullback in investment in the Canadian oil and gas sector that is tied more to the ongoing energy transition globally away from fossil fuels. But, businesses have also invested a substantially smaller share of GDP in the manufacturing sector in Canada than in the U.S. over the last decade. The issue does not appear to be a lack of available funding. Central banks have pushed interest rates higher, but businesses are still sitting on a large cash stockpile worth almost a third of GDP. Businesses have long argued that an inefficient project approvals backdrop is making investing in Canada relatively expensive.  Lack of investment also keeps Canadian businesses smaller (98% of businesses in Canada have fewer than 100 employees) and smaller businesses are typically, on average, less productive.
  • Canada vs. U.S. investment per worker ratios
  • Utilities and mining draw most investment both sides of the border
Regulation is a tax on investment and growth A patchwork of regulatory and administrative rules across different municipalities and provinces is complicated and unintentionally restricts trade within Canada. The International Monetary Fund has estimated that internal trade barriers (for example, regulatory differences across regions, paperwork requirements for businesses in multiple jurisdictions, and certification differences that limit labour mobility) cost the equivalent of a 20% average tariff between provinces. By comparison, the effective tariff rate collected on international imports from abroad in Canada is less than 1%1. In 2020, Canada ranked 188th out of 208 economies tracked by the World Bank on the number of days businesses spent dealing with construction permits for new projects. That is three times longer than time spent in the U.S. Red tape also makes it more expensive for companies to trade across international borders. Actual tariff rates on international trade in Canada are low, but Canada ranks poorly (51st globally) in the ease of trading across borders in large part due to high administrative costs associated with importing and exporting. Our tax system is losing its competitive edge A decade ago, Canada had the second lowest corporate tax rate among G7 economies. That gap has narrowed, particularly, after a sharp drop in U.S. corporate tax rates in 2018. Canadian corporate tax rates are still comparable to other advanced economies. But taking into account the tax on company dividends at the personal income tax level, the total tax on distributed profits from Canadian companies is the highest in the G7, according to the OECD. Added to this, governments in Canada have been running larger budget deficits after decades of fiscal responsibility. That raises the risk of further tax increases in the future, which increases uncertainty for businesses thinking about coming to and expanding in Canada. At the same time, while foreign direct investment in Canada has remained firm, investment by Canadians abroad has grown substantially, leading to a large net outflow of investment abroad. The investments abroad are valuable. Canada’s stock of net assets held abroad has increased to about $1.7 trillion (57% of GDP)—but they are adding to productivity growth outside of Canada, rather than within.
  • Canada’s net investment outflow to U.S. intensified after 2014
  • Canada’s corporate profit taxes are highest among developed nations
Infrastructure challenges—some natural, some self-created Canada has a small population spread across a large land area with abundant natural resources that need to be exported. That generates some unique challenges compared to other countries. The good news is Canada has a strong infrastructure overall, ranking at the top of the G7 in World Bank rankings. Transportation and warehousing are the few industries where Canadian business investment is a larger share of industry GDP than in the U.S. It is one of the industries where Canada’s productivity underperformance relative to the U.S. is the smallest. However, there remain significant bottlenecks where Canadian infrastructure significantly underperforms. The country’s turnaround times at ports are among the longest in the world, ranking 103rd out of 113 countries tracked by the World Bank in 2023 with a median of two and a half days. Canada also ranks poorly on “ease of exporting” in global rankings by the World Bank largely due to high document and paperwork costs.
Overweight in construction, light on intellectual property Productivity in Canada lags in most industries versus the U.S., but the Canadian economy is also overweight in construction, where productivity growth has been slower. Investment in residential structures accounts for twice the share of GDP in Canada (6%) than in the U.S. (3%). Businesses in Canada invest more in nonresidential structures and less in intellectual property products. Canada invests about 40% less (as a share of GDP) in intellectual property products (IPP) overall—with a larger weighting towards mining exploration activity. The manufacturing sector invests about just a quarter of what the U.S. invests in IPP relative to the industry’s GDP footprint. As a result, construction accounts for about twice the share of total hours worked in Canada (8%) as it does in the U.S. (4%). Construction is one of the industries that has struggled the most to boost productivity over time. Indeed, looking back decades, productivity in the Canadian construction sector as of 2022 was 54% above levels in 1961—which is just a fourth of the broader increase in business sector output per hour worked over that period.
  • How Canada’s productivity grew by sector over the last six decades
  • U.S. outpaces Canada in intellectual property investment in key sectors
A growing services sector isn’t helping productivity The reasons for Canada’s decades-long productivity challenge on the goods-producing side of the economy are well known, if not easily solved. The service sector (home to 80% of Canadian workers) must also be part of any solution to productivity challenges. It’s concerning that high levels of investment in human capital aren’t paying higher dividends in terms of productivity growth. Canada has a highly educated and skilled workforce that should be well-positioned to take advantage of the ongoing shift in the global economy from goods to service-producing industries. However, there hasn’t been a corresponding acceleration in productivity growth from the quality of labour as education outcomes have improved. The share of the Canadian workforce with completed post-secondary education has increased from 41% in 1990 to 70% in 2023, but growth in measured productivity from labour composition (skill upgrading as measured by increases in the experience and education composition of the workforce) has been running at about half its pace in the 1990s.
  • A more educated workforce isn’t resulting in higher productivity
A large and growing public sector is less productive Canada’s large public sector education and healthcare industries are much less productive than in the U.S. by 70% and 50%, respectively. and accounting for a fifth of the total economy productivity gap despite only accounting for 14% of the economy. However, it is also notoriously difficult to measure productivity in the public sector, where there are often no market transactions. Much of Canada’s underperformance in measured productivity in healthcare and education (essentially the market value of services over the number of hours worked) versus the U.S. disappears when broader outcomes of those systems are considered. Life expectancies in Canada are longer, and preventable deaths are lower. A larger share of the population over the age of 65 is in good health. And the Canadian healthcare system costs just over half as much as the U.S. on a per-capita basis to achieve those outcomes. In education, Canadian students (15 year-olds) rank close to the top of the OECD (and above the U.S.) in math, science, and reading scores. But that doesn’t mean there is no room for improvement. The public sector will need to get more productive to meet the needs of a rapidly growing population. While Canadian health outcomes rank better than measured productivity, the speed and availability of services have long been an issue. Satisfaction with health coverage has been slipping. Canada has a shortage of doctors and nurses, and a poor record of utilizing the skills of new arrivals, particularly, in the healthcare sector at a time when demands are increasing due to rapid population growth. In Canada, public-sector employment has accounted for more than a third of total job growth over the last decade.
Canadian agricultural output:
Lessons for the future
Agriculture isn’t always top of mind in conversations about technological innovation. But no industry in Canada has seen more disruptive technological advancement over the last century (or two) than food production. Those advances have led to massive productivity gains—even in recent decades. New techniques and products have increased crop yields. Advanced machinery has dramatically reduced the number of people needed to work the land. Forget about the tractors and combines of a generation ago—the technology in modern farm equipment more closely resembles that found in a spaceship. By our count, agricultural production per farm acre in 2016 was three and a half times the level in 1941. Per-worker production gains have been even stronger. Output per agricultural worker is about 12 times what it was in 1941.
Fewer farmers but multiple times more productive All of those productivity gains have led to dramatic structural changes. Farms have gotten much bigger. The average Canadian farm size in 2021 was about 800 acres—twice as big as an average farm 50 years ago and four times the average size in 1921. Larger machinery means fewer workers are needed. In 1921, about a third of Canadian jobs, or one million workers were in the agriculture industry. Today, agriculture accounts for about 1.5% of jobs or less than 300,000 workers. About 700,000 fewer people currently farm land, which is about 12% larger than it was a century ago.Automation—this is not our first rodeo There’s a lesson in agriculture for those who fear that automation could make large swaths of the current workforce obsolete. Historical trends in agriculture show us technology can be massively disruptive but also welfare-improving on the same scale. The prospect of losing almost a third of jobs to technological innovation in agriculture would have sounded terrifying in 1921. There have been negative consequences for rural communities that depended on all of those agricultural jobs. The flip side of that equation, though, is that all of those agricultural productivity improvements freed up almost a third of the workforce to focus on something other than food production. New industries developed, and people found other jobs. Advancements in medical research, a widely expanded social safety net, new innovations that have boosted output in other industries, all owe part of their success to the fact that farmers got really good at producing food.

What needs to be done to improve productivity

Most of what should be done to address Canada’s productivity challenges is not controversial. The changes required are growth-positive policies that would benefit business owners and workers even if Canada were starting from the highest productivity levels in the world. That does not mean they are not easy to implement. But if they’re not addressed, Canada will enter the 2030s with an even greater economic challenge than we face today.
Lower interprovincial trade barriers and cut red tape
Lowering trade barriers within Canada doesn’t have to mean lower standards. It implies improving consistency and rules across jurisdictions to increase the speed and predictability of project approval times and lower potential holding costs for businesses planning new investments in Canada. In a lot of our conversations with businesses, an unpredictable project approval timeline is flagged as an issue that raises costs in Canada versus other regions like the U.S. Attempts have been made over decades to try and better harmonize the regulatory backdrop across the provinces. The latest was the 2017 Canadian Free Trade Agreement. But progress is slow and lists of exemptions to free trade across provinces are long. Not all of the challenges are interprovincial, either. Rules, regulations, and project approval times also vary across municipal governments. Other countries that have been able to reduce internal trade barriers have had success in boosting productivity levels. Australia also struggled with internal trade barriers but had more success eliminating them in the 1990s. Other factors at play in Australia included the emergence of China as a major global economic power. The result: Australia’s productivity levels swung from 8% below Canada’s in the early 1990s to 8% above Canada’s before the pandemic.
Better utilize immigrant skills
All population and workforce growth is going to come from immigration in the decade ahead, and Canada has a bad track record at utilizing the skills of new arrivals. Canada leads the G7 in attracting immigrants with newcomers now driving population growth. Those immigrants are, on average, better educated and younger than the domestic workforce and more likely to have majored in STEM-related fields (science, technology, engineering, and math) than their Canadian-born peers. But they are also more likely to work in jobs that don’t fully utilize those skills. Canada has had more success at utilizing the skills of new arrivals among international students who choose to stay in Canada. Labour market underutilization of immigrant skills versus the Canadian-born population largely disappears among immigrants that studied in Canada. But simply recognizing the credentials of foreign-trained professionals in fields like healthcare would also increase the productivity and earnings of those workers and help address the chronic undersupply of those workers in the labour market.
Focus again on tax competitiveness
Canada’s effective economy-wide tax rate doesn’t appear to be a problem. Of the 17 OECD economies that outrank Canada’s productivity, 13 have higher total tax burdens (all taxes, including corporate and personal, combined). But the way that tax revenues are collected also matters. Canada relies more heavily on income taxes and less on consumption taxes like the GST/HST compared to more productive economies. Tax rates on corporate profits (including taxes on dividend payments) are also high. The tax system is also overly complex with a long list of exceptions, deductions, credits, etc. They increase the costs of compliance, often without clear results in terms of increasing tax fairness across the income distribution. Policymakers should aim to make sure tax rules can be easily understood to encourage compliance, especially among those that are most in need of the benefits, i.e., new businesses and lower-income households. Proper assistance from the government with tax filing and document gathering should also be available and accessible to all with the help of digitization. The harmonization of the tax rules, tax bases and defined terms between the federal government and provinces can also be improved to increase efficiency. Canada could also consider the creation of an independent, impartial body or mechanism for regular tax policy and complexity reviews. Canada’s last thorough review of the tax system happened in 1967.
Invest in new technologies
“Smarter” investments like AI can help but adoption rates are low in Canada. New disruptive technologies also don’t always translate into productivity gains. Productivity gains have been slower in the decades following the widespread adoption of the Internet than in the 1990s, for example. However, the consequences of falling behind emerging trends can be significant, and Canadian businesses have been underinvesting in new technologies. Canada is already a leader in generating new ideas, but has been slower to adopt new technologies among businesses. Canada ranks fifth in the OECD in research and development at universities and only 22nd in those investments among businesses. The problem does not appear to be a lack of capital. The Canadian venture capital market is much smaller than in the U.S., but is easily the second largest in the G7. Improving the broader competitive backdrop and predictability of the policy environment can help. Canada ranks relatively high in R&D subsidies for small and medium-sized businesses, but much smaller for larger businesses, according to the OECD. Still, R&D tax incentives will only help in a predictable policy environment and projects often have long time horizons. Therefore, improving the efficiency and predictability of Canada’s complicated project approvals system and simplifying the tax system would benefit these investments. The OECD has also found that bankruptcy regimes that are less punishing to debtors can help spur investments and productivity growth. Canada ranks well on measures of ideas generation and perceived opportunities, but entrepreneurs have a high fear of failure.
Capitalize on Canadian strengths
Canada is uniquely positioned to capitalize on a global shift to a more services-based economy. Automation is shrinking the share of the workforce that is needed to produce goods globally, and that has meant that the services sector is growing. Canada’s highly educated workforce should benefit from that shift—with the largest share of university and college graduates in the G7. Some of the natural challenges to productivity growth in the goods-producing side of the economy, like the geographically dispersed population, are less of an issue in services, where high-value outputs can be exchanged electronically around the world almost instantly. Indeed, size and scale have long been a challenge for a dispersed population in Canada with a larger share of smaller and less productive businesses than in the U.S. But those challenges are smaller in the service sector where productivity levels are tied less to business size. The professional services sector has been among the fastest growing in recent years. It is a productive and high-wage industry, relies heavily on human capital versus machinery and equipment investments, and is less dependent on economies of scale. The average professional services business in Canada had six workers versus 29 in the manufacturing sector as of 2019. In Canada, the challenge has long been converting those positive education outcomes into increased income. We have long argued that a focus on skills over degrees, increasing emphasis on career planning in high school programs, and increasing the utilization of work-integrated learning placements (co-ops and internships) would help to better match the developments of skills in the economy with current and future labour market needs.
  • Trade barriers

Lower interprovincial trade barriers and cut red tape

Lowering trade barriers within Canada doesn’t have to mean lower standards. It implies improving consistency and rules across jurisdictions to increase the speed and predictability of project approval times and lower potential holding costs for businesses planning new investments in Canada. In a lot of our conversations with businesses, an unpredictable project approval timeline is flagged as an issue that raises costs in Canada versus other regions like the U.S.

Attempts have been made over decades to try and better harmonize the regulatory backdrop across the provinces. The latest was the 2017 Canadian Free Trade Agreement. But progress is slow and lists of exemptions to free trade across provinces are long. Not all of the challenges are interprovincial, either. Rules, regulations, and project approval times also vary across municipal governments.

Other countries that have been able to reduce internal trade barriers have had success in boosting productivity levels.

Australia also struggled with internal trade barriers but had more success eliminating them in the 1990s. Other factors at play in Australia included the emergence of China as a major global economic power. The result: Australia’s productivity levels swung from 8% below Canada’s in the early 1990s to 8% above Canada’s before the pandemic.

  • Immigrant skills

Better utilize immigrant skills

All population and workforce growth is going to come from immigration in the decade ahead, and Canada has a bad track record at utilizing the skills of new arrivals. Canada leads the G7 in attracting immigrants with newcomers now driving population growth.

Those immigrants are, on average, better educated and younger than the domestic workforce and more likely to have majored in STEM-related fields (science, technology, engineering, and math) than their Canadian-born peers. But they are also more likely to work in jobs that don’t fully utilize those skills.

Canada has had more success at utilizing the skills of new arrivals among international students who choose to stay in Canada. Labour market underutilization of immigrant skills versus the Canadian-born population largely disappears among immigrants that studied in Canada. But simply recognizing the credentials of foreign-trained professionals in fields like healthcare would also increase the productivity and earnings of those workers and help address the chronic undersupply of those workers in the labour market.

  • Tax competitiveness

Focus again on tax competitiveness

Canada’s effective economy-wide tax rate doesn’t appear to be a problem. Of the 17 OECD economies that outrank Canada’s productivity, 13 have higher total tax burdens (all taxes, including corporate and personal, combined).

But the way that tax revenues are collected also matters. Canada relies more heavily on income taxes and less on consumption taxes like the GST/HST compared to more productive economies. Tax rates on corporate profits (including taxes on dividend payments) are also high.

The tax system is also overly complex with a long list of exceptions, deductions, credits, etc. They increase the costs of compliance, often without clear results in terms of increasing tax fairness across the income distribution. Policymakers should aim to make sure tax rules can be easily understood to encourage compliance, especially among those that are most in need of the benefits, i.e., new businesses and lower-income households. Proper assistance from the government with tax filing and document gathering should also be available and accessible to all with the help of digitization.

The harmonization of the tax rules, tax bases and defined terms between the federal government and provinces can also be improved to increase efficiency. Canada could also consider the creation of an independent, impartial body or mechanism for regular tax policy and complexity reviews. Canada’s last thorough review of the tax system happened in 1967.

  • New technologies

Focus again on tax competitiveness

“Smarter” investments like AI can help but adoption rates are low in Canada. New disruptive technologies also don’t always translate into productivity gains. Productivity gains have been slower in the decades following the widespread adoption of the Internet than in the 1990s, for example. However, the consequences of falling behind emerging trends can be significant, and Canadian businesses have been underinvesting in new technologies.

Canada is already a leader in generating new ideas, but has been slower to adopt new technologies among businesses. Canada ranks fifth in the OECD in research and development at universities and only 22nd in those investments among businesses.

The problem does not appear to be a lack of capital. The Canadian venture capital market is much smaller than in the U.S., but is easily the second largest in the G7.

Improving the broader competitive backdrop and predictability of the policy environment can help. Canada ranks relatively high in R&D subsidies for small and medium-sized businesses, but much smaller for larger businesses, according to the OECD. Still, R&D tax incentives will only help in a predictable policy environment and projects often have long time horizons. Therefore, improving the efficiency and predictability of Canada’s complicated project approvals system and simplifying the tax system would benefit these investments.

  • Canadian strengths

Capitalize on Canadian strengths

Canada is uniquely positioned to capitalize on a global shift to a more services-based economy. Automation is shrinking the share of the workforce that is needed to produce goods globally, and that has meant that the services sector is growing.

Canada’s highly educated workforce should benefit from that shift—with the largest share of university and college graduates in the G7. Some of the natural challenges to productivity growth in the goods-producing side of the economy, like the geographically dispersed population, are less of an issue in services, where high-value outputs can be exchanged electronically around the world almost instantly.

Indeed, size and scale have long been a challenge for a dispersed population in Canada with a larger share of smaller and less productive businesses than in the U.S. But those challenges are smaller in the service sector where productivity levels are tied less to business size. The professional services sector has been among the fastest growing in recent years. It is a productive and high-wage industry, relies heavily on human capital versus machinery and equipment investments, and is less dependent on economies of scale. The average professional services business in Canada had six workers versus 29 in the manufacturing sector as of 2019.

In Canada, the challenge has long been converting those positive education outcomes into increased income. We have long argued that a focus on skills over degrees, increasing emphasis on career planning in high school programs, and increasing the utilization of work-integrated learning placements (co-ops and internships) would help to better match the developments of skills in the economy with current and future labour market needs.

Productivity will not fix itself

Canada’s productivity problems could take years, if not decades, to fix. But if action isn’t taken to address why people are working more and producing less—resulting in lower wages— then the growing discontent among workers and businesses could set the economy back even further than where we are today. The skyrocketing cost of living has put lagging productivity more in focus because lower wages play a big role in the affordability crisis. The challenge for Canada is how can the economy reverse decades of underinvestment by businesses, slow and low adoption of new technologies, and remove complex regulatory and tax hurdles. It also comes down to what are the tools and measures needed to get a highly educated workforce to fully utilize their skills. The massive gains in agricultural productivity over the last century show Canada has the capability to turn things around, as disruptive as it may be. There is a role for governments, businesses and industry groups to implement and support the transition to becoming more efficient. After all, if we don’t improve productivity in Canada, living standards will not improve.

