Innovation, Science, Environment 07/08: Canadian Policies and Performance, 2007-2008 9780773575561

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Innovation, Science, Environment

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Innovation, Science, Environment Canadian Policies and Performance, 2007–2008 Edited by

g . b ru ce d o e r n

Published for The School of Public Policy and Administration Carleton University by McGill-Queen’s University Press Montreal & Kingston • London • Ithaca

© McGill-Queen’s University Press 2007 ISBN 978-0-7735-3228-1 (cloth) ISBN 978-0-7735-3229-8 (paper) Legal deposit first quarter 2007 Bibliothèque nationale du Québec Printed in Canada on acid-free paper. McGill-Queen’s University Press acknowledges the support of the Canada Council for the Arts for our publishing program. We also acknowledge the financial support of the Government of Canada through the Book Publishing Industry Development Program (bpidp) for our publishing activities.

Library and Archives Canada Cataloguing in Publication Innovation, science, environment: Canadian policies and performance, 2007–2008/edited by G. Bruce Doern. Includes bibliographical references. ISBN: 978-0-7735-3228-1 (bnd) ISBN: 978-0-7735-3229-8 (pbk) 1. Technological innovations – Government policy – Canada. 2. Science and state – Canada. 3. Environmental policy – Canada. 4. Research institutes – Canada. 5. Technological innovations – Government policy. 6. Science and state. 7. Environmental policy. I. Doern, G. Bruce, 1942– II. Carleton University. School of Public Policy and Administration GE190.C3I55 2007

352.7'45'0971

This book was typeset by Interscript in 10/12 Minion.

C2006-905633-1

Contents

Preface

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1 The Reshaping of an Agenda for Innovation Science, and Environment (ISE) 3 G. Bruce Doern 2 The Struggle over Canada’s Role in the Post-Kyoto World Peter Calamai

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3 Canadian Innovation in a Changing World: Towards Better s&t Priority-Setting 55 Jac van Beek 4 Innovation and Natural Resources: Myths and Realities about the “Old” Economy versus the “New” Economy 77 A. Jai Persaud, Uma Kumar, and Vinod Kumar 5 The Path to Local Sustainable Development: Two Approaches 98 Robert Hilton 6 Canadian Internet Pharmacies and the usa: Technological and Regulatory Market Change Scott Bennett 7 Promoting Partnerships in Biotechnology for Development 137 Basma Abdelgafar and Halla Thorsteinsdóttir

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8 Biotechnology Regulatory Regime Shift in the Growing Bio-health Products Era 162 G. Bruce Doern 9 Renewable Energy Policies and the Provinces Judith Lipp

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10 The Human Nature Connection: Sustainable Development Policy Implications 200 Elizabeth Nisbet, John Zelenski, and Steven Murphy 11 Putting the Squeeze on Procurement: Procurement Policy as a Lever for Innovation, Science, and Environment 219 Barbara Allen 12 Transforming Health Sciences Research: From the Medical Research Council to the Canadian Institutes of Health Research 240 Joan Murphy 13 Intellectual Property Rights and Competition Policy in the Knowledge-based Economy: Compatible or Colliding Policy Regimes? 262 Derek Ireland 14 Harmful Distraction: The Commercialization of Knowledge at Canada’s Public Universities 281 Malcolm G. Bird Appendix I Canadian and Comparative Science and Technology Data 301 Appendix II Selected Environmental Indicators Contributors

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Preface

This is the second edition of our annual volume of commentary and assessment of Canadian and related comparative innovation, science and environment (ISE) policies and institutions. It emerged initially out of a broader body of research and teaching at the Carleton Research Unit on Innovation, Science and Innovation (cruise) and the School of Public Policy and Administration at Carleton University. Aimed at an audience of interested and informed Canadians involved in, or affected by, this crucial realm of Canadian policy, politics and governance, the book examines the ISE policy priorities of the federal government. Chapters are also devoted to broader areas of federal-provincial and cities/communities involvement in these fields as well as the crucial international and comparative dimensions which impact on Canada. We are especially indebted to our roster of contributing academic and other expert research authors from across Canada for their insights and for their willingness to contribute to this work. The book is structured on the basis of a general call for chapters in the ISE field, a number of which were then selected for inclusion by the editor. In this volume and in later ones our aim is to involve academics from a variety of disciplines as well as doctoral students from across Canada doing advanced research in the ISE field and also knowledgeable practitioners from the public and private sectors. Thanks are also due to Kimmie Huang at the School of Public Policy and Administration for her excellent research and technical support and to Joan McGilvray and her colleagues at McGill-Queen’s University Press for their always-professional editorial and publishing services and expertise. The research support of the Social Sciences and Humanities Research Council (sshrc) is also appreciated, two of whose grants underpin several of the chapters in the book and other related work that is underway.

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None of this work would have been possible without the continuing support and scholarly stimulation provided by my colleagues at cruise, in the School of Public Policy and Administration at Carleton University and in the Politics Department at the University of Exeter. G. Bruce Doern Ottawa September 2006

Innovation, Science, Environment

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1 The Reshaping of an Agenda for Innovation, Science, and Environment (ISE) g . b ru ce d o er n

Innovation, science and environmental (ISE) policies and institutions in Canada are slowly being reshaped. A Harper Conservative Government wins the January 2006 election and immediately cuts several previous Liberal era environmental research and other programs and finally admits what the previous Liberal Government did not want to admit-that Canada has been moving away from Kyoto Protocol targets rather than being on the road to compliance. It also makes clear that the Kyoto Protocol is not central to its idea of either good environmental or good energy policy nor is it, in the Tory view, as good as a technology-first approach to addressing climate change. Meanwhile, a Quebec Liberal government announces that it will introduce a carbon tax to reduce CO2 emissions by 10 million tons by 2012.1 Canada’s mayors also speak of their own climate change initiatives and also of other efforts to link innovation and local infrastructure development. Thus, as the impacts of climate change are increasingly being experienced in Canada and elsewhere, Canadian governments are pulling apart in response to one of the dominant challenges of the 21st Century. As noted in our inaugural volume on ISE policies and performance, neither the innovation or science policy components of the ISE trilogy are typically “top of mind” issues for voters and public opinion.2 The Harper Conservative platform for the 2006 election that saw the Conservatives win power for the first time in thirteen years bore witness to this fact. Innovation and science policies were not among their much discussed five main priorities but did garner a commitment to increased r&d spending (see further discussion below). On the other hand, environmental policy (with the related notions of sustainable development as discussed further below) is routinely a popular

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and continuously expressed concern by Canadians and reinforced by numerous activist ngos and consumer groups. Some businesses are also keen practitioners of sustainable development (sd) and sustainable production (sp). On this overall environmental front, the new governing Conservatives indicated in the election campaign of January 2006 only that a new environmental package would eventually be forged but that it was one that would not be sympathetic to the Kyoto Protocol (see more below).

f r o m l i n e a r s & t m o d e l s t o i n n o vat i o n s y s t e m s a n d s u s ta i n a b l e d e v e l o p m e n t Science policies involve support for basic research and for the education and training of highly qualified s&t personnel in universities and hospitals in various scientific disciplines in the natural sciences, engineering, and the health and social sciences.3 They also involve science in government facilities, both research and development (r&d) and Related Science Activities (rsa) to facilitate governmental policy, and regulatory and monitoring roles carried out in the public interest.4 Science policies are partly underpinned, certainly for purposes of communication, by the notion of a linear model or continuum whereby basic research is seen to lead to applied research and technology development and then to innovation and commercialization of new products and processes in Canadian and global markets.5 Innovation policies are targeted more at the development of new products and processes, and place a greater emphasis on indicators such as rates of patenting and the creation of spin-off companies. The above noted linear models for science policy were eventually seen as an overly simplified view of what happens in dynamic economic and technical settings. Later and most current innovation policies see the underlying dynamics as being non-linear and thus lead to a changed policy debate through concepts and ideas such as national systems of innovation, local systems of innovation and clusters as complex multi-directional interactions among firms, universities and governments and their variously networked s&t personnel.6 For its part, environmental policy was first broadly cast as “end-of-pipe” clean-up of pollution from various sources relating to air, water, and land. It was later augmented in the latter half of the 1980s by the paradigm of sustainable development (sd). sd focuses on the need by current decision makers to leave the environment and its eco-systems in at least as good a state for the next generation as it was for the current generation. There was also a greater recognition that one had to distinguish between pollution and emissions. While not all industrial emissions are polluting some emissions can be controlled and managed with science-based limits and mechanisms. sd therefore implies more preventative approaches rather than just remedial clean-up. It is also often defined by governments and business more loosely as “the triple bottom line” approach to policies and practices where decision makers explicitly “take

