Big Idea: Create Financial Regulatory Sandboxes

In June, Canada 2020 launched The Innovation Project, an initiative devoted to studying Canada’s innovation agenda – the risks, the opportunities, and key factors involved in making Canada a more innovative nation.
As part of this project, we asked Mike Moffatt, Senior Associate at Canada 2020 and Director at the Lawrence Centre at Western University’s Ivey Business School and Hannah Rasmussen, Director at Projection North and Professor at Western University’s Brescia College, to consider how to foster innovative growth in Canada. 
Moffatt and the Canada 2020 team traveled to eight cities across Canada to hold roundtable discussions with key stakeholders representing sectors ripe for transformation. We are grateful for the thoughtful discussion and time these roundtable participants gave the effort. While the sectors themselves were very different, common themes emerged: talent and immigration, availability of venture capital and Canadians’ adversity to risk.
From their research and these roundtables, Moffatt and Rasmussen developed 10 Big Ideas for Canada. Canada 2020 will be releasing an idea a day on our website leading up to our 3rd Annual Canada 2020 Conference.
Each idea is thoughtful and detailed, and Canada 2020 hopes they will spur discussion and debate on the topic as we continue to explore innovation in Canada.   

Big Idea: Create Financial Regulatory Sandboxes

What is the idea?

A common theme that emerged during the roundtables was that Canada’s “one-size-fits-all” approach to financial regulations works reasonably well for large financial companies, but unnecessarily inhibits the creation of innovative fintech companies. We believe Canada needs to create safe spaces for businesses to test financial innovations without incurring regulatory consequences that are inappropriate for the scale at which those companies are operating.

Recommendation: The Office of the Superintendent of Financial Institutions (OSFI) should spearhead an initiative to create and administer the financial regulatory sandbox where eligible small and emerging companies can operate in a well-defined space and for a limited duration while offering financial products and services to Canadian consumers.

This financial regulatory sandbox would be similar to the regulatory sandboxes developed by the Financial Conduct Authority (FCA) in the United Kingdom,(1) the Australian government and the Monetary Authority of Singapore (MAS).(2) These financial regulatory sandboxes allow businesses to test their ideas and reduce the cost of getting innovative ideas to market, yet ensure that consumers are still protected. The sandbox would encourage and support the design and delivery of new financial products and services that benefit consumers and businesses.(3)
The following criteria for choosing participating projects for the sandbox are developed from the frameworks developed by both the FCA(4) and MAS(5):

  1. Is the new solution novel or significantly different from existing offerings?
  2. Does the innovation offer an identifiable benefit to customers?
  3. Does the business have a genuine need for testing within the sandbox framework?
  4. Has the business invested appropriate resources in developing the new solutions, understanding the applicable regulations and mitigating the risks?
  5. Does the business have the intention and ability to deploy the solution in Canada on a broader scale?

Who will be responsible for administering the idea?

Because of Canada’s complicated financial regulatory structure, federal and provincial regulators will have to work together to create and administer the financial regulatory sandbox.What mechanisms for accountability, or measurement can be put in place for the idea?

What mechanisms for accountability, or measurement can be put in place for the idea?

The projects will be monitored throughout their time in the financial sandbox. While specific regulatory requirements will be relaxed in the financial sandbox, the regulators will work with innovators to ensure that appropriate safeguards are built into their new products and services before these reach a mass market. Firms participating in the sandbox will have to report on agreed milestones, findings and risk management.

What failures is the idea trying to solve?

Regulatory Failure: Typical financial regulations are designed, in part, to limit systemic risk. However, these regulations can also limit innovation. Thus, the overarching goal of the financial regulatory sandbox will be to ensure that regulations intended to protect Canadians from massive failures in the financial industry are not applied to smaller companies in a way that will needlessly stifle innovation.
Inequality of Opportunity: The financial regulatory sandbox will increase the economic inclusion of low-income households and under-serviced communities in Canada by providing them with financial products and services that the big banks may not consider valuable enough to create.
Market Power: Competition will be increased in a sector that is currently dominated by a few large players.

What are potential benefits of the idea and what are the costs?

Benefits: Fintech focuses on creating technological innovation to make financial markets and systems more efficient and consumer focused. By reducing barriers, companies can create financial innovations that are smaller and can benefit communities, such as First Nations, the working poor and new Canadians, who often lack access to affordable financial tools.
Costs and Risks: There is an increased potential for fraud as well as failure of new products and services. Also, there is the potential risk, identified at the roundtables, that the financial regulatory sandbox will create a wall for firm growth. Firms may limit their growth so they can continue to operate without regulations, or potential funders may be reluctant to invest in companies if they are uncertain those companies will be able to exit the sandbox. Or as one roundtable participant described it,
“We need to ensure the sandbox does not create walls to growth.”

Will the idea increase economic inclusion and/or enhance autonomy? If so, how?

Economic Inclusion: By creating sandboxes and giving businesses a safe space to test innovative ideas without incurring all of the regulatory consequences, we can ensure that regulations are not stopping companies from taking advantage of economic opportunities because they lack the resources to meet regulatory requirements designed for large financial firms. The reduced set of requirements benefits small businesses that do not have the resources to navigate the financial regulatory environment. Furthermore, we expect many fintech start-ups will focus on providing enhanced access to lower-cost services, which disproportionately benefits Canadians of limited means.
Autonomy: Financial start-ups that make it easier for low-income individuals to obtain capital give them more options to start businesses, invest in skills training and fully participate in a modern economy.

1 Financial Conduct Authority, Regulatory sandbox (2015).
2 Monetary Authority of Singapore, MAS Proposes a “Regulatory Sandbox” for FinTech Experiments (2016).
3 Government of Australia, Backing Australian FinTech (2016).
4 Financial Conduct Authority, Regulatory sandbox (2015).
5 Monetary Authority of Singapore, MAS Proposes a “Regulatory Sandbox” for FinTech Experiments (2016).

Big Idea: Data – Open, Shared, Stewarded and Transparent

In June, Canada 2020 launched The Innovation Project, an initiative devoted to studying Canada’s innovation agenda – the risks, the opportunities, and key factors involved in making Canada a more innovative nation.
As part of this project, we asked Mike Moffatt, Senior Associate at Canada 2020 and Director at the Lawrence Centre at Western University’s Ivey Business School and Hannah Rasmussen, Director at Projection North and Professor at Western University’s Brescia College, to consider how to foster innovative growth in Canada. 
Moffatt and the Canada 2020 team traveled to eight cities across Canada to hold roundtable discussions with key stakeholders representing sectors ripe for transformation. We are grateful for the thoughtful discussion and time these roundtable participants gave the effort. While the sectors themselves were very different, common themes emerged: talent and immigration, availability of venture capital and Canadians’ adversity to risk.
From their research and these roundtables, Moffatt and Rasmussen developed 10 Big Ideas for Canada. Canada 2020 will be releasing an idea a day on our website leading up to our 3rd Annual Canada 2020 Conference.
Each idea is thoughtful and detailed, and Canada 2020 hopes they will spur discussion and debate on the topic as we continue to explore innovation in Canada.   

Big Idea: Data – Open, Shared, Stewarded and Transparent

What is the Idea?

A common theme that emerged during the roundtables was the importance of access to both research data and government data. Data is a valuable resource for innovation, as long as it is available and easily accessible.
Part 1. Research Data
Canada has a good track record of funding research in the sciences, social sciences and health sciences through granting councils. However, this data is often not stored in a way that means it is protected and shareable among researchers. Without a robust data stewardship program, the data that has already been generated is at risk of being lost, recreated or under-utilized. By storing the data properly, in a comprehensive network of trusted digital data repositories, it will be available to be re-used in a variety of ways, not just by other researchers, but by innovators throughout Canada.

Recommendation: The federal Minister of Science should follow through on the first “top priority” given in her mandate letter from the prime minister: “Create a Chief Science Officer mandated to ensure that government science is fully available to the public, that scientists are able to speak freely about their work and that scientific analyses are considered when the government makes decisions.” (1)
Recommendation:Building on the work done by Research Data Canada and the Tri-Agency Statement of Principles on Digital Data Management,(2) the Chief Science Officer should create a national program to manage the digital research data funded by the federal government.
Recommendation:Any group conducting research funded by the Canadian Institutes of Health Research, the Natural Sciences and Engineering Research Council or the Social Sciences and Humanities Research Council should be required to create a robust data-sharing plan and deposit their data to be shared promptly with others in an accessible, secure and curated repository.

Researchers will not be responsible for the storage of the data. Each university and institute will need to ensure that their researchers have access to a research data management (RDM) program, both the system and policies, to easily and properly store their data.

Recommendation: The Chief Science Officer should require that universities and institutes receiving funds from federal agencies create a research data management (RDM) program to ensure their researchers store their research data properly. This RDM program would include creating policies and procedures as well as the repository itself.

Universities and institutes may choose to create their own RDM program or use an RDM program already in use at their university or institute. Either way, the data in these programs should be easily accessible to others both inside and outside of the original university or institute.

Recommendation: The Chief Science Officer should work with research institutions and universities to create a comprehensive network of trusted digital data repositories that provide reliable, long-term access to all research data deemed to be of enduring value that researchers and innovators can easily access.

Universities and institutes will need to be held accountable to ensure that data is properly stored and accessible in these programs.

Recommendation: The Chief Science Officer should create a national agency that monitors, oversees and sanctions specific standards for use by Canadian researchers in storing their data.

Part 2. Municipal Data
Canadian cities produce and collect a wide variety of data on aspects of city life such as employment, transit, road accidents and living conditions that are used in their decision-making processes. However, most of this data is only used internally despite the fact that it could be used by innovators (municipal administration, businesses, universities, academies, research facilities and citizens) to create new services, products and businesses.

Recommendation:Building on the work of the Helsinki Region Info-share (HRI) Service in Helsinki, Finland, and Canadian cities like Oakville, Vancouver and Toronto, we recommend the creation of Open Data Cities (ODC) a pan-Canadian coordinating organization, which will act as a bridge between cities providing open data and individuals and organizations who wish to use this data.

The ODC will be responsible for:

  1. helping cities prioritize data releases
  2. helping cities ensure data is accessible for a variety of user needs
  3. collecting and giving user feedback to cities regarding the data and service
  4. ensuring quality control of all data released

The aim of the ODC is to make municipal statistical data open, timely, free to use and easily accessible to all.

Recommendation: The ODC should create a web portal that will allow users to search for data from all participating cities.
Recommendation: The ODC should work with municipalities to help them identify new data sets they can create and should work to connect separate data sets either within the municipality or with several municipalities together. This collaboration will include the creation of a taxonomy and the standardization and description of data and data-collection methods.
Recommendation: The ODC should host events to encourage developers, public servants and members of the public who have identified problems to work with the open data to solve municipal
challenges and create innovations.

Part 3. Transparency of Past Government Records
In Budget 2016, the federal government proposed creating “a simple, central website” where Canadians could submit data requests to any government institution or department.(3) While commendable, there is still a missing link. The mandate of Library and Archives Canada (LAC) is to acquire and preserve governmental records of archival value and to make them available to the public. In theory, if a Canadian wanted past documents, he or she could submit a request to LAC.
However, in his 2014 report on LAC, the auditor general found that LAC was not “acquiring all the archival records it should from federal institutions, (4) and that the disposition authorities, “which tell federal institutions which records can be disposed of when no longer needed and which records must be transferred to Library and Archives Canada,” were both incomplete and out of date. Also, LAC had a backlog of 98,000 boxes of government archival records.
While LAC reports that this backlog has been eliminated, it is unclear what records were found and how to access them.
This lack of clarity means that it is possible that if a Canadian submitted a request on the proposed website, they may not get the items requested. If they did get them, they might not be given in a useful format, and they may not be provided promptly.

Recommendation: A dedicated and funded program in LAC to digitize all past government records of value should be created.
Recommendation: A system of accountability by which the progress of this program is audited quarterly should be created.

Who will be responsible for administering the idea?

For the research data proposals, we would recommend the newly created Chief Science Officer be responsible for the idea, given his or her responsibility to ensure “government science is fully available to the public.” The municipal data and transparency of data proposals should fall under the purview of the president of the Treasury Board, as the prime minister mandated he “expand open-data initiatives and make government data available digitally.” (5) It may be prudent, however, to create a board formed from the participating cities to oversee the operation and execution of the ODC.

What mechanisms for accountability or measurement can be put in place for the idea?

Universities and institutes will need to be held accountable to ensure that their research data is properly stored and accessible. For municipal data, we would recommend the ODC issue an annual report and measure how Canadian cities are doing regarding opening their data, using measurements of readiness, implementation and impact. Furthermore, Library and Archives Canada (LAC) would need to report regularly on their progress, including measurements of the readiness, implementation and impact of the data being digitized.

What failures is the idea trying to solve?

Regulatory Failure: We have data that is being collected and has value, but it is not being made available for use, which is preventing knowledge spillovers. By making data more easily available, researchers will have more timely and complete information to build into their research, creating an environment in which new products and processes may be developed more quickly and easily.
Inequality of Opportunity: By not releasing data and making it easily available, we are disproportionately benefiting firms and individuals that have the resources and ability to recreate this data or discover ways to access them. Our proposal levels the playing field to ensure equal opportunity to be innovative.

What are the potential benefits of the idea and what are the costs?

Benefits: Innovation will be encouraged by releasing research data to innovators as well as to other researchers. Opening up municipal data can help drive the creation of innovative businesses and services that deliver social and commercial value. By making government data open, we can better understand actions the government has taken in the past.
Costs and Risks: There is a risk that Canadian researchers may be resistant to sharing their data. We believe it is important to follow the lead of the United States and make data management and specifically data sharing a requirement of the Tri-Council research grants. There will be a financial cost to universities and colleges, but we believe these can be kept manageable. For the ODC proposal, the main risk is that a system will be built that cities will refuse to join. The financial costs are relatively modest, with the yearly budget for the Helsinki Region Info-share (HRI) Service in Helsinki, Finland, being less than $100,000.(6)
The main risk to our transparency proposal is setting a goal the government cannot meet. In 2014, the auditor general of Canada noted that LAC was behind schedule on retrieving government documents and had a growing backlog of approximately 98,000 boxes of records.(7) There is a potential that LAC will find this goal too onerous and may fall behind schedule again.

Will the idea increase economic inclusion and/or enhance autonomy? If so, how?

Economic Inclusion: By ensuring that research data is available to other researchers and innovators, we can ensure that economic opportunities are not limited because of a lack of data. The availability of this data will be particularly valuable to small businesses that do not have the resources to collect large amounts of data.
Autonomy: Better access to municipal data will give citizens and community groups the tools they need to understand the decisions of local governments better and influence those decisions through evidence-based proposals.

1 Office of the Prime Minister, Minister of Science Mandate Letter (2015).
2 Government of Canada, Tri-Agency Statement of Principles on Digital Data Management (2016).
3 Government of Canada, Budget 2016 (2016).
4 Office of the Auditor General of Canada, 2014 Fall Report of the Auditor General of Canada (2014).
5 Office of the Prime Minister of Canada, President of the Treasury Board of Canada Mandate Letter (2015).
6 Olli Sulopuisto, “How Helsinki Became the Most Successful Open-Data City in the World,” City Lab, April 29, 2014.
7 Office of the Auditor General of Canada, 2014 Fall Report of the Auditor General of Canada (2014).

Big Idea: Reform Immigration with a Focus on Tradable Sectors

In June, Canada 2020 launched The Innovation Project, an initiative devoted to studying Canada’s innovation agenda – the risks, the opportunities, and key factors involved in making Canada a more innovative nation.
As part of this project, we asked Mike Moffatt, Senior Associate at Canada 2020 and Director at the Lawrence Centre at Western University’s Ivey Business School and Hannah Rasmussen, Director at Projection North and Professor at Western University’s Brescia College, to consider how to foster innovative growth in Canada. 
Moffatt and the Canada 2020 team traveled to eight cities across Canada to hold roundtable discussions with key stakeholders representing sectors ripe for transformation. We are grateful for the thoughtful discussion and time these roundtable participants gave the effort. While the sectors themselves were very different, common themes emerged: talent and immigration, availability of venture capital and Canadians’ adversity to risk.
From their research and these roundtables, Moffatt and Rasmussen developed 10 Big Ideas for Canada. Canada 2020 will be releasing an idea a day on our website leading up to our 3rd Annual Canada 2020 Conference.
Each idea is thoughtful and detailed, and Canada 2020 hopes they will spur discussion and debate on the topic as we continue to explore innovation in Canada.  

Big Idea: Reform Immigration with a Focus on Tradable Sectors

What is the idea?

Canada’s immigration system is incredibly complex, with more than 60 different programs that admit non-Canadians to the country. A detailed description of each is well beyond the scope of this report, so our recommendations will be at a high level. Our immigration recommendations revolve around one core point: the system as a whole needs to make a larger distinction between tradable and non-tradable sectors of the economy, and focus on bringing in workers with skills valued in tradable sectors.

Recommendation: Canada’s economic immigrant programs, for both permanent and non-permanent immigrants, should have the expressed mandate of raising wages and economic opportunities for Canadians, which they can accomplish through a focus on tradable sectors.