Related Reading

Nova Scotia’s opportunity:

Capitalizing on the population boom

A Growing Problem:

How to align Canada’s immigration with the future economy

Humans Wanted:

How Canadian Youth Can Thrive in the Age of Disruption

For more, go to rbc.com/climate.

Download the Report

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Contributors:

Nathan Janzen, Senior Director Economic Research

Rajeshni Naidu-Ghelani, Managing Editor, Economics & Thought Leadership

Aidan Smith-Edgell, Research Associate, RBC Economics

Darren Chow, Director, Content Strategy and Creative Production

Caprice Biasoni, Graphic Design Specialist

  1. Federal custom duties collected as a share of total Canadian merchandise import values
  • Canada is at an economic crossroads. In one direction, reconciliation points to a new generation of corporate thinking and government policy, leading to more Indigenous ownership, project decisions based on consent and a more sustainable approach to resource development. In the other direction, Canada could risk a return to court fights over resource rights, lost foreign investment and a diminished ability to reach Net Zero. Leading businesses and Indigenous communities have a short window of time to pick a path and forge it together.

As Canada nears the halfway mark of the 2020s, with climate challenges growing and the economy struggling, a new path of prosperity through economic reconciliation and a transformed approach to resource development can be forged. A rapidly evolving legal framework around Indigenous rights has helped create this opportunity, as have scores of communities and nations looking to shape – even control – a more equitable future.

Enhancing this new spirit of economic reconciliation between Indigenous and non-indigenous businesses will be important if Canada is to solve the challenges of climate change and slow economic growth. The imperative for action now is growing, with the country in the early stages of an energy transition and on the verge of a critical-minerals boom. A new approach to reconciliation, as laid out in this report, can not only lead to more effective resource development for Canada and sustainable economic growth for communities; it can enhance exports, boost overall productivity and engage a larger part of the Indigenous workforce in the advanced jobs and trades of a greener economy. All sides will need to work together to increase investment in infrastructure for First Nations, Inuit and Métis peoples, including in the thousands of communities that both rely on and steward the natural resources on which much of Canada has been built. Canadians, whether in business, government or public life, will also need to see this as a critical chance to rebuild trust between Indigenous and non-Indigenous peoples, and hasten all of Canada on the path to reconciliation. At the heart of the matter is the concept of Free, Prior and Informed Consent (FPIC). FPIC sets out principles that can serve as a compass for this new path, and a means through which to enhance trust and decrease potential frictions wherever Indigenous peoples have interests and rights. FPIC is much more than a legal concept. The concept embodies a mindset of cooperation and long-term thinking that can position Canada in the eyes of global investors as a reliable and collaborative market that could offer fewer disputes and more rewards.
In 2021, the Canadian government enacted a law to commit the country to the United Nations Declaration on the Rights of Indigenous Peoples, which recognizes FPIC as an inherent right of Indigenous peoples. The law may seem vague and aspirational, and is only a first step to ensuring federal laws adhere to the Declaration. Indeed, FPIC is more concept than prescription, and will require much work to establish as a working standard in government and business. But the spirit of FPIC can also be a powerful navigational device for business now. FPIC is a call for direct, frank and respectful conversations that move beyond “yes or no” negotiations and check-box decisions. It is also a dynamic approach that requires early and regular engagement, as well as flexibility, open-mindedness and creativity from all participants. It calls for businesses to have a respect for traditional and contemporary Indigenous knowledge and culture. That’s what consent is. Indigenous and legal authorities agree it is not a veto. International law makes clear that FPIC is a mechanism that serves to balance all rights at stake. Shortly after Canada committed to adopt this new rights-based approach, RBC launched a national initiative to hear from Indigenous communities about their views of engagement and consent. The initiative, led by special advisor and former National Chief Phil Fontaine, embarked on a series of “listening circles” across the country that continue to inform our approach to economic reconciliation, including a view of how Canadian business should approach development with Indigenous peoples. These conversations will continue, and like the concept of Free, Prior and Informed Consent, will evolve as communities – and new generations – develop their own approaches to and comfort with economic reconciliation. It’s a flowing river, as one listening circle participant said, not a still pond. While FPIC is still in its early days of implementation, (only BC and the federal government have enacted laws related to it) we heard from communities that it is not, and will not be, a fast track or free pass for project development. Early adoption shows that this consensual approach to economic development requires plenty of time and extensive engagement between groups. This approach is also about much more than deal-making or project building. It’s about the past, and helping to heal and repair pervasive and often insidious harms. And it’s about the future, and building relationships and a mutual understanding that can transcend any particular transaction. In the long run, such investments – in relationship building, knowledge sharing, cultural recognition and ultimately, power sharing – can be effective mitigants to conflict and, more positively, enduring assets for future development. We heard from Indigenous and non-Indigenous leaders that this can be Canada’s moment, to choose the right path ahead from this crossroads. And if we apply the same concern, even urgency, as we do to other collective challenges, be it climate change or economic growth, we can go far and fast. No one expects the journey to be easy or straightforward. But the business of reconciliation promises a new economic chapter for the country, and for Indigenous peoples.

An anchor within UNDRIP, embodies the concept that Indigenous communities have the inherent right to make decisions about their lands, resources and futures.

It mandates states and businesses to engage in meaningful dialogue with Indigenous peoples, respecting their autonomy, cultural integrity and traditional knowledge, most notably in conjunction with the use of land.

The 2007 United Nations Declaration on the Rights of Indigenous Peoples, established in 2007, is a legally non-binding resolution that defines the inherent rights of Indigenous Peoples around the world.

Since its inception, UNDRIP has gained international recognition as a fundamental instrument of human-rights law, with a growing number of countries including Canada endorsing its principles.

While FPIC is an international guideline, “duty to consult” and accommodate has been a legally binding obligation in Canada since 2004 that applies to the federal, provincial and territorial governments.

Duty to consult must be fulfilled by the governments, collectively called the Crown, before they take any action that may affect the rights of Indigenous peoples.

Listening Circles: Key learnings

In our Listening Circles (roundtables with community leaders across Canada), we heard:
  • Business should embrace FPIC as a process to help find common ground with Indigenous communities on prospective projects.
  • First Nations, Inuit and Métis communities and nations can view enhanced collaboration with the private sector, as well as government agencies, as an additional model to development, moving beyond bilateral Crown-Indigenous relations.
  • Governments should consider Indigenous-led environmental impact assessments as sufficient for a single review process, replacing the requirement for additional reviews by outside agencies.
  • Ottawa should continue to clarify federal laws to ensure Indigenous consent is considered fundamental to any decision that impacts a community’s rights or way of life.
  • Business should develop and share leading practices for engagement with Indigenous communities, including a new emphasis on relationship-building and knowledge-sharing. And engagement should increasingly be in the language of a community’s choice.
  • Indigenous communities and outside industry should view equity participation as a pivotal component of successful partnerships, and an important element of consent.
  • Government and the private sector should prioritize investment in financial tools and skills in Indigenous communities to help develop local capacity to participle in, and shape, economic development.

Listening Circles

RBC has been on a journey of reconciliation, working with our Indigenous partners to listen, learn, and work towards tackling the complex challenges and emerging opportunities of our time. Together we have seen signs of progress, achieved many firsts, with recent work inspired by collaborations between Indigenous communities and the corporate sector dating back more than a quarter century. After the Royal Commission on Aboriginal Peoples published their final report, RBC released a seminal report called The Cost of Doing Nothing which highlighted the financial implications that inaction would create, including long-term social and economic costs for Indigenous communities and Canada as a whole.
In 2015 we pledged to honor the Truth and Reconciliation Commission’s Call to Action 92, which underscores the critical partnership between the corporate sector in Canada and our Indigenous partners. Over the past two years, RBC has joined with former Assembly of First Nations national chief Phil Fontaine to engage with Indigenous leaders and communities across Canada. Indigenous leaders spoke on the urgency and ambitions for their communities and the economic impact that it could have for all of Canada. We heard at length how interconnected issues about economic development are with community, geography and history – the need to tackle these issues together and not just in isolation – and their drive to collaborate with organizations and businesses to build a brighter future. The magnitude and complexity of the tasks in front of us – from reconciliation to the economy to the environment – can feel formidable. However, the work we have started and the partnerships we continue to build on are key to navigating the solutions to these interlinked challenges. RBC is committed to this pathway of collaboration with our Indigenous partners – acknowledging and breaking down institutional barriers, creating new innovative approaches, driving economic empowerment and creating meaningful impact now and for generations to come. Together we can shape a stronger more sustainable future from coast to coast to coast.

The TRC was established in 2008 to confront the impacts of residential schools on Indigenous children and offer a path towards healing, and understanding between Indigenous and non-Indigenous peoples.

The TRC’s 94 calls to action, released in 2015, provided a framework for addressing historical injustices, promoting Indigenous rights, and building bridges to reconciliation.

This Call to Action in the TRC report was directed to the Canadian corporate sector, calling on businesses to apply UNDRIP to their principles and standards involving Indigenous Peoples, their land and resources.

No. 92 includes the appeal for businesses to commit to meaningful consultation, building respectful relationships and obtaining FPIC before proceeding with economic development projects.

A new paradigm

Modern Aboriginal law has evolved slowly and unevenly throughout Canada’s history. Much of Canada’s land mass is covered by historical treaties that evolved over 300 years from early diplomatic and economic alliances that shifted by the influx of settlers who created a greater demand for land. After Confederation, the numbered treaties were signed with First Nations in much of the centre of the country for settlement and access to natural resources, while regions including Atlantic Canada, eastern Ontario, and large areas of Quebec and British Columbia remained unceded. Some Indigenous groups, particularly in the North, gained autonomy much faster than others. This left a patchwork of rules, policies and approaches that, from the point of view of some investors, created an unstable foundation for businesses to work on. Constitutional changes in the 1980s did not sufficiently clear up the matter. In the vacuum, courts have been asked to step in, and their decisions have helped delineate Indigenous rights. In response, federal and provincial governments have been intensifying efforts to bring balance to the situation. A critical moment came in 2014 when the Supreme Court of Canada recognized Aboriginal title beyond a reserve, ruling in the Tsilhqot’in decision that Crown sovereignty needs to be balanced with Indigenous rights and self-determination. Two years later, Canada officially endorsed the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), paving the way for it to be adopted in law. Then, in June 2021, the federal government passed a law respecting the adoption in Canada of UNDRIP, which promotes Indigenous rights globally. Since then, Canada has released a UN Declaration Act Action Plan aimed at harmonizing federal laws with UNDRIP’s principles. That includes a commitment to meaningful consultation and building respectful relationships, including the desire of Indigenous communities to make business decisions based on the principle of FPIC. Provinces and territories are making changes as well. British Columbia’s new environmental assessment act formalizes the need for consent from First Nations communities for projects on their traditional territories. B.C. is also exploring innovative amendments to its Land Act, contemplating a shared decision-making model for authorizing permits on Crown land.

First Nations Major Projects Coalition

The Act was created in 1876 as a tool to administer rights promised by the Crown, but it was applied in a way that coerced First Nations to surrender their rights and culture and severed them from the mainstream economy.

The devastating marginalization and other impacts of the Act are still felt today. New legislation is dismantling it piece by piece through the return to self-determination and self-government initiatives.

Revenues generated by Indigenous governments through taxes or resource development, or by communities through economic endeavours and development like resource extraction and tourism.

Own Source Revenues symbolize a shift towards Indigenous economic self-determination because they allow communities to fund activities such as infrastructure projects, social programs and cultural initiatives.

Contracts between Indigenous communities and project developers that outline remedies, compensation and environmental safeguards related to natural resource development on traditional lands.

While IBAs are designed to honour Indigenous rights and mitigate socio-economic impacts, they may not meet communities’ expectations if they are not comprehensive and leave too much room for interpretation.

Overcoming unique challenges

Amidst this evolving legal landscape for Indigenous rights, one of the biggest challenges for business is the amorphous FPIC process. FPIC demands businesses approach Indigenous communities by building relationships and finding consensus rather than solely following the rules of Canadian corporate law. Difficulties in understanding the differences in governance systems and worldviews—not to mention inevitable discrepancies in size or financial power of business entities—have created frictions that have in places undermined collaboration. While the dynamics between Indigenous and non-Indigenous entities have improved in many ways, not all parts of the corporate sector have been quick to adapt their attitudes and policies to the new paradigm. On a deeper level, a legacy of injustice continues to impede progress. For decades, government policies deprived Indigenous peoples of their inherent rights and decision-making powers, leading to economic underinvestment and human deprivation that continues to impact Indigenous communities. The Indian Act of 1876 marginalized First Nations communities, while other restrictive and prejudicial policies such as the residential school system and forced relocation isolated
most Indigenous peoples from their traditional economy, as well as the mainstream economy. This multi-generational legacy has led to lingering mistrust, which grinds at the wheels of relationship-building, even in cases where there are mutually beneficial agreements around specific projects. Efforts to reverse this narrative are imperative if Canada is to advance economic reconciliation, boost economic development, strengthen productivity growth and increase climate action. Heading into the latter half of the 2020s, these objectives may well be intertwined. For instance, RBC research shows traditional Indigenous lands in Canada account for 56% of advanced critical mineral projects, 35% of the top solar sites, and 44% of the best wind sites for energy production. In each case, Canada will struggle to meet our potential without a new approach, which in turn promises significant economic opportunities, for Indigenous communities as well as the country. Over the next decade, Canada is poised to develop 470 natural resources projects, worth an estimated $525 billion, mostly in the energy sector. The First Nations Major Projects Coalition estimates these projects could create more than $50 billion in equity opportunities for Indigenous communities.
Amidst this evolving legal landscape for Indigenous rights, one of the biggest challenges for business is the amorphous FPIC process. FPIC demands businesses approach Indigenous communities by building relationships and finding consensus rather than solely following the rules of Canadian corporate law. Difficulties in understanding the differences in governance systems and worldviews—not to mention inevitable discrepancies in size or financial power of business entities—have created frictions that have in places undermined collaboration. While the dynamics between Indigenous and non-Indigenous entities hve improved in many ways, not all parts of the corporate sector have been quick to adapt their attitudes and policies to the new paradigm. On a deeper level, a legacy of injustice continues to impede progress. For decades, government policies deprived Indigenous peoples of their inherent rights and decision-making powers, leading to economic underinvestment and human deprivation that continues to impact Indigenous communities. The Indian Act of 1876 marginalized First Nations communities, while other restrictive and prejudicial policies such as the residential school system and forced relocation isolated most Indigenous peoples from their traditional economy, as well as the mainstream economy. This multi-generational legacy has led to lingering mistrust, which grinds at the wheels of relationship-building, even in cases where there are mutually beneficial agreements around specific projects. Efforts to reverse this narrative are imperative if Canada is to advance economic reconciliation, boost economic development, strengthen productivity growth and increase climate action. Heading into the latter half of the 2020s, these objectives may well be intertwined. For instance, RBC research shows traditional Indigenous lands in Canada account for 56% of advanced critical mineral projects, 35% of the top solar sites, and 44% of the best wind sites for energy production. In each case, Canada will struggle to meet our potential without a new approach, which in turn promises significant economic opportunities, for Indigenous communities as well as the country. Over the next decade, Canada is poised to develop 470 natural resources projects, worth an estimated $525 billion, mostly in the energy sector. The First Nations Major Projects Coalition estimates these projects could create more than $50 billion in equity opportunities for Indigenous communities.
To fulfil that promise, here are three important steps for business to consider:

Businesses seeking to engage a community about a project on Indigenous traditional territory would be wise to take a different approach than they would elsewhere. Increasingly, First Nations, Métis and Inuitleaders expect potential partners respect their community values, governance systems, timelines and consensus-building processes, which often vary from community to community and region to region. Seeking to establish a firm understanding of values and business goals is a far different approach than traditional Impact Benefit Agreements might seek through financial transfers, jobs and procurement deals. Indigenous leaders want to be approached as long-term partners who have unique value to add, including their traditional knowledge of their lands and natural ecosystems, which in turn could de-risk projects and lead to more sustainable and profitable outcomes.

Indigenous communities also want agreements that ensure they will retain influence over the life of the project, from initial planning to remediation and reclamation. This is why they have been advocating for equity participation to become a larger component of their business partnerships. While resource royalties are valuable because they can generate long-term wealth, equity participation generates both wealth and influence. Holding an ownership position in a project—and perhaps a seat on the board of directors—also aligns Indigenous interests, including environmental, impact and investment concerns, with project partners.

At a minimum, First Nations, Métis and Inuit leaders are demanding that project proponents approach them with a respect for traditional and contemporary Indigenous knowledge and worldviews. Participants in the Listening Circles consistently stressed the importance of listening, understanding and respect.

Businesses should seek participation in proactive partnerships with Indigenous communities and government agencies. Public Private Indigenous partnerships (P3I) are an increasingly attractive model for cooperation—and a departure from the framework of Crown-Indigenous relations that dominated the Indigenous economy for decades. P3Is leverage wide economic powers and build trust. The Oneida Energy Storage Project in Southwestern Ontario provides a recent example. The energy startup NRStor worked alongside Six Nations of the Grand River Development Corporation to advocate policies and procedures to promote a battery-storage project on the territory that could help serve Ontario’s Golden Horseshoe. The result was a true P3I, with Tesla providing the battery technology, Aecon building it, and Northland Power becoming a significant backer. In 2021, the Canada Infrastructure Bank committed to invest $170 million in the $500 million project.

Promoting P3Is can also be used as a potent force to eliminate the Indigenous infrastructure gap. Efforts to close that gap should be seen not only as an effort to redress legacy injustices and promote economic reconciliation, but an integral driver to help Canada reach its commitments of climate transition (through more efficient electrical grids and housing, for instance) and increased productivity.

The private sector should accelerate investment in financial tools and people. This will allow more First Nations, Métis and Inuit groups to participate in, or take charge of, community development and resource projects—while increasing collective opportunities for Canada as a whole. The need for greater support from the private sector, and coordination with Indigenous communities, was a major theme of the listening circles. Indeed, the “free” and “informed” parts of FPIC require that Indigenous groups be able to engage in business negotiations without substantive disadvantages.

Lack of financial capacity can pose a major barrier to that kind of engagement. The availability of tools like government loan guarantee programs has begun to allow Indigenous communities to access new forms of capital – but they also need the skills and technology to leverage the opportunities and overcome challenges such as the inability to use settlement lands for collateral. In Budget 2024, the federal government detailed a new national Indigenous loan guarantee program that could add to the transformative power of business-to-business cooperation. But it will need to be accompanied by formal and informal capacity building, for communities as well as small and medium-sized Indigenous businesses.

Private-sector support for increased educational opportunities, and sector-specific training in fields such as finance, governance and engineering can promote positive economic outcomes for Indigenous peoples. A new generation of jobs, trades and professions will not only add to the income levels in many communities. It will add to the collective strength of those communities to further advance their interests and protect their values.

A new business model

Economic reconciliation can be seen as an effort to achieve balance in equity and prosperity with First Nations, Métis and Inuit peoples. Free, Prior and Informed Consent can help build strong partnerships and can underpin that effort. As Canada grapples with the implications of FPIC, Indigenous communities are not standing idly by. Many of the leaders are pursuing business deals that conform to their individual nation’s priorities and worldviews—and in many cases are striking out on their own. As we noted in our 92 to Zero report, Indigenous entrepreneurs are developing new businesses at nine times the Canadian average—while Indigenous-led development agencies are proliferating. That is transforming Indigenous relations from a one-way to a two-way street. The private sector has a large role to play. Businesses in Canada can approach Indigenous negotiations by looking for shared goals, while offering equity rather than handouts. Those that don’t risk being outflanked by foreign firms, as well as emerging Indigenous competitors, with more collaborative approaches. To widen the field of collective opportunities, the private sector should be seeking to create new, innovative partnership models, and look for ways to accelerate investments in financial tools and people. Businesses that follow this balanced approach, including FPIC, may find it to be far less a business risk and much more a competitive advantage. Indeed, the greatest risk of reconciliation may soon be for those who don’t embrace it.