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into account” the economic, environmental and social consequences and effects of their decisions. In the broadest sense, sd identifies a normative goal towards which ISE policies must strive, and a framework within which the successes and failures of these policies can be assessed. In almost all that it does, environmental policy needs science, technology and innovation to assess effects, monitor pollution, model and understand complex ecosystems and habitat and create new ways of producing and consuming that are more sustainable.7 sd is also central to some notions of Corporate Social Responsibility (csr) in the private sector. sd therefore points to an ambitious and complex transformative agenda in which changing patterns of production and consumption decrease the loading imposed upon the global environment. Unfortunately, in the Canadian context, the actual performance of federal and provincial policies and programs in pursuit of these goals have been judged to be quite weak and ineffectual.8 In this second ISE volume, we examine the reshaping of ISE policy in a multi-level governance and policy context.9 Not surprisingly, ISE policies and governance issues emerge both directly under the ISE discourse but also indirectly through developments in related policy and regulatory fields where ISE is a component part. This chapter’s overview of ISE changes and dynamics proceeds in three steps. First, we look at changing federal government policies and priorities in the ISE realms. Second, we preview the chapters and views of our authors whose analysis covers provincial and local government realms as well as numerous aspects of federal ISE and other federal sectoral policy realms which impact on ISE, both directly and indirectly. These include: climate change policy, s&t priority-setting, innovation in the natural resources sector, local sustainable development, internet pharmacy trade; biotechnology policy and governance; provincial government renewable energy policies, the psychological and human nature connection with sustainable development policies, procurement policy and innovation, the Canadian Institutes of Health Research, intellectual property-competition policy and regulatory regime interactions, and commercialization and Canada’s universities. Finally, we look briefly at several other related ISE issues, prospects and constraints examined by our authors which cut across several chapters. These centre on: biotechnology policy in both a national and developing country context; regulation and innovation interactions and complexities, and sustainable development at the local and individual psychological level.

“ i s e ” i n a h a r p e r c o n s e r vat i v e gove rnment A review of the ISE policies of the Harper Conservative Government involves an exploration of first their election platform, centred on five priorities, the Budget Speech of 2006 which contained specific commitments on some ISE

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matters, and then preparations for an autumn 2006 second-phase agenda which could well be the platform for a bid for a majority government sometime in 2007. We look at these three manifestations of ISE change and shape shifting and of course at the factors that have forged them, including ideas, partisan political strategies, and the interests of supporting and opposing advocacy groups. ISE in the Conservative Election Platform In order to differentiate itself from the previous Martin Liberal Government, which many saw as having too many priorities, the Harper Conservatives focussed on a compact set of five priorities, four of which they have then proceeded to adopt and implement. These priorities are: a reduction in the Goods and Services Tax (gst) of 1 percent immediately, and another 1 percent within the mandate period; the passing of a major Accountability Act to address corruption in government and restore people’s faith in government and in value for money in public administration; a crackdown on crime; payments to families for childcare; and establishing a patient waiting times guarantee with the provinces.10 Only the last of these had not been acted upon in the first year of the Harper Conservative Government. In this initial set of priorities, ISE matters did not get even a mention. The five priorities were cast as items that would be directed at, and would meet the needs of, the proverbial average Canadian, whom Harper and the Conservatives argued had been ignored during 13 years of Liberal rule. This initial strategy also implied that the average Canadian would not easily relate to ISE matters, especially the innovation and science aspects which are viewed as speaking to more specialist interests. We return later to this part of the Conservative logic on other matters that are shaping the Harper ISE agenda. Nonetheless, the Conservative election platform did contain one not unimportant commitment regarding investing in r&d. It stated: “Increased promotion of basic and applied research, especially in science and technology, is an essential component of Canada’s future economic well-being. It is unacceptable that Canada’s expenditure on research and development, at 1.9 percent of gdp, is below all other g- 8 countries and well below the oecd average of 2.3 percent. The Plan A Conservative government will: • Invest an additional $500 million over the next five years supporting universitybased research through the national granting councils, including the indirect costs of research. • Recognize the success of the Scientific Research and Experimental Development (sr&ed) tax credit in spurring private investment in research and development,

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and work with stakeholders in all fields of research and various industry sectors to explore expanding this tax credit.”11

ISE in Budget 2006 Initiatives The Budget Speech of May 2nd 2006 saw some more specific ISE content but even these references were buried in the budget details. Crafted mainly in the Department of Finance, the budget reinforced the earlier five priorities but also promised major increases in defence spending, and lower taxes for all Canadians partly through highly targeted but politically noticeable small tax breaks on textbooks for students, tools for apprentices in skilled trades, and for users of public transit. Again the needs of the beleaguered average Canadian and the “swing voter in the swing constituencies” of an already strategized “next” election were a key part of the calculus of Conservative agenda-setting. ISE matters again struggle for a mention with only the “E” of environment being a part of the logic of the public transit use tax break. There was, however, a broad commitment to promote a more competitive and more productive Canadian economy. Moreover, within the details of Budget 2006 a short paragraph provides further Conservative views and some implementation of its election platform initiatives on “investing in research and development”.12 It begins by noting the significant federal investments in place including the Indirect Costs of Research program of $260 million per year, the $1.6 billion for the three research granting councils, and the $3.65 billion spent to date on research infrastructure via the Canada Foundation for Innovation (cfi). The Conservatives then go on in the budget to indicate that they will be spending a further $100 million per year as follows: $40 million per year for the Indirect Costs of Research program $20 million for the Leaders Opportunity Fund of the cfi $17 million for the Canadian Institutes of Health Research (cihr) $17 million for the Natural Sciences and Engineering Research Council of Canada (nserc) • $6 million for the Social Sciences and Humanities Research Council of Canada (sshrc)13 • • • •

In addition, the Conservatives announced that the Minister of Industry would be developing a “science and technology strategy, in collaboration with the Minister of Finance, that will encompass the broad range of government support for research, including knowledge infrastructure” and also that it will “undertake a review of the accountability and value for money of the granting councils’ activities”.14 The s&t strategy is the first to be developed since the 1996 s&t strategy of the Chretien Liberals, a strategy largely preempted by that era’s Program Review and later further submerged within and

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overshadowed by the 2002 Innovation Strategy. We comment further on these Conservative r&d announcements below but at this point it is fair to point out that despite the low salience of s&t issues in the Harper Government’s early months in office, there is little doubt that Harper as both a politician and an economist, knows that a first class s&t and innovation system is crucial to Canada’s ability to compete in the world. Thus, the Budget Speech goals regarding productivity and competitiveness are of importance. The Conservative government stated that: To ensure our long-term prosperity, we need to increase our productivity. Canadians have built a great country with many advantages. Canadians are hard workers and great innovators. But we are facing increasing competition from countries like India and China. Our workforce is aging. Government tax policies have discouraged investment and job creation. • For this government, increasing productivity and competitiveness means creating a stronger economic union across Canada, and reducing barriers to trade between provinces. • It means reducing red tape, reducing business taxes and eliminating the capital tax to help our Canadian companies compete in the global economy and create jobs for Canadians at home. • It means investing in education, research and development (emphasis added). • It means making sure our borders stay open for business.15

As the chapter by Jac van Beek on s&t priority-setting stresses, the Conservative government will have its hands full in getting greater clarity about s&t and innovation priorities. Two other initial decisions by the Conservative Government point in uncertain directions about future s&t coordination. One was the decision to move the Office of the National Science Advisor from a central agency, the Privy Council Office, to Industry Canada where it will report to the Minister of Industry. This was part of overall changes to the structure of the pco noted below and thus may mean very little on s&t matters per se. The nsa had been grossly understaffed and resourced within the pco and its fate within Industry Canada may in fact be better. Industry Canada still has one of its adms serving as the lead coordinator of s&t policy among all federal science-based departments. Industry Canada also gave the newly formed Council of Canadian Academies, a Martin era creation, the assignment of evaluating Canada’s s&t strengths in the Harper Conservative’s s&t Strategy review. A second decision is the appointment by Prime Minister Harper of Kevin Lynch as the Clerk of the Privy Council and Canada’s senior public servant. Lynch had been a very influential figure on s&t and innovation policy matters