To explain the idea, we first need to understand what tradable sectors are and, secondly, we need to understand why the distinction matters. To address the first issue, we will use the Australian Bureau of Statistics definition of tradable sectors.
Tradable sector: “A domestically produced good or service is defined as tradable if it is actually traded internationally, or it could be traded at some plausible variation in relative prices — this includes domestically produced goods and services which replace imports in the domestic market.” (1) Illustrating the importance of the distinction between tradable and non-tradable when examining employment dynamics in a local economy is best done through the use of examples from the services industry.
First, consider Saskatoon’s technology sector, specifically companies that program applications or design video games. Because their products are purchased by users all over the world, these companies are competing against companies from Bangalore to Helsinki; their competition is not other companies in Saskatoon. As such, the size of Saskatoon’s tech cluster can grow arbitrarily large because the market is worldwide and the success of one local company does not come at the expense of another. Because the industry can grow arbitrarily large, it can absorb additional workers without any downward pressure on wages, and may even raise wages in the sector as a thicker labour market attracts tech companies to Saskatoon. Furthermore, the success of a local tech company brings in outside capital and creates employment opportunities in other industries. In The New Geography of Jobs(2) economist Enrico Moretti found that one additional job in the tech sector creates five additional jobs in the economy at a variety of different skill levels. Moretti defended the five-to-one ratio in an interview with Stanford’s Kathleen O’Toole:(3)

The way to interpret the multiplier is to imagine dropping 1,000 innovation jobs in one city but not in another, and then going back 10 years later to measure how many additional local service jobs there are in the city that experienced that innovation-sector drop of jobs. So it’s a long-run effect, but it’s not impossible for three reasons.

One is that the average high-tech worker tends to do very, very well, and people who are wealthy tend to spend a large fraction of their salary on personal and local services. They tend to go to restaurants and movies, and to use taxis and therapists and doctors on average more than people who are paid less.

The second reason is high-tech companies themselves employ a lot of local services; everything from security guards to IP lawyers, from the janitor to the very specialized consultant. High-tech companies tend to use more services than manufacturing companies.

The third reason is the clustering effect. Once you attract one of those high-tech workers, then in the medium to long run, you’re going to be attracting even more of those high-tech workers and companies, which will further increase your multiplier. So it’s a long-run number, measured over a 10-year period.

Contrast this with the market for brick-and-mortar drugstore pharmacists in Saskatoon. Pharmacists at brick-and-mortar drugstores provide a non-tradable service, as their customers are local in nature.
While the number of pharmacists in Saskatoon is not fixed, it can only grow so large, as there is a limit to how many pharmacists the local market can reasonably absorb. As such, firms in the market grow and increase revenue more by seizing market share from their competitors than from growing the overall size of the local market. Due to these constraints, a sudden and significant influx of pharmacists to the Saskatoon market would drive down wages and increase unemployment as the local market would not be able to fully absorb the increase due to the non-tradable nature of brick-and-mortar pharmacy services.
Beyond Moretti’s findings, there is empirical evidence to support the wage effects of immigration on tradable and non-tradable sectors. While there is a substantial body of literature showing that, in many cases, higher levels of immigration do not lead to lower wages on average,(4) this does not necessarily mean that the effect of higher levels of immigration is identical across industries. A recent study by the Bank of England found that the impact of immigration differs across industries, and that “the biggest effect is in the semi/unskilled services sector, where a 10 percentage point rise in the proportion of immigrants is associated with a 2 percent reduction in pay.”(5) The fact that these people disproportionately work in non-tradable sectors supports the theory of the differing effect of immigration on employment and wages between the sectors.(6)
Canada requires high levels of immigration to address demographic challenges and ensure that it has the skilled workers necessary to compete globally in tradable sectors. If it brings in too many workers from non-tradable sectors and drives down wages and opportunities in some industries, it risks a public backlash that puts Canada’s immigration goals in jeopardy. We need only look at Brexit and the backlash against “Polish plumbers” to see how antipathy towards immigration is often related to employment in non-tradable sectors.
There are Canadian examples of the immigration system being used to prevent wages from rising in non-tradable sectors. The Temporary Foreign Worker program is a prime example. Through an Access to Information request, the Alberta Federation of Labour found that “between April 25 and December 18, 2012, more than 2,400 ALMO [Accelerated Labour Market Opinion] guest-worker permits — which are supposed to be reserved for highly skilled employment — have been granted to fast-food restaurants, convenience stores and gas stations.”(7) By bringing in these workers, Canada is holding down wage increases to low-income workers. While it is possible that some of these jobs could be uneconomical at higher wages, these are not the type of jobs that create spin-off jobs through increased flows of foreign capital.
In a 2014 Toronto Star editorial,(8) Liberal Leader Justin Trudeau suggested some reforms to the Temporary Foreign Worker Program to deal with the economic effects it has on Canadian workers as well as the possibility of exploitation of guest workers; two of those recommendations continue to have value today.

Recommendation: The auditor general should conduct a full review of the Temporary Foreign Worker Program.
Recommendation: Transparency of the Temporary Foreign Worker Program should be increased, with public disclosure of applications and approval data.

When implementing policy, one must worry about unintended consequences. One way firms could deal with restrictions on temporary foreign workers is to turn those positions into unpaid internships. These internships are problematic from an equality of opportunity perspective, as the opportunities created can only be obtained by those who can afford to work for free. Because of this, unpaid internships are illegal in Ontario unless a very restrictive set of conditions is met.(9) In some other provinces, regulations are vague about the legality of unpaid internships.(10) This leads us to the following recommendation:

Recommendation: Provincial governments should explicitly ban unpaid internships and increase their enforcement of existing regulations in the area. The federal government should do likewise for federally regulated industries.

Meanwhile, while fast-food companies and gas stations were able to bring in temporary foreign workers, export-oriented high-growth companies were unable to obtain and retain the workers they needed. Companies that have hired foreign graduates of Canadian schools under the Post Graduation Work Permit Program are seeing these workers deported as companies struggle to navigate a byzantine set of rules.(11) Tech companies in London, Ont., report they have opened offices in the United States since they have found regulatory barriers make it too difficult to bring talent north of the border.(12) Other companies at our tech roundtable held this past summer have moved operations outside of Canada, and taken Canadian workers with them, to be able to access the talent they need. The tax revenue these companies generate and the spin-off jobs they create could be going to Ontario but are instead going to California, simply for regulatory reasons. This needs to stop.

Recommendation: Immigration, Refugees and Citizenship Canada should streamline the process for companies in export-oriented goods and service industries wishing to recruit or retain skilled workers.

By focusing our immigration system on tradable sectors and away from non-tradable sectors, we can attract and retain talent in Canada, increase the competitiveness of our export industries and increase wages and job opportunities for Canadians.
Although our focus to this point has been on wages, reforming our immigration system with a focus on tradable sectors creates an environment for innovation, as described by the Expert Panel on Business Innovation in 2009:

Canada’s domestic market is relatively small and geographically fragmented. Small markets are less conducive to innovation than large markets (like the United States) because 

i. they offer lower potential reward for undertaking the risk of innovation, and
ii. they tend to attract fewer competitors and thus provide less incentive for a business to innovate in order to survive. (The Canadian domestic market is relatively “cushioned” and pre-tax business profitability, as a percentage of GDP, has exceeded that of the United States in most years since 1961.)

The innovation success of countries like Finland and Sweden shows, on the other hand, that the disadvantage of a small domestic market can be offset by a strong orientation toward innovation-intensive exports.(13)

Canadians need higher wages and more opportunities and Canada needs to be more innovative. Through restructuring Canadian immigration programs, we can simultaneously accomplish both.

Who will be responsible for administering the idea?

Immigration is a federal responsibility, with the exception of Provincial Nominee Programs and the Canada-Quebec accord. Immigration falls under the jurisdiction of Immigration, Refugees and Citizenship Canada with some exceptions, such as the Temporary Foreign Worker Program, which is jointly administered by Immigration, Refugees and Citizenship Canada and Employment and Social Development Canada.

What mechanisms for accountability or measurement can be put in place for the idea?

Beyond the recommendations given earlier on accountability measures that should be put in place for the Temporary Foreign Worker Program, we recommend the following:

Recommendation: The federal government should conduct a study on the impact of immigration on Canadian occupational wages, similar to the Bank of England study.
Recommendation: The Office of the Parliamentary Coherence Officer, after it is created, should conduct a thorough review of the coherence of Canada’s immigration sector as it relates to the mandate of raising wages and economic opportunities for Canadians.
Recommendation: Statistics Canada should strengthen its collection of labour market data, with a focus on labour market outcomes by industry for immigrants and non-immigrants.

What failures is the idea trying to solve?

Thin Markets: A shortage of skilled workers limits the growth of innovative companies in fast-growing clusters such as the Kitchener-Waterloo tech sector. The complexity of regulations along with processing times cause issues for companies, a point Immigration Minister John McCallum recognized in a Globe and Mail interview when he stated: “Tech firms’ idea of a quick immigration processing time is more like six days rather than six months … for us six days would be a stretch… but at the same time … we want to open our doors to the best and the brightest … so, obviously, I will be working very hard to try to accommodate their needs as best I can.”(14)
These problems hit clusters in small and mid-sized cities particularly hard, as they do not have large local networks of immigration lawyers and experts from which to draw experience. One advantage that clusters in mid-sized Canadian cities should have is the significant number of international students that study in their colleges and universities. However, companies report that it is difficult to retain these individuals after the expiry of their Post-Graduation Work Permits.(15)
Inequality of Opportunity: The poor design of some immigration programs, most notably the Temporary Foreign Worker Program, prevents wages from rising in non-tradable sectors and limits job opportunities for low-income Canadians. Well-designed immigration reforms will disproportionately benefit workers who are the most marginally attached to the labour force.

What are the potential benefits of the idea and what are the costs?

Benefits: A successful reform of Canada’s immigration systems to focus on tradable sectors has three big benefits:

  1. Industry clusters that grow faster export more and create additional wealth.
  2. Spin-off wealth and prosperity in non-tradable sectors that support those clusters.
  3. Increased wages and job opportunities for Canadians in non-tradable sectors due to reduced competition for these positions.

Costs and Risks: If the plan works as intended, wages should increase in the non-tradable sector. Of course, this also likely means that the price of goods and services will rise accordingly. Furthermore, it could cause skills shortages in certain non-tradable sectors.
The largest issue is that this plan could fail or have unintended consequences for a variety of different reasons. Changes to immigration policies are tricky, and there is no guarantee that governments get it right. The biggest potential roadblock is that the plan requires governments to be able to distinguish between job types that are largely in the tradable sector and those that are not.

Will the idea increase economic inclusion and/or enhance autonomy? If so, how?

Economic Inclusion: By refocusing our immigration policies to tradable sectors, we can ensure that government policies are not reducing wages and limiting economic opportunities for Canadians. Furthermore, due to the positive employment spillovers created by high-skilled immigrants in tradable sectors, wages and employment opportunities are increased for everyone from lawyers to barbers to construction workers. Our immigration system should have as an explicitly stated core goal of increasing wages and job opportunities for Canadians.
Autonomy: At first glance, there appears to be little relationship between the proposed immigration changes and the level of personal autonomy for Canadians. However, a booming tradables sector creates job opportunities and business opportunities for current Canadians in non-tradable sectors. These opportunities could be amplified with enhanced non-tradable sector skills training for individuals that are unemployed or out of the labour force.


1 Australian Bureau of Statistics, Australia’s Tradable Sector (1996)
2 Enrico Moretti, The New Geography of Jobs (Houghton Mifflin Harcourt, 2012)
3 Kathleen O’Toole, “Enrico Moretti: The Geography of Jobs,” Insights by Stanford Business, (2013).
4 A useful discussion of the literature appears in “Immigration, Wages and Compositional Amenities,”
David Card, Christian Dustmann and Ian Preston, Journal of European Economic Association (2011).
5 Stephen Nickell and Jumana Saleheen, “The impact of immigration on occupational wages:
evidence from Britain,” Bank of England: Staff Working Paper No. 574 (2015).
6 For the purposes of their paper, Nickell & Saleheen, (2015) define the semi/unskilled services sector as including child-minders, early childhood educators, animal care assistants, housekeepers, travel agents/assistants, caretakers, sales assistants, check-out staff, call centre staff, postmen, shelf fillers, car park attenders, cleaners, road sweepers, bar staff, porters and waiters. These jobs are largely non-tradable in nature, with some exceptions such as call centre staff.
7 Alberta Federation of Labour, List of ‘accelerated’ TFW approvals reveals widespread abuse of program (2013).
8 Justin Trudeau, “How to fix the broken temporary foreign worker program,” The Toronto Star, May 5, 2014.
9 Ontario Ministry of Labour, “Are Unpaid Internships Legal in Ontario?” Ontario Ministry of Labour website (2011).
10 Canadian Intern Association, What is the law? (2016).
11 Ronalee Carey, “Express Entry and International Students, Is there a Disadvantage?” Ronalee Carey Law (2015).
12 Michael P. Moffatt and Rachel Parker, “We asked a group of tech executives: ‘What does it take to grow in London, Ontario?’ ” Mowat Centre (2015).
13 Expert Panel on Business Innovation. Council of Canadian Academies, Innovation and Business Strategy: Why Canada Falls Short (2009).
14 Sean Silcoff and Michelle Zilio, “Ottawa vows to cut wait times for foreign workers joining tech firm,” Globe and Mail, Tuesday, June 14, 2016.
15 This is discussed in detail in “Canada’s hardest-hit economies need immigration to thrive again,” Mike Moffatt, Canadian Business, February 16, 2016.


Big Idea: Create a Parliamentary Coherence Office and Officer

In June, Canada 2020 launched The Innovation Project, an initiative devoted to studying Canada’s innovation agenda – the risks, the opportunities, and key factors involved in making Canada a more innovative nation.
As part of this project, we asked Mike Moffatt, Senior Associate at Canada 2020 and Director at the Lawrence Centre at Western University’s Ivey Business School and Hannah Rasmussen, Director at Projection North and Professor at Western University’s Brescia College, to consider how to foster innovative growth in Canada. 
Moffatt and the Canada 2020 team traveled to eight cities across Canada to hold roundtable discussions with key stakeholders representing sectors ripe for transformation. We are grateful for the thoughtful discussion and time these roundtable participants gave the effort. While the sectors themselves were very different, common themes emerged: talent and immigration, availability of venture capital and Canadians’ adversity to risk.
From their research and these roundtables, Moffatt and Rasmussen developed 10 Big Ideas for Canada. Canada 2020 will be releasing an idea a day on our website leading up to our 3rd Annual Canada 2020 Conference.
Each idea is thoughtful and detailed, and Canada 2020 hopes they will spur discussion and debate on the topic as we continue to explore innovation in Canada.  

Big Idea: Create a Parliamentary Coherence Office and Officer

What is the idea?

One of the most common issues we heard in our roundtables was the lack of coherence in many areas of government policy, particularly in the area of funding programs. Policy coherence, as defined by the OECD is the “systematic promotion of mutually reinforcing policy actions across government departments and agencies creating synergies towards achieving the agreed objectives.”(1) Policy incoherence can be the result of a lack of communication between departments or a result of conflicting priorities and objectives.(2) It often results in well-meaning policies either conflicting or being unnecessarily confusing.

Recommendation: The Government of Canada should create a Parliamentary Coherence Office and Officer. Similar to the Parliamentary Budget Officer, this position and office will be non-partisan and will provide independent and objective analysis to Parliament on the coherence of government policies.

The Parliamentary Coherence Office and Officer will work to highlight regulatory failures in which different policies contradict each other. For example, policies that create agricultural subsidies on ingredients that are used to make junk food may be in conflict with health policies that encourage consumers to lower their intake of that same junk food. Not only do these contradictory policies confuse Canadians, they also have a long-term economic impact.
The New York Times reported on a similar policy conflict in the United States and noted, “the subsidies damage our country’s health and increase the medical costs that will ultimately need to be paid to treat the effects of the obesity epidemic.”(3)
Similarly, in its report on policy and nutrition, the United Nations System Standing Committee on Nutrition noted the need for coherence within policies to ensure trade policy is supportive of a country’s nutritional objectives and stated:

“The degree of coherence and/or incoherence between trade policy and nutrition action depends
on a wide range of factors, including the forms of malnutrition and the foods affected; the
characteristics of sub-populations and food systems in countries; and the trade reforms and
existing policy and institutions in place in countries and trading partners.”(4)

Another example is the standardization of the way the date is recorded. Different Canadian governmental agencies write the date in different ways (dd/mm/yyyy; mm/dd/yyyy; yyyy/mm/dd), which increases the chances that individuals fill out forms incorrectly. This lack of standardization is also an issue outside of Canada.
The National Post reported in 2011 that “a U.S. customs form requests the day first, and its military abides by the same but spells out the abbreviation for the month — but its civilian population has agreed to write the month first.”(5)
A final example of this need for policy coherence is the policies that create subsidies for the fossil fuel industry. CBC News reported in 2015 that Canada has policies in place to both subsidize fossil fuel industries and to end the use of fossil fuels.(6)
By identifying these regulatory failures, this office can start the process of prioritizing, co-ordinating and implementing efforts in policy coherence.
Given that the “alphabet soup” of funding programs with “overlapping mandates” was frequently cited as an issue at our roundtable discussions, we would recommend innovation policy coherence be among the first issues studied by the OPCO.

Who will be responsible for administering the idea?

The position of Parliamentary Budget Officer was created by the federal government as part of the Federal Accountability Act (2006).(7) The creation of an Office of the Parliamentary Coherence Officer would follow a similar process.

What mechanisms for accountability or measurement can be put in place for the idea?

The accountability and measurement mechanisms put in place for the Parliamentary Budget Office can be reused in the creation of the Parliamentary Coherence Office.

What failures is the idea trying to solve?