For more, go to rbc.com/thoughtleadership.

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Contributors:

John Stackhouse, Senior Vice President, Office of the CEO

Alanna La Rose, Senior Manager, Enterprise Strategy and Transformation

Steven Frank, Contributing editor

Caprice Biasoni, Graphic Design Specialist

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  • The federal government’s latest Clean Electricity Regulations update shows it’s softening its position on sharply cutting emissions from natural gas-fired power plants by 2035.
  • Ottawa has demonstrated that it’s receptive to the provinces’ and utilities’ concerns about their ability to meet 2035 Net Zero targets.
  • We see this as a major win for Ontario, and it also gives Alberta and Saskatchewan more leeway in how they manage their transition to cleaner sources.
  • The proposed changes are not expected to compromise the 2035 Net Zero target set for the electricity sector if the regulations for offsets are included.
  • The devil will be in the detail, as the white paper does not provide any details on what the regulations could look like when finalized.
  • In terms of next steps, comments on potential changes to CER are due to be submitted by March 15, and final regulations are set to be released by the summer.

Ottawa’s draft Clean Electricity Regulations (CER) has sparked significant debate among provinces since its release in August 2023. Various stakeholders, including provinces, industry, and utilities, have raised concerns about the draft’s strict approach to phasing out natural gas from the grid. Most provinces worry that achieving the federal target of a Net Zero electricity grid by 2035 across the country will be challenging while ensuring system reliability and affordability. There were particularly large backlashes from Alberta and Saskatchewan, which are currently phasing out coal in favour of less emitting generation like natural gas.

The federal government responded last Friday with an update on the consultations and design options that are being considered for the final regulations. It comes several months after the consultation period for the draft regulations closed.

The feedback that the federal government received from the consultation raised concerns about the effectiveness of carbon capture and storage (CCS), potential operation of inefficient units, short end-of-prescribed life, challenges for existing cogeneration facilities, provisions for greenhouse gas offsets, and post-facto emergency exemptions review. These concerns could impact units under development and how existing units are operated.

In last week’s update, the federal government proposed major changes to its draft to reduce carbon emissions from Canada’s electricity sector by 2035. The new design options show more pragmatism in the federal government’s approach, indicating that it is softening its position on sharply cutting emissions from gas-fired power plants by 2035.

What’s in the update?

The updated design options for the regulations would provide electricity system operators more flexibility to continue operating their natural gas power plants past 2035. This includes setting annual emission limits rather than performance standards, allowing plants to operate longer without constraints, and permitting the purchase of offsets when emissions from natural gas generation exceed those limits.

The improvements to the regulations currently being considered are a significant win for provinces that will still need to rely on natural gas generation past 2035. This ensures that provincial electricity system operators can continue to provide reliable and affordable electricity while maintaining Canada’s ability to achieve its emissions reduction goal.

Flexibility for provinces

The federal government is considering several options to provide more flexibility to provinces, utilities, and other electricity regulators and providers, while still ensuring significant emissions reductions. One such consideration is changing the approach from a performance standard, which is a fixed emissions intensity standard, to a possible emissions limit. This limit would be tailored to each unit’s capacity, replacing the current “performance standard approach.”

This new approach could potentially incentivize efficiency improvements and provide flexibility. However, it could also eliminate the “peaker provision approach” that was included in the draft regulations, and was an area of concern for Ontario.

We see this as a major win for Ontario, and it also gives Alberta and Saskatchewan more leeway in how they manage their transition to cleaner sources.

Additionally, the regulations could permit a unit to exceed its emissions limit by a certain amount, provided it compensates for all excess emissions with greenhouse gas (GHG) offsets. In this scenario, the federal government will be faced with the task of ensuring a reliable supply of high-quality GHG offsets. Additionally, they need to establish effective market mechanisms to manage potential increased demand for offsets within Canada.

Other considerations include extending the “End of Prescribed Life” beyond the current proposed level of 20 years and allowing responsible parties, such as utilities and crown corporations, to pool the emissions limits of their multiple existing units in the same jurisdiction.

Regulatory treatment of cogeneration is also under review, potentially shifting to an emissions limit. The approach under consideration would also differentiate between “behind the fence” electricity emissions and the emissions associated with electricity provided to the grid.

The federal government plans to continue engaging with stakeholders, including provinces and utilities, before finalizing the CER later this year. Ottawa has stated that continued collaboration will be essential to ensuring the regulations can provide significant emissions reductions while supporting electricity system reliability and affordability. Comments on potential changes to CER are due to be submitted by stakeholders by March 15.

The global energy system is in the throes of a generational shift. Population and economic growth spell a demand for much more energy. Climate pressures spell an imperative for a different mix. And new technologies mean new opportunities for both. Looking out a decade, to the mid-2030s, can that changing world of nearly 9 billion people power itself into a new age of sustainable growth? And where can Canada, a global leader in all forms of energy, create the most value in a Net Zero economy? To map out the expected courses for both energy demand and supply in the 2030s, RBC Economics & Thought Leadership and RBC Capital Markets, including Global Research, developed global and national datasets, and new projections. The estimates are based on current assumptions of population growth, economic growth and distribution, technology adoption and government regulation. The highlights of that research are laid out in this report, and its six major conclusions which are designed to help inform policy discussions at COP28, the UN Climate Conference in Dubai, and subsequent energy policy conversations. We know energy is fundamental to every part of our economy, while our management of energy emissions is also fundamental to progress on climate change. Balancing those needs will require an informed public discussion, which this research is meant to contribute to.

1. The world will need to supply another United States worth of demand

Global population growth may be slowing, but the world still needs to generate more exajoules in the next few decades to power emerging economies’ growing needs. Global population is set to rise by 1.7 billion to 9.7 billion by 2050, adding the equivalent of another China and United States in one generation. More imminently, world population will rise by around 834 million by 2035, which is the equivalent of another Europe. That will require another 93 Quad BTU of energy, or close to what the United States consumes now. When it comes to energy-intensity growth, the world appears to be on a two-track trajectory. In advanced economies, efficiency gains are lowering per capita consumption, which has contracted 13% over the past 20 years in Europe and North America, or about 0.7% per year. Population growth is also easing, but not declining outright in most advanced economies. Still, efficiency gains on a per-capita basis aren’t yet large enough for total energy demand to decline outright, even among advanced economies, especially in Canada. Emerging markets are on a faster track and still in the early stages of adopting passenger vehicles, home appliances and advanced manufacturing. In India, the world’s most populous country, energy consumption rates are still relatively low. A slowing population growth rate will help contain emissions growth but not sufficiently enough to offset a growing demand for intensive energy sources, including coal. Indeed, India’s population growth remains concentrated in the north where coal-dependency remains significant for industrial and urban demands.

Global energy demand growth by region

Per-year percentage contribution to world energy consumption growth

Source: U.S. Department of Energy, RBC Economics

Elsewhere, the pace of growth is uneven across the developing world. Per-capita energy consumption rates in China, the world’s largest market, are approaching advanced economy levels and will begin to level out. The pace of energy demand growth is set to slow after rising by 2% per-year over the past decade. And decades of low birth rates from the one-child policy mean China’s population is outright declining, which (all else equal) lowers total energy demand. By our count, growth in total energy consumption will be half the pace of the last decade in China – with risks of further decline if its economy weakens. The populous countries of Africa, rest of Asia and Latin America are facing their own unique challenges to build their economies while managing energy demand and climate pressures. Capital will be critical. Developing countries account for only one-fifth of investment in clean energy, despite making up two-thirds of the world’s population. Middle income countries, such as Brazil, Mexico and South Africa, are home to 75% of the global population and 62% of the world’s poor. Their rising disposable income, and aspirations to buy motorbikes, homes and electronics, will require all forms of energy. Eventually, the massive gap between energy consumption rates in emerging markets will close as their economies mature — but we are not there yet.

Energy consumption per-capita

MMBtu/person, 2021

Source: U.S. Department of Energy, RBC Economics

2. Renewables will account for 20% of global energy needs

While total energy demand will continue to increase, a rising share will come from production of zero emissions and renewable power. Renewable power is set to grow at five times the rate of conventional energy by 2035, which would push the share of total energy consumption globally from renewables to about 20% from 12% in 2022 and 8% a decade earlier in 20121. The cost competitiveness of renewables versus conventional energy has improved greatly, and government supports are encouraging a faster transition than otherwise would occur. Thanks to the Inflation Reduction Act, U.S. renewable energy growth is set to more than double by 2035, rising at a 7% per-year rate, or double the growth rate for renewables over the past decade. In virtually all regions, renewable power is set to rise as a share of total energy consumption. One key reason: between 2010 and 2020, the cost of solar and wind power fell 56% and 85%, respectively. Much of that growth could displace coal and other high-emissions sources. Coal consumption outright declined by about 0.5% per year globally over the last decade, and is expected to decline annually at twice that pace through 2035. That would still leave coal accounting for about 20% of total global energy consumption in 2035, down from 27% currently and over 30% a decade ago. Still, renewables are not without their challenges. Countries that have rolled out ambitious clean grid plans worry about the reliability of grids that depend primarily on wind and solar. A surge in installations is leading to cost inflation, at least in the medium term, while scaling up battery storage remains a challenge, although rapid advances are being made. Global co-operation is also crucial to ensure a smoother roll-out of renewables and a level playing field across countries. The patchwork of global regulations, such as a carbon border adjustment tax, and different carbon pricing mechanisms, need further refinement, robust common standards, and general acceptance across jurisdictions to speed up the transition. Political calculations could also change the trajectory of renewable adoption in many counties. There are signs of political resolve weakening on climate policies as the electorate around the world struggles with high cost of living, especially inflated energy bills. As many as 3.2 billion people in 40 countries (including the U.S.) with a combined GDP of US$44.2 trillion, will head to the polls in 2024. Climate policies are set to come under scrutiny and the prevailing public mood could well shift momentum in either direction. Meanwhile, worries around China’s control over metals and minerals and technologies vital for the energy transition have led many countries to develop parallel, and costlier, supply chains. But new mines will take at least a decade to build and renewable supply chains could easily become more complicated and costlier in a trade-restricted world. While these frictions are unlikely to slow the pivot to renewables, they could delay it.

Global energy consumption by source

Source: U.S. Department of Energy, RBC Economics

3. Peak oil demand is coming—but not yet

Discussions around “peak oil” can miss the bigger picture: An industry can remain dominant for decades even if it never surpasses some past high point. We assume global oil demand will continue to slow as a share of total energy consumption, but volumes consumed will not outright peak before 2035. Total petroleum consumption is already declining in major advanced economies (including the United States) but will continue to grow in emerging markets as population and energy use per person rises. There is substantial uncertainty around those estimates, with near-term risks both on the downside (slower global growth, notably in China) and on the upside (rapid technology adoption, also notably in China). Still, the direction of travel is clear: Over 60% of total global oil consumption is from the transportation sector, where the EV transition is well underway. China alone accounted for almost two-thirds of total global petroleum consumption growth over the last decade, and is now shifting rapidly to EVs. Full electric and plug-in hybrid vehicles have increased to 40% of total retail vehicle sales in China – more than 10 times the roughly 3% share in 2019.

Expected petroleum consumption growth by region

Per-year percent change, 2022 to 2035 (expected)

Source: UN, U.S. Department of Energy, RBC Economics

In Europe, electric vehicles already account for 44% of total car sales in 2022. The U.K. plans to fully end the sale of fully internal combustion engines by 2035. Canada plans to increase zero-emission vehicle sales to 60% of the new car market by 2030 and 100% by 2035. Those plans can change, and governments have a long history of delaying green energy objectives. The turnover of vehicle fleets is another key factor. Internal combustion vehicles are staying on the road for longer than ever as reliability and durability improves (the average age of a vehicle in the U.S. is 12 years), suggesting a longer shelf life for existing stock even as EVs make up a greater share of sales. Still, per-capita petroleum consumption rates have already been declining for decades across advanced economies thanks to fuel efficiency increases, and that trend will likely accelerate as the market share of EV sales grows.

Per-capita petroleum consumption

Index = 100 in 2011

Source: UN, U.S. Department of Energy, RBC Economics

4. Natural gas faces a more uneven transition

The phasing down of coal power is expected to boost demand for natural gas as a transition fuel on an eventual pathway to renewables and battery storage—at least in advanced economies. The pace of that transition will vary significantly by region, and with levels of government support. In the U.S., heat pump subsidies in the Inflation Reduction Act will help accelerate the transition to renewable fuels for home and commercial heating. Elsewhere, coal remains a core energy source, which gas could displace over time. China, the world’s largest emitter of greenhouse gases, is continuing to invest in nuclear power, but also permitted the equivalent of two large scale new coal power plants per week in 2022, despite pledges to reach Net Zero by 2060. In India, there is an estimated 65.3 GW of proposed, on-grid coal capacity under active development, equal to a third of its current coal generation capacity. Globally, natural gas demand growth is expected to be driven primarily by increased demand in emerging markets — enough to ensure total demand for natural gas is not likely to peak until after 2035. But the pace of growth will average about half the 1.8% annual rate of growth over the last decade, and the share of natural gas in the total global energy mix will edge lower with renewable power sources growing more quickly. In Canada, natural gas demand will be underpinned by strong demand from industrial sources – including high demand from the oil & gas sector. The expected launch of LNG Canada by mid-decade will signal Canada’s first major gas export foray beyond the United States, as major markets look for secure energy supplies. In Europe, since Russia’s invasion of Ukraine, plans for 26 new regasification terminals have been announced or launched, totalling 104.5 MTPA—a fifth of the current global LNG capacity, according to the International Gas Union. In Asia, Japan, China and South Korea remain among the world’s top three LNG importers. Their new long-term deals with multiple LNG exporters underscore their desire to secure and diversify energy supplies.

5. Oil Investments: Capturing value, capping emissions

Petroleum remains an important source of energy – still accounting for around 30% of total energy consumption by 2035. That would remain true even in the International Energy Agency’s more optimistic scenario in which global oil consumption peaks before the end of this decade. And the nature of Canadian oil production – heavily weighted to long-lived projects with very large initial sunk capital costs, and a relatively small share of global production – means that domestic oil production is relatively insensitive to near-term market dynamics2.

Canadian oil & gas capex spending still low

% of GDP

Source: Statistics Canada, RBC Economics

Still, the sector remains constrained by insufficient pipeline capacity to get Canadian production to market. The government-owned Trans Mountain Pipeline expansion will boost takeaway capacity significantly once it enters service likely in 2024. The 590,000-barrel-per-day expansion will fetch tidewater prices and reduce the discounts on Canadian benchmarks. Additionally, oil sands production is well-capitalized and may not need significant further investments. As a result, total oil and gas investment has declined to 1.5% the size of annual Canadian GDP – less than half the share (3.7%) before the oil price collapse of 2015. Even without new projects, the domestic industry can increase production over the next decade if global demand grows. We expect Canadian oil production to rise by 16.5% by 2030, primarily by increasing capacity of existing production rather than new investments. The Federal government’s proposed framework for an oil & gas emissions cap could change that outlook. There is still no certainty of what that the final regulations will look like. The framework envisions a (soft) cap at 35%-38% below 2019 emissions from oil & gas production to be phased in from 2026 to 2030 and with options to produce above caps for a price. But details are still to come and will be influenced by feedback from industry, legislative pressures, and potential court challenges. Decarbonization strategies may present the most significant capital need for oil and gas producers heading into the 2030s. The oil sector has already lowered emissions per barrel by roughly 20% since 2010, although increased production led to an absolute growth in emissions over that period. Plans and proposals for decarbonization projects, including carbon capture and sequestration, will require tens of billions of dollars of new capital, including from the federal and provincial governments. The sector believes such investments could secure its export markets for years, perhaps decades, to come.

6. Canada’s strong population growth will require a broad energy mix

Canada has one of the highest per-capita energy consumption rates in the world thanks to cold winters, hot summers, and a widely dispersed population. In addition, high levels of immigration are now the key driver of population growth, and added energy demand. Will Canadians shift to climate-friendly technologies fast enough to offset the addition of five million newcomers over the next decade? The transition to EVs is one signal it might—the share of hybrid and full-electric vehicles in total autos sales has more than doubled over the last decade, to 16% from 7% a decade ago. And the volume of gasoline sales is running ~3% below 2019 levels despite a 6% population increase over that period.

Canadian gasoline sales growing slower than population

Index = 100 in 2019

Source: Statistics Canada, RBC Economics

The pandemic reset consumer behaviour with possibly long-term consequences. Work-from-home policies have also dented public transit traffic and fuel consumption. Plus, a new generation of Canadians, and younger immigrants, living in more urban settings, may further cut fuel consumption over time. More people will likely mean more buildings to heat, too. Over the longer-run, alternative heat sources like heat pumps can help displace traditional natural gas and fuel oil as primary home heating sources. But cold winters mean energy demand for home heating will continue to grow and keep a floor under natural gas consumption—for now.

Canadian population growth bucking a slowing global trend

Average percent change per year

Source: UN population projections (Statistics Canada for Canada), RBC Economics

Canada’s share of renewable power is still relatively high (25%) compared to other countries, mainly due to the availability of abundant hydro power. But the impressive figure masks a weakness: Canada is one of the few advanced economies that failed to increase that share significantly over the past decade. That could change in the decade ahead with renewable power growth expected to accelerate, as envisioned in the proposed federal Clean Electricity Regulations. The rules aim to create low- or zero-emission electricity grids across Canada by 2035 and are part of the federal government’s overarching goal for the economy to get to Net Zero by 2050. The eventual shape and success of those regulations, which are opposed by several provinces, will be significant to the trend-line of natural gas consumption. Canada is also expected to rely on growth in nuclear energy, led by Ontario, to boost the share of total energy consumption from the zero-emission source. As the industry regains acceptance as a reliable and safe zero-emissions energy source, we assume a 9% increase in nuclear energy consumption in Canada by 2035.

Canada energy consumption by source

Source: U.S. Department of Energy, RBC Economics

More broadly, the right policy levers and industrial innovation can transform Canada into an all-round global energy player, and taps its sun, wind and timber, in addition to its strategic fossil fuels. Canadian resources and ingenuity can be a force in the world and help us deliver our Net Zero target, as we stated in our $2 Trillion Transition report.

Related Reading

The New Climate Bargain:

How Canada Can Manage Energy & Environmental Security

The $2 Trillion Transition:

Canada’s Road to Net Zero

Canada’s Conundrum:

Three Ways To Address The World’s Gas & Climate Crises

For more, go to RBC Economics & Thought Leadership.