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in his former positions as Deputy Minister of Finance and earlier at Industry Canada. Harper brought him back from his job with an international agency. One of his earliest announcements came when Lynch transferred a number of pco secretariats (including the above noted national science advisor change) to relevant line departments so as to “return to basics,” by which Lynch meant a smaller pco that more effectively supports the Prime Minister.16 It is highly likely that Lynch will have a significant influence on the overall Harper strategy on s&t, competitiveness and innovation as it takes shape. The chapter by Jai Persaud, Uma Kumar and Vinod Kumar also notes some initial interest by the new government in issues of natural resources policy, which almost by definition has intricate links to environmental matters. The Conservative election platform did express a sense that the resources sector and often vulnerable resource based towns and communities had been ignored under Liberal rule and, as their chapter notes, the Conservative s&t and innovation agenda may link up differently with the resources sector than under the Liberals. This difference may well be one which is more inherently pro-resource development and somewhat less supportive of sustainable development objectives. Also of particular interest in an ISE-focussed volume such as this one are the Conservative initiatives in higher education. These include the following Budget 2006 measures: • A new text book tax credit that will reduce federal revenues by $135 mil-

lion in 2006–07 and $125 million in 2007–08; • Exempting all post-secondary education scholarship and bursary income

from tax, a provision that will help 100,000 post-secondary students and will cost about $50 million in 2006–07; • a one-time payment of $1billion into a third party trust called the PostSecondary Education Infrastructure Trust. These funds are to support “critical and urgent investments to promote innovation and accessibility” (e.g. modernizing classrooms and laboratories ... distance learning technologies) • Improving the Canada Student Loans Program through increased spending of $15 million for $2007–08 and $20 million per year thereafter.17 These measures suggest a government that intends to support universities but perhaps with greater emphasis on support directly to students rather than through research faculty and research infrastructure. We return to this issue further below. ISE in a Broader Agenda for a Possible Majority Government By the fall of 2006 the contours of a broader Harper agenda were taking shape within which ISE issues of a changed and more compelling kind are

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emerging. These include: a Green Plan II within which Kyoto commitments have been submerged and weakened and new initiatives encompassed under a new Clean Air Act to be used to deal with air quality issues but also to deflect attention away from Kyoto; a competitiveness agenda within which both an s&t strategy and a commercialization focus will be contained; a higher education agenda focussing on support for students and “knowledge” infrastructure; and a granting councils strategy that focuses more on public accountability and the public use of research and knowledge. We discuss each of these areas below noting, where relevant, continuities and discontinuities with previous Liberal era policies and actions. The Clean Air Act. As noted earlier, the Harper Conservatives have not hidden their opposition to the Kyoto Protocol and the way that the previous Liberal Government handled the most central file in the environmental agenda. Under the Liberals, Canada had committed to a 6 percent reduction in ghg emissions from 1990 levels by 2012 but Canada’s emissions had in fact increased by 24 percent, 9 percentage points higher than the us which had not even signed the Kyoto Protocol.18 The Liberal failure to act gave the Conservatives considerable political cover and thus the Conservatives did not suffer much collateral political damage for their Kyoto-skeptical views during the 2006 election. After the election, however, the Conservatives began to shift overtly to an alternative environmental agenda which initially was cast as a possible second version of the early 1990s Mulroney-era Green Plan. The Clean Air Act provisions were cast as a “made in Canada” agenda. It would not be focused on paying for emission-reduction credits abroad but rather would focus on spending resources in Canada and seeking emission reductions at home. The Conservatives would focus on air pollution issues (and related public health concerns) in the transportation and electricity sectors again in part because they viewed these as issues that the average Canadian would both notice and appreciate. In the Conservatives’ view, the Kyoto Protocol and its required concrete actions did not resonate in applied everyday ways with the average Canadian. The notion, however, that it was a “made in Canada” approach was ultimately in a larger sense vacuous in that, as Peter Calamai’s chapter argues, globally coordinated actions are needed since it is global ghg emissions that effect Canada more so than our own but morally we need to take effective climate change actions in order to persuade other nations to take theirs. The Harper Conservatives, with the Prime Minister taking the lead role, also spoke favorably about the us voluntary and technology-first approach to climate change (such as it was) and about the need to go beyond Kyoto to engage the fast growing developing countries. Following President Bush’s 2006 State of the Union address in which he emphasized American’s unhealthy “addiction to oil,” the Bush Administration further increased its r&d

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funding incentives to energize its alternative to Kyoto approach. The Kyoto Protocol excluded developing countries from reduction obligations on the grounds that it was essentially the developed western countries that had created the problem and that, moreover, developing countries would need expanded energy growth as they grew and hopefully prospered economically. Increasingly, by mid-decade, and following the 2005 Glen Eagles g-8 summit, the Bush Administration, backed by big us energy interests, began forging an alternative “beyond” Kyoto small coalition around the Asia-Pacific Partnership on Clean Development and Climate. It included some Kyoto non-signatory countries, including China and India, the two dynamic and fast growing developing economies whose energy needs were rapidly rising but whose fast growing ghg emissions could also negate climate change progress made elsewhere. Kyoto Protocol proponents saw the Protocol as a stepping stone, as merely the first in a series of steps that would be needed to tackle climate change in the decades beyond the protocol end date of 2012.19 As Peter Calamai shows in his chapter, this was the focus on the Protocol’s cop 11 meeting in Montreal in December 2005. But also absolutely central to the Harper Conservatives’ environmental alternatives was its energy policy and its political base in energy rich Alberta. Prior to the G8 summit in July 2006, Harper made a speech in London in which he argued that Canada was, and that his policies would further advance it as a global “energy superpower.”20 Central to this superpower status was the Saudi Arabian-sized Alberta oil sands and Alberta of course forms the heart of Harper’s political base. So there is little doubt that the Harper green plan at a “lets take the focus off Kyoto” energy and environment plan, is also crucially driven by core energy interests at both the industry and Alberta provincial government level. This approach gains support from the Bush Administration with whom Harper is seeking close relations, which also increasingly sees the oil sands as a security of supply buffer in a world of ever more complex energy security relations. There may also be resonance for the Harper Conservatives if they too adopt a more technology-first approach to climate change and hence can link up Canadian r&d funding in this area to us and other global r&d. In some respects, this strategy is not much different from that of the Liberals in the 1993 to 2002 period. The Chretien Liberals did not ratify the Kyoto Protocol until late 2002 as the Chretien era was ending, and during the previous decade the Liberals also sought to sell oil and gas to the us, adopt market-oriented policies in both sectors and used its adherence to sustainable development policies as a symbolic cover for its real ghg agenda.21 As Peter Calamai’s chapter shows, this was one of the reasons why Canada’s ghg emissions increased by 24 percent rather than declined by 6 percent from 1990 levels. Judith Lipp’s analysis in Chapter 9 of provincial renewable energy policies also shows why Canada’s overall policies were not well developed or

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encouraged, thus further contributing to a bleak climate change record. Fortunately, she sees some reasons to be optimistic that alternative energy policies at the provincial level may well flourish in the next decade because of local political pressure and cross-provincial learning. A Competitiveness cum Commercialization Strategy including s&t If a Conservative environmental strategy (as yet unnamed) evokes in a very limited way the earlier Mulroney Conservative era Green Plan, so too in some respects does the notion of a Conservative “competitiveness” agenda. The Mulroney Conservatives, in their post-free trade election victory era added a prosperity and competitiveness agenda in the early 1990s. All governments in the oecd have used different kinds of policy discourse to encapsulate policy ideas and actions that broadly group industrial, competitiveness, innovation, s&t and commercialization policies. Sometimes new policy discourse reflects a genuine change in ideas, emphasis or priorities. Sometimes, it reflects the strategies of government communications spin doctors who recognize that some concepts will not resonate well with focus groups (concepts such as productivity, for example) or will simply be more positive and easy to sell in modern sound-byte politics. And sometimes, new governments need new labels (or revived old labels) to differentiate themselves from their predecessors in the everyday battles of partisan politics. As we have seen, innovation was the main discourse for the late Chretien and early Martin Liberal years but could also be found in Mulroney era policies. In 2005, the Liberal’s Industry Minister, David Emerson, appointed an advisory committee to advise him on the nature of a commercialization strategy. Emerson argued that Canada has to attack these issues by having “a very hard-nosed, comprehensive, and aggressive attack on competitiveness … the reality is we will succeed in this country if we can be a leader in developing and applying and commercializing technology and if we become a world leader at developing and applying the human capital that’s required to efficiently manage … technology …22 Citing his experience with Canfor, he went on to argue that it is “not so much an issue (whether) this factory is an efficient factory or (whether) this particular cost factor is lower than it is in the United States. The real formula for quantum moves–and we need to make a quantum move- is … we’re going to have to look at the entire supply chain. We’re going to have to look at industrial clusters that hang together as integrated collaborative economic partners.”23 Emerson then went on to stress that the Canadian private sector under invests in r&d compared to major competitor countries. He pointed out that the Government of Canada had stepped into the breach in recent years with over $13 billion invested mainly in universities and public institutions. So his next question, which he stated bluntly, is “how the hell do you get it back out and get it commercialized and infused into the economy so that it spreads widely and creates growth momentum and efficiency throughout the economy?”24