Regulatory Failure: From an innovation perspective, the overarching goal of policy coherence is to ensure that policy objectives avoid negative consequences which would affect innovation.
Market Power: Unnecessarily complex regulatory environments create both barriers to entry for new firms as well as barriers to growth, as described by the Canadian Chamber of Commerce:(8)

“I deal with enough policy hassles overseas. Why does Canada’s policy environment have to be so complicated?”

SME(9) manufacturers in Canada often struggle to understand and comply with the underpinning details, incentives, steps and variances among the myriad of policy frameworks in which they operate. As a result, the cumulative impacts and costs of government policies can be barriers to innovation, just as thickening borders between countries — a common complaint of manufacturers — is a barrier to exporting.(10)

What are the potential benefits of the idea and what are the costs?

Benefits: There are two main ways that increasing coherence will help increase Canadian innovation. First, by identifying conflicting policy objectives we can start the process of addressing these conflicts and reducing the costs associated with the resulting confusion. Second, policy coherence can exploit the potential for positive spillovers and consequences by addressing potential policy synergies across all levels of government.(11)
Costs and Risks: This position and office are modelled on the PBO and OPBO. The operating budget for the PBO and OPBO was $2.8 million for the 2014-15 fiscal year.(12)
There is a risk that the government ignores the work of the OPCO. The European Centre for Development Policy Management investigated the Policy Coherence for Development (PCD) work and found that there is a lack of political support for the work of PCD despite agreement on the importance of the initiatives. As a result, departments responsible for PCD throughout Europe are under-resourced and isolated.(13)
Another risk will be the potential for government interference in the work of the OPCO. Learning from the experiences of the OPBO, the OPCO will remain independent by not reporting to a cabinet minister. By ensuring the office is funded and by making the office non-partisan, these risks can be avoided as much as possible.

Will the idea increase economic inclusion and/or enhance autonomy? If so, how?

Economic Inclusion: A lack of policy coherence often results in unnecessarily complicated systems that exclude people from participating. This lack of coherence harms small businesses that do not have the resources to navigate incoherent policy environments particularly. The federal government(14) found that “regulatory costs and their impact fall disproportionately on small businesses, as these businesses have fewer resources to devote to compliance.
Stated another way, the fixed costs of regulatory compliance for larger firms can be spread over a larger employee and revenue base.” It calculated in 2011 that the regulatory burden for firms of between one and four employees was $1,029 per employee, whereas for firms with 100 to 499 employees the per-employee regulatory burden was $149.
Autonomy: Confusing regulations due to a lack of policy coherence may deter individuals from starting businesses, though we are not aware of any studies that have examined this issue. To ensure that economic inclusion and autonomy are priorities for government policy, we would recommend that within the OPCO mandate there be a requirement to consider both economic inclusion and autonomy when analyzing government policies.


1 Institute for International Integration Studies, What is policy coherence? Trinity College Dublin (2010).
2 Ministry of Foreign Affairs of Denmark, Coherent Policies for Global Development (2014).
3 Anahad O’Connor, “How the Government Supports Your Junk Food Habit,” The New York Times, July 19, 2016.
4 United Nations Standing Committee on Nutrition, Enhancing Coherence between Trade Policy and Nutrition Action (2015).
5 Kathryn Blaze Carlson, “Is 02/04/12 February 4, or April 2? Bill seeks to end date confusion,” National Post, October 29, 2011.
6 Margo McDiarmid “G20 countries spend $450B a year on fossil fuel subsidies, study says,” CBC News, November 12, 2015.
7 Parliament of Canada, Federal Accountability Act (2006).
8 Canadian Chamber of Commerce, Manufacturing Innovation: Driving Canada’s Biggest Sector through
Disruptive Technologies (2014).
9 Small and medium enterprises.
10 Canadian Chamber of Commerce, Manufacturing Innovation: Driving Canada’s Biggest Sector through
Disruptive Technologies (2014).
11 Institute for International Integration Studies, What is policy coherence? Trinity College Dublin (2010).
12 Office of the Parliamentary Budget Officerwebsite, Office of the Parliamentary Budget Officer
(About Us) (accessed 2016).
13 Florian Krätke, “Policy coherence: a sensible idea lost in translation?” The Guardian, November 11, 2013.
14 Industry Canada, Evaluation of the Paperwork Burden Reduction Initiative (2013).

Big Idea: Re-invent Firm and Infrastructure Financing in Canada

In June, Canada 2020 launched The Innovation Project, an initiative devoted to studying Canada’s innovation agenda – the risks, the opportunities, and key factors involved in making Canada a more innovative nation.
As part of this project, we asked Mike Moffatt, Senior Associate at Canada 2020 and Director at the Lawrence Centre at Western University’s Ivey Business School and Hannah Rasmussen, Director at Projection North and Professor at Western University’s Brescia College, to consider how to foster innovative growth in Canada. 
Moffatt and the Canada 2020 team traveled to eight cities across Canada to hold roundtable discussions with key stakeholders representing sectors ripe for transformation. We are grateful for the thoughtful discussion and time these roundtable participants gave the effort. While the sectors themselves were very different, common themes emerged: talent and immigration, availability of venture capital and Canadians’ adversity to risk.
From their research and these roundtables, Moffatt and Rasmussen developed 10 Big Ideas for Canada. Canada 2020 will be releasing an idea a day on our website leading up to our 3rd Annual Canada 2020 Conference.
Each idea is thoughtful and detailed, and Canada 2020 hopes they will spur discussion and debate on the topic as we continue to explore innovation in Canada.   

Big Idea: Re-invent Firm and Infrastructure Financing in Canada

What is the idea?

Canada needs to re-think both the ways firms obtain financing and how infrastructure is financed. We will begin by examining the problems of bottlenecks to firm financing.
A common theme that emerged during our roundtable discussions this summer was the difficulty in obtaining financing, which was seen as being partly responsible for Canadian firms failing to scale-up. Problems cited included difficulty obtaining second-and third-stage venture capital, unnecessarily complicated and occasionally incoherent government funding programs and barriers to obtaining financing to commercialize innovations.
Furthermore, roundtable participants discussed how government funding programs often compete with private lenders on some dimensions, while failing to address financing market failures on other dimensions. We believe Canada needs to re-invent firm financing, with a focus on addressing the core market and regulatory failures at play. Here are our recommendations on how Canada can do so.

Recommendation: The Cooperative Capital Markets Regulatory System (CCMRS) or provincial governments should create an online finance matchmaking portal (FinMatch) where eligible small and emerging companies can be matched with both private and public providers of capital.

On the demand side for capital, entrepreneurs or companies could apply to join FinMatch, for a nominal fee, at one of three levels. FinMatch would vet applications and successful applicants that met the “listing requirements” for that level would be entered into the system:

  • Level 1: Pre-startups looking for pre-seed capital for businesses they would like to start.
  • Level 2: Startups that have been in business less than two years.
  • Level 3: Established companies that have been in business two or more years.

On the supply side of capital, accredited investors could apply to join the portal with a modest yearly subscription fee. These accredited investors would include individuals, financial institutions, businesses and government entities, such as the Business Development Bank of Canada (BDC) and Export Development Canada (EDC).(1) Furthermore, all firms that met the Level 3 “listing requirements” would also be given the option to obtain accredited investor status, which would allow them to act as suppliers of capital.
FinMatch would act as a matchmaking service between suppliers of capital and entrepreneurs needing funding. FinMatch would suggest potential matches, but members of the system would also be able to view the profiles of other members.(2) Within FinMatch, firms could be matched with accredited investors and raise funds in some different ways, including (but not limited to) the following:

  1. Loans and other debt instruments;
  2. Grants and loans from government funding agencies
  3. Selling (or buying) whole companies to (or from) other accredited investors

Once a company reached a certain size, it would be able to apply for Level 4 status, which would allow shares in the company to be traded on FinMatch. The Level 4 “listing requirements” would be less onerous than those for firms wishing to list on exchanges such as the TSX Venture Exchange, but would still provide protection to potential investors. As well, the “listing fees” and “annual sustaining fees” would be set substantially lower than those of traditional exchanges.
Our equity market portion of the FinMatch recommendation is adapted from a 2013 recommendation made by the U.S. Securities and Exchange Commission Advisory Committee on Small and Emerging Companies. In their Recommendation Regarding Separate U.S. Equity Market for Securities of Small and Emerging Companies,(3) the advisory committee detailed a plan to reduce the barriers preventing high-growth firms from obtaining equity funding. While the proposal was intended for the U.S. market, the first four points of the advisory committee’s proposal are particularly relevant to Canada’s firm-financing ecosystem:

  1. The Committee believes that current U.S. equity markets often fail to offer a satisfactory trading venue for the securities of small and emerging companies because they fail to provide sufficient liquidity for such securities and because the listing requirements are too onerous for such companies.
  2. The frequent failure of U.S. equity markets to offer a satisfactory trading venue for small and emerging companies has discouraged initial public offerings of the securities of such companies, undermines entrepreneurship, and weakens the broader U.S. economy.
  3. Establishing a separate U.S. equity market specifically for the securities of small and emerging companies, where these companies would be subject to a regulatory regime strict enough to protect investors but flexible enough to accommodate innovation and growth, offers promise of providing a satisfactory trading venue for small and emerging companies, which may encourage initial public offerings of their securities.
  4. A possible feature of an appropriate regulatory regime for such a market would be limiting investor participation to accredited investors who meet a standard designed to assure that the regulatory protection afforded is appropriate given the characteristics of those investors.

We believe that the creation of such a portal would better match sources of capital with investment opportunities, increase liquidity and make it easier for Canadian companies to scale up through mergers. Canada’s lack of mid-sized firms is a commonly cited reason for the country’s lagging innovation and productivity;(4)  we believe the merger activity that FinMatch would facilitate would accelerate firm growth and assist aging business owners to receive value for their companies. Finally, FinMatch would make it abundantly clear where the holes in Canada’s firm-financing system are and where government programs are competing with private lenders (and each other).
In an ideal world, there would be a single portal at the federal level rather than separate portals in each province, though it may be possible for the five provinces and one territory that have joined the Cooperative Capital Markets Regulatory System(5) to have a single portal. However, given the lack of a national securities regulator, the portals will most likely need to be administered by the provinces.

Recommendation: The federal government should continue negotiations to create a national securities system that includes all provinces and territories.

While we believe FinMatch would be incredibly useful, we also recognize that it is not a silver bullet and would take substantial time to develop. As such, we have additional recommendations, including the following:

Recommendation: Given the positive externalities created by growing knowledge-creating firms, Canadian tendencies towards risk aversion and ultra-low interest rates on government borrowing, we recommend the federal government significantly increase the funds allocated to the Venture Capital Action Plan and implement the recommendations of the auditor general(6) as they pertain to selection process, performance measurement and reporting.

The cost of capital for the federal government is incredibly low, with nominal bond yields hovering around one per cent for 10-year bonds and under 1.7 per cent for 30-year bonds, both under the Bank of Canada’s two-per-cent inflation target.(7) Given this incredibly low cost of capital and the positive externalities created by growing knowledge-creating firms, the federal government is well-positioned to make equity investments in companies. One mechanism it already has at its disposal is the Venture Capital Action Plan (VCAP), which uses a fund-of-funds approach to leverage private-sector knowledge and capital with government investments. We recommend that in Budget 2017 the federal government allocate additional funds to the VCAP. Furthermore, we feel the results of the program can be strengthened by implementing the following three recommendations from the auditor general’s 2016 report on the program:(8)

  1. When making investments that are similar to those of the Venture Capital Action Plan, the Department of Finance Canada and Innovation, Science and Economic Development Canada should fully respect the values of fairness, openness, and transparency while meeting the purposes of the investment. Respecting these values will maintain the venture capital industry’s confidence in selection processes run by the Government of Canada.
  2. To appropriately assess the performance of the Venture Capital Action Plan and inform decision making, the Department of Finance Canada and Innovation, Science and Economic Development Canada should expand the Action Plan’s Performance Measurement Framework by considering the inclusion of performance metrics, such as exit performance of recipient companies, recipient companies’ export growth and their financial performance, new patents and patent citations, and the number of new or additional key investment personnel and lead investors. To increase transparency, the two departments should report publicly relevant information about Action Plan activities and performance.
  3. In formulating future interventions such as the Venture Capital Action Plan, the Department of Finance Canada and Innovation, Science and Economic Development Canada should allow for an early exit of the public-sector partners.

Finally, we believe firm financing should not just be top-down by large financial institutions or governments, but that community investors have a role to play. The State of California created a useful piece of legislation to give residents more autonomy when making investment decisions.
AB 2751, also known as the “California Local Economies Securities Act” (CLESA), has the express goal of making it “easier for small businesses, farms, and renewable energy projects to raise money from local investors and to enable California residents to move their money from Wall Street to their local community.”(9) In our view, the most valuable change the bill offers is to make it easier for citizens to invest in local start-ups. CLESA allows start-ups to sell equity stakes without permit requirements, provided they meet the following conditions: “The business provides basic offering and business information to the public, the total amount raised during the offering does not exceed $500,000, and no individual non-accredited investor invests more than $1,000. Accredited investors would be limited to investing no more than 5 per cent of their net worth.”(10) The California state legislature has not passed CLESA, so there is no data on its effectiveness. We believer, however, it still provides a model worth investigating.

Recommendation: The Cooperative Capital Markets Regulatory System (CCMRS) or provincial governments should adopt the “small investments” exemption in the California Local Economies Securities Act (CLESA).

We recognize that many individuals would not have the ability to make direct investments in firms, but would appreciate the ability to invest in local businesses in a broad sense, which leads us to our final firm-financing recommendation:

Recommendation: The federal government should work with financial institutions such as credit unions and social finance organizations to create investment vehicles through which individuals could invest in funds that finance local businesses.

Next, we believe the federal government can improve how it finances infrastructure investments. The prime minister’s mandate letter to the minister of Infrastructure and Communities contains the following priority:(11)

Work with the Minister of Finance to establish the Canada Infrastructure Bank to provide low-cost financing (including loan guarantees) for new municipal infrastructure projects in our priority investment areas. This new institution will work in partnership with other orders of governments and Canada’s financial community, so that the federal government can use its strong credit rating and lending authority to make it easier — and more affordable — for municipalities to finance the broad range of infrastructure projects their communities need. This should include preparing for the launch of a new Canadian Green Bond that can enable additional investments when a lack of capital represents a barrier to projects.

We would expand this proposal and create a Canadian Infrastructure Investment Bank (CIIB) that would be responsible for federal funding of infrastructure projects. We would suggest that the U.S. model created by Korin Davis and William A. Galston in Setting Priorities, Meeting Needs: The Case for a National Infrastructure Bank, be adapted to Canada, with a focus on adapting the following items:

  • Establish the bank as an independent government-owned corporation (GOC) outside of any governmental agency. This would endow the NIB with greater budgetary flexibility and not unnecessarily narrow the scope of infrastructure projects it could support.
  • The bank’s leadership structure should feature a CEO and board of directors, some nominated by the president, others by the leaders of the two parties, confirmed by the Senate, serving staggered terms of about six years. Such a leadership model would give Congress some oversight authority but would sufficiently insulate its operations from political whims and create enough of a buffer so that elected officials would neither determine strategic choices or project selection nor be called on the carpet for unpopular or controversial decisions.
  • Create a division of the bank responsible both for analyzing the viability of proposed projects and for advising those seeking support. A strong and permanent professional staff would provide financial and technical advice to further improve resource allocation.
  • To achieve leverage, the new entity would have to attract private investor-depositors as well. Its authorizing legislation should be drafted to permit such offerings, subject to the bank’s meeting specific quantitative tests.
  • Do not limit the bank’s lending to specific categories of infrastructure, such as transportation. Instead, the bank should be free to invest in a wide array of infrastructure projects, including technology, environmental and energy projects, public utilities, or the renovation of schools and hospitals.(12)
Recommendation: Canada should create a “Canadian Infrastructure Investment Bank” (CIIB) tasked
with providing financing for infrastructure projects.
Recommendation: Like the Bank of Canada, the CIIB should be at arms-length from the government. The CIIB should be given a five-year mandate by the government, but be free to pursue that mandate in the manner they best see fit, so that projects are chosen on their merits rather than on political considerations.

Who will be responsible for administering the idea?

The FinMatch portals and Canadianized versions of CLESA will be created by the federal Cooperative Capital Markets Regulatory System (CCMRS) and by each province that is not a member of the CCMRS. The creation of the CIIB and increased funding for the Venture Capital Action Plan (VCAP) will come from the federal government.

What mechanisms for accountability or measurement can be put in place for the idea?

FinMatch: One of the potential benefits of FinMatch is that it would allow the government to keep track of the performance of companies. This data could be incredibly useful for the designing of economic policy. As well, we would recommend that the government set goals for the performance of the portal (companies signed up, deals completed, etc.) and report once a year on the performance of the portal relative to those goals.
VCAP: We advise the government to put into place the three recommendations from the auditor general’s report.
CLESA: We would recommend that the program be examined once a year by provincial auditors general.
CIIB: We believe the Bank of Canada provides a useful framework that allows the CIIB to operate at arms-length but still be ultimately accountable to the federal government.

What failures is the idea trying to solve?