Download the Report

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Contributors:

Lead author: Nathan Janzen, Assistant Chief Economist, RBC Economics

Myha Truong-Regan, Head of Climate Research, RBC Climate Action Institute Yadullah Hussain, Managing Editor, RBC Climate Action Institute Caprice Biasoni, Graphic Design Specialist

  1. There is room for faster growth in renewable power if governments are more aggressive at accelerating the transition. IEA projections also have renewable power rising to ~20% of global energy consumption by 2035 based on ‘stated policies’, but the share rises to closer to a third in the more aspirational ‘announced pledges’ scenario.
  2. Oil production in Canada continued to grow through the global oil price collapse of 2015
Flying is at the centre of our culture and acts as an enabler for economic growth and development — connecting Canadians and facilitating integration into the global economy. Sustainable aviation fuel (SAF) is shaking up the aviation industry with an alternative method to power existing aircrafts, with aims of decarbonization to achieve a more sustainable sky. But can it help Canada reach new heights in the fight against climate change? We’re joined by two experts when it comes to aviation sustainability in Canada, Angela Avery, Executive Vice President, Chief People, Corporate & Sustainability Officer at WestJet Group and Geoff Tauvette, Executive Director at the Canadian Council for Sustainable Aviation Fuels (C-SAF) — as we embark on a journey to better understand how this revolutionary fuel could shape the future of air travel. Show notes: To learn more about WestJet, click here To learn more about C-SAF, click here
Speaker 1 [00:00:01] Hi, it’s John here. If you are like me or probably like anyone you know, you probably have done a fair bit of flying this year. Some are calling it the year of revenge flying after the pandemic and flying continues to be at the center of our culture. It connects us with the rest of the world and promotes tourism, creates employment opportunities, helps generate trade and acts as an enabler for economic growth and development. It also poses a number of challenges when it comes to climate. I got to thinking more about this in September at New York Climate Week, when I was sitting on an airplane at LaGuardia Airport looking at all the airplanes lined up to take off and those waiting to land and wondered, is this the most hypocritical thing I’ve ever done to actually fly to a climate conference? Or is there actually a way to use all the ingenuity that has made the airline industry so great for so many decades to create sustainable flying? There are currently more than 100,000 commercial flights a day, and that number will keep on growing as the global population grows and as people pretty much everywhere take up more flying. And with that growth, of course, there’s going to be more emissions. The airline industry is trying to do something about that. Air transportation currently accounts for about two and a half percent of global CO2 emissions. And that may be a bit of an understatement because all those airplanes not only emit CO2, they affect the climate in several more complex ways through the concentration of other gases and pollutants. Some of us may buy carbon offsets to help reduce the net impact of our flying, but there’s also some incredible innovations going on in the industry, particularly around sustainable aviation fuel. European airlines have been pioneers with SAF, and now the Americans are racing to catch up. Under the Biden Administration’s Inflation Reduction Act, the U.S. now has a goal to produce 3 billion gallons of SAF by the year 2030. Can Canada catch up, too? We’re a nation of travelers. We have to be given our geography, but we also have to recognize how fast the game is moving. What’s our plan? What are the risks if we don’t get it right? And how long is the transformation going to take on the ground and up there in the sky? This is Disruptors. An RBC podcast. I’m John Stackhouse. Sustainable aviation fuel is at the center of the airline industry’s race to get to net zero, according to the World Economic Forum. SAF as its known could cut emissions by up to 80% when compared to traditional jet fuels. Can it also play a bigger role in Canada’s own plans to get to net zero? And how will it change travel for all of us? Today, we’ll explore the incredible world of aviation and the strides Canada is making towards a more sustainable sky. We’ll be joined by two experts. Our first guest is Angela Avery, executive vice president at WestJet. Angela is an experienced airline and energy executive. In addition to her work at WestJet. she’s been appointed to the United Nations Compensation Commission and has served on several not for profit boards, including the Canadian Energy Law Foundation, the Calgary YMCA, Arts Commons and the Calgary Zoo. Angela, welcome to Disruptors. Speaker 2 [00:03:25] Well, thanks, John, for having me. Speaker 1 [00:03:27] I’m so excited to talk about sustainable aviation fuel. I can be a bit of a geek that way. You’ve had a fascinating career. I’m wondering when you first got interested in what people call SAF. Speaker 2 [00:03:38] Well, I was interested in SAF when I joined WestJet, so I joined WestJet in February 2020 and I came actually from the energy sector. So was an area where I was already keenly interested when I arrived at WestJet because I knew there were limited ways that we can really decarbonize in the aviation sector. And so for me, I was really excited to bring some of the knowledge I had from the energy sector to the airline when I joined. Speaker 1 [00:04:02] That’s a great crossover. I wonder if you can define and explain for our listeners what exactly is sustainable aviation fuel. Speaker 2 [00:04:10] Yeah, sure. It’s really a plug and play fuel that we can put directly into our aircraft fuel tanks today, but it’s developed from different sources than Jet A-1 fuel, which is the traditional fuel used in aircraft. And so, sustainable aviation fuel just means that it’s developed in a more sustainable way using more sustainable feedstock. I can geek out with you, John, in relation to what that means in terms of feedstock, but essentially what we’re using for sustainable aviation fuel is right now a lot of waste products. So whether that’s waste cooking oil or waste animal fat, or we can use waste forestry products and other things to essentially create what is almost the equivalent of regular jet A-1 fuel that would normally be produced through oil and gas activities. Speaker 1 [00:04:55] What’s the environmental benefit? Speaker 2 [00:04:57] The environmental benefits, interesting one, because at the end of the day the emissions are pretty similar in relation to the emissions that are the result of the flying. The real environmental benefit is frankly the feedstocks itself. And so by using biomass, we are essentially recycling. And so instead of introducing a new carbon product into the planet, we’re recycling a carbon product that already exists. What we’re finding right now is 70% less emissions through the use of sustainable aviation fuel than traditional Jet A-1. Speaker 1 [00:05:25] And right now, and presumably for the foreseeable future, this is a blended fuel like I may have in my car. Is that correct? Speaker 2 [00:05:32] That’s right. Boeing and some of the other technology leaders right now are testing flights that would have 100% sustainable aviation fuel on board. But right now, most regulators are suggesting that one ought not to go above a 50% blend. And so oftentimes what you’re seeing is one and 2% blends because there just is not a lot of sustainable aviation fuel available. But even blending one or 2% makes a difference. And so that’s the kind of blends that you’re seeing. But the regulators cap us at 50%. But with the view that we know that some of our technology leaders in this space are going to get us to 100% at some point. Speaker 1 [00:06:10] And unlike electric vehicles, the plane doesn’t change. The fuel tank doesn’t have to change either. Speaker 2 [00:06:16] No. And that’s the real benefit and game changer with sustainable aviation fuel, it truly is plug and play technology. We don’t have to change any of the kit on the aircraft. The engine stays the same, the fuel tank stays the same. And importantly, all of the kit leading up to the actual aircraft does not have to change either. Neither do the pipelines that service those tanks need to change. And so from an environmental perspective, it’s extremely benign in relationship to a fuel switch. Speaker 1 [00:06:44] I’m guessing the fuel supply, though, and all the technology that goes into that is more complicated. Can you walk us through what has to change in the supply chain to make this work, especially at scale for the whole global fleet? Speaker 2 [00:06:58] There’s two real challenges right now with sustainable aviation fuel. Otherwise, frankly, we’d be all filling up our tanks right now with it. But it’s the ability to produce SAF at scale is one issue and then one that is interrelated is frankly the cost of producing staff. So right now, producing staff is about 3 to 5 times more expensive than putting jet A-1 fuel in our tank. And so it’s difficult for the airlines to sign up for increasing their costs that way. The cost of our fuel would, in our case at WestJet, more than double the cost of an airline ticket in Canada. And so when you look at where SAF is being produced right now, globally, it’s being produced in jurisdictions that have extraordinary policy supports for the production of SAF where the producers of SAF had the capital confidence to be able to invest in what they often call in the refining complex the pots and pans necessary to create this new bio fuel. Oftentimes, you’ll see across North America biodiesel is being produced from these refining complexes. Biogen could also be produced as long as additional kit were added to these refiners, but they need that capital to do so. Speaker 1 [00:08:09] Who’s leading the way? Speaker 2 [00:08:10] Right now, it’s some smaller producers in Europe are leading the way. We’re seeing the U.S. now catch up, though, in so far as they’ve got now, those new policy supports that they had even prior to the Inflation Reduction Act. But what we’re seeing is a mix. We’re seeing some startups and we’re also seeing some of the traditional energy companies stepping in a meaningful way. We know both are required for us to get to our very large aspirations of billions of liters of sustainable aviation fuel being produced on an annual basis. Speaker 1 [00:08:42] And right now, WestJet has a dedicated route, San Francisco, to Calgary. What have you learned from that and what will be required to take that to other routes? Speaker 2 [00:08:51] It was a great trial, so we did that earlier this year, and so we trialed this for a three month period. What we learned was a couple of things. Firstly, there isn’t still a huge demand by our guests onboard the aircraft to pay more for sustainable aviation fuel. So I think that we’re really going to have to make the case with the policymakers and with our guests in relation to the importance of us continuing to decarbonize the industry. The other thing we learned, frankly, was that there were very few routes that we could actually do this trial on there, very few places that WestJet flies where you can actually acquire sustainable aviation fuel. And so we very deliberately picked San Francisco-Calgary as our route because you can acquire sustainable aviation fuel in San Francisco. You can do that because California has been providing policy support for the development of SAF for now many years and nothing is commercially available in Canada. So any of our domestic flying, if we were to use SAF, would require us to actually transport staff to Canada, which also causes its own obviously cost and emissions’ impacts. Speaker 1 [00:10:00] What are the risks to Canadian airports and Canadian travelers of us not keeping pace with the U.S. Right now? It’s limited supply. You mentioned San Francisco, but a number of the big airports like LaGuardia are moving in this direction. And presumably in a few years, there will be a network of hubs that have SAF across the U.S. Speaker 2 [00:10:22] Well, I think you’ll see it’s just increasingly difficult for Canadian airports to compete for business. And so to be left behind in relation to SAF as well, I think you could see that demand over time could erode in Canada. And so I think that’s the real risk here. And one of the big risks, I would argue too, John, is just that Canada has this incredible amount of feedstock in relation to SAF. We’ve got all the ingredients here in terms of also having a really great capacity when it comes to technological know how. I mean, a lot of the green tech investments that are being made right now globally in decarbonizing the energy sector are happening here in Alberta and also across Canada. And so I would hate for us to leave that intellectual horsepower on the sidelines. Airports will be the beneficiaries of SAF and they could be left behind. But I think that there’s a whole Canada question here as well. Speaker 1 [00:11:14] You’ve mentioned the subsidies now available in the U.S., is that all Canada needs to do is keep pace with what the U.S. is offering or are there other challenges for Canada? Speaker 2 [00:11:24] I think keeping pace policy wise would make the difference, John. And I think that’s what the IADA, which is sort of the governing agency for all airlines, is called the International Air Transportation Association. That’s what they’re looking for. They’re looking for convergence of policies around the world because you don’t want to create winners and losers. Air travel is not a luxury. This is something that’s absolutely required in Canada. We have a gigantic country with limited infrastructure relative to our size. And so unlike Europe, I can’t hop on a train to go up to Edmonton, but I can certainly fly to Edmonton. And in my estimation, Canada has to keep up when it comes to airline infrastructure. Speaker 1 [00:12:04] I’m interested in your experience with customers and our unwillingness, if I can put it that way, to pay a green premium, as some call it, when you think about marketing, sustainable aviation fuel or sustainable flying generally, what do you think will be the right triggers for consumers, for travelers? Speaker 2 [00:12:23] I think it’s going to be a really tough nut to crack, John. I don’t think we can market our way into gas paying a premium necessarily for the use of sustainable aviation fuel. We’d like to provide that option because we will have some guests that wish to do that. We also already provide the opportunity for our guests to use carbon offsets, but we don’t find a tremendous uptake. I don’t think that’s a Canada problem per se. When I talk to fuel providers globally, there are very few jurisdictions where the consumer will pay extra for the biofuel option. And so I think we have to find a solution to the problem of the commons that’s a bit different than relying on the guests to uptake it themselves directly. Speaker 1 [00:13:05] And that comes back to the public policy point you’re making. This is going to take a lot more, frankly, government involvement if we’re going to see the switch move faster perhaps than it has been. Assuming governments do move in that direction or help the industry and all of us travelers move in that direction. How quickly do you think this will change? Speaker 2 [00:13:27] Well, I think it will change really quickly. In 2016, there were only 500 flights that actually used sustainable aviation fuel. And this year they’re expecting almost 500,000 flights. So we go to half a million flights from 500 flights in the course of just a few short years. And there is hyperbolic growth right now in the SAF side. Obviously, we’re going to have to grow faster and we’re going to have to decarbonize more swiftly. But from my perspective, we can be fast, followers in this space now. We are not the ones necessarily in the lab having to invent SAF. We can be fast followers. Speaker 1 [00:14:04] I mentioned the transformation earlier, and that’s going to take probably 20 plus years to play out, just given the vehicle life for most cars on the road. Do you think the airline industry will transform faster than that? Is this something that will will change completely in the next decade, or will it also take several decades? Speaker 2 [00:14:24] I think that we have a better opportunity to decarbonize faster in aviation because of SAF. So if we were relying on EV technology like we are in the auto side, I would be less bullish because there’s obvious challenges when you’re adding weight to the to the aircraft and there’s very limited sort of flying that can be, we think in the short term, replaced with electric flying. Right, we’re very fortunate, I would argue in the aviation front that we’ve got a technology that’s right here available to us that can quickly decarbonize by up to 70% on average, now, the flying that we’re undertaking. Speaker 1 [00:15:05] Meeting my carbon footprint as a traveler would be 70% less. Speaker 2 [00:15:10] Yes. Speaker 1 [00:15:11] What a fascinating conversation. Angela, I wonder as we move towards close, if you could look into your crystal ball and tell us where you think aviation will be a decade out in terms of sustainability? Speaker 2 [00:15:22] I’m really excited about where we’re going to be in a decade, John, because you’re seeing new technology, even when it comes to aircraft themselves, aircraft are oftentimes 40% more aerodynamic now than they were 30 years ago. And so when you think about your own car, the how fuel efficient it was ten years ago versus what it is today, we’re driving those technology improvements when it comes to our fleet. We’re driving those technology improvements, even on board the aircraft. You’ll see we don’t have TVs onboard aircraft anymore and most airlines don’t because that saves thousands of liters of fuel. The other thing on the sustainability front, John, that I’m most excited about is that we’re going to see more people get the benefit of air travel. Only 20% of the world has actually been onboard an aircraft. I’d like to see that number change. I would really like for us to democratize, travel for the whole world. And so it’s going to be an imperative for us to decarbonize at the same time we democratize, but to advance everybody’s opportunities globally. I think you’re going to see a lot more aircraft and you’re going to see a lot more sustainable flying by that aircraft in the next ten years. And I’m excited about that. Speaker 1 [00:16:30] What a great and exciting vision that is to decarbonize while also democratizing travel. Angela, thank you for being on disruptors. Speaker 2 [00:16:37] Thank you. I’m so glad you would have me. Speaker 1 [00:16:41] Angela Avery is executive vice president of the WestJet Group. In a moment, we’ll hear from one of Canada’s other leading voices when it comes to sustainability in the skies. So stay right there. Speaker 1 [00:16:58] Welcome back. Today, we’re talking about sustainable aviation fuels and how they’re disrupting the aviation industry with aims of decarbonization. Our next guest is Geoff Tauvette. He’s one of the leading voices when it comes to SAF adoption and implementation in Canada. Jeff is the executive director at the Canadian Council for Sustainable Aviation Fuels, otherwise known as C-SAF. He’s a commercial aviation and engineering professional who’s at the forefront of airline sustainability. With more than 25 years of experience integrating aviation, fuel procurement, environmental and climate risk management. He’s also worked to develop Canada’s first SAF roadmap. Geoff, welcome to Disruptors. Speaker 3 [00:17:38] Thank you, John. Glad to be here. Speaker 1 [00:17:40] You’ve had a long journey, if you don’t mind the expression, in the aviation world. Tell me when you first got excited about sustainable aviation fuels. Speaker 3 [00:17:48] Sure. I think over my aviation career, I was one of the first to meld the Fuel and Environment departments together several years back and was able to live through all the various climate policy discussions that were occurring at the time. And in my previous role, I spent a lot of time figuring out how to manage that carbon portfolio and how to manage emission reductions, progress for airlines and sustainable aviation fuels. Really our only solution at the end of the day for aviation to achieve emission reduction. So using my background at the time in the fuel world, I integrated myself into the clean tech business or network anyways, in western Canada and really started to look at ensuring that we get a production of SAF in western Canada. Was my focus at the time. Speaker 1 [00:18:37] And what along the way, Jeff, have been some of the bigger challenges and barriers to getting to more widespread adoption of SAF? Speaker 3 [00:18:44] Yeah, well certainly cost is still a big issue and we do want to focus all our discussions on that. But it is, it is a very costly product today and that’s a factor, of course, of we don’t have a lot of it in the world. And so the hope is when we get to scale, we can reduce those costs. The other angle as well is really we’re missing a policy environment in Canada, a national strategy that will help us put in place the regulatory certainty in order to make those investments. It’s really bringing people together and figuring out which stakeholders have that magic value chain that that can bring cost efficiencies and bring production online. And that’s really why C-SAF or Canadian Council for Sustainable Aviation Fuels, is formed and has really sort of filled that gap. Speaker 1 [00:19:36] I’m curious, Geoff, that we haven’t been more assertive on the policy front. Canada has an ambitious national climate plan that we have a well-regulated airline industry and a number of well-run airlines. One might have thought this is something we’d be at the forefront of. Speaker 3 [00:19:53] Our C-SAF strategy, and we really highlighted this in the road map that we released in June. We’ve developed a plan to produce a billion liters, of SAF by 2030. The road map shows the pathway and the actions that we need to take in order to set in place those building blocks to ensure that we are able to secure those investments and move forward on investing. But again, it is costly. I mean, unfortunately, today the cost of SAF is 3 to 5 times more regular jet fuel. So the trick is how did the airlines work that in to their cost profile and how do we ensure that Canadians can still travel affordably? And I think you have to context how aviation works, who they’re competing against. And the U.S., unfortunately, today has a lot of policies in place that are impacting SAF production, SAF cost, and it really is causing sort of a competitive issue for for Canadian aviation. Speaker 1 [00:20:57] What’s the risk to Canada and to Canadian travelers as well as the airline industry if we don’t get to that 1 billion litre goal that you’ve set? Speaker 3 [00:21:06] Well, with what the U.S. has in place today, we’re worried that a lot of the innovation and production of sustainable fuels will occur in the States. And so Canada just becomes essentially we’ll send sustainable feedstock down south. Have the U.S. make the product and we buy back at a higher premium because the system that we’re in. And then, of course, you see the opportunities in the U.S. and Europe, where the aviation industry is decarbonizing as well. And does Canada get left behind? And then we’re not as competitive, if you will, in the future because we haven’t had the opportunity to decarbonize in a cost affordable way. Speaker 1 [00:21:42] What do you think government can and should do in the near term to up our game? Speaker 3 [00:21:47] Well, certainly we need some form of incentives to ensure that sustainable aviation fuel is produced affordably. The investment climate is not competitive because of the industrial policy that the U.S. has put in place. We need all the different types of feedstocks. We need all the different types of technologies to convert those feedstocks into fuels. Some technologies are more ready than others in terms of commercialization. So when you look into the future of the renewable fuel that is actually growing in volume is SAF. And so that that should provide a great business or future fit business opportunity for suppliers of SAF. Because we know it’s growing and this is what are tentatives in the roadmap is in fact is that this is a future economic opportunity for Canada. We can use our feedstock, we can essentially make it here and then because it’s growing in volume, we should be able to have in place a policy that sort of puts those building blocks in place to be able to scale, to create that opportunity here in Canada in the future. Speaker 1 [00:22:52] You mentioned the need for incentives. I also wonder if there are technology developments on the horizon that maybe could reduce the cost of SAF? Speaker 3 [00:23:01] So we are seeing those come forward for sure. There’s catalysts and all the chemistry that goes behind that is getting better. And so it is getting cheaper on that end of things. Our problem, of course, is that we’re competing against renewable diesel and some of the other fuels. And then the ultimate goal for aviation is to get to these fuels called power to liquid fuels. That’s where we’re using really a renewable source of hydrogen and a renewable source of carbon. And really the process is going backwards from regular fuel. How you have your fuel, you burn it, it releases a whole bunch of energy and it turns into molecules in the air. We want to take those molecules from the air and go backwards and turn it into a fuel. And the cool thing about that is, yeah, we need to figure out hydrogen. Yeah, we need to figure out how to get the carbon from atmosphere. But if we spend some time figuring out how to advance some of those medium term technologies a little bit more quickly, it puts us in a good position to get more quickly on to power to liquids as well. Speaker 1 [00:23:58] You mentioned hydrogen. How far off are we from hydrogen being a significant component of this? Speaker 3 [00:24:06] So hydrogen is is an interesting component of of all fuels, but certainly SAF. So, we need it today because we are going to need more of it to help us process some of this fuels into liquid fuels. There’s just a missing component in some of these biomass type of feedstocks. So definitely we need a good source of renewable hydrogen in the mix to help us convert these fuels and into SAF from a power plant perspective. When you see some of the technology reports, I think they’re figuring near the 2050s and beyond is where you’re going to see maybe some opportunities for aviation over the long haul to use hydrogen as an actual fuel. So lots of time will need to be dedicated, lots of risk involved. So we need to figure out how to sort of put that into market as well, which is why, again, SAF is that sort of go-to solution for aviation in the long term. It fulfills the emission reduction requirement, it’s safe to use across the variety of age of aircraft that are flying today. There’s a few missing elements, if you will. So we still need to blend it with regular jet fuel to make sure that it can function in the engines. And lots of work going on to ensure that we can use 100% SAF. So so no more blending. So that’s going to take a while and we just need to produce more of it. Speaker 1 [00:25:24] Geoff, you’ve laid out a pretty rational road map. What do you think is the barrier to executing on that? Speaker 3 [00:25:32] I think the biggest missing piece is just how do we set up a regime that supports the production? How do we ensure that suppliers get the right signal to be able to make the investment that airlines and their consumers can still be competitive at the end of the day and have an affordable product? How do we pull private investment into the fold to help develop some of this technology? And that’s all going to have to come down to some form of federal strategy that the provinces can then build on top of with their industrial strategies or some of the manufacturing afterwards. But without that clear signal on how we’re going to do that, we’re just always in a discussion mode in terms of how we invest, right? There’s just not enough certainty going forward in order to pull that required investment to make the production of SAF happen. Speaker 1 [00:26:25] What a great call to action that Canadians have long been innovators and leaders in the aviation space. And Geoff, you’ve laid out an opportunity here for the country to take that into a new era of sustainable flying. Thank you for being on disruptors. Speaker 3 [00:26:40] I appreciate it. Thank you, John. Speaker 1 [00:26:45] That was Geoff Tauvette, Executive Director of the Canadian Council for Sustainable Aviation Fuels. We all know the climate is changing and of course, the world is changing. Today, we heard how the aviation industry is also changing. The big question I take away is can Canada move fast enough to keep up? I liked Angela Avery’s description of sustainable aviation fuel as a plug and play option. It’s something airlines are already doing. It’s something that the fuels’ industry is quite good at. It’s also something Canada can be a global leader in. We’re already a producer, as both Geoff and Angela explained. A biomass, the stuff that goes into fuel blends. And we’re a world leader and innovator in the fuel space. So how do we put together the right mix of technology, of commercial ambition, of consumer awareness, and a public policy that will help transform in a positive way the climate impact of flying? There’s a role for all of us to play because on the climate journey, none of us can afford to be just passengers. Until next time. I’m John Stackhouse and this is Disruptors, an RBC podcast. Talk to you soon. Speaker 2 [00:27:58] Disruptors and RBC Podcast is created by the RBC Thought Leadership Group and does not constitute a recommendation for any organization, product or service. For more Disruptors content, visit our RBC.com/disruptors and leave us a five star rating if you like our show.