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David Emerson switched to the Harper Conservatives a few days after the 2006 election and is now the Minister of International Trade. He is no longer the Industry Minister but is a key economic heavyweight in the Harper Cabinet and for this and other reasons, some kind of commercialization focus is likely under the Conservatives. The advisory panel Emerson appointed reported in 2006 to the Conservatives and some of its ideas seem likely to be viewed favorably by the Harper Government and its current Minister of Industry, Maxime Bernier. The expert panel was chaired by Joseph Rotman but also included key industrial experts such as Mike Lazaridis of Research in Motion, a dynamic innovation company. The panel’s report, as have earlier studies, again stressed three related aspects of Canada’s past and future challenges regarding competitiveness and commercialization. First, it reiterated Canada’s weak productivity record compared to the United States, Canada’s main market. Second, it pointed out the continuing weakness of Canadian industry’s investment in r&d. Third, it noted and applauded Canada’s high levels of s&t investment in universities, especially since 1997.25 Unlike some studies on commercialization, the Rotman panel argued that the university role in basic research and overall r&d was essential for commercialization and by implication that the university role in providing highly qualified personnel who are later employed by companies, was crucial as a technology transfer conduit. Accordingly, the panel’s recommendations focused on building a culture of research in the private sector since the weakness in the commercialization process was in the industry “demand” side not the university “supply” side. The panel’s key recommendations included: • the creation of a business-led Commercialization Partnership Board to ad-

vise the Minister of Industry; • increase the business demand for talent through the development of a new

Canada Commercialization Fellowships Program which would include undergraduate, graduate, and post-doctoral fellowships, as well as career interchange fellowships and chairs of research in practice. • create a Talent and Research Fund for International Study and also initiatives for international students to stay in Canada; • create a Commercialization Superfund to Address Key Commercialization Challenges.26 The panel also made recommendations regarding ways to encourage angel capital investors, small-business partnerships, and business-university partnership programs already operated by the three granting councils. In addition to the above kinds of measures, Conservative competitiveness, commercialization, and overall s&t and innovation approaches will likely include efforts to reduce the overall level of taxation in Canada, especially

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corporate taxation and also possible changes to broaden somewhat the sr&ed tax credit, the main tax-centered incentive for scientific research and experimental development in Canadian industry. Some of these kinds of measures were a part of Budget 2006 and more may emerge in Budget 2007 and beyond. However, one must note here an early contradiction in Conservative tax measures in that they do not serve a longer term productivity agenda. This is because the larger Conservative tax cuts to the gst were consumption focused and against the grain of mainstream economic advice which suggested that tax relief was needed on taxes on capital and investment-promoting actions. Moreover, the significant revenue losses from the gst reductions meant that there was much less tax room for any future tax measures that would promote productivity and overall competitiveness. Another feature of Conservative ISE policy centers on the future of Technology Partnerships Canada (tpc), an agency it criticized as an opposition party, in part because of its failure to secure repayments and returns from its investments but also at times because of its focus on Quebec and Ontario industries, especially the aerospace sector. tpc was launched in 1996 and had its mandate changed somewhat in 1999 following a wto challenge/dispute launched by Brazil. But the tpc has a longer lineage that predates 1996. Its predecessor program was the Defence Industries Productivity Program (DIPP) which was slated for cancellation in 1995 under Program Review but which was rescued at the last minute by a strong lobby from the Toronto and Montreal- centred aerospace industry, the principal beneficiary of dipp.27 dipp itself had emerged as a program in 1958 following the cancellation of the Avro Arrow aircraft by the Diefenbaker Conservative Government. Thus aerospace and related defence industries were central to the new 1996 tpc but it was extended beyond these sectors to enable the federal government to invest in high risk industrial research and pre-competitive development in other key areas of the knowledge-based economy such as environmental technologies and other enabling technologies including advanced materials, advanced manufacturing, biotechnology, and information technologies. The tpc risk-shares 25 to 30 percent of the r&d costs, a strategy which for the firms essentially reduces the upfront financial exposure, shortens the payback period, and moves the break-even point earlier in the development cycle. Care must be taken to ensure that the r&d investment is at the pre-competitive stage so as not to incur trade remedy challenges on the grounds that the support is a subsidy, a challenge successfully made by Brazil with respect to some of the tpc provisions. tpc investments are to be repaid by the firms. Of crucial importance is the fact that the Cabinet has directed that twothirds of tpc investments must be in the aerospace and defence sectors and

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one-third in the environmental and enabling technologies sectors. The tpc has been funded at over $315 million per year with a capacity to grow based on repayments. These repayments are not yet large, though they have increased significantly in the past three years. The overall $2.8 billion tpc investment is linked to an additional private sector investment of $11.1 billion, about four times the government figure.28 Because of the historic focus of aerospace and defence in Ontario and Quebec, there has always been significant Cabinet concern about regional balance in overall tpc investments. The percentage of projects has reasonable regional balance, though they still favour Ontario and Quebec whereas the percentage of funding is more pro-central Canada in part because defence and aerospace projects are typically much larger investments and go to larger aerospace firms. There has always been some concern whether the 2/3:1/3 allocation policy between aerospace and defence and environmental and enabling technologies should be changed. There are also concerns about ensuring that tpc fits in with the federal innovation strategy and the actual commercialization of knowledge. But there is also concern that the nature of innovation processes vary across sectors and therefore the question arises as to whether tpc risk-sharing approaches should reflect such differences. The dilemma for the Harper Conservatives is that in opposition they have tended to prefer broad framework, sector-neutral and tax-based approaches to industrial and competitiveness policy. But tpc’s emphasis on Quebec and the aerospace sector is also a tempting political-economic asset as the Conservatives seek to win a majority government by gaining more electoral seats in Quebec. The Conservatives have also linked the tpc to their overall accountability priority. In August 2006, Industry Minister, Maxime Bernier announced new tpc transparency and accountability standards to the tpc contribution agreements with firms.29 These are intended to make the Canadian public aware of any breaches of the agreements that companies have entered into. Previously, companies found in breach were protected from public scrutiny. In addition, companies will be held more accountable for the lobbying activities they may undertake. Higher Education Infrastructure We have already noted above the Budget 2006 measures regarding higher education and the more visible “average Canadian” impact rationales that drove them. But there is a larger logic to possible future Harper Conservative measures on higher education and education infrastructure. These may arise out of the core trade-offs that emerge out of the effort to deal with the so-called federal-provincial fiscal “imbalance”. The Harper Conservatives have bought into the notion of their being some kind of imbalance between a fiscally surplus- rich Ottawa and some struggling fiscally-deprived provinces. This was mainly because of the tactical

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promise this issue was thought to bring regarding hoped for future electoral gains in Quebec, whose provincial Liberal government is the leading advocate of solving the fiscal imbalance problem. Whether there is a real imbalance problem is highly debatable but in the process of dealing with this issue, the Harper Conservatives have argued that any solution must be tied to a new larger change in Canadian federalism. One possible part of this new bargain is that Ottawa would eschew new federal spending in major provincial areas related to social policy and thus create a more decentralized federation. But this offer would only be in exchange for some areas of increased federal prominence in areas such as education and infrastructure and also in enhancing the openness of the Canadian internal market. Both of the former in particular would be cast as crucial to the overall national economy. Thus larger per-capita grants for universities could be on offer as could increases in student loans and support. So also could be more funding of the kinds of education infrastructure fund initiatives in the new trust fund already revealed in Budget 2006. The larger Conservative focus on infrastructure funding is on cities and urban infrastructure but university infrastructure would fit well into this possible tradeoff in the fiscal imbalance package. It would also fit in with the notion of targeted spending that voters and citizens would notice and also it may transfer resources to the teaching delivery as well as the research infrastructure side of universities. All of this can be sold as both higher education policy and innovation policy simultaneously. On the other hand, it is not impossible that the Conservatives may prefer a direct transfer to the provinces, as opposed to money for students. None of this suggests necessarily that the federal Conservatives are bent on turning universities into more innovation-focussed and commerciallyoriented institutions. There is some chance that they will focus on the need for the private sector to do more r&d itself. Chapter 14 by Malcolm Bird makes a persuasive case as to why any such focus on universities would be unwise and indeed would only serve to be a distraction from their core functions of research, teaching and community relations. But prospects here also depend on federal approaches to the three granting councils. A Granting Council Accountability Strategy and More Thematic Research As noted above, the Harper Conservative Budget both gives more money to the three federal research granting bodies, the cihr, nserc, and sshrc and also to the university research infrastructure agency, the Canada Foundation for Innovation. But at the same time it is conducting a review of the three granting bodies in terms of accountability and value for money. In one sense it is not surprising that an accountability agenda is viewed as important by the Conservative government. Its Accountability Act was the first piece of legislation introduced by the newly elected government and reflected its overall

