Canada’s green technology sector faces a two-pronged threat of of potential tariffs in the U.S, its main export market, and questions about whether it can withstand a possible drop in subsidies and tax breaks under the new president.Colin Perkel/The Canadian Press
Pierre Larochelle began huddling with executives in his investment fund’s portfolio of companies about strategy long before U.S. President Donald Trump began his second term warning he intends to squeeze trade partners, including Canada, with tariffs.
The co-founder of Idealist Capital, a Montreal-based impact fund, said the priority for the businesses is to double down on efforts to keep production costs at a minimum, so prices for their environmental technology won’t be out of reach for buyers if Mr. Trump makes good on his threat to levy duties at the border.
In recent weeks, the companies gained some advantage from the weakened Canadian dollar, producing goods at home and selling them for stronger greenbacks. But founders and managers must now concentrate on what they can control amid the uncertainty, Mr. Larochelle said.
“It becomes kind of a trigger to put everybody’s focus on it: ‘Hey guys, how can we be more productive and cost-efficient to remain competitive?’” he said.
That’s the challenge, as Canada’s green technology sector faces a double whammy of potential tariffs in the U.S, its main export market, and questions about whether it can withstand a possible drop in subsidies and tax breaks under the new President.
Mr. Trump said on Monday that tariffs could be imposed on goods from Canada and Mexico on Feb. 1. He has said for months they could be as high as 25 per cent.
In his inauguration speech, Mr. Trump also said he would end former president Joe Biden’s signature policies that supported clean energy and other environmental technology in favour of expanding fossil fuel production. He signed an executive order pausing disbursements under the Inflation Reduction Act (IRA) pending a review of its programs.
Canada’s cleantech industry is hugely dependent on the U.S. market. In 2022, the sector shipped $7.6-billion of products to the U.S., accounting for nearly 77 per cent of its exports, according to Canada Cleantech Alliance.
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The industry was already facing a number of uncertainties, including questions about future support should the Conservative Party take power in Ottawa in this year’s coming federal election, and the recent windup of the Sustainable Development Technology Canada agency, which has upended funding for early-stage ventures.
Idealist has investments in dcbel, a bi-directional EV charging company; XNRGY Climate Systems, which develops high-efficiency commercial HVAC units; SPARK Microsystems, which makes low-power semi-conductors for wireless communications; and Sollum Technologies, which specializes in smart LED lighting for greenhouses.
If the Trump administration levies tariffs on the companies’ products, exporters should highlight those surcharges on purchase orders so the customers can differentiate those costs from the price of the products, Mr. Larochelle said. That could lead some of the buyers to put pressure on their government, he added.
The industry is faced with tough choices, many of which have drawbacks, said Peter McArthur, chair of Canada Cleantech Alliance. Some developers are considering pushing customers to bump up orders or warehousing their products in the U.S. before duties are imposed. The benefits of those are fleeting.
In past trade disputes, cleantech companies have shifted production capacity to the U.S. to avoid tariffs, but doing so carries risks, including the potential that the political landscape could shift markedly over the next four years.
“That’s not great for Canadian economic development, and cleantech is a gigantic economic development opportunity for Canada,” Mr. McArthur said.
The trade friction may prompt companies to bolster efforts to seek out new markets to reduce their reliance on the U.S., though that takes time, he added.
Mr. Biden provided massive green incentives and tax credits under the IRA, and the policy has driven adoption of environmental technology. It is unclear whether any of those incentives will survive, though Trump-supporting Republican states have been among the largest beneficiaries.
Cleantech and climate-tech companies will have to show that they can thrive without government incentives, said Karen Hamberg, partner, financial advisory, at Deloitte and veteran of Canada’s clean tech sector. That highlights the need for “relentless focus” on business value and competitive advantage, she added.
“We are entering an extremely challenging period, and it will require a shift in mindset away from subsidy support to innovation as a driver of value creation,” Ms. Hamberg said.