Our re-invention of firm and infrastructure funding is attempting to solve some failures, including the following:
Information Asymmetries: An obvious question to ask about the creation of an online financing portal is, “If it’s such a good idea, why hasn’t the private sector done it already?” In some cases, they have, as for the buying and selling of companies at sites such as and Private-sector solutions, however, suffer from an information asymmetry problem, where the owners have a great deal of information about the value of the investment that the buyer does not. The buyer can obtain much of this information through the negotiation process, but this imposes significant transactions costs. The proposed portal’s listing and reporting requirements would ensure that potential investors quickly have access to the information they need to make an informed decision, similar to disclosure requirements for publicly traded companies. It is certainly possible that government could simply establish the reporting requirements and that private-sector companies would set up portals. While we prefer this option over nothing, we believe this is an appropriate area for government because of data security concerns and the fact that network externalities and co-ordination effects make having multiple portals inefficient.
Externalities and Tech Spillovers: Governments have a role to play in the financing of knowledge-creating companies, as these firms generate positive externalities through knowledge spillovers (and, as such, will be undersupplied by the market). FinMatch and increased VCAP assist in addressing this externality.
Risk Aversion: Companies at Level 1 of FinMatch can enter the system and determine if there is an appetite for their ideas by potential sources of funding before they have committed too much of their own time and capital. We believe that if FinMatch leads to more high-growth firms in Canada, this will incent others to take the risks of entrepreneurship.
Thin Markets: Making it easier for firms to be matched with suppliers of funding should lead to the creation of more firms (and more opportunities for the creation of new firms), thus thickening markets.
Regulatory Failure: The CIIB is designed, in part, to address the issues of infrastructure projects being chosen on political considerations rather than on their merits. A successful CIIB creates experience in financing and evaluating infrastructure projects on which companies and other levels of government can draw.

What are the potential benefits of the idea and what are the costs?

Benefits: By making it easier to match sources of capital with investment opportunities (be they investments in firms or infrastructure), on both sides of the transaction, investors get more for their investments, and companies can grow faster and increase trade, benefiting the Canadian economy.
Costs and Risks: Any time individuals are granted more ways to invest their money, we risk opening
them up to fraud. As well, government digital programs like FinMatch come with potentials for cost
overruns and data breaches.

Will the idea increase economic inclusion and/or enhance autonomy? If so, how?

Economic Inclusion: One of the goals of a reinvention of firm financing is to make it easier for people with great ideas but not a lot of capital to obtain funding. Obtaining superior value along with leveraging private-sector funds when financing infrastructure projects allows the government to build more infrastructure per dollar spent, benefitting all Canadians.
Autonomy: By allowing individuals to invest in their local communities, we are giving them the opportunity to regain economic autonomy. This increase in autonomy helps “solve” the ketchup problem, where individuals are desperately looking for an outlet to assist in the economic development of their communities. Furthermore, by making it easier for people to start new businesses, we are giving them additional options.


1 The Ontario Security Commission’s accredited investor exemption includes individuals of sufficient financial means along with individuals who currently are, or once were, a registered adviser or dealer, other than a limited market dealer; financial institutions; governments and governmental agencies; insurance companies; pension funds; registered charities; certain mutual funds, pooled funds and managed accounts; companies with net assets of at least $5 million; persons or companies recognized by the OSC as an accredited investor. The accredited investor exemption, (Ontario Securities Commission, 2016).
2 Subject to the user’s privacy settings. Privacy would naturally be a concern in a system like FinMatch, but we believe dating websites provide a good template for allowing users to decide who can access parts of their profile.
3 Security and Exchange Commission, Recommendation Regarding Separate U.S. Equity Market for Securities of Small and Emerging Companies (2013).
4 What’s Happened to Canada’s Mid-Sized Firms? (Business Development Bank of Canada, 2013).
5 As of August 2016, British Columbia, New Brunswick, Ontario, Saskatchewan, Prince Edward Island and Yukon are members of the Cooperative Capital Markets Regulatory System. (Cooperative Capital Markets Regulatory System, 2016).
6 Office of the Auditor General of Canada, 2016 Spring Reports of the Auditor General of Canada, Report 1 — Venture Capital Action Plan (2016).
7 On August 26, 2016, the yield on a 10-year bond was 1.090 per cent, whereas the yield on a 30-year bond was 1.687 per cent,Market data, (Financial Post, 2016).
8 Office of the Auditor General of Canada, 2016 Spring Reports of the Auditor General of Canada, Report 1 — Venture Capital Action Plan (2016).
9 Sustainable Economies Law Centre, California Local Economies Securities Act (2016).
10 Sustainable Economies Law Centre, California Local Economies Securities Act (2016).
11 Office of the Prime Minister, Minister of Infrastructure and Communities Mandate Letter (2015).
12 Korin Davis and William A. Galston, Setting Priorities, Meeting Needs: The Case for a National Infrastructure Bank (Governance Studies at Brookings, 2012).

Proposals for a North American Climate Strategy

NALS Report
Canada 2020 has partnered with leading U.S., Canadian and Mexican think-tanks ahead of the North American Leaders’ Summit to draft a new report calling for greater collaboration on climate change.

Download the Report Here

In December 2015, more than 190 nations adopted the Paris Agreement, a legally binding pact that aims to limit greenhouse gas pollution and build global resilience to the effects of climate change. The agreement required years of negotiation and tremendous political will, but world leaders now face an even greater task: implementation. In order to fulfill the agreement’s vision of net-zero greenhouse gas emissions, countries will need to meet their national climate goals, strengthen those goals over time, and spur progress globally through international forums. In all of these efforts, countries can be more effective acting as allies rather than alone.
For the first time in recent memory, the national governments of the United States, Mexico, and Canada are politically aligned on climate change. The three countries should take this opportunity to explore and launch coordinated climate initiatives that could propel the shift to clean energy across the continent and—through international leadership—accelerate the reduction of greenhouse gas pollution globally.
Recognizing the strong role that an allied North America could play in the movement to address climate change, a coalition of think tanks in the United States, Mexico, and Canada—including the Center for American Progress, the Centro de Investigación y Docencia Económicas, the Centro Mexicano de Derecho Ambiental, the Pembina Institute, the World Resources Institute, and Canada 2020—has identified a set of trilateral initiatives that could be both effective and within the power of the three governments to undertake.
On June 29, 2016, President Barack Obama, President Enrique Peña Nieto, and Prime Minister Justin Trudeau convene for the North American Leaders’ Summit in Ottawa, Ontario. This summit provides a near-term opportunity for the three leaders to explore options for trilateral cooperation—such as the initiatives detailed in this report—and to articulate a coordinated North American climate plan.

Download the Report Here

Canada 2020 Health Summit Report

Executive summary: A Blueprint for Action

Over the course of the Canada 2020 Healthcare Summit, several recurring themes emerged that point to a potential role for the federal government in creating a sustainable health system for all Canadians.

Fiscal and demographic implications of population aging:

Due to low levels of debt relative to gross domestic product, the federal government has more fiscal room to manoeuvre in the coming years than provincial governments, which will bear the brunt of the fiscal and demographic pressures of population aging.
The following recommendations made by conference delegates address ways the federal government could support the country as it transitions from having more retirees than working-age Canadians:

  1. Keep older Canadians productive for a longer period of time and increase the productivity of the rest of the labour force to help offset the incremental costs of providing health care to a larger cohort of seniors.
  2. Leave an infrastructure legacy to boost the country’s productivity levels.
  3. Help the provinces shift more services from hospitals to the community by ensuring that the home and community care sectors are adequately funded.
  4. Support the health and well-being of informal and family caregivers, whose unpaid work is an important contribution in containing health-care costs and keeping the system sustainable.
  5. Develop an insurance plan to encourage Canadians to set aside money to fund long-term care.

The implications of disruptive technologies and service delivery:

The conference heard repeatedly about the need for the country’s health system to break down barriers that are related to jurisdiction, professional practice, or technology. Another theme was the need to spread innovative ideas rapidly and at a scale where it can truly produce meaningful change.
The following recommendations made by conference delegates address ways the federal government could support innovations in technology and service delivery:

  1. Drive system change by breaking professional practice silos; use evidence to drive policymaking and change practice.
  2. Have patients and families work as partners with service providers to co-design health systems that work better for them.
  3. Enable health-service providers to develop and procure technologies and other capital investments that improve efficiency and patient care.
  4. Create a national research-and-development centre, along the lines of the U.S. Center for Medicare and Medicaid Innovation, for health-service providers to learn from each other, scale up local innovations and fine-tune promising practices.
  5. Create a Canadian version of the Organization for Economic Cooperation and Development, which would compare provincial health-system performance, use evidence to drive change and promote shared learning among providers.
  6. Deploy federal agencies such as the Public Health Agency of Canada, Canadian Institute for Health Information and the Canadian Agency for Drugs and Technologies in Health
  7. Create a comprehensive and transparent system of performance measurement based on health outcomes to track how well each region of the country delivers quality care.
  8. Give Canadians the tools to be in control of their own health by granting them ownership and access to their personal health information.
  9. Creating a framework for Canadians to have early access to drugs in development.
  10. Experiment with different service-delivery models in areas where the federal government has direct responsibility: veterans, First Nations, correctional services.

Using existing health-care resources more efficiently:

The conference heard that the current health system is not designed to meet the evolving needs of Canadians, especially those with complex health conditions.
Canada also remains a higher-than-average health-care spender when compared to other advanced economies. Health care is a $215 billion industry in Canada – larger than the energy sector. About 70% of expenditure is funded publicly through tax dollars, while the remaining 30% is paid through private insurance, or out of pocket by Canadians. However, the system does not produce the health and value outcomes for the amount of money that goes into it.
The following recommendations made by conference delegates address ways the federal government could support key structural reforms to make the system more efficient and resilient:

  1. Shift payment for health services from fee for service and volume-based funding to payment based on patient and value outcomes.
  2. Shift the focus of reform from population aging to chronic-disease management, which could be a greater threat to the sustainability of the system.
  3. Shift the focus of health services – and funding – away from disease management to disease prevention.
  4. Bring more health and social services to where Canadians want them.
  5. Encourage the integration of the primary and acute care sectors.
  6. Explore ways to use existing tax dollars earmarked for health care differently, such as creating personal health accounts for all Canadians.
  7. Explore more partnerships with the private sector.

Canada 2020 Healthcare Conference

Opening remarks: Reflections of a former health minister

In her remarks to open the conference, Deb Matthews, deputy premier of Ontario and president of the Treasury Board, reflected on her five years as Ontario’s health minister and gave her former self some advice:

  • Create a sustainable system that preserves the single-payer model and reflects the Medicare principles of access based on need rather than ability to pay.
  • Get real about the demographic shift toward an aging population.
  • Drive system change by breaking professional practice silos and using evidence to drive policymaking and practice change.

Matthews observed that the current health system works well for providers, but not for patients, especially those with complex health conditions.
The system must be redesigned with the needs and perspectives of patients in mind, which means providers must do business in an entirely different way, said Matthews.
While there will be winners and losers among providers, the only result that matters is whether the system changes lead to value for money and better care for patients.
Matthews concluded her remarks by emphasizing that providers should stop thinking about what change means for their profession or organization and, instead, focus on doing what is right for patients. That’s the way to protect universal health care in Canada, she said.


Presentation: Fiscal and demographic context

Kevin Page, former parliamentary budget officer, and David Dodge, former governor of the Bank of Canada, outlined some of the fiscal and demographic challenges facing Canada in the coming decades.
According to Page, economic growth has slowed. Government revenues are down. A major demographic shift is underway as Canada adjusts to the reality of having more retirees than working-age Canadians. These features of the economy are likely to be protracted and structural over the coming decades.
In the face of these challenges, how much room does the federal government have to take on extra debt? Page said due to low levels of debt relative to GDP, the federal government would have more fiscal room to manoeuvre in the coming years than provincial governments, which will bear the brunt of the fiscal and demographic pressures.
However, the reality is that Canada remains a higher-than-average health-care spender when compared to other advanced economies. Health care is a $215 billion industry in Canada – larger than the energy sector, said Page. About 70% of expenditure is funded publicly through tax dollars, while the remaining 30% is paid through private insurance, or out of pocket by Canadians.
Over the past two decades, annual health-care expenditures have grown faster than the economy, with a particularly sharp rise in drug costs starting in the 1990s. The growth in drug costs started to flatten in 2010, but Canada remains a top spender at $766 per capita – second only to the U.S. ($1,000 per capita).
Recent history has shown that restraint in health-care spending is often short lived and only happens during tough economic times.
Page wondered if Canada could continue to bend the health-care cost curve over the long term.
Meanwhile, the aging population will fuel greater demand for long-term care, starting in the region of the country that is aging most rapidly: the Atlantic provinces.
Page concluded by observing that as population aging accelerates, the federal share of health-care spending continues to shrink.

Comment: Demography is not destiny

In his remarks, Dodge noted that demography is one area of economics where forecasts mean something. Canadian policymakers have known for a long time about the demographic shift toward an aging population, but they have not done enough to prepare for it.
The scope of change required is not only in the health-care system, said Dodge. Investments are also needed to improve the productivity of the labour force. These investments are a critical means of sustaining the health-care system.
However, Dodge suggested population aging is not as dire as has been predicted because of a few factors:

  1. This generation of Canadians over the age of 65 is healthier than previous cohorts. The key is to keep them healthy for as long as possible so that the health-care costs are not as severe.
  2. This generation of Canadians aged 65 and over is well educated and well trained. The key is to encourage them to be productive contributors to the economy for as long as possible.

Dodge concluded with this observation: Keeping older Canadians productive for a longer period of time and increasing the productivity of the rest of the labour force are two strategies that could offset the incremental costs of providing health care to a larger cohort of seniors, especially as more Canadians live longer.
In response to a question from the audience about how older Canadians can leave a legacy, Page said there is a role for those in their 50s and 60s to mentor the generation coming after them. They can also encourage politicians to leave an infrastructure legacy to boost the country’s productivity levels.


Opening panel: Disruptive delivery of health services

A four-member panel, moderated by Susan Smith, co-founder of Canada 2020, discussed the merits and shortcomings of “disruptive” models of health-service delivery that displace established incumbents and their practices.
In her opening remarks, Dr. Cindy Forbes, president of the Canadian Medical Association, challenged a remark made earlier by Deb Matthews about the health system working well for providers, but not patients. In fact, said Forbes, the system doesn’t work well for providers either. That’s because poor integration and care coordination leaves providers spending a lot of time trying to access services for their patients.
Forbes also challenged the perception that health-care providers don’t welcome change. In fact, providers have welcomed the change efforts launched over past decade and have been active participants in them. However, providers are not always invited to the policy table to help shape that change.
Given that history, one disruptive change that Forbes welcomed was the commitment by federal Health Minister Jane Philpott to involve all provinces and territories in the negotiation of a new health accord.
Forbes made three points:

  1. Shifting the focus of the health system from hospital-based care to home- and community-based care is a cornerstone of the Canadian Medical Association’s seniors strategy. However, the system doesn’t have adequate resources to provide Canadian seniors with home and community care. The federal government has a role to play in ensuring those sectors are adequately funded.
  2. More Canadians are providing informal care to their loved ones. These unpaid caregivers are at risk of burnout if they are not well supported. More needs to be done to ensure they can continue contributing. They play an important role in containing health-care costs and keeping the system sustainable.
  3. Providers need support to develop and procure technologies that improve patient care.

Maureen O’Neil, president of the Canadian Foundation for Healthcare Improvement, noted that the founders of Medicare in Saskatchewan originally envisioned an integrated, patient-centred system, in which hospitals and physicians were funded out of the same bucket of funding rather than separately. Fifty years later, policymakers are still having the same conversation and Canada’s health-care system remains a pilot project.
O’Neil proposed that the federal government create a platform for providers to learn from each other and scale up local innovations. She called for the establishment of a Canadian version of the Organization for Economic Cooperation and Development, which would compare provincial health-system performance, use evidence to drive change and promote shared learning among providers.
O’Neil said one disruptive idea that could serve as a template for First Nations leaders in other parts of the country is the federal government’s historic handover of the management of on-reserve health services to First Nations in British Columbia.
Stacey Daub, CEO of the Toronto Central Community Care Access Centre, expressed her excitement at the prospect of new federal leadership serving as a catalyst for change. The health-care sector in Canada has been at a crossroads for 40 years, caught in a perpetual pattern of incremental change, she said.
The majority of health-care dollars are still spent on hospitals, drugs and physicians. Providers perform the miracles very well, but the everyday experiences of care are where the system fails patients, said Daub.
She proposed that the federal government:

  1. Establish a population-based approach to health care, effectively segmenting patients into micro-communities around which services are organized and delivered.
  2. Create a comprehensive and transparent system of performance measurement to track how well each region of the country delivers quality care.
  3. Identify meaningful practices that produce the best outcomes for patients and share the most effective approaches with providers across the country.
  4. Give Canadians the tools to be in control of their own health by:
  • Granting them ownership and access to their personal health information.
  • Giving them a role in redesigning the health-care system to make it more responsive to patients.
  • Exploring ways to use existing tax dollars earmarked for health care differently, such as creating personal health accounts for all Canadians.

Alex Munter, CEO of the Children’s Hospital of Eastern Ontario, proposed that the federal focus of health-care reform shift from population aging to chronic-disease management, which, he argues, is a greater threat to the sustainability of the system.
Because population aging happens slowly, it is a more manageable fiscal pressure over the long term than the burden of chronic diseases such as diabetes, mental illness and complications arising from premature births.
The other federal focus of reform should be technology, Munter said. At the hospital where he works, the majority of patients have parents in their 20s and 30s who are used to getting all their information and services online. And yet when they go to the hospital, they find that staff still use fax machines.
Electronic health records reduce medical errors and improve patient safety, efficiency and connectivity between patients and providers.
Munter said the previous federal government stepped away from Canada Health Infoway, leaving hospitals like his to pay for electronic health systems out of their operating budgets. Where the federal government can make a difference, he noted, is in helping hospitals and home-care organizations make the capital investments needed to improve productivity and efficiency.