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concerns about previous Liberal era errors of omission and commission ranging from corruption in the Sponsorship Program to everyday notions of getting value for money and also issues of possible overlap and duplication in funding, and concerns about the need for the better dissemination of research knowledge to Canadians. The granting councils may also have been selected for review because of internal pressure from a few Conservative mps, especially from the former Reform Party and Canadian Alliance wing of the Party who did not like certain kinds of research, especially in the social and health sciences or who also had some concerns about research ethics. Regardless of the potential mix of motivations, a review of the granting councils is of interest in several respects and deals with issues of policy and institutional change whose origins predate the current government. The analysis of the Canadian Institutes of Health Research (cihr) by Joan Murphy in chapter 12 of this ISE volume and of nserc and sshrc in last year’s inaugural edition of the ISE volume allows us to take note of one overall ISE policy-institutional issue that the federal government and the granting bodies themselves collectively face, namely the pressure for more thematic or strategic research.30 There is little doubt that a key change in the last decade has been continuous pressure for funding more top-down thematic or strategic research as opposed to “bottom-up” individual investigator-driven research. This is likely to continue under a new federal government concerned with value for money research spending, greater accountability, and its own policy research needs. The sources of this pressure in recent years have been varied, with some coming from the federal government via its overall s&t policies and also from particular federal departments who lobby within the federal structure for targeted funding of thematic areas linked to their particular departmental mandates and policy concerns. Pressure also comes from business and ngos either directly on the granting council president or governing board members or indirectly via their lobbying of federal departments which in turn lobby the granting councils. And last, but certainly not least, pressures come from academics themselves, either entrepreneurial individual scholars or new emerging interdisciplinary communities of academics whose interdisciplinary research is almost by definition “thematic.” The nature and timing of these kinds of shifts towards greater thematic or strategic research varies among the three granting agencies. Arguably the shift started first with nserc. From 1978 on, nserc developed more strategic research realms of funding.31 nserc also had a somewhat more natural affinity for, and linkages with, business and market-related research. This typically did not relate to explicit commercialization-focused research as noted above, but the natural sciences and engineering had faculty and graduate students who were much more likely to gravitate towards industrial research and/or postuniversity employment in the private sector. The development in the late 1980s

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and early 1990s of the Networks of Centers of Excellence (nce) program, with strong links to nserc (much more so than sshrc) also acted as a spur to strategic research and also to virtual research communities. As Joan Murphy’s chapter shows, the cihr is without doubt the main example of a granting agency which was in effect born in 2000 to demonstrate in one fell swoop the transformation towards a greater focus on strategic and applied targeted research and also multi-disciplinary research. A reading of its published reports and website material indicates that the 13 new applied cihr institutes tend to receive greater emphasis in the cihr discourse than its former discipline-centered core research from its days as the Medical Research Council. Murphy’s research points out there are two key features about the larger origins of health research and the evolution of mrc and then cihr. The first is that health research in Canada has always been more networked and thematic because the core of the research community did not reside in universities but rather in hospitals and also charitable organizations. Only later did universities become a key player in health research. The second is that the cihr is now in effect two organizations within one. Housed in its inner core is the older mrc core investigator-driven granting activity. And on its outer periphery, are the 13 institutes. They receive about 30 percent of cihr funding (several times more than before 2000) but still leaving 70 percent for its core line of business. It must be noted, however, that there is also considerable overlap in these two kinds of research and in the nominal budgets described for each of them. As Russell LaPointe’s analysis shows, sshrc was the last of the three granting bodies to explicitly move in the direction of more strategic research.32 In part this was genuinely because the social sciences and humanities are less used to working in thematic ways and their research was more inherently individual in nature and much lower cost on average. But sshrc was also realizing that the social sciences had not done well in nce competitions. It was also concerned that its research clientele (faculty and students) was by far the largest part of the total university population but was not getting anything proportionate to that in resources and funding. sshrc has the smallest budget among the three granting bodies. Moreover, it had witnessed in 1999– 2000 how the cihr’s transformation and virtual institutes had generated double the funding for health research. Thus sshrc’s effort in 2004–2005 to transform itself from a granting council to a knowledge council was part of a larger effort to position itself better in the shifting configurations of core investigator-driven versus strategic research. It is worth noting that over the past decade, the granting agencies are by no means the only example of targeted or strategic research. New agencies such as Genome Canada and also the Sustainable Development Technology Canada (sdtc) were established, each with about half a billion of funding, and each housed in organizational forms that are even more arms-length than the granting bodies and also are endowed with ore defined mandates.33

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It is likely that the federal approach to the granting councils will still be relatively supportive but also that it will apply pressure for more thematic research to be funded and that research be much better disseminated in useful ways to Canadians as the granting councils’ ultimate paymasters. Conservative policy toward the granting councils may well be more supportive of the natural sciences than the social sciences. It was a Conservative Government in 1993 that tried to roll sshrc back into the Canada Council (from which it had emerged in 1978), only to have the legislation defeated in the Senate.

an overvi ew of the chap ter s peter calamai examines the struggle over Canada’s role in a post-Kyoto Protocol world under both the Liberals and the new Conservative government. The chapter first examines the previously unpublished Liberal federal climate plan prepared for the 2005 Montreal climate change conference. It shows that after a decade of Chretien and Martin Liberal government timidity, the federal government came close to breaking free of its deep policy stasis. The Dion-Watson plan would have re-established Canada’s credentials as a leader in the climate change field. In its examination of the Conservative policies to date, the chapter also shows how partisan political considerations led the new Harper Conservative federal government to distort scientific facts, abandon the promising international initiative and move backward on climate change measures domestically. The author argues that one of the clearest hints of the continuing driving force in any Conservative government climate change policy was thrown out by Prime Minister Harper in an address July 14 in London to the Canada-U.K. Chamber of Commerce prior to attending the g-8 summit in St. Petersburg, Russia. He told Chamber members that Canada is “an emerging energy superpower” with “an ocean of oil-soaked sand ... under the muskeg of Northern Alberta – my home province.”34 Perhaps not surprisingly, the concept of Canada as an energy superpower has been championed by the Energy Dialogue Group, a prodevelopment lobby of a score of associations in the energy industry. Perhaps equally unsurprising is that the group has not championed a climate change plan for Canada. Add this adopted vision of Canada as an energy superpower to the overriding Conservative concerns about alienating the oil-producing provinces of Alberta and Saskatchewan. Then throw an apparent proclivity to let partisan rhetoric trump scientific facts. The upshot is that many observers – and not solely environmental activists – are saying that Canada will be fortunate to reduce greenhouse gas emissions to 1990 levels (not below) by 2020 (not even 2012). Therefore, farewell to any hope for enlightened leadership that would have encouraged major reductions by the rest of the world, whose 98 per cent share of global ghg emissions is poised to inflict a dreadful environmental legacy upon Canada.