This is our 7th season of Disruptors and we’re kicking it off with a bang! It was truly the summer of AI and there is a tech wave surging. People are both excited and worried about what it’ll mean for their communities, jobs, the economy, and the planet. And while these tech advances have immense potential, we need to think deeply about how they’ll be applied. When it comes to AI research, we are a podium nation but when it comes to application, how can Canada step up to the plate? To help us make sense of it all, we are joined by two pioneers in Canada’s AI sector; Nick Frosst, Cofounder of Cohere and Jordan Jacobs, Cofounder and Managing Partner, of Radical Ventures. Show notes: To learn more about Cohere, click here: https://cohere.com/ To learn more about Radical Ventures, click here: https://radical.vc/
Speaker 1 [00:00:01] Hi, it’s John here. Welcome back. This is our seventh season on Disruptors, and we have some exciting insights and big ideas that we think are going to disrupt the market this year. So let’s jump right in. When you think about prediction. What comes to mind? Or what about disruption or innovation or maybe automation? If you answered eye to any of these questions, you’re not alone. This truly was the summer of AI, and there’s a tech wave out there that’s surging. And a lot of us are both excited and worried about what it will mean for our jobs, for the economy, for our communities and, yes, the planet. And while these tech advances have immense potential, we all need to think harder about how they’ll be applied and where the advantages will be. There’s a new think tank at Toronto Metropolitan University called Dais, and they put out a really important study this summer that found only 3.7% of Canadian firms had deployed AI in their business in any capacity — 3.7%. When compared to other advanced economies, Canadian business may be at the back of the pack, but this adoption rate is pretty uneven. It’s been more rapid among big firms, those with more than 100 employees, where 20% said they’re already using AI compared to only 3% of the smallest firms. Adoption has also been leaving some equity seeking groups behind, businesses owned by women, for instance, or indigenous peoples, and people living with disabilities are far less likely than other businesses to currently use AI. So what can Canada do to better innovate and fill these gaps? We know that Canada is a leader in AI science. We have many of the world’s best AI scientists and several of the top universities when it comes to research, we’re a podium nation. But when it comes to application, we’re going to have to step it up and do a lot more to take advantage of this tech revolution. How can we put A.I. to use, whether it’s in business or in health care or education? How can we ensure that those uses are advancing Canada’s prosperity? And in true Canadian fashion, how can we do all this in a way that is fair and ethical? This is Disruptors. An RBC podcast. I’m John Stackhouse. We’re in the early stages of what seems to be a generative AI revolution, and it’s been remarkable to watch its rise and how quickly its evolving. At scale, AI can be integrated into pretty much any organization, and as it’s value to our daily lives and the economy grows. It’s also the topic du jour among regulators as they race to realize its impact, both good and bad. To help us make sense of it all, I’m joined today by two pioneers in Canada’s AI sector. Our first guest, Nick Frost, is the co-founder of Cohere, a Canadian startup that provides natural language processing models to help companies improve human machine interaction. As you’re about to hear, Nick is an optimist. He envisions a world where humans can rely on AI largely like personal assistants, to make life easier. Interacting with it as much as we do with our cell phones. Hey, Nick. Welcome to Disruptors. Speaker 2 [00:03:30] Hey, thanks so much for having me, John. Speaker 1 [00:03:31] It’s great to have you on the podcast. I’m so excited to learn more about Cohere because it’s such a fascinating and impressive Canadian company that’s now being noticed around the world. But before we get into the Cohere story, let’s start with some basic definitions of AI. I find it’s a term that everyone loves to say. It’s getting buzz everywhere, but not a lot of people can define it. Can you just give us a quick and dirty definition of AI and also generative AI? Speaker 2 [00:04:00] Yeah, for sure. So in general, when people talk about AI in a historical context, what they really mean is just computers doing things they didn’t expect computers could do. So in today’s moment, when someone talks about AI, what they’re almost certainly referencing is neural networks, which are a form of machine learning. And specifically, if they’re talking about generative AI, they’re talking about the ability for neural networks to create various forms of media that they thought only people could make. That’s writing sensible text, answering text questions, doing any kind of text based intellectual task. There’s image generative AI increasing, there’s video and audio, but all of those are powered by advances in neural networks and various forms of machine learning. Speaker 1 [00:04:44] That’s a great, succinct definition. Tell us a bit about Cohere. Maybe start with the origin story. What was the launch of the company? Speaker 2 [00:04:53] So the launch of the company came out of a realization that Aiden, our CEO, Ivan, and I had several years ago. So Aidan was a coauthor of a paper called Attention is All You Need, which was a machine learning paper which introduced a new type of neural network specifically for language. The realization was that, hey, this tech is really powerful. It can do really great things, but it’s very difficult to create a large language model. It’s even more difficult to make sure that it’s deployed in the right environments, that it actually solves problems for people. And we were at Google at the time and realized that, you know, this incredible technology was not going to be available to the broad public and to every company unless there was a company like ours that set out to make this stuff ready for enterprise and ready to solve business problems. Speaker 1 [00:05:46] Of course, a lot of people hear AI and they immediately think of the machines taking over that this is going to eliminate jobs, whereas you’re integrating it in things that are already going on and just making them more efficient, more productive, and presumably helping people do more. How do you think through that challenge of technology, both as a disruptor and enabler? Speaker 2 [00:06:06] I think whenever you have a technology as impactful as this, it will do both those things. I think it’s really important to think about the consequences of your creations as a technologist. These days there’s a lot of talk around existential risks posed by artificial intelligence. I think a lot of that is is kind of misaligned with where the technology is today. And I think our time is better spent thinking on the more immediate things that will be impacted. So that is things like job retraining programs to make sure people know how to be augmented by this technology as opposed to replaced by it means coming up with good policy to make sure that these things are deployed in a way that benefits the entire Canadian populace. Speaker 1 [00:06:49] Can you give us a couple of examples of how limbs are transforming in a positive way, jobs, companies, activities out there? Speaker 2 [00:06:58] Yeah, absolutely. One of the things that at Cohere we’ve worked on a lot is something called retrieval augmented generation. So this is where instead of just having an LLM write you a paragraph, you have it look through a whole bunch of documents, write a paragraph based on the information in those documents and cite its sources. This is a real breakthrough because it allows you to like, you know, actually trust the things that are coming out of this LLM because it’s telling you where it got this information. That I think will massively impact people’s ability to do research and synthesize large documents. So, for example, like writing a summary of an article, that’s a really great use case of LLMs. Or answering a question based on like a whole bunch of documents, other things like, you know, predicting how the stock market is going to go tomorrow. The input is not text, the output is not text. And the information that you’d need couldn’t possibly be given to the LLM anyways because there’s things that influence that that are not written down anywhere. Speaker 1 [00:07:56] That’s a great description. I often think of those moments that we all encounter every day when someone says, let me get back to you. I don’t know. And whether it’s a call centre rep or could be a lawyer or it could be a doctor who says, like, I’ve got to go look something up. Well, yes, saves the time. And then all the energy that goes into that. Speaker 2 [00:08:15] Absolutely. Speaker 1 [00:08:16] You talk about Cohere’s global reach. Tell us a bit about how Canada looks to you in terms of applications compared to other markets that you’re in. Speaker 2 [00:08:27] I would say that Canada is always Canadian. We’re always a little more hesitant to deploy new technology, and that is often to our fate. Like that’s often a good thing for Canada. That often means that things get rolled out and they go slightly better having watched the mistakes of others. But I do find that when talking to people in other parts of the world, they are more willing to like jump on a new technology and deploy it and make slight make mistakes and course correct as they’re going. Speaker 1 [00:08:55] What sectors do you think need to lean more into this than others? Speaker 2 [00:08:59] I would love to see all knowledge, work and white collar work lean into this heavier. I think there’s a real opportunity for this to empower people and free up time for us to do the things that we’re really good at and allow LLMs to do the things that they’re really good at. Any work whose input is text and output as text, I would love for them to be working with this. Speaker 1 [00:09:18] Great way of framing a text in, text out. In technology, there’s often this saying that the second mouse gets the cheese. We know what happens to the first mouse going into the mouse trap. And that’s true of some technologies. But this may be different. There’s also a bit of a frenzy out there, as you as you know, around AI. Some may see it as a bubble. Others may just see it as the growth curve that’s playing out. But I was struck visiting a number of companies in Silicon Valley in the late spring, how many were repositioning themselves as AI firms, but they were effectively just enterprise software firms. How does that affect your thinking as you build out the company? When you see all these large companies well capitalized and have repositioning themselves as AI companies and here you’re a scrappy startup going up against them. Is that a challenge for you as you think about your growth? Speaker 2 [00:10:14] Yeah, I think undeniably there’s a lot of hype. People are really, really excited about generative AI. A lot of that excitement is warranted based on the impact of this technology. It does really cool stuff. It does stuff we didn’t think computers could do. It continues to surprise me, a person who’s been working on this for many, many years now. But some of the hype is hype. And some of the companies out there who are just selling a traditional SaaS offering that is useful and adding value, recently feel the need to shoehorn generative AI in so that they can, you know, capture a new cycle or capture some investment. We could go back and create a history of the past several decades and name which technology that was happening to in any given year. This year it’s it’s generative AI. I think from our perspective, it’s cool to see people excited, but we’re focused on how this technology delivers value. We’re focused on trying to build something that is useful to people and not just capitalizing on the hype. Speaker 1 [00:11:14] You mentioned that even you get surprised by some of the progress, what in the last year has surprised you most in terms of what generative AI has been able to do? Speaker 2 [00:11:24] One of the things that surprised me recently was that our model’s ability to make citations. So it was a few, a year and a half ago or something, and we were first playing around with this retrieval augmented generation. So you give it a document, ask a question, get the answer from the information in that document. And that worked quite well, but it works way better than I thought it did. And now not only can I tell you, hey, this is the answer, it can tell you, and I got it from this paragraph or I got it from this document. And that’s a very complicated problem. Speaker 1 [00:11:53] Nick, we’ve only scratched the surface of AI’s potential in this conversation. I wonder, as you look to the future and say, think out, five years, where do you think we’ll be? Speaker 2 [00:12:05] Yeah, I think we will be in a world in which your primary interaction with a computer will be based on language. I also think you won’t think about it very much in the same way that you don’t think about the touch screen and you don’t think about the graphic user interface. I think we’re going to move to that. So I think you will open up a computer, there’ll be a chat box or a microphone for you to speak into. You’ll ask your computer to do things. It will do it for you, and that will be your daily interaction. Speaker 1 [00:12:37] That sounds very positive. Nick, this has been such a great conversation. We could go on and on, but mindful of your time and we want to thank you for being on Disruptors. Speaker 2 [00:12:47] Thank you for having me. Really enjoyed it. Speaker 1 [00:12:50] When we come back, we’ll meet someone who took a career pivot from entertainment law to artificial intelligence and is now at the global forefront. Speaker 1 [00:13:07] Welcome back. Today, we’re talking about AI and Canada’s standing as a podium nation in AI research and advancement. Our next guest, Jordan Jacobs, is at the forefront of applying AI to pretty much every sector. Jordan is co-founder and managing partner at Radical Ventures in Toronto. It’s now considered the world’s largest AI venture capital firm. He also co-founded the Vector Institute, a world leading AI centre that empowers researchers, businesses and governments to develop and adopt AI responsibly. Jordan also helped author Canada’s first national AI strategy. Jordan, welcome to Disruptors. Speaker 3 [00:13:46] Thanks for having me. Speaker 1 [00:13:47] Oh, it’s great to have you in the conversation. I want to start with a bit of your own background because you’ve had a fascinating career. Tell us what lured you into AI? Speaker 3 [00:13:55] Yeah, I started my career, actually, securities learning financings for tech and media and moved into a group that we built at the firm. I was at doing tech in the entertainment and sports. After a number of years, I left and set up my own firm. But really to do more entrepreneurial stuff that led to building a media company. I made a TV series with Elton John and Elvis Costello called Spectacle that ran around the world. And in the course of that, we partnered with a charity, Bono’s charity, Product Red. And the guy who was running that charity, and I, became very good friends. And we had this idea for basically a new type of social network that would be focused on cultural content. And I’d been reading about deep learning, and I was, you know, thankfully naive enough to not understand it hadn’t really worked in the wild, but it was largely being led out of Toronto by Geoffrey Hinton. One thing leads to another, decide to sell the law practice I had in the media company and go focus on this. My partner quit Product Red where he was the president, and we meet our third partner, Tomi Poutanen. And Tomi had studied with Geoff in the 90s before going and running search in the Valley at into me and Yahoo! And then became the ranking engine of Bing. The big breakthrough in AI wasn’t until 2012 when Geoff and two of his students won a Stanford competition that proved that deep learning was better than other approaches to image understanding. That was basically the moment that caused this boom that’s happened over the last decade. So we started off in our and our first hire was out of Geoff Hinton’s lab, and when we hired him, a lot of friends in tech said, Oh, you do not know what you’re doing. You have no product, you have no data. You do not hire the machine learning Ph.D. first. And our answer was, well, we’re going to architect a system that’s going to produce the signal for him to use. So that was really the genesis of my departure from law and going and doing an AI start up before modern AI worked. Speaker 1 [00:15:47] Jordan, tell us a bit more about the Radical story. What inspired you to launch what you’ve now described as the world’s biggest AI VC firm? Speaker 3 [00:15:55] Well, we had built and the AI Company, we had been spun out into a second company called Layer 6. We were ramping up in our sales and during the fundraise, a few things happened. One is we kept having successively higher offers for acquisition from a big tech company. And on the fifth offer, you know we had just again said to them go away without thinking about it. And they came back with a sixth offer. And I turned to my partner Tomi and said, you know Tomi we should talk about why we’re saying no instead of just saying no. So let’s think this through. And we came to a few conclusions. One is we really did believe then that AI would change everything. Second, the pan-Canadian strategy and the Vector Institute had been launched and we’d seen that it was winning talent and it was changing the conditions on the ground in Canada. Third, we realized there was no other VC in the Western world that was focused on AI. And then lastly, something really important happened which ties back to Cohere, which is we read a pre read of the Transformer paper. It Was written in 2017 by a group at Google Brain that included Aidan Gomez who’s now the CEO of Cohere. That paper was basically designing a new architecture for neural nets and we thought, this technology is going to get adopted quickly inside Google. It will probably take another five years to get adopted beyond Google. And then from that moment, it will be a ten year replacement cycle of all the software in the world. So we sold the company at the beginning of 2018, told the buyer, We’re going to go do this. When I left about six months later to launch Radical, we’ve been investing as angels for 70 years. At that point we had a little version of Radical, we were running on the side with our own money and some other individuals, but the first institutional fund was May of 2019, the US $325 million fund. We deployed into 27 companies in the first fund. Raised the new fund. It’s a $550 million fund. We’re now at about a billion US AUM. Our performance has been great, teams amazing. So, it’s been a fun ride. And then of course ChatGPT happens. ChatGPT came out exactly five years and two weeks after we had that prediction that it would take five years to get beyond Google. And what we’re seeing now is this adoption curve being straight up and into that ten year cycle of replacing all the software is happening probably at a faster cadence than we expected. Speaker 1 [00:18:21] Some people look at that acceleration as a bit of a hype cycle. AI has been through cycles going back to the 70s and 80s. What makes this time different? Speaker 3 [00:18:31] If you measure it in very short term, there’s too much hype. Medium and long term, I think it’s actually under hyped. People don’t understand how impactful this will be on our lives, on our health, on climate, on basically everything that you can think of that we do out there as humans and all these things we could never do before. So the reason it’s different is it works. What’s really interesting about the technology is all the things that people are not yet paying attention to. Designing molecules for material science to cure diseases. It can be creating new materials that we couldn’t create before or would take years to create that you can create now in a couple of hours. For energy, for aviation, all kinds of other applications. If you are an industrial company, you’re going to have AI that is in your factory assembly line monitoring the equipment and predicting where there’s going to be a breakdown before it happens. It’s going to supplement all of your back office functions for every business, whether it’s accounting software, HR software. So I would say every business is going to be touched by this because even if they’re not deploying it into the core of what their business is, their first thing, be using it in the back office functions because it’s just going to be part of the software suite. Anyone who’s got data, I think can deploy immediately, AI, or certainly over the next few years as the solutions get developed for their business. Speaker 1 [00:19:49] Where there’s data, there should be AI. That’s a great, great message. Jordan, I want to take you back to 2018, because you said at the time that Canada was uniquely positioned to become a world leader in AI. Do you still believe that? Speaker 3 [00:20:03] Yes. First of all, a lot of the stuff was invented here or by Canadians. So the research pedigree is elite in the world. And I think that first strategy that was called the pan-Canadian AI strategy, the government adopted in 2017 that we helped author, I think it has worked incredibly well in retaining talent and bringing in new talent. It’s not well recognized in Canada, but when you travel outside Canada, everyone says that strategy worked and that there’s now, I think, 40 plus countries that have emulated it, U.K., France, U.S., China. And I think that is the foundation for the ecosystem. The opportunity to then commercialize and build big companies around it is something that we have to do, it’s happening, but we have to continue to double down and do a better job of. Speaker 1 [00:20:51] How do we do that at a high level? How do we have that mindset shift in business or in public sector organizations, hospitals, schools and other groups that could benefit from AI? Speaker 3 [00:21:02] The first thing was we needed to have the practitioners, the researchers, the students you know, the profs, in proximity to businesses so that when businesses realize they need this stuff, they can go hire from down the street instead of having to recruit Google Brain or DeepMind across a continent or an ocean, because that’s really hard. So getting people who are local was important. So that, I would say, is largely solved as long as we continue to support those institutes and the development of that talent. Beyond that, Canadians are historically conservatives in adopting new technology. We’re laggards in spending on research and innovation inside corporations. The problem withAI is it’s very different. A.I. is basically learning software. And so when you deploy it, it starts to learn from your data as a company or your customer experiences, whatever way you’re deploying it. And it’s getting better and better and better. So if you are a company and your competitor is deployed AI and you haven’t, they’re not just pulling away, you know, in the number of months that they are ahead of you. It’s actually a curve and they’re pulling away faster and faster and faster. So how do we get people to adopt faster? You have to show them the return on investment for them doing it and what the benefits are to them in terms of their competition or avoiding disruption. But ideally, you want to show them how it makes them more money or saves them money. What we tend to find is that Canadian companies don’t like to buy until there’s a stamp of approval from the US. We have to change that mindset. We have to get Canadian companies willing to step out a little bit sooner. One party that could do that as a reference customer is the government. In truth, in technology, the US government is very involved and very often is the first buyer, whether it’s through DARPA or just becoming a customer and deploying things at scale. In Canada, we’re terrible at it. So I think the Canadian government being better at buying from Canadian companies. I’m not suggesting they buy stuff that is worse quality. I’m just saying they give it equal shake. Second, I think the government should develop incentives for Canadian companies to buy Canadian technology. So those are just two very quick things that I think can be done. There are others, too. Building capacity in compute. In order to build AI companies now you need access to massive compute. There’s much more demand then supply. The government could step in, for example, and be a bulk buyer on behalf of Canadian businesses. Government doesn’t have to spend in incremental dollars. It’s just fronting and being a guarantor of payments. So having the government as a guarantor of that in a bulk buyer I think gets better pricing and also guaranteed access for a country of Canada’s size. I think there’s there’s an advantage in having a bulk buying power for business and research. Speaker 1 [00:23:58] Jordan, before we move to close, I want to talk about one more application, which is climate, and that’s going to be a special focus of disruptors this season, including the intersections of AI and climate. I wonder if you can share some insights on where you think AI can play a more constructive role in helping us take on the climate crisis with more urgency. Speaker 3 [00:24:20] Yeah, I think it has to be a very important part of both addressing existing issues and also help improving things going forward. So we’ve invested in a couple of different satellite companies, one called Nuance Space. The first platform they’re building is for fire prediction and detection, early detection. Basically, they’ll put up a constellation of satellites around the world that’ll be able to detect forest fires before they get out of control. We invested in another company called Climate AI that predicts the weather and climate up to ten years in advance. So their first customers were in the food space, seed growers right through end users of the supply chain who can redistribute their food because they understand it’s going to be drier or wetter in a particular place. We are right in the middle of closing a deal right now with a company that is using AI to determine what existing materials can better do carbon capture at scale. And so that’s an interesting one because it has the chance to actually reverse the effects of climate change instead of just addressing the implications of climate change. So I think we’re going to see more and more of those kinds of companies, the ones that are trying to fix the problem, not just address the problems that already exist. Speaker 1 [00:25:39] And what a great opportunity for Canada, given the strengths here in both AI and clean tech. So lots more to come on that. Jordan, last questio if we’re lucky enough to have you back on the podcast a year from now, what do you hope will have changed? Speaker 3 [00:25:55] In Canada itself, I’d love to see faster adoption by companies and by governments of our local world leading AI solutions. There are some companies here that can become absolutely huge global champions. I’d really love to come back and be able to tell you we’re well on our way to a much faster adoption curve by Canadian businesses and government of this technology. I think it would be good all around for the economy. We should be one of the key pillars on earth when people think about where is AI built, based and growing. Canada should be among a couple of places in the world that are thought of that way. And we’re there, but we have to really double down on it. Speaker 1 [00:26:33] What a great call to action. Passionate but focused. Jordan, thank you so much for being on Disruptors. Speaker 3 [00:26:39] My pleasure. Thanks for having me. Speaker 1 [00:26:43] There’s no doubt that this is the age of AI, and when Canada looks into the AI mirror, it’s critical that we do so through a human lens that is responsible and sustainable. The technology has incredible potential, as we’ve heard, to revolutionize health care delivery and diagnosis, transform supply chains and strengthen the pace of learning in schools and of course, improve the productivity in pretty much everything we do. AI can also help us tackle the bigger systemic challenges that we face as a country and as a world. Climate change, lagging economic growth, health care inequality, and so much more. The question isn’t can we do it? It’s, can we do it responsibly? And can we apply it fast enough to bring meaningful change when the world needs it? This season promises to be our best yet. We’ll be speaking with incredible innovators and disruptors with big and bold ideas who are already making waves across Canada and around the world. So be sure to follow us wherever you get your podcasts. And while you’re at it, why not leave us a review? We’d love to hear your thoughts. Until next time. I’m John Stackhouse and this is Disruptors, an RBC podcast. Talk to you soon. Speaker 3 [00:28:01] Disruptors and RBC Podcast is created by the RBC Thought Leadership Group and does not constitute a recommendation for any organization, product or service. For more Disruptors content, visit RBC.com/disruptors and leave us a five star rating, if you like our show.