Panel discussion: What role can the federal government play in the disruptive delivery of health care?

The panel discussed some of the existing system’s shortcomings, which prevent it from delivering high-quality care for patients. While high-performing systems in other jurisdictions deploy teams of providers that focus on preventing disease in patients, Canada is not “staffed up” to do that kind of health-promotion work, said O’Neil.
As the fifth largest health-services provider in the country, O’Neil observed, the federal government has an opportunity to be an innovator in areas where it has direct responsibility: veterans, First Nations, correctional services. And she noted that federal agencies such as the Public Health Agency of Canada, Canadian Institute for Health Information and the Canadian Agency for Drugs and Technologies in Health could all be deployed differently.
Instead of musing about how the system should change, policymakers should reframe the issue around how to improve the service delivery for patients, the panel noted. O’Neil proposed that the federal government convene deliberations with Canadians about how they would like their health services delivered when it comes to palliative care, for example.
Daub made the case for exploring more partnerships with the private sector by pointing out that any disruptive innovations that have improved health-care efficiency have not actually come from within the sector itself.
Audience member Durhane Wong-Rieger, president of the Canadian Organization for Rare Disorders, raised the theme of patient-centred care. She noted that the term has become meaningless and that patients-as-partners is a more relevant descriptor. The panel agreed that as partners, patients should have a role in designing a health system that’s right for them.
A final theme that emerged during the panel discussion was how the federal government can ensure that vulnerable populations with complex needs get access to health services. Daub emphasized the need to move toward a population-health approach by bringing health and social services to patients when and where they need it. O’Neil gave the example of Ontario’s Health Links, which help patients with complex conditions navigate a fragmented patchwork of unconnected providers.

Panel #2: Disruptive technologies

A three-member panel discussed the health system’s ability to adopt and adjust to emerging technologies, some of which give individuals the ability to monitor and manage their own health. The panel was moderated by Zayna Khayat, Senior Advisor, Health System Innovation and Director, MaRS EXCITE.
Khayat gave an overview of the different types of innovations and the factors that drive their development. In the context of health care, innovations are new or better ways of performing valued services whose demand continuously outpaces society’s ability or willingness to pay for them.
Innovations can drive down the cost of labour and delivery. Innovations can root out inefficiencies and ineffectiveness. Innovations can treat or reverse a chronic disease, reduce avoidable hospital admissions, or push the boundaries of science.
Khayat described incremental innovations that produce gradual improvements; disruptive innovations that create new markets and value, while displacing established incumbents or practices; and breakthrough innovations that radically alter accepted norms, practices or understanding.
An invention, idea, or pilot project is not an innovation until it has been implemented on a meaningful scale. The ability to scale up pilot projects is a perennial challenge in health care, said Khayat.
Michelle F. Browner, Senior Director, Platform Innovation & Partnership Management, J&J Innovation outlined some of the company’s emerging technologies that have the potential to transform health care. They include a contact lens that can monitor the glucose levels of its wearer, which could improve diabetes management.
This emerging technology reflects a burgeoning field in which the pharmaceuticals industry has placed great hope: studying patterns from massive groups of genes, proteins and the chemical fingerprints that specific cellular processes leave behind to not only improve the detection and management of disease, but also, increasingly, anticipate its onset.
Dr. Hoangmai Pham, Center for Medicare and Medicaid Innovation, described the mandate of the U.S. agency, which administers a public health-insurance program for Americans over the age of 65, low-income families and children in need.
As both a payer and regulator, the centre decides when it’s appropriate to cover the cost of a treatment or technology. The centre also determines what is a reasonable price to pay providers, Pham explained. The centre has a $10-billion budget over 10 years to test new payment and service-delivery models.
At any given time, the centre runs up to 40 demonstration projects. However, a demonstration project does not automatically qualify as a disruptive innovation, Pham noted.
When demonstration projects show sufficient impact to be scaled up, the centre tries to strike a balance between facilitating rapid adoption and minimizing the shocks to the market so that people have time to absorb and adapt to the disruptive change, said Pham.
The center also identifies which fields are ripe for the adoption of disruptive innovations, while providing feedback, performance data and technical assistance to drive learning and improvement activities.
From the centre’s perspective, said Pham, the role of a research-and-development centre is not only to test innovations, but also to serve as a practice arena for providers to figure out how to do things differently, not just what to do.
Because of the sheer size and scope of the Medicare and Medicaid program – it is located in all 50 states and covers 50 million Americans – the innovations facilitated by the centre often become sector-wide breakthroughs that are adopted by private insurers across the country.
Bill Charnetski is Ontario’s first chief health innovation strategist at the Ministry of Health and Long-Term Care. He has been on the job for less than three months. Given that the provincial government now spends $51 billion a year on health care, providers must be mindful of the cost of service delivery, Charnetski said.
As the baby boomers enter their retirement years, they will usher into the health system their expectations and demands as consumers. If they don’t get what they want when and where they want it, they will find what they need elsewhere, said Charnetski. He believes the high expectations of baby boomers will help drive significant health-system change.

Panel discussion: What are the challenges that stand in the way of disruptive innovation?

The panel acknowledged that disruptive technologies originate from outside-in rather than bottom-up at many health-care organizations. Pham and Browner talked about the importance of bringing together vendors who are co-developing new solutions with the end users who have an unfulfilled need. Pham suggested that a virtual marketplace would allow for more direct interaction between end users and developers.
Charnetski identified four challenges:

  1. Ontario has a glut of pilot projects, but few innovations that demonstrate high impact.
  2. Companies have difficulty getting their made-in-Ontario innovations purchased in Ontario.
  3. Pathways need to be created to scale up the adoption by end users of innovative tools and practices.
  4. Funding for early-stage commercialization of innovations remains difficult to access.

Panel discussion: What are the top two or three disruptive innovations that you would like to see emerge?

Charnetski cited two:

  1. Decentralization: Shifting health services out of hospitals and into home care, long-term care and aboriginal care. Charnetski observed opportunities in the community-care sector for large-scale change.
  2. Connectivity: Providing patients and providers with the same information at the same time to empower a circle of care to be formed around patients.

Browner noted that the pharmaceuticals industry is now at the stage where there is enough scientific understanding about the causes of some diseases to change their course, rather than simply treat their symptoms.
At J&J, a variety of monitoring technologies are emerging that, for example, ensure the right person is taking the right drug at the right time, Browner said. There are also technologies in the pipeline that allow for small doses of drugs to be released into a person’s system in a sustained and time-controlled way over the course of a month or longer, which would reduce how frequently patients would need to take their medications.

Keynote speech: How innovation and collaboration can lead to healthier communities

Josh Blair, Chief Corporate Officer, TELUS and Executive Vice-president, TELUS Health, shared a video about a team of Montreal doctors who used the company’s wireless platform to start a mobile clinic that provides health services to 800 homeless Montrealers.
Blair then challenged his audience to imagine what the impact would be if small innovations such as the Montreal clinic were scaled up across the country.
He believes that this country has top-notch providers who deliver great outcomes, but are constrained by what they can achieve.
To take the system to the next level, Blair suggested that the time is right for the federal, provincial and territorial governments to collaborate in identifying innovations that have proven to be effective and scale them up across the country.
Blair gave the example of the 15,000 family physicians across the country who use the company’s electronic medical records. Of the physicians who use the TELUS platform, 3,000 now use the company’s app to access patient charts securely on their smartphones or tablet computers.
The app allows them to organize their workflow whenever and wherever they want. Some doctors have started taking photos of their patients’ rashes, for example, to better document and integrating them into their electronic charts.
Blair pointed to two other examples of small-scale innovations with the potential for large-scale quality improvement:

  1. A home health monitoring system that enables patients with congestive heart failure to receive more rapid response and treatment from their providers, resulting in fewer emergency-room visits and hospital readmissions.
  2. A personal health-records system that enables young people with mental-health challenges to be monitored daily by their care team for any symptoms that require quick and early intervention.

Blair concluded by saying the federal government can play a role in:

  • Providing seed money for innovations because provincial budgets are stretched.
  • Bringing together the partners that allow small-scale innovations to be expanded nationwide.

Special guest: Hon. Jane Philpott, PC, MP, Minister of Health

In her remarks, Philpott stated that creating a sustainable health system is at the core of her mandate. She admitted that the task feels “daunting,” but believed she had spent her entire life preparing for it.
Philpott said the lessons she learned as a doctor, living and working in west Africa and Canada, have helped her understand that the twin goals of having a sustainable health system and keeping people healthy and prosperous require more than health care; they require fair access and equal opportunities for everyone.
She suggested that almost every policy decision made by a government has an impact on the health of its citizens.
Philpott outlined some of her priorities, as spelled out in the Prime Minister’s mandate letter to her.
She acknowledged the importance of what has been a recurring at this conference: the increasing recognition that putting more money into the system is not the answer; rather, the country’s health system needs to break down barriers, spread innovative ideas and make better use of existing resources.
Philpott then invited the audience to send her their ideas for better service integration and new funding models, among other things.
She concluded her remarks by looking ahead to:

  • The imminent start of negotiations with the provinces and territories for a new multi-year health accord.
  • The launch of efforts to improve home care for Canada’s aging population.
  • The ongoing work to improve health services for First Nations.
  • The launch of efforts to legalize and regulate marijuana.
  • Introducing tougher regulations to eliminate trans fats and reduce salt in processed foods.
  • Developing the government’s response to the Supreme Court’s decision on doctor-assisted death.

Special presentation: Winner of the Facebook DementiaHack – “Team TakeMeHome

A team of graduate students from the University of Toronto reflected on their experience creating a mobile-phone application that could help individuals with dementia navigate their communities.
The project was part of a weekend hack-a-thon, which gave the group the chance to “build cool stuff, help folks affected by dementia, get support to push your product to market.”
The team had 30 hours to come up with a “minimally viable product.” The result was TakeMeHome, an app that adapts existing mapping technologies to help people affected by dementia with way-finding. The idea behind the app was to provide those individuals and their caregivers with the means to lead more productive, fulfilling lives.
The team came up with idea after hearing the stories of how people living with dementia felt trapped in their homes because they worried about forgetting how to find their way through their neighbourhoods. Those personal stories informed the team’s approach when designing a solution.

Keynote speech: How does Canada compare with other countries in health-system performance?

Robin Osborn, Vice President and Director, International Program in Health Policy and Practice Innovations at The Commonwealth Fund, began her presentation by pointing out that the conventional wisdom – at least among Americans – is that the United States has the best health-care system in the world.
In reality, it’s the most expensive and doesn’t produce the outcomes for the amount of money that goes into it.
By comparing its health-system performance with that of 10 other advanced economies, the U.S. can get a better understanding of where it needs to improve. It can also look to other countries for ideas on how to improve.
Osborn highlighted key findings from the 2012 Commonwealth Fund International Survey of Primary Care Doctors and the 2014 Commonwealth Fund Survey of Older Adults, which measures how well the health system takes care of seniors, especially those with multiple chronic conditions.
On a number of indicators, Osborn showed that the U.S. ranks at or near the bottom when its performance is compared with that of 10 other countries.
Meanwhile, Canada’s performance is only slightly better than that of the U.S., meaning this country also ranks at or near the bottom of the pack on a number of indicators that measure quality, access, efficiency and equity.
The survey results paint a picture of a health system that has a weak primary-care foundation. While most Canadians have a primary-care provider who acts as the first point of contact for people seeking medical services, fewer than half of all patients get an appointment to see their provider when they need it, especially after hours and on weekends.
The result of an underperforming primary-care system is high rates of emergency-department visits, hospital admissions and readmissions, especially for seniors with multiple chronic conditions, such as congestive heart failure, chronic obstructive pulmonary disease and advanced-stage cancer.
These patients are more likely to receive conflicting information from different doctors, experience gaps in care after they are discharged from hospital and experience drug-related adverse events.
Osborn said these are the patients that policymakers need to be concerned about because in the U.S., they are the 10 per cent of the population that accounts for 65 per cent of total health-care spending.
These patients also tend to have lower income and education levels, which, in and of themselves, can drive up costs by as much as 15 per cent. Not surprisingly, these patients are the least satisfied with their care, according to the survey results.
Osborn went on to highlight some of the features of high-performing systems. For example, countries that spent $2 on social services for every $1 in health services tend to get better outcomes for the money spent.
In the UK and Sweden, where the performance of individual primary-care providers is monitored closely, providers, driven by a sense of professionalism, have shown a strong motivation to improve when shown the number of their patients that have been admitted to hospital.
Osborn listed a number of other innovations from around the world that the Commonwealth Fund considered noteworthy:

  1. Low-cost, high-quality open-heart surgery at India’s Narayana Hrudayalaya Hospital: This facility performs the highest volume of open-heart surgeries in the world and produces results that are as good as those at the Cleveland Clinic in the U.S. Because of the high volume of surgeries, the hospital has greater buying power when it comes to purchasing equipment and supplies, allowing them to treat many more patients at a lower cost. The hospital also practises tight financial controls by giving every manager and physician a daily profit-and-less statement so they can monitor their own performance closely.
  2. [email protected], Singapore: Accessible, cost-effective care for the elderly, the program leverages telemedicine technology to allow medical professionals to diagnose, monitor and treat elderly patients remotely between hospitals and nursing homes.
  3. Brazil’s family health program: Cited as the most successful primary-care reform in the world, the program provides services to 55% of population through community health centres that provide a one-stop shop for preventive care, chronic-disease management, triage and referral, child-wellness checks and prenatal health education. Infant mortality rates were cut in half during the implementation of the program.
  4. The “call-and-check” program in Jersey, United Kingdom: As part of their rounds, postal workers check in daily or weekly on isolated, frail and elderly people who sign up for the service. The postees deliver medications and reminders about upcoming doctors appointments, ask about immediate concerns, relay any requests or concerns to their client’s doctor or local authority and inform them of social activities that might interest them. The program is at an early stage and is being evaluated.

Panel #3: How are other jurisdictions managing change?

A three-member panel discussed trends in health-service delivery in other OECD countries that face similar fiscal challenges as Canada. The panel was moderated by Simon Kennedy, deputy minister of Health Canada.
Kennedy opened the discussion by asking panellists to describe the major preoccupation in their jurisdiction around health-system sustainability and quality.
Elizabeth Fowler, Vice President, Global Health Policy, Johnson & Johnson, drew on her experience as an architect of the U.S. Affordable Care Act. While a common perception of the legislation, known as Obamacare, is that it was designed to increase the number of Americans with health insurance, another aim of the legislation is to bend the health-care cost curve while improving outcomes.
Fowler provided some examples of reforms that are happening under Obamacare. They include new penalties for:

  • Avoidable hospital readmissions
  • Hospital-acquired infections
  • Low-performing hospitals that don’t measure up to quality and efficiency targets relative to their peers.

Fowler said about 87,000 fewer patients died in hospitals and nearly $20 billion in health-care costs were saved as a result of a reduction in hospital-acquired conditions from 2010 to 2014.
The next phase is a gradual roll out of a bundled payment program, which reimburses hospitals at a set fee for an entire episode of care, rather than a fee for every procedure performed during a patient’s admission. Hip replacements will be the first procedure to be reimbursed under a bundled payment model.
Fowler said reforming the entire reimbursement system, which for 50 years has been based on fee for service, will take time. She wondered whether the U.S. would be able to maintain the flattening of the health-care cost curve over the long term.
And while she sees more collaborations than ever being established within the health-care sector, there are still organizations that resist change under the belief that the Affordable Care Act will be repealed.
Michael Macdonnell, Head of Strategy, National Health Service, United Kingdom, provided an overview of the NHS, which pays £100 billion a year in funding and reimbursements. Under a five-year health accord, the UK is shifting the focus away from investments in acute care and more on disease prevention.
Macdonnell emphasized that the accord is focused on actually doing disease prevention, rather than just talking about it. This strategy is designed to address the three major challenges facing the UK health system: aging, chronic diseases and rising consumer expectations among the younger generation.
Macdonnell pointed out that social care and physical care are currently two separate program streams, as are primary care and acute care. Efforts are underway to integrate those parallel streams. The NHS is also working with 50 “vanguard” organizations to demonstrate new care models, such as integrated primary and acute care systems.
Funding models are shifting away from fee-for-service based on activity volumes to capitation models in which payment is based on results.
Macdonnell said his group sees itself not only as a chequebook, but also as a midwife for innovative ideas to run a lean health system based on delivering value for money.
Katharina Janus, Professor of Healthcare Management, Ulm University, Germany and Director of the Center for Healthcare Management, Columbia University, began her presentation by stating unequivocally that jurisdictions are not managing change. They are trying to rule and react to it.
Janus said like other countries, Germany spends a lot of money trying to encourage integrated care but silos still exist, with some notable exceptions. Any successful pilot projects often come from bottom up, meaning innovation only happens at the organizational, not the system level.
The changes that work are not necessarily the result of incentives imposed from top down, which is the German way, she observed.
Janus warned about the unintended consequences of having policymakers simply invest more money in health-system reform, without reciprocal accountability and engagement in strategy and implementation.
Rather than using money as an incentive to drive change, Janus urged policymakers to spend time understanding the needs of health providers and appealing to their sense of professionalism.
Janus ended her presentation by making two additional points:

  • Fragmentation and decentralization are opportunities, not barriers, because they encourage a multitude of experiments.
  • Science is important, but stories are also powerful in driving change.

Panel discussion: Are there any below-the-radar issues that merit greater attention?