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jac van beek examines the key problem of s&t policy and institutional priority-setting in Canada. The chapter begins with an examination of the core innovation, productivity and competitiveness imperatives. It looks at Canadian r&d investments in a comparative context, and also the diverse and complex drivers of current innovation and technology development. It then highlights the core capacity of Canada’s national innovation system and its ability to contribute to solutions The author highlights the fragmented nature of Canada’s innovation eco-system and concludes with suggested steps to better integrate that system. These include better efforts to: measure Canada’s performance; publicly articulate the key issues; focus on priorities; and work to eliminate the barriers to better system performance. jai persaud, uma kumar, and vinod kumar analyse innovation in the natural resources sector by focussing on r&d investment expenditures. It examines the myths and realities about natural resources as part of both the “old” economy, and Canada’s historic dependence on resources, and the “new” economy centred on innovation and knowledge. The natural resources sector is defined in this chapter to include the energy, minerals and metals, forestry, and earth sciences geomatics service industries and geoscience industries but excludes agriculture and fishing. The sector is closely linked to a broad group of allied industries, including supplier and service industries (e.g., biotechnology, environmental technologies and robotics). The authors argue overall that although r&d in the natural resources sector is below the economy’s average, the sector is considered a leader in innovation, undertakes significant capital investment and surpasses other sectors of the economy in terms of productivity. In assessing the r&d estimates, the authors argue that r&d expenditures do not reflect the level of innovation and productivity in the sector. The chapter concludes that the sector is very capital-intensive, highly competitive and global in nature and moreover, the natural resources sector acquires a significant amount of its technologies which are embodied in machinery and equipment thus capturing significant embedded r&d. The sector faces several challenges and in order to remain globally competitive, and a leader in productivity, it will need to continue to invest significantly in r&d and innovation. robert hilton explores core issues and alternative approaches to local sustainable development. In addition to showing links to federal policy, the chapter also traces the links between the international Agenda 21 program and its eventual but slow developing impacts on local government in Canada, mainly through the lobbying and work of the Federation of Canadian Municipalities (fcm). Two case studies on community capacity building are examined. The fcm- initiated concept of the federal Green Municipal Fund is shown in the chapter to be a ‘top-down’ programmatic approach to

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capacity building which has yet to engage the broader national community of municipal officials in sharing knowledge, experience and best practices in sustainable development. On the other hand, InfraGuide started as a concept developed within the public works community across Canada. Its approach to governance and change management present some valuable insights into capacity building in support of sustainable development. Through the development of a network of a community of practice, InfraGuide is creating enduring partnerships and interdependencies founded on consensus building and collective responsibility for change. It focuses on local mobilization through grass roots change by sharing and transferring knowledge needed to provide community decision makers with options that are available in charting public policy that supports sustainable development. scott bennett examines the controversies surrounding the introduction in recent years of the internet marketing of pharmaceuticals by Canadian firms into the us The chapter explores how relatively simple changes in the technology of communication can influence policy and regulation in a specific policy area. In particular, he examines how the introduction and expansion of internet marketing of pharmaceuticals by Canadian firms changed pharmaceutical policy in North America. The primary and most obvious change is in the regulation of drugs sold by Canadian firms to Americans based on internet transactions. In addition, the chapter shows other, derivative policy changes in the realms of: professional regulation, protection of drug supply, drug safety, intergovernmental relations and, to some extent, public and private coverage of consumer drug purchases. Overall the chapter shows how change in communications and marketing technology can alter the commercial, regulatory and political environment in a policy area that has previously been dominated by the rhetoric of scientific professionalism and concerns for proper patent-centered commercial returns on scientific and technological innovation. The chapter examines how Canadian internet pharmacies began, the American response in its various dimensions, the Canadian further or counter policy response, the present state of play in the relevant policy environments and likely future developments. basma abdelgafar and halla thorsteinsdottir examine key issues and factors in defining Canada’s role in using biotechnology partnerships to achieve international development objectives. It explores Canada’s biotechnology strategy particularly as it relates to international development concerns and discusses the importance of science and technology partnerships, and of promoting international collaboration as part of a broader conceptual framework based on our understanding of innovation systems. The chapter highlights the major developing country needs in health, agriculture, and environment and outlines the factors and conditions that can influence

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biotechnology partnerships in developing countries. It argues that there are several issues challenging the government’s momentum including the need to engage major federal players, and to develop guidelines for selecting international s&t partners and projects. The absence of a high-level champion in the government is challenging progress even further and worse yet is affecting international perceptions of Canada’s seriousness in this field. The authors conclude that despite the promise that some developing countries are showing, few are able to undertake the entire range of research and development activities that eventually lead to the commercialization of biotechnology products. Modest s&t capacity, shortages of skilled human resources, limited institutional capacity, poor funding, and weak or non-existent legal and regulatory regimes limit the ability of these countries to identify and benefit from biotechnology applications in key social and economic sectors. The goal of international collaborations with developing countries in the field of biotechnology should be to enhance endogenous capacities to improve health, agriculture and environment. Collaborations should conform to the innovation systems of the participating developing countries and that of Canada as well. Performing technology foresight exercises with developing country partners will go a long way toward ensuring that collaborations in biotechnology complement national s&t strategies and build on local needs and existing strengths. bruce doern examines regulatory regime shift, awareness and inertia in the changing regulatory governance of biotechnology. The chapter shows that a realignment of regulatory governance is occurring because of the relative shift in product growth from biotechnology in food to biotechnology in health, centred around genome-centred and related bio-health products. Such products, also labelled as biopharmaceuticals, are therapeutics or preventative medicines that are derived from living organisms using recombinant dna technology. The chapter examines five features of regulatory regime shift dynamics: a) much higher product volumes requiring regulatory assessment and approval; b) more tailored products aimed at smaller markets than normal pharmaceutical drug products; c) the need to re-balance the pre-and post-market assessment aspects of regulation; d) new combinations of drugs, devices and diagnostics which require greater integrated regulation rather than the current system of separate realms for drugs and for medical devices; and e) enhanced regulatory capacity which may point to the need for greater shared international regulation. The analysis shows that both the bio-food and the bio-health aspects of the biotechnology regulatory regime have existed for some time but there has been much greater overall political awareness over the past twenty years as a whole of the food side of the regime. The changes in bio-health products have necessitated a greater

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awareness of the full array of regulatory regime institutions, in particular intellectual property bodies, biologics and genetic therapy directorates, and medical/drug pharmaceutical approval and pricing agencies. The analysis shows that the changes are partly driven by the technology itself but they are also partly influenced by the pressures of hundreds of fast forming new biohealth firms. Finally, the article explores briefly the issue of whether greater international regulation of biohealth products is inherent in the regime shifts observed. The possibility of a North American multi-country model based on some of the eu’s institutional experience is certainly there for Canada to advocate and pursue but there are many issues that would enter such a debate as regime shift and awareness continues. judith lipp analyzes the policies and trends of renewable energy (re) electricity generation in Canada. Particular attention is paid to provincial policy because under the constitution the provinces have the most influence on the electricity sector. The needs of the re industry, its drivers and decisionmaking power are also examined. This sets the context for the discussion of policies and activity trends in the re sector for each jurisdiction in Canada showing who is doing what. The chapter concludes with a number of questions about the future and a discussion of where things need to go. New renewable power accounts for less than 2% of total installed electricity capacity in Canada today. Present developments and policy trends will lead to a significant growth in wind power over the next ten years but even if all targets are met, less than 5% (more likely only 3%) of Canada’s electricity will come from re sources. The majority of that will be from wind energy with other renewables barely contributing. The level of re activity varies greatly by province and can largely be explained by the policies in place to support the sector (Alberta excepted). The lack of support for other renewables, except recently by Ontario, prevents lesson from being drawn in the Canadian context about how solar, ocean, geothermal, biomass and small hydro energy are best encouraged. There is also great uncertainty surrounding federal support to all renewable energy. Comparing Canada to world leaders in renewable energy development, it is evident that Canada still has some way to go and important lessons to learn. An abundance of conventional energy resources, low electricity prices, and lack of commitment to addressing climate change and other environmental problems can explain much of the re inertia in Canada. Canada has not been an active player in the re industry and continued inaction on innovation and development risks this country continuing in its current position as a market-taker rather than market-maker. More leadership is needed at the helm, provincially and federally, and in collaboration. A clear vision with an enabling framework addressing the many facets of the industry – r&d, skills development, export potential, public support,

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technology innovation and maximising environmental benefits. The re sector will continue to grow by sheer force of will by committed groups and individuals, but reaping the full range of benefits requires commitment and planning. Defining both is a good place from which to move forward. elizabeth nisbet, john zelenski, and steven murphy analyze the manner in which psychology can contribute to our understanding of why people behave in either sustainable or unsustainable ways, and how we might promote environmental behaviour by examining individual differences in human-nature relationships. They argue that in order to achieve sustainable development we need to understand individual differences in the emotional and cognitive bases of environmental actions, as well as the attitude and value systems that motivate or inhibit sustainable behaviour. The authors contend that many people may have lost their connection to nature, and that this may partly explain destructive environmental behaviour, as well as human unhappiness and they discuss how the benefits of a strong bond with the natural world can help promote sustainable development, particularly in regards to motivating individual behaviour change. The chapter introduces the construct of “nature relatedness” and discuss the benefits of being connected to nature, in terms of motivating sustainable behaviour at the individual and organizational level. They contrast the federal One-Tonne Challenge program with the Suzuki Foundation’s Nature Challenge to illustrate the importance of incorporating nature relatedness into sustainability initiatives. The chapter concludes with suggestions on how nature relatedness principles might guide future sustainable development policy. barbara allen explores how procurement policy is increasingly associated with the agenda for innovation, science and the environment (ISE). She argues that procurement is an overloaded instrument or policy lever, indeed one of the few left for governments given the reduced availability of tariffs and subsidies, but also in light of the major post-Gomery suspicions about procurement. As a policy instrument, procurement is being squeezed – what room is left in the face of international rules and new national regulations is being hotly contested by the information technology and other industries. The chapter shows that the recent explosion of concern about procurement policy has been a result of two separate but interrelated factors. First, with the growing integration of national economies, domestic economies are increasingly subject to regulation and shaping by non-domestic forces – especially international trade agreements. Second, in Canada, growing concern with accountability in contracting, highlighted by the Gomery Inquiry and the ensuing political fall-out, has ensured that all aspects of procurement and related spending policy have been under close scrutiny. Even up until five years