Why we wrote this

Last fall RBC partnered with BCG’s Centre for Canada’s Future and Arrell Food Institute at the University of Guelph. We set out to explore what we believe is Canada’s moonshot: to produce 26% more food by 2050 (enough to maintain our contribution to the global population as it grows) with fewer emissions. The result was The Next Green Revolution: How Canada can produce more food and fewer emissions.

Throughout the past year, here’s what we learned:
  1. Canada is uniquely placed to lead: Our assets are unparalleled, but we need to do more to maximize them. Other nations are allocating substantial funding to promote climate-smart agriculture. Canada can proportionally match those investments while establishing new market mechanisms to help finance agriculture’s sustainable transition.
  2. Nothing will happen without accurate measurement technology: Tools to monitor emissions accurately (especially carbon sequestration in soil) are essential to building markets and helping producers take advantage of them.
  3. Cross-sector collaboration is key: A successful transition to Net Zero demands a new approach. It requires public-private actors across the fragmented agriculture supply chain to work together, as one sector, toward a single vision.
  4. Private sector R&D is insufficient: Canada has invented some of the most important agricultural technologies globally. But private sector funding for innovation is at an all-time low. To remain leaders in this space, we’ll need private actors to invest.
  5. Skills gaps are limiting growth: The sector requires more workers to drive the Net Zero transition. From on-farm managers to data analysts, qualified workers and advisors are desperately needed on Canadian farms, but post-secondary funding is insufficient.
  6. Early adopters should be rewarded: A significant number of producers across Canada have engaged in climate-smart agricultural practices for years—if not decades. These pioneers could be left out as programs develop to financially incentivize farm operators making their first transitions to better soil health methods. To continue growing current carbon stock levels, early adopters must receive a financial benefit for their continued contributions.
  7. The world needs Canada more than ever: With global supply chains under stress from the Ukraine-Russia War and extreme climate events, many countries are facing food shortages or unstable supply lines. As a politically stable country, and a reliable supplier of safe, high-quality food, Canada has an opportunity to become the world’s sustainable breadbasket.

Canada’s investment in climate-smart agriculture lags global peers

Canada’s investment in climate-smart agriculture lags global peers

Source: BCG analysis, RBC analysis, USDA, and OECD

Brazil and Indonesia were not included due to climate-related funding directed to financing programs

The world’s top food producers are on the move. Making sustainable agriculture a strategic priority, Canada’s peers are laying the foundations for formidable climate-smart food supply chains backed by sizeable funding and bold policy measures. Amid these dramatic investment and policy shifts, a pivotal moment is emerging for Canadian agriculture. The sector risks falling behind if Canadian governments don’t match their competitors in supporting producers with the funding and policy tools to grow more food with fewer emissions. Canada is already falling behind. The agriculture sectors in the U.S., EU, Australia and China get roughly three times the climate funding that Canada provides to its industry. Yet the expectations placed on our farmers are growing: to produce more (in increasingly adverse weather conditions), to cut emissions and to help boost global food security. We began to explore the opportunities around climate-smart agriculture last year, in the midst of twin global crises over food shortages and climate shocks. Since then, our research teams have spoken with more than 500 farmers and food producers, to gain a better understanding of what practical policies could make a difference now. The right policy measures will help strengthen our economy, soften geopolitical threats and accelerate emissions reductions. Ottawa and the provinces will need to transform their approach to agriculture policy to protect a sector that accounts for 7% of national GDP—with huge potential for further growth. This report lays out nine polices across five areas—soil, methane, fertilizers, talent & technology, and consumers—that can slingshot Canada’s agriculture sector to the forefront of the next green revolution and compete globally. The nine-point plan could serve as a powerful response to IRA’s ambition, and lays the ground for a prosperous, expanded, and sustainable food powerhouse. Currently, Canada’s ag policy and funding falls well short of the US$19.5 billion in incentives and tax credits embedded in the Inflation Reduction Act to support ag-tech, conservation and other measures. Even before Washington rolled out its signature climate program, U.S. climate funding as a percentage of total farmers’ revenues stood at 1.7%—more than three times the level in Canada. The proposed US$1.5 trillion Farm Bill could further extend America’s advantage. China, meanwhile, is revitalizing farmland through an annual US$7 billion investment, while the European Union is dedicating US$224 billion to “climate-relevant initiatives” through 2027. The farmers we spoke to suggest agriculture is already ahead of other economic sectors in fighting climate change, and in deploying technologies, innovations and methods that have reined in emissions. But soaring global and national emissions mean there are new expectations—from domestic and global markets—on Canada’s major sectors to raise the bar. Our proposed policies will reduce agriculture sectors’ emissions, which currently account for more than 10% of the nation’s total greenhouse gas emissions. A climate-era agriculture business model involves farmers to provide demonstrable proof of emissions reduction to meet challenging government and investors targets and growing consumer expectations. The good news: Canada is already a vital contributor to global food security and has a head start in climate-smart farming. Canada is already a top food exporter, with a food system ranking among the highest in sustainability, according to the Food Sustainability Index. Over 65% of Canada’s farmers have adopted at least one practice to improve their farm’s resiliency to adverse soil, water or biodiversity challenges.I Now is the time for Canadian governments to build on our farmers’ successes. The nine-point plan could serve as a powerful response to IRA’s ambition, and lays the ground for a prosperous, expanded, and sustainable food powerhouse.

Soil As An Asset Class

A corn farmer near the township of Elmira, Ontario, recently shared his excitement with us about the prospect of boosting his bottom line by integrating carbon credits into his farming practices. He’s not alone. Thousands of Canadian farmers are also eyeing the carbon credit market, which promises fresh sources of revenue and recognizes their efforts to remove carbon from the atmosphere. However, stories and experiences of unsuccessful pilots that didn’t ultimately pay out, unclear guidelines on access, and limited data and knowledge is dampening enthusiasm. In addition, producers that implemented practices to sequester carbon at a higher rate years ago feel left behind and rue their timing. Canadian governments could pursue three policy measures to create thriving carbon markets.

1. Build Standards To Support Carbon Markets

    • Opportunity

      A $4B carbon market by 2050

  • Challenge

    No clear standards

Serving as a powerful carbon sink, active farmland in Canada can sequester between 35MT to 38MT of carbon by 2050, around 40% to 45% of the oilsands’ current annual emissions. Currently in a nascent stage, Canadian voluntary carbon markets could emerge as a $4 billion behemoth by 2050, our research shows. An active market could mean tens of thousands of dollars in fresh revenues streams for some operators—and over a $1 million for larger operations.
But the building blocks of a viable carbon inset or offset carbon market in Canada will rest on a solid system for measuring and reporting soil carbon and emissions. Agriculture and AgriFood Canada (AAFC) and Environment and Climate Change Canada (ECCC) have done extensive work in this space, but more can be done collaboratively.
Here’s how we can build a vibrant Canadian carbon market:
  • Based on the private sector’s work, the federal government can publish methodologies on the most credible approaches to creating offsets and insets (see box).
  • To receive any carbon credit payment, the impact must be measured scientifically. Working with farmers/ranchers and agribusiness and through regional pilots across the country, AAFC and ECCC could introduce publishing standards for a preliminary measurement, reporting, and verification (MRV) framework for different climate-smart practices. This would work in tandem with the soil database detailed in the next section. It will be tricky, though. Finding a consistent and cost effective MRV methodology to measure the impact of climate-smart agricultural practices (including cover cropping and no-tillage) on soil carbon sequestration and emissions remains challenging.
  • An MRV framework would guide producers on earning credits in an affordable way, and enable buyers to confidently purchase those credits or incorporate them in an inset program.
  • Governments should explore viable ways to ensure market prices are stable and farmers and investors can secure a consistent and substantial return.
  • The U.S.’s 8-year, US$300-million investment in MRVs could serve as a template for Canada. The investment will enable improved data collection mechanisms and build algorithmic models to establish current and future emission baselines. It will also determine the protocols needed for soil testing, identify scalable and affordable remote sensing and soil sampling technologies, and establish a nationwide network of research to improve on-farm practices. Canada will need to match this funding proportionally to ensure producers can compete.

Insets

Organizations directly avoid or reduce emissions within their own supply chains. The process helps companies avoid or reduce Scope 3 emissions in their supply chains and better prepares for them for future regulations that may be more stringent.

Offsets

Companies or individuals purchase tradeable credits generated by renewable energy or other emissions-reducing projects. This credit negates or offsets the same amount of carbon emissions created by their operations.

2. Create A Climate-Smart Database To Help Farmers

    • Opportunity

      A data-smart ag sector to manage risks and boost productivity

  • Challenge

    Lack of accessible knowledge

A deep and extensive data pool is critical for measuring status of climate practices and future areas of focus. But a lack of government funding for climate-smart data programs has hampered efforts to manage risks and boost productivity.
The federal government, in cooperation with provinces, can address these challenges and accelerate the adoption of efficient methods by developing the framework for a national soil database:
  • Building on years of work by the AAFC and provinces, a national soil database can collect data through a common system. This is critical to understanding the current health of various soil classes across Canada, particularly since some soil maps have not been updated since the 1950s. It’s also key to understanding soil’s impact on nitrous oxide emissions (which is especially damaging to crops and human health), carbon sequestration and organic carbon stock patterns.
  • Established and funded by the AAFC, the database could serve as a portal delivering real-time and downloadable economic intel to producers, experts, and decision makers.
  • The slew of data, from provinces, soil laboratories, ag-machinery providers and remote-sensing operators, will create real-time regional and national baseline emissions. It will also help in charting regional crop modelling, establishing ways to improve nutrient management, encourage biodiversity and water conservation practices.
  • Armed with insightful data, farmers could reduce the risk of adopting climate-smart agricultural practices by understanding potential economic impacts of adopting new practices. The database could also serve as an invaluable tool for companies and research firms looking to develop export-ready agricultural technologies.

3. Develop A Fair System That Ensures Market Equity

    • Opportunity

      A system that incentivizes early-adoption of sustainable technology

  • Challenge

    Little recognition for first movers

The first two pieces of our soil policy package are aimed at incentivizing future behaviour. This final segment recognizes past actions. Canadian farmers have been ahead of the curve, with many implementing climate-smart practices that pre-dates the Paris Accord, sometimes by decades. But these early adopters’ worry their carbon stock may not have been documented consistently over the years. After all, to be rewarded in a carbon market, producers must demonstrate an increase in carbon absorption over time.
Failing to reward these early adopters could bring unintended consequences. It could demotivate farmers or compel them to once again till their land (thereby releasing carbon) to set a lower baseline for carbon in their soil—leading to higher payouts in the future.Early adopters who can demonstrate they have increased carbon stock could be compensated in the following ways:
  • An expanded capital gains exemption could be created for qualifying farmland. Currently, there is an exemption of $1 million of property value that is not taxed on qualified property during intergenerational transfers. The new policy would entitle producers to the total value of organic carbon in their soil based on latest market prices (in addition to current exemptions). It would be associated with the value of the farmland at the time of transfer and exclude the exemption received. Through back-casting, a modelling process where past changes in soil-bound carbon are estimated, we can chart the evolution of soil organic carbon stock over several years. This method can be used to determine baseline estimates to compensate farm operators.
  • Producers could receive a pool of tax credits, based on scientifically proven carbon stock on their farms, that can be used toward paying taxes. An allotment of credits can be spread over 10 years with producers choosing the year they want to pay business taxes.
  • Parts of the Scientific Research and Experimental Development (SR&ED) can be simulated to encourage environmentally beneficial on-farm investments. A new program would issue investment tax credits to farm operators that invest in projects promoting ecosystem services. If an investment matches an activity from a list of appropriate on-farm investments, producers can submit a claim to receive a tax credit.

Methane As A Growth Opportunity

A dairy farmer just south of Ottawa told us he was eyeing a biodigester, but worried about its substantial price tag and economic viability. The biodigester will help break down organic materials (such as manure) at his farm to produce biogas, mostly methane. But he, and other farmers we spoke to, believe Canadian policies are not attractive, even under the supply management program. This made the biodigester hard to justify, despite its role in cutting costs and managing emissions. It’s a different story south of the border. Under IRA, American farmers are well positioned to benefit from 30% tax credits from the production of biogas through at least 2025. In addition, the U.S. Department of Agriculture’s Rural Energy for America Programs have provided US$2 billion in loans and grants to increase energy efficiency and renewable energy like biogas. Canada will need to match the U.S.’s investment in biogas to tap its improved sustainability benefits, waste-to-energy conversion and lower energy costs.