The panel discussed “sleeper” issues, starting with moderator Kennedy’s suggestion that precision medicine and mental health are two areas where there are more policy implications than meets the eye.
Osborn agreed, noting that mental health and physical health are often treated separately, with the result that neither is treated particularly well. Service integration between those two disciplines is a real challenge.
Another overlooked issue is how to bring more health services to where patients want them, said Osborn. That is how to make the system work better for patients.
Macdonnell identified three under-examined issues:

  1. How to get better at picking innovations and deploying them in a way that makes sense and unlocks value.
  2. How to engage individuals to care about health-care quality and be involved in their own care.
  3. How to come to terms with the health-care workforce of the future, which will demand more flexibility and entirely different roles from what exists today.

Fowler identified two emerging issues:

  1. How to measure health-care quality and outcomes, given that existing metrics are imprecise and poorly understood, resulting in scepticism about whether the right things are being measured.
  2. How to present quality and outcomes data in a way that is open and understandable and useful to the average patient.

Janus identified two sleeper issues for Germany:

  1. Care coordination
  2. Striking the right balance between the high value Germans place on safeguarding the privacy of their health-care information and the development and implementation of new technologies that harness vast amounts of personal health information.

An audience member posed the following question to Kennedy in his role as Deputy Minister of Health Canada: In personalized medicine, there are innovations that reach patients, but the challenge is getting payers to cover the cost. What role does Health Canada play in ensuring that those innovations are adopted by the health system?
Kennedy acknowledged that this is an ongoing policy challenge, particularly for treatments of rare diseases and personalized medical treatments that, by definition, only target a small population. The Canadian Agency for Drugs and Technologies in Health performs some of those assessments, but there is no easy answer to the question. The issue also requires ongoing collaboration with international partners.
Janus suggested that building multilateral coalitions could lead to legislation being introduced, but that is a very lengthy and painstaking effort. Fowler noted that the U.S. Medicare program covers orphan drugs without conducting an assessment for it. Macdonnell agreed that precision medicine is not only a big issue for government, but also for the companies conducting clinical trials.

Closing Panel: Changing the Conversation

A three-member panel discussed ways to redefine the public conversation and change the dialogue on what it means to have health-care sustainability. The panel was moderated by journalist Evan Solomon.
He noted that the political will isn’t always there to drive change, complicated as the health care file is by jurisdictional conflicts, regional differences in demographics and disruptive technologies, such as new-generation drugs.
Jaime Watt, Executive Chairman, Navigator, presented his research on Canadians’ views of health care. He noted a shift in public opinion among Canadians who regard health care, not as a social value, but as a commodity. This shift reflects the broader trend of Canadians viewing themselves as consumers rather than as citizens or taxpayers.
No cohort feels more strongly about this perspective than baby boomers who, by their sheer numbers and affluence, have high expectations of every service they consume, including health care.
Watt’s research shows that boomers:

  • Expect health care to be delivered on their terms, when they want it.
  • Have an intense desire for change because they see that the existing system is not flexible enough to meet their needs.
  • Cherish access and choice above their concerns about cost and technological advances.
  • Don’t discriminate between public and private delivery of services. Indeed, private participation in the health system is no longer forbidden. That doesn’t mean boomers are prepared to adopt a U.S.-style system. Use of privately delivered services must still be paid out of public funds.
  • Use data to drive their purchase of various products and services, including health care. For that reason, they will demand information to inform their choices.

Watt concluded that Canadians are ready for a national conversation about health care that leads to change and choice. However, politicians who would rather not deal with the issue are not only out of step with Canadians, they are on the wrong side of what the public wants, Watt said.
Fred Horne, former Alberta Minister of Health and Wellness, responded to the message from Watt’s presentation about politicians having a role in leading health-system change. In his experience, Horne said, people wanted him to fix health care – but not change it.
During his time as a provincial health minister, Horne observed a desire by Albertans for access and choice in health care. But he also noticed a desire by Albertans – and all Canadians – to get those basic things right.
For example, all Canadians yearn for a seamless care experience. At a minimum, that means they expect to only have to tell their personal health story once. After that, they expect their information to be shared among all of the providers involved in their care.
As a health minister, he found it hard to strike a balance between getting the basics right and talking about the future.
Horne identified three structural reforms that need to be addressed:

  1. Primary care: Ensuring that all Canadians have a primary-care provider that they can call their “medical home,” where their health information is well managed, their care is well coordinated. That requires integration with other sectors of the health system.
  2. Compensation: Fees paid, not just to physicians, but all providers, should shift away from fee for service and volume-based funding. Instead, payment for health services provided should be aligned with patient outcomes. The role of evidence will be key in determining whether public payers should fund certain interventions.
  3. The role of the private sector: The day that health spending reaches 50 per cent of provincial budgets will be watershed moment that creates an opportunity to explore a wider range of partnerships with the private sector.

He suggested that the new federal health minister start by improving the day-to-day care experience of patients and families, then seek consensus from Canadians in reimagining Medicare for the future.
Jeffrey Simpson is a Globe and Mail columnist and author of Chronic Condition: Why Canada’s Health-Care System Needs to be Dragged into the 21st Century. He outlined three key points:

  1. Define health-care sustainability correctly. A sustainable health system is not just defined by meeting the demand for services to meet Canadians’ evolving health needs in a timely way over the long term; it is also about managing spending to ensure health care does not crowd out a government’s ability to deliver on other services at an appropriate level of taxation.
  2. Other advanced economies are facing the same challenge as Canada in controlling health spending. It’s encouraging to see that the public conversation has evolved beyond the mistaken notion that Canada has the best health-care system in the world.
  3. Take spending projections with a grain of salt. Annual increases in health spending have levelled off in recent years with slower economic growth, defying projections that assumed average annual increases of six per cent through the next two decades. The question is whether the current average annual increase of two per cent can be maintained going forward. It would require enormous political will.

Panel discussion: Given that Canadians’ attitude toward health care has shifted to a consumer mindset, how should the federal government position itself on this issue?

The panel discussed potential roles that the federal government could play. They include:

  • Enabling the adoption of new technologies, with Canada Health Infoway as an example of a federal agency that facilitates the adoption of electronic health systems.
  • Creating a framework for Canadians to have early access to drugs in development.
  • Developing a long-term care insurance plan.

Horne said the federal government should recognize the crucial input of provincial and territorial governments on these issues by positioning its involvement as a national or pan-Canadian response, rather than a federal one.
The conference concluded with rapporteur Jennifer Vornbrock presenting a summary of the key ideas discussed throughout the day.

Foreign Policy for the Future

Dear Prime Minister,

Congratulations on your election (or re-election). You deserve a rest, but regrettably you will not get one, because now you must govern. During the campaign, your attention was focused on the daily battle for votes, but now the future stretches before you. Your most important task—like that of all your predecessors—is to create the conditions in which Canadians and Canada can thrive, now and in the years to come.
Doing so, however, requires a measure of foresight. Wayne Gretzky’s hockey adage—that you need to skate to where the puck is going to be, not where it has been—has become something of a cliché, but it is an apt description of the policy challenge you face.
Today, this challenge is particularly important, and difficult, in relation to foreign policy, because the world is changing so quickly. New powers are rising. Competition for markets, energy and resources is intensifying. Digital technologies are revolutionizing how we work, communicate and collaborate, but also raising new concerns about intrusive surveillance, cyber-attacks and violent radicalization across borders. Millions of people around the world are entering the global middle class for the first time, but other societies remain mired in cycles of poverty, poor governance and conflict. Meanwhile, evidence of climate change and its damaging effects continues to mount. Confronted with these and other challenges, the system of global institutions and rules is under growing strain.
These changes matter for Canada and for our future. They matter, in part, because Canadians have long believed that their country should play a constructive role in addressing global problems; we are not isolationists. They also matter because these changes have potentially serious implications for the prosperity, security and well-being of Canadians. If you, Prime Minister, fail to maintain Canada’s competitiveness, or to address transnational threats to our security, or to deal with pressing environmental problems, we will all end up worse off.
For Canada to succeed—not in the world we have known, but in the world that is emerging—you will need to pursue a forward-looking foreign policy. The starting point for such a policy is a simple, but powerful, principle: that Canada’s interests are served by working constructively with others. This principle was at the core of Canada’s largely non-partisan foreign policy for the better part of six decades following World War Two. Its most successful practitioner in recent decades was a (Progressive) Conservative prime minister, Brian Mulroney, who invested in diplomacy and the military while championing Canada’s role in the United Nations, among other things.
This emphasis on constructive diplomacy never prevented Ottawa from taking strong stands on important issues, from nuclear arms control to South African apartheid. Nor did it preclude participation in close military alliances, including the North Atlantic Treaty Organization.
Effective multilateralism strengthened Canada’s relationship with its most important partner, the United States—a relationship that Ottawa, completing the circle, parlayed into influence with other countries and multilateral institutions.
In recent years, however, our relations have weakened. Tactless attempts to pressure the White House into approving the Keystone XL pipeline, for example, have placed new strains on the Canada-U.S. relationship. Without high-level political support from Barack Obama’s administration, progress on reducing impediments to the flow of people and goods across the Canada-U.S. border—a vital Canadian interest—has flagged.
Canada’s standing in many multilateral bodies, including the United Nations, has also diminished. We became the only country in the world to withdraw from the United Nations Convention to Combat Desertification, undoubtedly irritating Berlin on the eve of Germany’s hosting a major meeting on the issue. Ottawa also cut off funding to the Commonwealth Secretariat and boycotted its last meeting in protest against the host, Sri Lanka, even though other countries, such as Britain, were equally critical of Sri Lanka, but decided to attend. While we used to be a leader in multilateral arms control, now we are laggards—the only member of the North Atlantic Treaty Organization that still has not signed the Arms Trade Treaty on conventional weapons.
Rather than maintaining the virtuous circle of effective bilateral and multilateral diplomacy, Canada has been marginalizing itself. It is one thing to excoriate our adversaries, as we have recently taken to doing, but carelessly alienating our friends and disconnecting ourselves from international discussions is simply self-defeating. Canada is not powerful enough to dictate to others, even if we wished to do so. We have succeeded in international affairs by building bridges, not burning them.
This point seems to be lost on some foreign policy commentators, including Derek Burney and Fen Hampson, who disparage this approach as “Canada’s Boy Scout vocation,” or a kind of woolly-minded idealism. Their scorn is misplaced. Building international partnerships, including through energetic and constructive multilateral diplomacy, is a necessary condition for advancing Canada’s interests. Nothing could be more hard-headed.
Your challenge, Prime Minister, is to devise a foreign policy that reaffirms this approach while responding to the sweeping changes taking place in the world: a foreign policy for the future. Allow me to offer the following suggestions—on our relations with Asia and the United States, our policy on energy and the environment, and our approach to fragile states.
A forward-looking policy would, first, recognize that the centre of economic power in the world is shifting with unprecedented speed away from the advanced industrialized countries and toward emerging markets, particularly in the Asia-Pacific region. In 1980, for example, Chinese economic output was just a tenth of the U.S. figure, but by 2020 it is expected to be 20 percent larger than that of the United States. Despite a recent slowdown, growth rates in emerging economies are expected to continue outperforming those of the advanced economies by a wide margin.
Deepening Canada’s economic links with these emerging powerhouses would allow us to benefit more from their elevated rates of economic growth, but we have been very slow to do so. Fully 85 percent of our exports still go to slow-growth advanced countries, according to figures cited by the Bank of Canada. The recently finalized trade deal with Korea was a step in the right direction, but we still lag far behind our competitors (see figure). Canada’s market share of China’s imports, for instance, did not increase between 2004 and 2013, and our share of India’s imports actually fell during this period.
Chart - Foreign Policy - Roland Paris
This is not only bad for Canada’s long-term growth prospects; it also imposes costs today. A small but telling example: Australia’s recently concluded free trade agreement with China eliminated tariffs on Australian barley imports into China, among other things. Selling food to the Middle Kingdom is big business—and an enormous opportunity for Canadian exporters. Now, however, Australian barley exports to China will enjoy a $10 per tonne advantage over Canadian barley. We lose.
The good news is that Canada is participating in negotiations for a Trans-Pacific Partnership, an economic cooperation zone that will, if completed, encompass twelve countries including Canada. In addition to pressing for a successful conclusion of these negotiations, you should initiate free trade negotiations with China, which is not part of the TPP, and with the Association of Southeast Asian Nations, while expeditiously concluding Canada’s ongoing bilateral negotiations with India and Japan.
Even these steps are only a beginning. Trade deals can secure market access, but business relationships in Asia are often founded on personal contacts and familiarity. Canada still has a lot of work to do on this front, too. Other western countries recognized Asia’s potential years ago and launched concerted strategies to strengthen their professional, cultural and educational links with the region. In 2009, for instance, President Barack Obama announced that the U.S. would send 100,000 American students to study in China by the end of 2014. (The target was met and surpassed last year.) Australia’s New Colombo Plan, funded to the tune of $100 million over five years, also aims to increase Australian knowledge of and connections to Asia through study, work and internship programs.
Diplomacy is also critical; our partnerships in the region must be about more than commerce. Relationships need to be cultivated steadily and assiduously, including with those countries in Asia, and elsewhere, which are playing or are likely to play pivotal roles in regional and global politics. The recent push to increase Canada’s diplomatic presence in Asia, which had waned under both Liberal and Conservative governments, is welcome but does not go far enough. We have a lot of ground to catch up. As Singapore’s senior statesman, Kishore Mahubani, who was once a foreign student at Dalhousie University in Halifax and is now dean of the Lee Kuan Yew School of Public Policy in Singapore, noted in 2012: “Canada has neglected Asia. Canada has paid very little attention.”
Reversing this state of affairs will require a concerted and sustained effort. You will need to develop a comprehensive Asia-Pacific strategy to expand Canada’s market access and significantly increase our business, diplomatic and people-to-people contacts with the region. This should be a national campaign involving the provinces, major cities, exporting sectors, educational institutions, tourism and export development agencies, and other stakeholders—and it should be led by you, Prime Minister.
In developing this strategy, pay special attention to international education—Canadian students going abroad and international students coming to Canada—which builds long-term links between societies, expands the pool of Canadians who are prepared to operate in international environments and attracts talented young people to Canada. Governor-General David Johnston, who knows something about higher education from his years as a university leader, calls this the “diplomacy of knowledge.” His recent speeches on the subject are worth reading. They make a strong case for dramatically increasing the flow of exchange of students between Canada and other countries.
Canada’s current international education strategy, issued in 2014, sensibly aims to double the number of foreign students in Canada over the next decade. Beyond larger numbers, however, we should seek to attract the best and brightest to Canada by creating a major new international scholarship program that targets key countries, including in Asia. In its 2012 report, the federally appointed advisory panel on international education recommended that Ottawa fund 8,000 foreign-student scholarships over ten years. You should follow this advice. Among other things, it would be an investment in building Canada’s brand as a prime destination for international students.
The other side of this equation—sending Canadian students abroad—also deserves your attention. Only 3 percent of Canadian students participate in educational programs in other countries, a “miniscule” proportion, according to the Canadian Bureau for International Education, which also notes that more than 30 percent of German students go abroad. Among the Canadian students who participate in international programs, moreover, most go to the United States, Britain, Australia or France, and study in their first language. We are not preparing the next generation of Canadians to navigate a more complex world in which economic and political power is diffusing. The fact that only about 3,000 Canadian students were studying in China in 2012, for instance, ought to be a source of concern. Create a new scholarship program that will send 100,000 Canadian students on international learning experiences over the next ten years, including to the emerging countries of Asia.
Education, however, is just one element of an Asia-Pacific strategy. Business development is key. Take groups of young Canadian entrepreneurs on trade missions to China and to other emerging economies, and negotiate visa regimes to enable young international workers to be mobile and gain international experience over a two-year period. Sponsor “reverse trade missions” by inviting representatives from key emerging-country sectors to Canada, where they could attend trade fairs with Canadian businesses, as the Ontario Jobs and Prosperity Council recently suggested. Promote Canada as a hub for Asian multinational enterprises in the Americas. And establish an advisory council of eminent Asian political and business leaders to meet annually with you and senior government officials.
While the Asia-Pacific strategy is important, so is restoring positive and constructive relations with the United States, which will remain our principal economic partner for the foreseeable future. In 2013, more than 75 percent of Canada’s total merchandise exports went to the United States. Of these, more than half crossed the border by road or rail. Even in a digital age, therefore, ensuring that these land crossings remain open and efficient for travellers and goods remains a vital Canadian interest. But progress on improving the efficiency of the border has slowed. We need an engaged partner in the White House to drive this agenda forward and to overcome the entropy of the U.S. political system. However, convincing the American president to embrace this role will require—once again—skilful diplomacy.
Your first priority should be to improve the tenor of bilateral relations, but you also need to begin planning for the inauguration of a new president in January 2017—by developing a proposal for renewed continental cooperation. Here, too, there are many options to consider: Propose a new mobility agreement allowing more Canadians and Americans to work temporarily in the other country. Seek a Canadian exemption from U.S. “Buy America” laws and protectionist country-of-origin labelling requirements. Create a genuinely integrated cargo inspection system, so that goods entering Canada, the U.S. or Mexico need to be inspected only once, not every time they cross our shared borders. You could even explore options for eliminating differences in the tariffs that the U.S. and Canada charge on imports from third countries—also known as a customs union. As University of Ottawa economist Patrick Georges has shown, this would generate significant economic benefits for Canada.
Energy and the environment loom large in our bilateral relations, especially given Canada’s long-unanswered request for U.S. approval of the Keystone XL pipeline. Being an international laggard on climate change—arguably the biggest problem facing the world—has not helped our case. Canada’s environmental irresponsibility must end. Your foreign policy should include meaningful reductions in Canada’s carbon emissions and a more constructive approach to global negotiations of a post-Kyoto arrangement on climate change. To the greatest extent possible, you should do this in conjunction with the U.S., in order to avoid placing Canadian companies at a competitive disadvantage. Our two countries should resolve to make North America the most responsible producer of natural resources in the world. A continental cap-and-trade system, or coordinated carbon taxes, could be part of this arrangement.
Beyond climate change, you should revitalize Canada’s multilateral diplomacy on a range of global issues, including at the United Nations. We have all but abandoned our involvement in UN peace operations—even though the number of troops deployed in these missions is at an all-time high. These “next generation” missions tend to be more dangerous and complex than the traditional peacekeeping of the Cold War era, yet in many cases they are containing violence or helping to prevent renewed fighting after ceasefires have been struck. You should offer to provide the UN with the specialized capabilities—such as engineering companies, mobile medical facilities, in-theatre airlift, surveillance and reconnaissance capabilities, and civilian experts—which many of these missions need.
Some might see a return to UN peace operations as retrograde, but they would be wrong. Stabilizing fragile and conflict-affected states is an international security and development challenge of the first order. Most of the world’s refugee and humanitarian emergencies occur in fragile states. These countries are also home to half of all people who live below the $1.25-a-day poverty line. Moreover, chronic unrest and weak governance can create opportunities for transnational militants to establish a presence, to destabilize neighbouring states and to recruit internationally.
Canada should be at the forefront of a comprehensive international response to this problem. In some cases, this will involve assisting local and regional forces who are fighting groups that threaten civilian populations and international security, such as Islamic State. There is an important distinction, however, between helping these forces secure their own country and doing the ground fighting for them. In Iraq and Syria, the U.S.-led coalition has, to date, performed mainly a supporting role—training anti-Islamic State forces and conducting air strikes against Islamic State targets—but there will likely be growing pressure on Western governments to move their ground troops into front-line combat roles in the coming months and years. Beware mission creep. “Limited” military operations have an inborn propensity to become decidedly less limited over time.
Military action alone, however, is unlikely to create the conditions for stability in most fragile states. It deals only with the symptoms of instability, not its causes. NATO’s supreme commander, U.S. Air Force General Philip Breedlove, made this point last December in relation to Iraq and Syria. Long-term stabilization and de-radicalization strategies, he said, must focus on bringing jobs, education, health and safety to vulnerable people, as well as figuring out how to make governments responsive to their people. He is right. You should call for a more comprehensive international response to fragile states, one that addresses the causes of instability and radicalization, including poor governance and lack of economic opportunity, ideally before they threaten international security. Today, most fragile states are still far less violent than Syria and Iraq, but if we ignore them, or if we respond only to the symptoms of their unrest, all bets are off.
These proposals—on relations with Asia and the U.S., energy and the environment, and fragile states—are by no means an exhaustive list. As you choose your priorities, however, bear in mind that Canada needs to maintain a “full-spectrum” foreign policy that is global in scope. We are a G7 country and should behave like one. This also means investing in the instruments of our international policy: a superb diplomatic service, an effective and well-equipped military, and a robust development program.
In some areas of policy, it is our methods, rather than our goals, that require adjustment. Canada should, for example, continue to stand strongly with our allies against Russia’s aggressive behaviour in Eastern Europe, but we should maintain open channels of communication with Moscow, including on Arctic issues. We should uphold Israel’s right to exist and its security, but without diminishing the rights of Palestinians. We should continue Canada’s international campaign for maternal, newborn and child health, but without excluding reproductive rights, which are vital to women’s health. The World Health Organization estimates that unsafe abortions cause about 8 percent of maternal deaths globally, but Canada has nevertheless refused to fund safe abortions abroad.
The maternal and child health campaign is noteworthy for another reason: it underscores the importance of constructive diplomacy. Apart from the controversy over Canada’s position on reproductive rights, the overall campaign has “helped to significantly reduce maternal deaths” since it was launched in 2010, according to Maureen McTeer, a noted feminist and the Canadian representative of the international White Ribbon Alliance for Safe Motherhood. It has worked, in part, because Canada joined forces with a broad array of partners—like-minded countries, philanthropic foundations, civil society organizations and global institutions—in pursuit of a common set of goals.
This is a promising model, particularly given the changes now taking place in world affairs. The diffusion of power to rising states and non-state actors is making collective action even more difficult to achieve, as we see in the periodic paralysis of major multilateral organizations, from the World Trade Organization to the UN. Getting things done in a more crowded world—and finding solutions to complex international problems—will increasingly require mobilizing issue-specific “action coalitions” of state and non-state actors.
As it happens, Canada is well positioned to perform this role. We have done so in the past, assembling coalitions in the 1990s that produced a ban on anti-personnel landmines and established the International Criminal Court. In fact, Canada’s tradition of diplomatic entrepreneurialism dates back much further—and for good reason: working constructively with a broad range of partners to tackle international problems has often served both our interests and our values. When Canadian diplomats contributed to the construction of the post–World War Two international order, they did so not only to foster international peace, although this was certainly one of their goals. They also saw an opportunity to increase Canada’s influence—by making Canada a respected and valued partner. As Prime Minister Louis St. Laurent once said, we could be “useful to ourselves through being useful to others.”
When St. Laurent spoke those works in 1947, he was setting forth a Canadian foreign policy strategy for a then-new post-war world. Today, we are living through yet another period of global transformation. Your challenge, Prime Minister, is to chart a new course for Canada—one that will safeguard and enhance our prosperity, security and well-being for the years to come.
Some things, however, do not change. Whatever objectives you may set forth, St. Laurent’s maxim will remain true: In international affairs, Canada’s strength comes not from telling others what to do, but from working with others toward shared goals.