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ago, procurement remained one of the few remaining policy instruments that could be easily manipulated by government to pursue specific objectives both purely economic as well as socio-economic. Increasingly inclusive of procurement requirements, trade agreements began to close that window, and the judgments of the Canadian International Trade Tribunal began to shape the landscape of procurement in terms of bureaucratic choice about how government purchases. The author assesses the recent events associating the rising use of procurement with ISE aims in the context of the historical use of the procurement instrument. It also looks at procurement as a policy instrument, focusing on the environmental policy aspects and how Canada has formulated its ‘greening government operations’ policies. The author concludes that procurement is problematic as a policy instrument for innovation, science and the environment. Given the legacy of using procurement to help support particular industries (such as the aircraft industry), the view that procurement is a critical component for the development of smes in Canada, and also that it functions as a lever for environmental policy through sustainable purchasing and ethical purchasing, procurement been overloaded as a tool for leveraging activity in the domestic context. joan murphy maps the events that lead in 2000 to the transformation of the Medical Research Council to the Canadian Institutes of Health Research (cihr) and analyses the nature, scale and scope of several interconnected issues that gradually contributed to the transformation of health sciences research in Canada. She also considers how this transformation has been evolving since and discusses some of the challenges faced by the cihr over its first 6 years. The chapter shows that many factors bear on the transformation of the mrc to the cihr and how and why publicly funded health sciences are conducted, supported and funded in Canada. Some relate to the expanding continuum of a diverse group of sciences that are directed at health issues. This continuum spans the traditional basic, bio-medical and clinical sciences of the mrc, which in the last couple of decades had become heavily impacted by information and biotechnology. It also includes the newer sciences on health services and systems, population-based health, health policy research, and behavioral, social sciences and humanities research focused on addressing health issues The author shows that now, some six years into the cihr’s ambitiously expanded research agenda and policy objectives, the legend of the event of the mrc-cihr transformation, is being confronted with the realities of contemporary and somewhat impatient notions of evaluation of outcome measurement. This comes at a time when some of the very notions such as commercialization that the cihr was based on are themselves coming under scrutiny. Given the complexity of the cihr’s mandate and of its operating environment and, quite frankly, the

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difficulty of measuring health science outputs relative to their new economic and social objectives, the cihr is at risk of being judged a failure by the same inadequate yard sticks that prematurely declared it a success. derek ireland explores the positive and negative interactions between (i) the intellectual property rights (iprs) of patents, trademarks, copyrights, industrial designs, and trade secrets, and (ii) the design and enforcement of competition policy and law, within the evolving knowledge-based economy and the current Canadian policy context. He examines these debates with reference to developments in Canada over the past 20 years when first Canada’s competition law and, subsequently, most of Canada’s ipr statutes were significantly changed and, in the view of many, substantially reformed and strengthened. These interactions are occurring within the context of the prosperity, productivity, innovation and competitiveness agendas of Canadian governments, and in terms of the priorities of the Conservative federal government. The interactions and frictions between competition policy and the consumer interest on the one side, and intellectual property rights and innovation on the other, is one of those below-the-surface tensions that can be quiet for an extended period, suddenly erupt for a short period, only to become quiet again. Attempting to forecast the time and intensity of the next eruption is nearly impossible. This chapter suggests that these tensions between competition policy and intellectual property rights could arise more frequently in the future, and that some of these tensions hold the potential to touch on the priorities of the current government. The most obvious at this time appears to be the conflict between copyright holders on one side and competition and the consumer interest on the other, in the p2p sharing debate, but other conflicts discussed in the chapter could also arise with little warning in the future. The growing importance of network industries in the knowledge-based economy, and of network effects in more traditional economic activities, will continue to place strains on the abstract view that competition policy and intellectual property rights are compatible and complementary policy regimes. malcolm bird examines the current pressure being placed by political institutions, those in influential positions at universities themselves, and other societal institutions/actors on universities to promote and produce innovations that are commercially viable. The argument in this chapter is critical of the efficacy of commercializing university research and it is based on one fundamental premise: expanding the role of the universities beyond their three principal functions of teaching, conducting basic research and serving the wider community to include commercialization will, almost by definition, limit the resources available to fulfill their three traditional functions. Like all other institutions, universities suffer from resource and energy

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constraints. Requiring universities to perform an additional role, and emphasizing the importance of the new role they are expected to perform, commercializing the research they produce, will automatically reduce resources previously available for the performance of other key functions. Faculty and staff have, after all, only a limited amount of time and energy to dedicate to each particular task. This is, in some respects, a zero-sum game. This is not to say that universities should not adapt and change to our ever fluid societal and economic needs. It is only to argue that before we reconfigure our universities to respond in a larger way to the marketplace and its needs, we ought to very carefully consider all of the possible repercussions.

r e l at e d i s e i s s u e s , prospects and constraints Several other related ISE issues, prospects and constraints warrant a final set of brief observations including those dealt with in other chapters not yet explicitly tied to this chapter’s overall analysis. These centre on: biotechnology policy in both a national and developing country context; regulation and innovation interactions and complexities; and sustainable development at the local and individual level. The two chapters on biotechnology involve linked aspects of federal biotechnology policy on which there is no integrated federal view. The chapter by Abelgafar and Thorsteinsdottir makes a convincing case for significantly expanded biotechnology and s&t elements to Canada’s overall international development policy but argues that it is an area that lacks a coordinated institutional champion that can formulate and deliver on the sophisticated partnerships that are needed. The chapter by Doern examines national regulatory regime transformations needed as biotechnology products and processes shift from a biofood to a biohealth focus. It suggests the need for different regulatory capacities and funding and much greater regulatory cooperation with the us to meet the inherent s&t capacities to properly regulate these products. Both chapters indicate in different ways how the federal biotechnology and policy system lacks a coherence that it will need both to foster markets for a key knowledge economy industry and to regulate it properly and efficiently. Other aspects of the relationships between regulation and innovation emerge in three other chapters on otherwise quite diverse policy fields. Scott Bennett’s analysis shows how the simple presence of a basic new enabling technology, the Internet, created new markets and yet still further regulatory challenges of a deep embedded kind, in this case in the burgeoning Canadian internet pharmacy industry directed mainly at the us market. Complex new commercial interests and the protectionist instincts of older ones are triggered by the technology and by the regulatory puzzles that new entrepreneurial strategies create.

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Derek Ireland’s analysis, on the other hand, deals with an issue where two regulatory regimes, the competition regime and the intellectual property regime, confront different ways in which innovation might be viewed. One implies a static form of efficiency and competition yielding new goods and products for consumers and the other implies more dynamic competition and invention where potentially entire new products or systems of production might quite literally put other firms out of business, This competition-intellectual property nexus is not the stuff of front page public policy nor are political careers made from tackling it or even thinking it through. And yet it is a growing issue as to how this circle of important business framework law and regulatory case handing can be squared both in Canada and globally. Finally, in this set of regulatory-innovation interplay arenas, Barbara Allen deals with the links between innovation and federal procurement policies and rules. Rules about how Ottawa buys are one of the few remaining policyregulatory instruments through which governments might directly intervene to produce other national policy “goods” but also potential “bads”. The “goods” here could be innovations in infrastructure provision that could directly and indirectly help foster sustainable development and environmental improvements. Procurement is undoubtedly an area where reforms could yield important public benefits. But the procurement instrument is also one where either corruption or, more likely still, new forms of distributive “patronage politics” can run rampant, even by a new Government that ran against the previous Liberal regime’s procurement excesses and whose accountability and probity focus is what won it political power. Last but not least, we note the core arguments in the two chapters which provide a focal analysis on still further aspects of any possible reshaped sustainable development agenda. The chapter by Robert Hilton draws important lessons on local/urban sustainable development strategies. His argument is that top-down excessively programmatic initiatives are unlikely to get genuine buy-in from local populations and thus are unlikely to work well and build real capacities. The chapter by Nisbet, Zelensky, and Murphy reach similar conclusions but through a very different analytical route. They focus on the individual psychological underpinnings of human behaviour regarding sustainable development stressing the need for policies and strategies that seriously link individual views and understandings of human beings’ connection with nature. They also look at the federal One Tonne Challenge Program, which the Harper Conservatives cancelled as one of their first actions on taking office. Overall the book shows how ISE polices, rules and institutions are being reshaped or are being ignored or simply downplayed as various Canadian governments seek to manage difficult overall political, economic and social