4. Promote Ways To Make Methane Cuts Profitable

    • Opportunity

      Create a robust value chain for biogas

  • Challenge

    Investments are not profitable

While Canada needs to produce more food, it must do so with fewer emissions. Crops and livestock production currently generates more than 10% of Canada’s greenhouse gas emissions, with methane among the most potent sources. As a signatory to the Global Methane Pledge, the federal government acknowledged that agriculture is responsible for 31% of the country’s total methane emissions. Enteric fermentation, the digestive process of ruminant animals, accounts for 86% of that total with manure responsible for the rest. While manure contributes to methane emissions, it can also emerge as a source for renewable natural gas, or biogas.
The technology and tools to tackle methane are ready, but successfully deploying them will require both financing and a broad system approach. We recommend the following approaches:
  • The federal government could co-ordinate with provinces to create a nationwide blend mandate to incentivize utilities to purchase renewable natural gas (RNG) from digesters. Provinces such as Quebec and British Columbia mandate natural gas providers have a blend of over 10% minimum renewable content within their supply by 2030, motivating utilities to purchase RNG. It has encouraged farm operators to install biogas-producing digesters that can then be converted into RNG at an upgrader. Through a nationwide mandate, provinces would be expected to establish a minimum blend requirement.
  • Support more proposals for the construction of digesters through the Strategic Innovation Fund (SIF). Though SIF currently accepts agrifood proposals, this is not a core feature of the program.
  • Credits can be granted to producers through the Clean Fuel Regulations (CFR) for biofuels used in the transportation market. To ensure the program is effective, ECCC could review the program after a year to ensure all participants are receiving appropriate financial compensation and that obstacles to installing biodigesters are reviewed and fixed in a timely manner.
  • Installation cost of digesters and pipes could be included in the Cleantech Investment Tax Credit. IRA provides a tax credit of up to 50% of project costs to businesses that install digesters. A similar tax credit will be needed for Canada to compete and develop a market that will use the RNG produced from this technology. Accelerating RNG production investment will lead to a greater supply of ultra-clean fuel for the transportation market.
  • Create agile regulations and government policies for methane-reducing feed additives to reduce methane emissions. These feed additives currently can’t enter the Canadian market due to stringent regulations. A permanent and independent panel of experts could advise regulators on the abatement potential and productivity benefits of low-emission livestock feed technologies. This panel could be empowered to work with regulators at Health Canada and the Canadian Food Inspection Agency (CFIA) to review regulations, collect data, and provide technical guidance on policies related to the new additives. As many feed additives are considered veterinary drugs, the panel will review and update regulations to ensure innovation and competitiveness are key criteria. The panel could also collaborate with key trading partners to develop standards that recognize producers who use methane reducing feed additives.

Supply Chains As Strategic Drivers

A potato producer in Lethbridge, Alberta, acknowledged the efficiencies of the 4R Nutrient Stewardship program—the right fertilizer source, at the right rate and time, and in the right place. But he believes the government can do more in the fertilizer space to ensure the security of inputs vital for safeguarding the national food supply-chain. Worrisomely, Canada does not have enough agricultural inputs to support the entire industry if it’s cut off from external suppliers, especially major exporters such as Russia. Promoting a domestic industry of fertilizers and other agricultural inputs would reduce costs and ensure a steady supply of innovative solutions to farmers across Canada. A domestic push on sourcing agriculture inputs will also create jobs in rural regions, as the raw resources for many innovative fertilizers, like biostimulants, originate in rural areas and are processed close to their source.

5. Strengthen Canada’s Domestic Fertilizer Portfolio

    • Opportunity

      Ensure Canada is food secure

  • Challenge

    Insufficient support for new biological companies

Beyond focusing on revenues, farmers need to ensure the supply of fertilizers and agriculture solutions, is affordable and accessible. Fertilizers are made of three vital components: nitrogen, phosphorus, and potassium. They ensure plants have the right access to nutrients to grow and increase yields. While Canada is the world’s largest producer of potash (a common form of potassium) and supplies 31% of global demand for this commodity, the country is reliant on other nations for nitrogen and phosphorus.
This has become a major pain point in light of the Russian invasion of Ukraine and Canada’s dependence on Russian nitrogen fertilizer. Before 2022, farms in central and eastern Canada used over 660,000 tonnes of nitrogen fertilizer imported from Russia annually (representing over 85% of total nitrogen fertilizer used in the region). With the government issuing steep tariffs on fertilizers to punish the Russian economy, Canadian producers have been left paying the bill. Biological products, such as biocontrols, biostimulants and biofertility (see box), can emerge as critical add-ons or substitutes to traditional agricultural solutions. Biostimulants can be blended with traditional fertilizers to promote healthier soils and increase efficiencies and currently represent a US$12 billion global market.[i] Canada is in a unique position to lead in this space given the raw resources required to create these solutions are found in rural regions. Firms making these products are often headquartered in rural communities and can ensure that local demand for organic nitrogen fertilizers is met while creating high-paying jobs.
The following steps can help build a resilient, home-grown agriculture value chain:
  • CFIA, which is tasked with registering biological products, should streamline approval processes. CFIA should also seek further funding for additional staff, as it currently takes the agency more than 380 days to approve new registrations–-not including potential delays.
  • The federal government, in conjunction with provinces, should bolster supply chains by improving transportation networks such as roads, railways and ports. Governments should also continue their support and expansion of carbon capture, utilization, and storage projects and research and development initiatives for domestic nitrogen fertilizer production.
  • Provide funding from the federal government to biological companies to improve domestic and foreign market development. Biological products can help reduce soil erosion, which is costing Canadian and American farmers over $3 billion annually, according to research. Research grants should be awarded for on-field trials for marketing purposes. While many fertilizer programs will continue to use chemical products, farmers can blend biological options to improve soil health.
  • The seaweed extract opportunity, often used as a biostimulant, can generate 30,000 jobs in rural British Columbia alone, the industry estimates.
  • Establish biological products as a lucrative made-in-Canada product. Several Canadian companies are currently providing innovative biological solutions, and many markets, including Europe and South America, are adopting them. In 2021, half of Canadian fertilizer retailers had a positive view of biostimulants while over 80% sold a biostimulant product. Common biostimulants include enzymes that promote nitrogen fixing, seaweed extracts, or beneficial bacteria and fungi.

Types of biological solutions

  • Biocontrol: Assists plants in biotic stress and prevents further damage from pests, pathogens, and other organisms.
  • Biostimulant: Supplies plants with support during abiotic stress to improve overall crop quality by increasing nutrient use efficiency.
  • Biofertility: Promotes crop growth through the application of living organisms to soil, seeds, or plant surfaces to colonize internal plant tissue and encourage growth.

Technology & Talent As Competitive Advantages

On the outskirts of Saskatoon, Saskatchewan, a canola producer told us he won’t bother posting a “Help Wanted” sign this year after recent efforts to find talent had failed. Like other farmers, the Saskatoon producer believes sourcing talent is about more than getting labourers to participate during harvest. Farms need on-site specialists and a network of advisors to identify key requirements. These specialists need to communicate quickly with data collected from machines to boost efficiencies. Farmers are also concerned about cost of critical technology and new innovations that could eliminate time-consuming tasks remain cost prohibitive. On-farm specialists and technology that can help manage droughts and weather episodes are going to be central to their success. Yet, investment in the space has been declining over the past few years. To guarantee operators’ access to technology and talent, the federal and provincial governments could increase their support of research and development to decrease the cost of new innovations, advisory networks, and education. The following policy package could help hone talent and drive innovation:

6. Nurture An Innovation-Driven Ag Sector

    • Opportunity

      Find the next wave of Canada’s ag-tech giants

  • Challenge

    Minimal investment in ag-tech

The launch of a thriving carbon market and growth of big data analytics will sow the seeds for the next crop of tech-savvy Canadian agriculture companies. However, ag-tech investment in Canada is lagging global peers, stymying innovation. In 2021, over US$6.9 billion in venture capital funding went to American ag-tech companies. By comparison, only US$270 million went to Canadian ag-tech firms. More public and private research and development (R&D) funding is needed to scale Canadian ag-tech companies.
Here’s how Canada can fine-tune its funding mechanisms:
  • The private sector and Innovation, Science and Economic Development Canada, could invest in the creation of a network, similar to the Clean Resource Innovation Network (CRIN) for oil and gas projects that promote research and development. The public-private partnership would include farm operators, smart farms, research institutions, investors, and companies (small, medium, and large) throughout the agriculture supply chain.
  • Hold competitions (similar to CRIN) to develop and commercialize sustainable technologies. For instance, a call for proposals focused on reducing harmful nitrous oxide emissions could spur innovation in the genetics of nitrogen-fixing crops, enhanced efficiency fertilizers, or other technologies that allows plants to take nitrogen directly from the atmosphere, reducing the need for energy-intensive fertilizers.
  • Allow innovative companies to showcase their solutions and finance their innovations. Participating farm operators and smart farms in the network can evaluate innovations directly through on-field trials at minimal cost. Researchers can also initiate studies that companies can use for marketing purposes, gaining access to investors at different levels. Corporations involved in the network can have priority access to investments and can pair their R&D teams with the ag-tech firms participating in the challenges.
  • Increased private sector R&D in agriculture will ensure that current obstacles to on-farm labour are eliminated in the future. Technologies can automate processes, enable farm operators to focus on management, decrease inputs and grow yields.

7. Revive Canada’s Knowledge-Sharing Network

    • Opportunity

      Build a Canadian ag knowledge portal

  • Challenge

    Insufficient infrastructure

Agriculture extensions—a network of agriculture experts dotted across provinces— and Canadian universities have historically supported farmers with guidance. Agronomists and experts in these networks often offered advice to producers on the most suitable strategies and technologies. But over the years most universities have stepped back, while provincial extension services diminished due to funding cuts. The U.S. witnessed the reverse, with many land-grant universities providing a series of programming initiatives to help producers.
Here’s how Canada can revive these networks:
  • Farmers can acquire information and knowledge from privately funded experts, but greater provincial involvement is needed as the urgency of climate challenges build. Indeed, on-farm demonstrations are the most effective tools for increasing adoption of new management practices and innovation. Farmers have also identified a lack of access to experts, on-farm demonstrations and knowledge as the main barriers to further adoption.
  • A new approach to extension service programs should consider a collaborative approach involving public, private, and institutional actors. A new blended approach would encourage provinces to partner with agricultural colleges and post-secondary institutions through increased federal and provincial investment in research facilities on campuses. It would also promote in-house consultancies in provincial agricultural departments (as in Nova Scotia) that can drive further recruitment.
  • The private sector has a powerful role to play, too, with in-house agronomists offering farmers real-time recommendations to boost productivity.

8. Boost Investment In Post-Secondary Education

    • Opportunity

      Grow and deepen the ag sector’s talent pool

  • Challenge

    Difficulty in attracting diverse set of skills

Canada’s agricultural sector will soon enter one of its biggest labour and leadership shifts. Current immigration policies that fast-track skilled farmers and on-farm labourers should continue to expand to meet this challenge.
Here’s how we can ensure future generations of producers and a network of advisors and consultants are on hand to provide expertise:
  • Agricultural colleges and universities should continue creating programs that welcome students from different educational backgrounds and micro-credential programs. Creating programs that blend the expertise of different faculties will help increase students’ exposure to agriculture.
  • A carbon management program could invite students from different faculties to understand how greenhouse gas emissions are tracked, ways to create corporate objectives to decrease emissions, and effective methods to monitor progress.
  • Eliminating barriers to foreign credentials (for example for veterinarians) can help bridge labour gaps and bolster productivity in the agriculture sector.

Consumers As Drivers Of Market Change

An apple farmer from Quebec posed a question to us at an Ottawa event: why is the government not proactively procuring climate-smart food from domestic producers. While acknowledging that procurement should respect trade deals, she believes governments should lead by example and purchase locally as a sign of support. Incentivizing consumers can be a challenge and the government has a role to play in leading by example. Research from Fertile Ground, another report in our Next Green Revolution series, found that few consumers are willing to pay more for sustainably made food due to its higher cost. To stimulate the market, different levels of government should make a concerted effort to remunerate producers who are implementing climate smart agricultural practices.

9. Influence purchasing patterns through procurement

    • Opportunity

      A “green premium” government program

  • Challenge

    Government not optimizing procurement levers

To ensure a virtuous cycle, the federal government’s procurement policies should be aligned with its Net Zero commitments.
Here’s how public-sector buying policies can support climate-smart farming practices:
  • To improve sustainability across federal departments, Public Works and Government Services Canada should establish a green procurement program to purchase food produced through climate-smart agricultural practices. According to available figures, the federal government purchases over $400 million in food annually to cater its facilities. Directing these funds to sustainable food purchases will guarantee a buyer for growers and potentially reduce food waste.
  • By setting clear and broadly recognized standards and certifications, producers can sell their goods to government. Measures could include improved soil health, 4R management, livestock partnerships, effective grazing and pasture practices, efficient water use, restoration of native grasslands, and fuel and energy efficiency. Metrics should be accessible to every farmer in Canada.
  • This should be directly administered by commodity groups and farm organizations. On-farm interviews by these groups will verify the practices performed on farms and inform producers on their status. Results will be reported to government before a designation is assigned. These groups should receive additional funding to cover the cost of verification. Due to their expanded role, the organizations should receive further resources for on-farm demonstrations of leading-edge land management practices.
  • To ensure government accountability, a review mechanism should exist to track Ottawa’s progress in expanding adoption of climate-smart agriculture practices.

Conclusion

The Canadian producers we spoke to over the past year are positioned for growth. The sector has punched above its weight, serving as a rich source of jobs, trade, and economic gains, even during periods of crisis. But producers believe that the ambition of recent government budgets has been less ambitious than peer nations that are implementing generational programs. Canadian governments have an opportunity to step up their commitments and create a robust policy environment that recognizes the sector’s economic potential, its global role as a reliable food exporter and as a climate-smart leader. This is Canada’s moment.

For more, go to rbc.com/climate.

Download the Report

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Contributors:

Lead author: Mohamad Yaghi, Agriculture & Climate Policy Lead, RBC Climate Action Institute

RBC Yadullah Hussain, Managing Editor, RBC Climate Action Institute Naomi Powell, Managing Editor, Economics and Though Leadership Darren Chow, Senior Manager, Digital Media Shiplu Talukder, Digital Publishing Specialist Caprice Biasoni, Graphic Design Specialist Myha Truong-Regan, Head of Research, RBC Climate Action Institute Gwen Paddock, Director of Sustainability, Royal Bank of Canada Arrell Food Institute Evan Fraser, Director, Arrell Food Institute, University of Guelph Ibrahim Mohammed, Ph.D. Candidate Lisa Ashton, Ph.D. Emily Duncan, Ph.D. Boston Consulting Group Kilian Berz, Managing Director and Senior Partner Keith Halliday, Director, Centre for Canada’s Future Sonya Hoo, Managing Director and Partner Chris Fletcher, Managing Director and Senior Partner Thomas Foucault, Managing Director and Partner Taylor Whitehouse, Project Leader Chris Kornas, Project Leader

  • Erin Doherty, Arrell Food Institute, University of Guelph
  • Alice Raine, Arrell Food Institute, University of Guelph
  • Rene Van Acker, Dean, Ontario Agriculture College, University of Guelph
  • Lenore Newman, Director, Food and Agriculture Institute, University of Fraser Valley
  • Rickey Yada, Dean, Land and Food Systems, UBC
  • David McInnes, Founder and National Coordinator of the National Index on Agri-Food Performance
  • Kim McConnell, Strategic Partner, AdFarm
  • Keith Currie, President of the Canadian Federation of Agriculture
  • Peggy Brekveld, President of the Ontario Federation of Agriculture
  • Tyler McCann, Managing Director, Canadian Agri-Food Policy Institute
  • Barbara Swartzentruber, Senior Fellow & Program Director Agriculture & Food Systems, SPI/Natural Step
  • Cameron Charlton, Vice President, Corporate Client Group, RBC
  • Scott VanEngen, Financial Planning Specialist, RBC Dominion Securities Inc.
  • Karen Proud, President & CEO, Fertilizer Canada
  • Catherine King, Vice President of Public Affairs, Fertilizer Canada
  • Cassandra Cotton, Director of Sustainability, Fertilizer Canada
  • Fawn Jackson, Chief Sustainability Officer, Dairy Farmers of Canada
  • Fiona McNeil-Knowles, Sustainability Specialist, Dairy Farmers of Canada
  • Adam Hayter, Hayters Farm
  • Wayne Cantelon, Cantelon Farms
  • Dana Dickerson, Market Development and Sustainability Manager, Grain Farmers of Ontario
  • Michael Williamson, CEO and Co-Founder of Cascadia Seaweed
  • Nick Harsulla, Manager of Government Relations, United Farmers of Alberta