About the Author

Roland Paris is director of the Centre for International Policy Studies at the University of Ottawa. An academic and former federal public servant under both Liberal and Conservative governments, he has provided policy advice to international organizations, national governments and political leaders—including, most recently, Liberal leader Justin Trudeau.

Energy Policy Update – May 2015


Long a continental supplier to the world’s erstwhile largest energy consumer (China passed the US in 2012), the Canadian oil and gas sector has been secured by the principle of “Alberta makes and the US takes.” However, this energy future has all been called into question by the plunge in global oil prices and the resulting “new normal” operating environment. Can it remain that by the end of this decade, Canadian oil and liquefied natural gas (LNG) will begin to flow away from the increasingly saturated US market to offshore markets, primarily in the high growth Asia-Pacific region?
The how and where of this assertion remain the most important questions. Options for export exist on all four coasts- Pacific (BC, Oregon), Atlantic (Quebec City and St John’s), US Gulf Coast (re-exports of Canadian imports), or even to the north via Alaska or Churchill/Hudson’s Bay. Each option has cost and risk and has been, and will continue to be, debated and evaluated.
When Canada will begin to shift oil and gas exports away from the US and towards growing emerging markets remains to be seen, especially in today’s new operating environment. In November 2014 at OPEC’s ministerial meeting, the oil cartel under Saudi Arabia’s leadership signaled a dramatic shift from its traditional role as global oil swing producer and instead decided to focus on retaining market share. The move sent prices plummeting by over 50%, from a 2014 peak of $115 per barrel for Brent in June to a low of nearly $50 in January 2015. Currently, prices remain depressed, ranging in the mid to upper $60’s, yet there is downside near-term risk for oil markets from significant factors such as continuing oversupply from producers other than the US and major geopolitical supply-shock events such as the Iran nuclear deal. As such, prices are likely to remain very volatile for the next couple of years.
Regardless, and especially in the longer-term, Canada’s oil sands reserves are too valuable to leave in the ground and failure to find some route to market would be a failure of both public policy imagination and market forces of epic proportion. What underpins this view is a world in which strategic, world scale oil development opportunities are in short supply, regardless of prices, while petroleum demand continues to grow, albeit not at the torrid rates of 2002-2008.
Natural gas/LNG exports remain a more tenuous scenario, but more in terms of timing. Even if the world energy industry determines BC’s LNG plays to be marginal at the present time, the double-digit pace of annual demand growth for natural gas in Asia means LNG in BC will move forward eventually. However, due to mounting commercial constraints, intense environmental opposition, increased global competition and weakened market conditions, significant export volumes from Canada’s west coast projects are now most likely aiming for a post-2020 timeframe.
Of course, for these scenarios to emerge, industry and government cannot just stand still and wait for things to happen. The familiar but intractable – so far- challenges of infrastructure/market access and social license to operate on First Nations and GHG emissions will need to be overcome. Canadian voters will have a chance to judge the effectiveness of the current government’s efforts on these fronts come October 2015, while the opposition parties must demonstrate to a skeptical electorate and industry that they have better ideas and solutions.
As a non-partisan institute, Canada 2020 and the author offer these ideas to all interested parties with the express hope that we can play some small role in helping Canada realize its global potential as a competitive and responsible energy power, with all the benefits that would entail not just for Western Canada but for the country as a whole.
Meanwhile, capital markets and international oil companies around the world will be watching too. There is no where they would rather do business than in Canada- including many of their home countries- if we can finally overcome the obstacles of the last decade. However, in a lower oil price environment, industry will be even more sensitive to cost and risk-averse in terms of policy uncertainty around market access and public acceptance.
We also challenge government and industry to think ahead to the risks and opportunities that await once our hydrocarbons exports reach global markets. Will there be the expected windfall that appears to be there today- or will global markets evolve with new suppliers emerging and changing demand patterns that will diminish the prize? The world is not standing still while we figure out our own internal challenges. The export markets we covet are also being targeted by a wide array of competitors, many with geological and geopolitical advantages that we lack. While we bring many assets to the table as well, we must seek to understand and plan for the global energy landscape that is emerging. Part of this understanding must account for growing concern about climate change not just among environment activists, but among governments, corporate executives, and institutional investors.

1. The Oil Sands

They are big. They are costly. They are unpopular (most places outside of Alberta, Bay Street, and Houston). But unless and until there is a massive transformation in oil-dependent global transportation systems, they are irreplaceable. The world needs about 92 million barrels a day of oil to match demand. Even the most bearish forecasts predict 1% annual demand growth, or roughly just over another million barrels a day, per year, for the foreseeable future. If (and a big “if” because demand could just as easily exceed, rather than miss, these forecasts) demand slows, we still likely need about 110mmbpd of global liquids (oil, biofuels, etc.) by 2035. Moreover, the world’s existing oil fields have a natural production rate decline between 3 and 10% a year, depending on whose numbers you use, the countries included and the type of production you are talking about. So the replacement rate to add the incremental 18mmbpd is likely double that, once declines are accounted for.
This is generally understood but the implications perhaps are not fully appreciated. If these numbers- which again are considered conservative by many of the world’s leading government and private sector forecasters- are right, then the denial of Keystone XL or Northern Gateway, the introduction of a $30/ton carbon tax, cost challenges in labor and materials markets, and hesitation about allowing open access to investment by state-owned enterprises won’t matter. The oil sands will be developed.
There are not enough other sources of accessible oil- low cost, medium cost, or high cost- to keep up with growth.]. High cost oil from Alberta (and a number of other places) will effectively set a price floor once again as demand and decline rates eventually overcome the current market imbalances. Even if our efforts to build coastal pipelines fail, the resulting discount in the Alberta heavy oil price would likely be steep enough to incent US and Canadian refiners to build new refineries that are equipped to process our output. A new market would be created and barrels from Mexico and OPEC countries would go elsewhere.
The main underlying argument against Keystone XL from leading environmental groups acknowledges much of this but states that the denial of the project would represent both a stop to “unbridled” development of oil and gas resources without concern for future climate change impact, and a start to a new era where public policy prioritizes the development of non-hydrocarbon resources. So far no government has accepted either proposition without at least massive hedges, caveats, and conditions. There is too much risk politically in switching from the fossil fuel world of the near term to the post-hydrocarbon world of well, sometime, but the sometime always seems beyond the next election.
The most likely event to “kill” the oil sands and trigger a new era of non-hydrocarbon development would be peace breaking out in the Middle East- a losing bet since 1967. In the short-term, a lifting of Iranian sanctions in the aftermath of a deal between Teheran and Washington could worsen the current surplus in markets and lower prices this year. But the upside in new Iranian production would be limited and take a long time to materialize. Conversely, a catastrophic geopolitical event in the Persian Gulf, regardless of the likelihood of a nuclear deal with Iran, could have the same effect, in that it would spike prices in the short term but force major Western and Asian consumers to take action to begin to shift the transport sector from petroleum to other fuels, through onerous taxation and massive subsidy of alternative transport. A disruptive technology to displace the internal combustion engine could do the same and do to the auto/oil complex what the internet has done to Canada Post, record companies, and the print media.
Finally, despite the upset victory by the New Democratic Party (NDP) in Alberta elections in May and raised industry concerns about the prospects of a negative policy environment for the oil sands, weak market conditions and heavy economic dependence on the energy sector will limit both the risk of a royalty hike as well as the size of a potential increase.
The biggest risk for industry in Alberta from the NDP government will probably be a new carbon policy, where the government will likely pursue a more aggressive pricing mechanism while aligning provincial carbon policy with other Canadian provinces. BC already has a carbon tax, Quebec has a cap-and-trade system, and now Ottawa has announced a federal pledge (to the United Nations as part of the Paris climate change talks in December) to cut Canada’s greenhouse gas (GHG) emissions by 30% by 2030. The new NDP government in Alberta will likely argue that a more proactive and aggressive approach on carbon will bolster public and international acceptance of the oil sands, facilitate pipeline projects like Keystone XL, and finally help avoid contentious fights over issues like the European Fuel Quality Directive and California Low Carbon Fuel Standard. This strategy is also being advocated in a similar form by national Liberal Party leader Justin Trudeau and will play out in October’s federal election.
In conclusion, all of the above scenarios and risks to continued oil sands development are significant and bear monitoring closely. Industry’s ability to adapt to a lower price environment and effectively manage stakeholder relations has never been more critical. A complete shutdown of longer-term oil sands development fits into the category of “possible” but not “probable.” Public policy and corporate strategy should emphasize the probable while not losing sight of the possible, from the perspective of risk management.

2. LNG

On the LNG side, Western Canada is watching its “baseload” export market disappear as the US capitalizes on its booming natural gas domestic production. US projects are also taking the lead in the export race due to low costs and a streamlined regulatory approval process, which will likely yield its first LNG exports towards the end of this year from Cheniere’s Sabine Pass project. Nonetheless, Canadian industry optimism remains tethered to the spate of LNG projects along the BC coast, none of which is actually under construction or have received final approval from their developers. Asia’s robust gas demand growth (much more material than comparable numbers for oil) is a magnet for “stranded” gas resources in northeastern BC that are no longer needed in the US or Eastern Canadian markets. Yet that same “magnet” is a powerful signal to every other potential gas play in the world- all roads in the global gas market lead to Asia. BC is competing with the US, Russia, East Africa, Central Asia, and Australia to supply Asia with gas. Giant Persian Gulf producers like Qatar may opt to increase supply in response to demand, while dormant mega-reserve holders like Iran and Iraq also loom as medium to long term alternatives.
Canada can compete in global LNG markets but we are unlikely to be the supplier of choice due to high costs from commercial challenges and labor shortages. Of the 19 currently proposed LNG export projects in BC, a front-runner has been Petronas’ Pacific Northwest (PNW) LNG project, especially in light of the recent offer of over C$1 billion in incentives to a First Nations group for its consent. Despite the high level of commitment signaled by the offer, the First Nations group has rejected the agreement which will likely delay the project’s progress as well as set back an FID decision. While the setback will deal a broader blow to BC’s LNG ambitions, other projects are unlikely to face the same intense degree of environmental opposition. In fact, the BC government has made notable progress in striking revenue-sharing agreements with 28 First Nations groups (out of 35 with which the government is negotiating) over LNG projects, including bands around upstream operations in northern BC and along pipeline routes to planned liquefaction terminals. Overall, the setback for PNW LNG adds another layer of risk for Canadian projects, especially those that are already struggling to get off the ground amid increasing costs and weakening market conditions.
Despite this, two or more BC LNG projects will likely be built-eventually.. In the near-term, a silver lining for the province’s LNG industry could be the more promising outlook for smaller-scale, floating projects which will likely drive Canada’s LNG export potential for the next few years as larger projects continue to struggle with investment commitments and commercial costs.
As such, developers around the world will look to lower cost projects first (the US primarily but places like Papua New Guinea and Qatar as well) but will move on Canada once the expected demand emerges in Asia. Canada’s rule of law and proximity to northeast Asia will be attractive for investors.
The core challenge is whether the industry timetable matches the needs of the BC and Alberta governments. The BC government has promised a lot to the public on the fiscal windfall from LNG, promises that were premature and under-estimated the price sensitivity of these projects and the availability of alternative investment destinations.

3. Strategy

Given the challenges above, what strategy makes sense for the oil sands and Canadian LNG going forward? Is there a role for public policy? The role of the federal government, in our view, is likely to become more important in the very near term- despite industry, provincial and government aversion to “national energy policy.”