  1. “Canada’s 2021 Census of Agriculture: A story about the transformation of the agriculture industry and adaptiveness of Canadian farmers,” Statistics Canada, last modified May 11, 2022.
  2. Stratus Ag Research, “Tracking biostimulants: Retailers – USA and Canada 2022.”
What an epic, even historic, summer it was. Heatwaves, wildfires, storms – it was like Mother Nature and Planet Earth were reminding us that no matter where we are, or what we do, the climate is profoundly changing. Now, as climate presents equal parts challenges and opportunities, we’ll need to accelerate climate action. Meanwhile, the explosion of ChatGPT signaled that AI is really starting to take hold. Now, from regulation to adoption, the race for AI dominance is on. At such a critical juncture, it’s important to ask where Canada fits in this age of disruption? And can we lead, particularly in areas where we already do – AI, clean energy and food production. For Season 7 of Disruptors, an RBC podcast, we’ll speak with incredible innovators and disruptors who are chasing answers to these questions and challenges. So be sure to subscribe and listen everywhere you get your podcasts.
John Stackhouse [00:00:01] Hi, it’s John here. I hope you had a great summer. And what an epic, even historic summer it was. SFX [00:00:07] More than 6,000 separate wildfires have burned all over the country. John Stackhouse [00:00:13] Heat waves, wildfires, storms. SFX [00:00:15] Canada has been overwhelmed. John Stackhouse [00:00:18] It was like Mother Nature and Planet Earth were reminding us that, no matter where we are or what we do, the climate is changing profoundly. And the costs are growing. There was something else going on this summer that was also anything but natural. It was the explosion of ChatGPT. Now, Generative AI has been a thing for a while, but it was this summer that it really began to take hold. It feels like we’re on multiple collision courses as a society and this possible collision of climate and computing is what we’re going to explore on the upcoming season of Disruptors, an RBC podcast. We’ll ask “how can advanced technologies like ChatGPT help humanity but also help the planet?” I actually got thinking more about this during a double billing of Barbenheimer, that other great summer phenomenon. A lot’s been said about Barbie and Oppenheimer. But what I found kind of interesting was the existential tension between humans and technology in both films. As a species, we’ve long wrestled with the God complex and our ability to both create and destroy. We’re seeing that in climate, of course, and we may be seeing it in AI. But there’s also that constant human urge for progress. To not just build, but to share and nurture and grow. And we’re going to need a lot more of that for climate and for A.I. and for so much more. In AI, the race is on for supremacy in both adoption and regulation. Generative AI is a part of every business and sector. Large language models like GPT are already enabling the application of Einstein-level IQ at scale. And with investment increasing, regulators are confronting the challenge of how to slow AI’s rise. In climate, there are equal challenges and opportunities. We’re now a year into the age of the Inflation Reduction Act, when governments are spending record amounts and driving up regulation as well to accelerate climate action. Clean tech is taking center stage pretty much everywhere in the world. Countries are competing to dominate in batteries and EVs, leading critical minerals and safeguard domestic energy supplies. The future really is now. Here in Canada, the economy is thundering on as we confront the challenge of managing record population growth amid a historic housing shortage. SFX [00:02:51] Canada hit a new milestone officially surpassing 40 million in population. SFX [00:02:57] Chat about interest rate hikes, being able to afford housing has been on the top of everyone’s mind. John Stackhouse [00:03:02] Our race to net zero is accelerating with Clean Electricity Regulations, record funding for decarbonization and incredible innovation in every sector. Companies and consumers, investors and innovators are all recognizing that we’ll need technology to ensure those investments advance progress in the way that policy won’t. As workers return to the office and students return to campuses and classrooms, Generative A.I. is arriving in full force to turn traditional ways of working and learning on their heads. SFX [00:03:32] GPT, a search bot that responds with full text and analysis on a wide range of different topics. SFX [00:03:40] Chat bots came out. Kids are wondering, “can I use this for homework?’ Teachers are wondering ‘how do I need to adjust my classroom now that this technology is out there?’ SFX [00:03:48] Because it’s really going to impact every industry from customer care, to transforming data centers on logistics, to medicine, to manufacturing, to energy, to the automotive industry, to aerospace communication. John Stackhouse [00:04:01] So where does Canada fit in this age of disruption? We’re a podium nation in AI research, but can we use that to be a leader in AI applications? We’re a podium nation in energy systems. Can we use that to be a leader in energy transitions? We’re a podium nation in food production. Can we use that to be a leader in climate smart agriculture? Right now across Canada incredible innovators and disruptors are chasing these questions and we will spend the coming season chasing them for answers. So please join us for season seven of Disruptors, Canada’s leading business podcast coming this fall. Wherever you get your podcasts.
It’s no secret that Canada’s labour market is facing significant challenges, but heading into another school year, there’s hope that a series of regulatory changes enacted by the Federal Government could help get more international students into the workforce. That’s why we’re highlighting an episode from the past season of Disruptors, an RBC Podcast, featuring a conversation between host John Stackhouse and tech entrepreneur Martin Basiri. Basiri is the co-founder and CEO of Kitchener, Ontario’s ApplyBoard, an AI-enabled software platform that lets students from around the world quickly identify and apply for post-secondary programs in North America, the U.K. and Australia. Basiri came to Canada as a student himself and has valuable insights to share about the challenges and opportunities facing our country and those who want to study here. You’ll also hear about the Business Higher Education Roundtable, a group of leaders in both business and education who are trying to create better connections between employers and educators right across the country. Shownotes: To learn more about The Business + Higher Education Roundtable (BHER) — the non-partisan, not-for-profit organization that hosted this discussion — follow this link. ApplyBoard uses an AI recruitment platform to connect international students with post-secondary institutions. To learn more, follow this link. And to read about Martin Basiri’s fundraising success (totaling approx. $600 million), check out these two articles.
Speaker 1 [00:00:01] Hi. It’s John here. If you had to do a word cloud for 2022, I suspect talent and labor would somehow pop large. Everyone knows there are labor shortages out there, and every organization across Canada seems to be hunting for talent. And there are few avenues as promising for that as Canada’s international education system. I recently had the chance to sit down with Martin Basiri to talk about these things and more as part of the Business Higher Education Roundtable. That’s a group of business and post-secondary education leaders who are trying to build greater connections between employers and educators right across the country. Martin is co-founder and CEO of Kitchener, Ontario’s ApplyBoard. If you haven’t heard of a play board, it’s a great Canadian success story. It has an AI enabled software platform that lets students from around the world quickly identify and apply for university or college programs across North America, the UK and Australia. In seven years, Martin, who moved to Canada as a student from Iran, has grown apply board to more than 1500 employees and attracted more than $600 million in venture capital. In this special live edition of Disruptors. We tackle how Canada compares to other countries in building a pathway to citizenship for immigrants and especially those who come here as students, and how companies can do a better job of attracting and retaining this global talent. Martin is part of that story, so please have a listen. Martin, it’s great to be with you, as always. You helped us at RBC produce a report that was published a few weeks ago called Course Correction, that looked at the state of international students in Canada, not only from the perspective of the education system, but from the economy. I don’t think it’s widely known that about 20% of permanent residents now come through our school system, and that’s about double what it was a decade ago. This is 170,000 new Canadians a year are coming out of our post-secondary system. That’s extraordinary. It indexes even higher for STEM courses. So when we hear there’s demand for all sorts of STEM skills, it immediately points to the need for international students. You’re part of that story. Maybe you can just quickly kick us off with a sense of how you came to Canada as an international student. Speaker 2 [00:02:24] Yeah. Thank you very much for having me here, everyone. This is my pleasure. I came to this beautiful country about 12 years ago. I grew up in a I don’t call it poor, but lower middle class family in Iran, where my parents were educator. And I wanted to just code and build software and hardware, and it wasn’t that much opportunity there. And I was building as much and University of Waterloo, like Vivek is here today. It gave me my life. It gave me a scholarship to come to Canada. And I only paid for my ticket. And, you know, I sold my car and I had $6,000 in my pocket. I came to this beautiful country and my aunt came to pick me up. And when we came out of Pearson and we were going north to Richmond Hill, I fell in love with Canada. I love everything and I have two younger brothers that I help by raising them was, Oh, I have to bring them here too. So right there I started like looking for ways how I bring them. Now, the problem is I don’t have money. They don’t have a scholarship. They didn’t think I had a lot of inventions or stuff in my high school and my bachelor, but they were in high school and so I found this way of bringing them to Canada. It was very creative, very cheap, and I convinced my parents to sell all of the retirement homes, whatever they saved in the life, with the hope that, oh yeah, don’t worry, they’re going to find jobs here and I’ll, I’ll support them anyway. When they came to Canada, it took about a year and now everyone wanted to know, how did we do that? And they became customers. And coming from not having money, it was the best thing. We were like, okay, sure, I’ll charge you and I help you as well to pay for their tuition fee. And so I’ve done it a little bit. Then I graduated, went to us just for paperwork because I wanted to start a company. But as international students, when you graduate, you can’t start a company that you’re you have to work for someone else. And I was like, if I have to work for someone else instead of I stay in Canada, let’s go to us. It’s a, you know, so I went there. Then naturally I went back to entrepreneurship. Now I’m in U.S. is stuck. I can’t come to Canada. My brothers in Canada, no, they graduated from college. They can’t come to us. So we’re like, okay, what do we do? Events back to helping other students get started, apply work. And this time we were like, whatever we were doing, manually coded, recoded, and we put all of the admission information of universities and colleges in one algorithm, and it does something like a, like a book income. So it just comes out. For example, I’m from Nigeria, this is my credential and it is how much money I have. I want to study business, maybe Saskatchewan, maybe for example, Windsor. It shows exactly what the university or college, what program they offer. But the deadline was a payment, everything. And they can apply to all of them with one application right now is also does it for US universities, Australian universities and UK universities. And it started working. Then the University of Waterloo again came to our rescue, helped us out. We gave us free office at Velocity. We’re very thankful for that and we stayed there 2015 for about a year. Then we became 20 people. They kick us off. So go graduates, go find your own office and then then apply. We’re like, we went and we it took four years to get to the point that we can raise institutional money. It was so hard. And then after that, life got a little easier for our money point of view, but harder from a responsibility point of view. So right now we help, I think, 425,000 students. So far, of course, not all of them are getting Visa for Canada, US, UK and Australia. We vote for about 90% of universities and colleges. So I think almost everyone except one university here we work with and is a very hard problem. Very challenging. Which is good because it’s always like some problem to solve. Speaker 1 [00:06:41] Is amazing story and congratulations on on your success although I think you’re just getting going. Remarkable. You’ve built in seven years. We wanted to have this conversation not only just to hear your story, but you’ve got a great window on what’s going on in the world and where international students are coming from, where they’re going, and what some of the challenges are in between as we come into a new school year in the fall. Now, what are you seeing out there in the world? Speaker 2 [00:07:09] So let’s look at Canada as a as a company. So we are only as good as our people. Our fertility rate is 1.47 means we are not replacing our population. We are in huge deficit for about 50 years and it’s just getting worse is not coming back up. So if you rely on immigration, normally we bring people in their thirties as a skilled immigrant, a better ways to bring people for international students when they come. And they they’re normally in their twenties. They adopted a country of ours. And by the way, they’re more likely to have children because they come at that earlier stage, which is good, because we want as a country to be sustainable. We don’t want to always rely on one generation immigrants. We want bring them earlier to be sustainable. So it’s an amazing fact. And also international students and work people who we bring with work, they’re double more productive to economy than a normal immigrant. So perfect. International student is what we have to like work. But what we need to do, we need to make our government, our job market and our universities all align. So we have to see what do we need in terms of different areas in labor market in, for example, 2030 and after then work backward universities teach those ones and government incentivized do the right incentivize. So what we see government done, beautiful government of Canada done beautiful. They came with this idea of what if we give every single international students postgraduate work permit three years. You started two year of college or two year of university. They give it to you, boom. And that’s why Canada became almost the first thing it was at the same time that in UK conservatives came. So Theresa may thank the UK numbers Australia. It was Indian government to start having tension with Australian governments. So the students start coming and then of a boom. It started from when Donald Trump got elected because everyone now we are the only country that everyone come. And Canada, we went to that beautiful growth. And then what happened is gentlemen from UK, which by the way is working with apply for right now George Johnson is a younger brother of Boris Johnson said oh let’s copy Canada so they have now for year for graduate or fair mate and UK start booming but what a what a very big difference. And then so UK it started going up from 2019. They achieved their 11 year target of 600,000 international students from 237,000 in less than three years during pandemic years. So to give you like she was talking about the time of visa right now an average visa has taken four months in Canada. The diversity of markets, six months. Think about if you want to show up in fall semester, you need to have your visa already for 1st of March university. Sometimes don’t even open their acceptance till then. How can you already applied? So what does it mean? Means uncertainty of visa, uncertainty of time. So what is happening right now? UK and Australia is cooking all of the best talents. So the top talents are not coming to Canada. So we should expect to see more suffering happening in U15. Speaker 1 [00:10:37] So we’re still getting the numbers in aggregate, but the quality is is changing. Speaker 2 [00:10:41] Quality changing and you will see more of a more shift. So right now, colleges are about 50% body of the all international students, universities are only 25%. You will see more of that going to the colleges. So more and more, we see universities come down, colleges go up, and the total, the quality also go down. Even though Canada is the cheapest among just four countries, we are the cheapest. We have the safest. But it is funny because we have this metric in Norway, all the universities, the colleges want diversity. And in India we have this pin drop area that they’re historically very tied with Canada and they always want to come together. And it’s unbelievable. Even from Punjab area, the top of the funnel is weakening. Even Panjab students who are, of course, in friends, family, everyone here in Canada, they don’t want to come here anymore. Why not? Because first four months wait for a visa, which means you already have loan or where your money is taught for months and months. Second, even the minister himself or the most expert Irctc members sit down here and you give them the best students they can say if these are students, get visa or not complete is objective. There is no rule. We sent to exact same students. Sisters. One girl. Grade 11, one grade 12. Going to the exact same high school, same. That same high school from Iran. One of them in four days got the visa. One of them is seven months, got rejection. Speaker 1 [00:12:17] Photos and to Canada. Speaker 2 [00:12:18] Yeah. So what does it mean? Is like one of them went to one office or the other one went to another officer. So when is unpredictable then? The visa rates are either 48% or if you are a top talent visa rate of your case, 99%. Visa rate of Canada is 48%. Why would you put your life and everything one year, one and half year of your life to maybe you come over there? And this is a stat that shocked everybody. 80% of the visas in UK are done under five days. 80%. We are average four months right now and the other 20%, you may say, okay, so the other 20%, how long does it take is an average 16 days. So they’re the this to this is 16 days. Speaker 1 [00:13:08] Or is this four months? Speaker 2 [00:13:09] So Australia now came they gave the visa fee their first. Even Western Australia government is incentivize recruiters in other countries they pay them commission to send them as students and they have the cheapest. UK is about 50% on average more expensive. Australia is about 70% more expensive. So people are going to more expensive destinations. And unfortunately what was our mode which took us. It got copied and they just made it better. You committed for years. Now Australia can with six years postgraduate work permit and said oh if you study a stem that I need or health care I give you six years. So now you are a student. You are comfortable as you can go anywhere in the world, no longer bored. You can go to UAE, you can go to a Singapore visa. The UAE right now is under 30 days there, like zero income tax. Come here. Why should you come to Canada, if you may, after a year and a half, you may at 48% get a visa. Speaker 1 [00:14:18] One of the challenges we may not appreciate in this country is that the past decade of international student flows is not going to be what the next decade looks like. We in Canada relied heavily on Chinese students and that worked very well. There was a system and culture that worked exceedingly well for a lot of Canadian schools, as well as the students gone, as you say now we’re heavily reliant on India as a primary source of students. That’s starting to face challenges. Do you want to share some insights into what you’re seeing from the Indian market? Speaker 2 [00:14:48] Yeah. And 23rd of September, the foreign minister, the foreign affairs minister of India issued an official notice that Canada is now no longer safe and they see hate and crime is exactly what happened 11 years ago. 50% of our total international students coming from India, we are too reliant on one country. And on top of that, 66% of colleges and universities and if you look at trends, is not like diversity to get better, diversity get worse. Two out of three students that go into our colleges can vanish and it it vanished in Australia. So here’s a difference between international students and something like banks or a SAS product. SAS product, you get someone, you have them for years to keep using your software. International students, you can be the top today every year you need to find newest do this next year all can go so our entire sector not only we didn’t build diversity right now UK if you relax there are international students and three years of pandemic when we went down and we still don’t know if we should give them online or offline, they went from 37,000 217,000 international students from India. As you guys know, China since 2017. Then Canada and China, they have tension is just on decline. You 15 going to hurt to the most because they’re especially non undergrad they rely on the Chinese students they priced it up so much that only Chinese and Korean, Japanese, all three of them vanished. The only other students that they were going was Saudi Arabia. That what happens with Saudi Arabia, that sector 90% vanished. 90% of US students vanished overnight. Speaker 1 [00:16:40] Many of these challenges are solvable. Let’s start with the the visa challenge, because in some ways this is what apply board solved for a similar challenge. It’s technology and and matching systems. What can we do quickly to reduce the visa stress? Speaker 2 [00:16:57] Put the responsibility on universities, colleges and the sector same way that works in UK and say that work in Australia. So what they do they say. University so right now so let’s say I’m a university I can give anyone a letter of acceptance. I don’t bear any responsibility. If they get my acceptance, they come and they don’t show up. In fact, majority of universities don’t even report to government if their student showed up or not. I don’t bear any responsibility for their students. Have money or not. Nothing because the government don’t ask them. Of course, no one take responsibility for something that they are not asked for. But let’s look at the UK and Australia. Universities are responsible to check so many things like financial interview with students, integrity of students, everything and government become like a randomly check a student and they say University, be careful, you should not have more than 10% rejection. You need to tell me every single semester if the students attending your school or not. Can you believe we have 330,000 students we bring to the country? No. University? No. How many students got their visa? How many students got visa with their acceptance? Nor the government know how many of this the students are actually studying. So the solution is what Minister Champagne said on the when we met said Don’t come to government with your problem, come, come to government. The solution is us. You and universities go to government said this is the solution. Please use it and let us take some of that burden from you because government right now they’re saying the reason that you have delay is there are so much of checks they have to do their fraud and we don’t have enough labor in place to do that. So that’s phase one just to solve to the problem. Speaker 1 [00:18:44] So let’s let the schools take responsibility for the students. Speaker 2 [00:18:47] Not only as schools, as schools, banks and private companies and all the middlemen, whoever is doing the test companies, the test of language like a tougher party. And it’s those companies that they administer this test. They have to take responsibility. Everyone makes them responsible. And it very simple, like, for example and by the way, we have all the technology for it in Canada. It’s funny like apply, but we are a Canadian company and we are like a product of this. We have the technology universities have the manpower universities already checking the transcript of the students why someone else should exactly do the same job, you know. Speaker 1 [00:19:25] So it sounds simple. Why? Why isn’t it happening? Speaker 2 [00:19:29] Maybe one is like, first, that shift of mindset of come to government, the solution of the problem. I think we as a sector, we are always like raising the problems we never got together of say, hey, let’s ten of us solve something and go. And it has worked before like we have done is here see I can they provided pilots that now is permanent. Right. So we know it’s possible. I think one of them is on us that we have to get united together and go. The other thing is on government, I think our government is our government is and they do have to like be more accessible to the sector to listen to them and provide things like during the pandemic, we see how much their delays cost. Our data shows that on average, around 30% of us students who are supposed to start fall semester, they didn’t get their visa. And I’m pretty sure all of you guys are have that problem 30%. And the funny is majority of universities and colleges try to say mandated I only going to do in-class not going to do it online and by September 1st 30% of us do the law show of what should we do okay online again and they have problem with the academy teachers and everything else. Speaker 1 [00:20:49] We’ve got just a couple of minutes left to if we can resolve these challenges and pain points. What are the bigger issues that Canada needs to think about in the decade ahead in terms of maintaining our leading position when it comes to international students? Speaker 2 [00:21:03] Yes, we need to align what business at the end of this story. As in Canada, we want top talent and as universities we want our alumni to be fine. Very successful drives right now. Great that we bring a lot of STEM students, but that’s not enough. Like we bring 52% of our students are studying business. They’re only 20% of the jobs are business. That sounds right. We need to create way more software developers and way less project management. I can’t call head of nursing of Ontario, but you guys can’t. We need to push them so you can have. Nursing student hundred 10,000 health care need right now in Canada 12% of job can you if we don’t have nurses, we’re going to die. If you go to a hospital, I go to a hospital. We’re going to solve this. And not only that. Also, we need to like push on blue collar workers. Now, you remember they’re talking about we don’t have truck drivers. We don’t have people like do piping hatchback has a huge shortage in things and colleges are perfectly established to to create trades. But trades, we are very behind. And I think Canada can be the leader on that. That’s second. Third. We should do what worked. We should be takes like for example if you go right now computer science you 15. We should give them six years postgraduate work permit. Why should we give them same advantage if they got a two year college of study, for example, business or their studies four or five years for computer science that we know the society need or nursing so we can incentivize them for Canada need. The good news is the three database that we’ve done that the study we know exactly with a very good accuracy what Canada needs in 2030 every year. So we know what is the need of Manitoba in 2030. These are the jobs so we can work backward. The schools in Manitoba teach this and then alumni become more successful. Speaker 1 [00:23:14] All of these challenges come down to information flows between students, educators, governments, employers. What’s just as we wrap up. What are the one or a couple of things that Canada can do to elevate our game in terms of sharing information and using technologies like you’re developing? Speaker 2 [00:23:33] I think our brand is everything we’ve seen on us. How brand is matter. So does it matter? You are the you could be the biggest economy in the world. If you feel if people feel unsafe or unwelcome, they don’t come. And we took advantage of during these years, all these talented people came to Canada. It was because us was unsafe or unwelcomed. The biggest asset of Canada is our brand for safety. So right now, when India last week said, oh, Canada is not safe for Indian students, very valid response. There was a couple of videos. They’re sending visuals right away. React to the students. The market can shift overnight. We should react. Is that. No, they’re welcome. And in fact, we want them here. They’re going to be CEOs of companies. They’re going to be the head of ITC of the companies. They’re going to be the nurses. They’re going to be successful people. We need to as a sector and this is not on government. I think it’s on us. Every of us have to take responsibility. And one other thing, if I add at the end of the story. What applied to exist for and what the universities and colleges exist for. We are all here to serve as students, to educate the board, and I think we have to understand international students is extremely lucrative business. But at the end of the story, it’s a business for educating the world. So if you have a greater responsibility to making sure every single of those students are successful in their lives. Speaker 1 [00:24:57] It’s a competitive in an increasingly competitive world, especially in in education. And Canada needs to be more ambitious. That’s one of the messages you’re saying and you. Martin, reflect that ambition. You’re a great Canadian story. But when Martin saw the ads, just to give you a sense of his ambition, when he saw the RBC boardroom, he said, I’m going to have a board table bigger than that, apply board. Speaker 2 [00:25:21] So you. Speaker 1 [00:25:24] May have a buyer. Speaker 2 [00:25:25] Hundred thousand to get through the fair. Speaker 1 [00:25:28] But that kind of ambition is great to see so alive and well in the country. Martin, thanks for being part of the conversation. Speaker 2 [00:25:36] Thank you for having me. Thank you. Thank you so much. Speaker 1 [00:25:43] That was Martin Basiri, co-founder and CEO of ApplyBoard. Thanks to Martin for sharing his inspiring story with our listeners. Stay tuned for our upcoming special three part series called The Growing Challenge. In it, we explore how Canada can lead the world in food production using cutting edge technologies, data systems and smart thinking to help feed a growing and divided world and do so sustainably. You won’t want to miss it. Until then, I’m John Stackhouse, and this is Disruptors, an RBC podcast. Talk to you soon. Speaker 3 [00:26:17] Disruptors, an RBC podcast is created by the RBC Thought Leadership Group and does not constitute a recommendation for any organization, product or service. It’s produced and recorded by JAR Audio. For more disruptors content, like or subscribe wherever you get your podcasts and visit rbc dot com, slash disruptors.