Government should take more risk in stakeholder engagement to build a cohesive national energy strategy

This is a call for more action and less talk on two fronts. First, no one is quite sure what to do with First Nations opposition to West Coast pipeline and LNG export projects. Many voters and investors are unsure exactly what the problem is.
The solution here is two-fold. First, clearly define what is required under the principle of “duty to consult” with First Nations groups along the pipeline corridors. The government should state what that process looks like- where it begins and where it ends. The government should also clearly state what sovereign rights it is prepared to assert once the newly-clarified duty to consult process is complete. This should not be left to the provinces, or worse, to industry, to have to explain. The Western provinces and industry are not neutral actors in this process despite best intentions and Ottawa must define and defend its standards. Ultimately such standards would be reviewed by Canadian courts but a clarification of intent by the legitimately-elected government in Ottawa would be helpful. Such a clarification, in the eyes of many oil patch industry leaders, should simply confirm that the granting of a public interest determination by the National Energy Board with follow-on approval by the federal cabinet does in fact constitute a “social license to operate.” While such a confirmation may seem unnecessary, it would put an end to the growing view that there is an additional, open-ended, multi-stakeholder process of negotiation that must follow any NEB determination before work can begin.
Once Ottawa has unambiguously and clearly stated its approach and timelines on First Nations consultation, the Prime Minister should then decide whether or not these projects are in the public interest, once conditions around economic benefit and environmental safety are in place. In the context of the Northern Gateway project decision confirmed by the federal cabinet in 2014, it is quite evident that the NEB process was simply the beginning of the process but not the end, as once intended in the 1959 National Energy Board Act. Given this reality, the Prime Minister should then facilitate and lead a dialogue between industry, provinces, and First Nations to reach a commercial agreement with a fixed clock time period for negotiation.
The government can determine that the First Nations have an effective veto either through a de jure “high bar” definition of duty to consult, or through a stated unwillingness to enforce pipeline approvals through the sovereign authority of the government. While such a policy would be unpopular in the oil and gas industry, it would at least clarify what the actual protocol is for energy infrastructure development and force project developers to account for First Nations “buy-in” much more aggressively and earlier in the planning cycle.
The government can also determine that there should be no de facto veto by First Nations groups (or provincial/municipal governments) once the duty to consult has been completed and a public interest determination has been made. It would then also need to declare that it will back the public interest determination with the force of the law. Obviously, this would be the preferred position of industry, to know that the duty to consult standard is high and must be met, but once it has been the government will enforce its permitting decisions as it routinely does in the building of public works projects.
Fairly or not, the current perception in industry is that no one knows which of the above two positions are held by the government or either of the opposition parties. Certainly, it is risky for any of the three parties to take a strong stand in either direction. But it is worse to have ambiguity- it doesn’t serve the interest of the First Nations or of industry and has created little more than a regulatory logjam.
Many elements of the above also apply beyond the First Nations, whether in Burnaby where the local government opposes the TransMountain pipeline expansion, or in Ontario and Quebec in regards to development of TransCanada’s Energy East pipeline project. Ultimately, the national public interest must be reconciled with local opposition.
The same risk-taking approach should also apply to climate change policy. The current government has recently pledged to cut the nation’s GHG emissions by 30% by 2030, slightly higher than the US’ pledge of a 26-28% reduction by 2025. The pledges are being made by individual countries to the United Nations ahead of the climate talks in Paris this December. The federal government has also promised to propose new regulations on methane emissions from the oil and natural gas sectors, producers of chemicals, and gas-fired power plants. However, the Conservative government as still opted not to move ahead with GHG regulations for the upstream oil and gas sector. The resistance appears to be driven by two factors. The first is an apparent distaste in some quarters of the government, particularly in the caucus, for GHG policy stemming back to the devastating attacks on Stephane Dion’s “Green Shift” program in the 2008 election. In fairness, that has not prevented government from taking action on emissions from power generation or heavy-duty trucks, but nothing yet on upstream oil and gas.
The second and likely more material cause for the delay is a desire to align the Canadian regulations with the US system. This seems smart at first glance given the vast amount of cross-border trade of commodities and manufactured goods and concerns about putting Canadian projects at a cost disadvantage. Yet the US carbon policy debate will continue to ultimately be about coal, while ours will ultimately be about the oil sands. The Obama administration’s regulatory approach to reducing GHG emissions in the coal-fired electric power generation sector is not an obvious model for the oil sands. The oil sands industry would prefer a more simple system that allows for flexibility in meeting GHG emissions reduction requirements, through a carbon tax.
We will never know if proactive action on say, a $25/ton carbon tax tied to a 25% reduction in GHG emissions would have pushed the Obama administration to approve Keystone XL, by giving further comfort that the Canadian government has a plan for the climate change effects of the oil sands. Claims that such action would have “guaranteed” the project’s approval are over-stated and under-estimate the impact of the Nebraska and South Dakota-level issues and the strategic political importance of inflows of donations from environmentally-motivated Democrats. The point is we will never know but we might have found out if we had taken the risk of leading on a policy, that may not have been politically popular across the board and might have received some pushback from industry. Such leadership would also help inoculate a host of actors, from European super-majors to California refiners, from political resistance from home governments that feel Canada has not done enough on climate change.
It is noteworthy that four Canadian provinces (BC, Alberta, Quebec, and most recently Ontario) have a carbon tax or cap and trade program. Yet inaction on the upstream oil and gas sector at the federal level undermines the larger climate change mitigation, given the rapid growth of GHG emissions expected as oil sands production doubles or even triples, as some forecasts predict, over the next 20 years. In this context, even a lower rate of GHG intensity will not prevent the overall growth of GHG emissions due to production growth. That is not to say that greater steam-oil ratios (meaning less natural gas burned to create steam for well injection) and other programs such as carbon capture and sequestration cannot be game changers over the medium term. But from today’s perspective and today’s technology, Canada’s GHG emissions will grow with the oil sands as the largest driver.
Instead of meaningful policy action at the federal level to address the concerns, too often our industry and government leaders have tried to match scientific arguments from oil sands opponents with their own scientific studies and analyses. It used to be said that you can choose your arguments but not your facts. That is not necessarily true when oil sands opponents just need to create confusion and uncertainty about the environmental impact of the projects. Even studies from Obama’s own State Department showing Keystone XL would be climate neutral were muddied by other (less robust) studies arguing that developing the oil sands would cook the planet. Oil sands industry leaders have argued (not without merit) that the emissions of the oil sands are dwarfed by a handful of the largest coal power plants in the US. Our government officials and diplomats have pointed to improvements in energy efficiency and carbon intensity in the oil sands. It wasn’t enough. It didn’t work.
Canada needed, and needs, to do something bigger and meaningful, particularly now that the Obama administration has finally released its draft rule for GHG standards on coal-fired power plants. Outsiders don’t understand the primacy of the provinces on energy policy and want to see what Ottawa thinks, and is prepared to do. The carbon tax seems like the best available idea and has been supported across industry, although not by everyone in the oil patch to be sure. The risk is that Canada will move ahead of the US and upstream oil and gas plays in Texas and North Dakota will gain a cost advantage, although that advantage could be offset by a US carbon tax. Or the US could move on policies that do not synch up with the carbon tax approach north of the border, forcing industry to manage two systems instead of one. The reward is that unilateral action would put the ball back in the US court. Talk to industry and decide what price, baseline year, and reduction target we can live with- then go out and defend it against all critics.

Reduce market risk by supporting innovation and a move away from our current status as the “marginal” barrel

With today’s low oil prices, Canada’s position as a high cost producer could, under certain scenarios, become a precarious one again in the future. When oil demand slows and prices fall, the high cost or marginal producers are usually affected first. Projects are put on hold, rigs are idled, and the inflows of taxes and royalties to the Crown dries up.
In 2015 alone nearly one dozen Canadian oil sands projects have been delayed, postponed, or cancelled. This trend though could only be the beginning, especially in light of some analyst forecasts of about 60 new global projects awaiting approval as simply uneconomic at oil prices below $60 per barrel.
How is this likely to play out in the next five years? No one has a crystal ball with respect to oil prices, but there are few “possible” scenarios that are worth considering as they would likely threaten Canada as a high cost oil supplier:

  • US/Iran deal on sanctions- a breakthrough on Iran’s nuclear program could lead to a gradual lifting of sanctions. A deal being made by July at the latest is the most likely scenario, which would include relief on oil sanctions. This relief could occur through a “big bang” approach which would free up full volumes of unused Iranian capacity at one point in time. As such, following a deal there would be a period of approximately six months that is likely to yield an incremental initial tranche 600,000 bpd, with around 1 million bpd within one year. While there is clearly capacity loss and the number of Iranian barrels is highly uncertain at this point, it is reasonable to expect that any volume increase would be meaningful while putting downward pressure on already depressed oil prices;


  • US liberalization of crude export restrictions- despite the US having a surplus of light sweet barrels that is challenging available domestic refinery capacity, in the context of an oversupplied market with low oil prices, US production growth has begun to slow making the argument to lift the ban less relevant. According to the Energy Information Administration, US production is forecasted to drop in Q3 2015 by 250,000bpd from Q2 before essentially flattening out though mid-2016. Also, Republican lawmakers will become more reluctant to make a strong argument for ending the ban prior to the 2016 presidential elections when it could be used to cast blame on potential rising gasoline prices. For the time-being, any action on crude exports will continue to be focused on the administration’s preference to allow condensate exports under the existing statute. However, post-2016if the political decision to allow this US crude to be exported is made, it will push down the price of Brent oil;


  • Reversal of resource nationalism- after watching US, Canadian, and European companies redirect capital to the North American shale gas, tight oil, and oil sands plays, governments like Mexico, Brazil, and even Russia are offering less rent-seeking and more competitive terms to maintain investment. This trend is driven by low oil prices and the continuation of “onshoring”–the trend by which capital inflows target US and Canadian onshore unconventional plays over other markets—and will likely encourage a more coherent opening of global upstream production. The trend is likely to continue, despite the price of Brent slowly showing signs of revival, although the process will be unevenly spread across many oil-producing states. The immediate sectoral impacts of reverse-resource nationalism will likely spillover into the broader economy in the next couple of years.

The purpose of the paper is not to evaluate the likelihood of any of these, or similar scenarios. Rather, the goal is to point out that if Canada cannot lower its cost, we will always be the first one to lose our chair in the game when the music stops. The above scenarios are the triggers for such downside risks.
The good news is the free market works and the lowest cost producers in the oil sands are still being rewarded by investors with more capital which in turn spurs more innovation. Other companies seek to replicate or exceed the success of the leaders and the cycle continues.
The data shows that significant parts of the oil sands are becoming more cost competitive. SAGD production for the most efficient in-situ wells at Cenovus Energy is less than $50/barrel- a target for others in industry to pursue. Industry is also being much more cautious about capital allocation. Sequencing of projects by each major operator means less competition against themselves for labor and materials. This is a change from the growth at all costs period of 2003-2007 when the major players couldn’t break ground on projects quickly enough, only to face soaring cost inflation. Some industry executives even view a few years of low prices as a necessary “cooling off” period to reset the industry’s high cost structure.
There are lessons here for the BC LNG projects. There is almost no possibility that BC will have more than two large LNG projects under construction at the same time. This does not suggest collusion by developers but rather smart self-regulation, particularly for majors that can deploy capital across dozens if not hundreds of projects around the world.
While market discipline on cost is effective, government can encourage innovation in cost reductions through tax credits and public-private partnerships. Some notable partnerships through the Alberta universities are in place, but industry appears to have appetite for more. In many ways, the appetite is driven by the fact that today’s CEOs and oil sands leaders saw the benefits of research and development from AOSTRA under Peter Lougheed and understand what it can mean.
Some taxpayers might reasonably ask why the government should subsidize the same companies responsible for those maddening trips to the gas station where the price is already too high. Yet the answer is that it is in the taxpayer interest to give up a bit of the upside to protect against the downside. Innovation and lowering costs will protect the golden goose and make us more efficient in the current downturn as well as less vulnerable to the next downturn.

Know your customer

At times it feels like knowledge in certain parts of the oil patch about China and India is limited to the fact that they need a hell of a lot of oil and gas. If these countries are to be our new customers, we should understand our competition, the nuances of local market conditions, and how these markets are likely to evolve in the future. These countries will eventually face limits to growth similar to the US, where gasoline consumption peaked in 2005. Moreover, the energy outlook in these countries must be understood in the context of their appetite for specific grades of crude, further shaped by the existing web of geopolitical and commercial relationships.
China’s refineries are built to process light and medium barrels, not the heavy sour acidic grades from the oil sands. India’s newest private refineries can process virtually any kind of barrel but the bulk of their refinery sector is decrepit and controlled by state-owned companies. Future refinery investments in these countries will emphasize flexibility to allow the maximum range of crudes to be utilized, portending intense competition among suppliers, especially when demand is weak in a number of large “legacy” markets. Governments in both countries are also deregulating prices for petroleum products like gasoline and diesel, with China well down this road already and India formally deregulating diesel under its new government. New taxes and social policies to curb consumption of imported oil and gas should be watched closely, as should efforts to bolster domestic supplies like Indian coal or Chinese shale gas.
The emerging Asia market is prized by the Persian Gulf OPEC states who have watched their market share decline in North America while demand stagnates in traditional “sinks” like West Europe and Japan. This arguable is one of the main reasons why Saudi Arabia and OPEC made the decision last fall to resist cutting production and let global oil prices plummet in an effort to protect market share in places like China. Saudi exports to China have been declining, while Russia’s and Iraq’s have been increasing. This is likely the largest factor in triggering the current “price war” as Saudi barrels are directly competing with those medium-sour barrels from other OPEC and non-OPEC producers.
West Africa, Russia, and Latin America are eyeing the same prize and have been opening their upstream to Chinese national oil companies, embracing the state capitalist model China offers and the low cost financing it provides. China’s incumbent gas suppliers from Turkmenistan to Qatar will seek to protect market share, even if it means accepting lower prices.
Demand attracts supply. Incumbents compete to protect and preserve market share from new challengers. Oil and gas are no different than other goods in this respect. While oil is a commodity, suppliers can be creative not just on price but on using other carrots to differentiate and secure commercial contracts. For many suppliers, this is a “state to state” transaction, between governments and giant national oil companies. When CNPC sits down with Rosneft to do an East Siberia gas pipeline deal, Mr. Putin and Mr. Xi are front and center, not just to cut a ribbon but to ensure that deals get done in the interest of the state. This is not the right model for Canada but it’s important for us to understand who we are up against.
So what can Canada offer to compete, even in a low price environment? Plenty. Open up our markets. Share our expertise. Train their regulators. Look for opportunities to work together in 3rd party markets. Invest in joint R&D. Work together on sustainability and community development. Create a true partnership going beyond buyer and seller to shared strategic interest. Security of supply meets security of demand. In this context, Canada should be very cautious about restricting investment opportunities that do not already fall victim to prices in our upstream oil and gas sector from our future customers. While all energy companies, whether private or state-owned, should operate according to Canadian market and regulatory principles, Canada will need capital from all corners to ensure we reach our potential as a global energy exporter.

Services, the real “value-add”

The market access debate has focused on hydrocarbon exports. Yet there is a second and highly dynamic source of “energy” exports that is a national asset- our oil services companies. Here we are exporting not the raw commodity but the technology to develop increasingly complex oil and gas resources elsewhere, along with the know-how to make the technology work. Many companies that most Canadians (and most non-Albertan politicians in Ottawa) have never heard of are best-in-class providers of a broad array of oil services technologies that are in demand in every oil and gas province around the world. Without these technologies, overwhelmingly dominated by US and Canadian firms, there is no shale gas or tight oil revolution.
These fiercely entrepreneurial and independent companies are not looking for a helping hand from Ottawa although they too will benefit from the market access initiatives that will help their Canadian customers in the upstream move oil and gas to higher priced offshore markets. If anything, these companies have a story to tell Ottawa about success in the high growth emerging markets and how to navigate the dynamics of state capitalism and dealing with giant national oil companies. They do it all the time.
The best thing Ottawa can do to support this dynamic sector is to help ensure a continuing stream of engineering talent and skilled labor to sustain growth. In addition, a unified and coherent message about best regulatory and in “in the field” practices for safe hydraulic fracturing operations will support development of services opportunities in overseas markets. In many of these markets, public mistrust of fracking is high even when central governments are supportive. Yet it will be hard for Ottawa and the industry to convince skeptical landowners in shale-rich Eastern Europe or Colombia to drill when we can’t even convince our fellow Canadians in Quebec and New Brunswick.


A new operating environment defined by low oil prices has pushed Canada to an inflection point in its path to being a major oil and gas supplier to an energy-hungry world. Many oil and gas executives in Alberta still have a fatalistic view, hoping that “just one” LNG or oil sands pipeline moving forward would be a positive signal that we, as a country, still know how to get difficult projects done. To get there, it is the author’s view that greater leadership from Ottawa will be required. Most importantly, this leadership must define core principles on energy infrastructure development and climate change policy, and then move swiftly to implement and defend such principles. Waiting for the courts, industry, or Washington to move first is no longer good enough.
At the same time, we must look beyond our North American market to see what our competitors are doing and how demand-side dynamics in Asian markets are evolving. The world is not standing still while Canada debates its own path to getting our oil and gas to tidewater. Canadian oil sands and LNG projects are part of a global competition for capital and we must understand that failure to smooth the path for growth and development will lead to capital flowing elsewhere. While our political stability and huge resource base are major advantages, we have lost ground even further by failing to manage social and environmental issues effectively. These issues can be viewed either as a moral imperative or as a critical commercial challenge, but either way few would dispute they are the biggest factor standing between the Canadian oil and gas sector and its aspirations.

About the Author

Robert Johnston is CEO and Director of Global Energy and Natural Resources at the EURASIA Group, a position he assumed in 2013 after seven years as founder and leader of the firm’s Global Energy and Natural Resources Strategy Group. RJ is responsible for directing firm strategy and leads oversight of the firm’s research, sales, and operations teams across three offices.