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agendas. In some of these agenda realms, ISE is front and center and the policy discourse is straightforward. In others, ISE disappears into obscurity or is re-cast in discourse and content into the dark arts of policy avoidance and political gamesmanship and blamesmanship.

notes 1 See Konrad Yakabuski, “Charest’s Carbon Tax Is Campaign Gold,” Globe and Mail, June 28, 2006, 2. 2 See Bruce Doern, ed. Innovation, Science, Environment 2006–2007: Policies and Performance (McGill-Queens University Press, 2006), chapter 1. 3 For a more complete discussion of ISE and its linkages see, Doern, ibid. 4 For analysis, see Bruce Doern and Jeff Kinder, Strategic Science in the Public Interest: Canada’s Government Laboratories and Science-Based Agencies (University of Toronto Press, 2007). 5 See Canada, Federal Science and Technology: The Pursuit of Excellence: A Report on Federal Science and Technology-2003 (Industry Canada, 2003) and Bruce Doern and Richard Levesque, nrc in the Innovation Policy Era: Changing Hierarchies, Networks and Markets (University of Toronto Press, 2002). 6 See Charles Edquist, “Reflections on the Systems of Innovation Approach,” Science and Public Policy 31, 6 (2004): 485–90; Rebecca Boden, Debora Cox, Maria Nedeva, and Katherine Barker, Scrutinizing Science: The Changing uk Government of Science (Palgrave MacMillan, 2004); David Guston, Between Politics and Science (Cambridge University Press, 2000); and Chris Freeman and Luc Soete, The Economics of Industrial Innovation (Pinter, 1997). 7 See Glen Toner, Sustainable Production: Building Canadian Capacity (ubc Press, 2005) and Neil Carter, The Politics of the Environment (Cambridge University Press, 2001). 8 See Francois Bregha, “The Federal Sustainable Development Strategy: Why Incrementalism is Not Enough,” in Bruce Doern, ed., Innovation, Science and Environment 2006–2007: Policies and Performance (McGill-Queens University Press, 2006), 82–104. 9 Special thanks are owed to Glen Toner, Jeff Kinder, Marc Saner, and Robert Best for helpful and constructive comments on an earlier draft of this chapter. 10 For detailed analysis, see Bruce Doern, ed. How Ottawa Spends 2006–2007: In From the Cold – the Tory Rise and the Liberal Demise (McGill-Queen’s Press, 2006), chapter 1. 11 Conservative Party of Canada, Stand-up for Canada (Conservative Party of Canada, 2006), 18. 12 Department of Finance, The Budget Plan 2006: Focussing on Priorities (Department of Finance, 2006), 84–6. 13 Ibid., 84–5. 14 Ibid., 85.

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15 Department of Finance, The Budget Plan 2006, 21. 16 See Clerk of The Privy Council, “Reorganization of the pco,” Privy Council Office, May, 2006. 17 Department of Finance, The Budget Plan 2006, 82–4. 18 See Nic Rivers and Mark Jaccard, “Talking Without Walking: Canada’s Ineffective Climate Effort,” in Burkard Eberlein and Bruce Doern, eds. Governing the Energy Challenge: Germany and Canada in a Multi-level Regional and Global Context (University of Toronto Press, 2007 forthcoming), chapter 11. 19 See for example, Benito Muller,“Climate Change Post-2012: Transatlantic Consensus and Disagreements,” Journal for Energy Literature, 11, 1 (June 2005), and Joseph Stiglitz, “A New Agenda for Global Warming,” Economists Voice, July 2006, 1–4. 20 See Jane Taber, “pm Brands Canada an Energy Superpower,” Globe and Mail, July 15, 2006, 1. 21 See Bruce Doern, ed. Canadian Energy Policy and the Struggle For Sustainable Development (University of Toronto Press, 2005), chapter 1. 22 Quoted in Vancouver Sun, “The World According to David Emerson,” Vancouver Sun, December 30, 2005, D5. 23 Ibid., D5. 24 Ibid., D5. 25 Each of these were also discussed in the first edition of the ISE volume. See Bruce Doern, ed. Innovation, Science and Environment 2006–2007: Policies and Performance (McGill-Queens University Press, 2006), chapter 1. See also chapter 3 by van Beek in this second edition. 26 See Canada, People and Excellence: The Heart of Successful Commercialization (Industry Canada, 2006), 8–18. 27 See G. Bruce Doern, “Looking For The Core: Industry Canada and Program Review,” in Gene Swimmer, ed. How Ottawa Spends 1996–97: Life Under The Knife (Carleton University Press, 1996), 73–98; Technology Partnerships Canada Investing in Innovation: 2004–2005 Year in Review (Industry Canada, 2005); and Technology Partnerships Canada, “Special Operating Agency Framework Document” (Industry Canada, 1999). 28 Technology Partnerships Canada, 2004–2005 Year in Review, 2. 29 Minister of Industry, “Minister Bernier Announces New Technology Partnerships Canada Transparency and Accountability Standards to Protect Taxpayer Interest,” Industry Canada, August 11, 2006. 30 See Debora C. Lopreite, “The Natural Sciences and Engineering Research Council as a Granting and Competitivness-Innovation Body,” in Bruce Doern, ed. Innovation, Science, Environment 2006–2007: Policies and Performance (McGill-Queen’s University Press, 2006), 105–126, and Russell LaPointe, “The Social Sciences and Humanities Research Council: From a Granting Council to a Knowledge Council?” in Bruce Doern, ed. Innovation, Science, Environment 2006–2007: Policies and Performance (McGill-Queen’s University Press, 2006), 127–48 and Bruce Doern, “Changing University and Federal Government Interactions in the Research Granting Process,”

31

31 32 33

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Reshaping an Agenda for ISE

paper presented at the Conference on Universities and the Powering of Knowledge, Carleton Research Unit on Innovation, Science and Environment, Otttawa, October 19–20, 2006. See Lopreite, “Natural Sciences and Engineering Research Council.” See LaPointe, “The Natural Sciences and Humanities Research Council.” For a discussion of these and other parts of the emerging federal s&t Innovation institutional regime, see Bruce Doern, ed. Innovation, Science, Environment 2006– 2007: Policies and Performance (McGill-Queens University Press, 2006), chapter 1. “Address by the Prime Minister at the Canada-U.K. Chamber of Commerce,” July 14, 2006, pmo website, accessed July 28, 2006.

2 The Struggle over Canada’s Role in the Post-Kyoto World1 peter calamai

Coming to grips with climate change has drawn nations into negotiations of a complexity far surpassing such previous global environmental issues as the Law of the Sea. For energy-intense countries such as Canada, the potential economic fallout has produced policy stasis. By examining in detail a previously unpublished federal climate plan prepared for the late November and early December 2005 Montreal climate change conference, this chapter attempts to show that the federal government came close to breaking free of that stasis. As well the plan would have re-established Canada’s credentials as a leader in the climate change field.2 The chapter also shows how partisan political considerations led the new Conservative federal government to distort scientific facts, abandon the promising international initiative and move backward on climate change measures domestically. Both internationally and domestically, policies and programs intended to ameliorate global warming and other manifestations of climate change were in big trouble as 10,000 participants from around the world headed to Montreal in late 2005 for the largest-ever United Nations climate conference. In Canada, a succession of climate plans3 over a decade from the federal government had allocated at least $4 billion to various programs but not stopped the annual upward climb in emissions4 of carbon dioxide, methane and other greenhouse gases (abbreviated as ghg 5). Rigorous forecasts6 concluded that even an expanded federal plan, already projected to cost $10 billion over five years, would still fall well short of reducing annual ghg emissions by the amount necessary for Canada to meet its targets under the Kyoto Protocol, which is currently about 200 million tonnes but could rise as high as 270 million tonnes, depending on the economy and how much existing reduction programs accomplish through 2008–2012.7

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Canada’s Role in the Post-Kyoto World

The Protocol had been hammered out in December 1997 in Kyoto, Japan, as the first substantive step in living up to the promise of avoiding dangerous climate change that lay at the core of the 1992 United Nations Framework Convention on Climate Change (unfccc). Kyoto committed developed countries to reducing their combined ghg emissions to at least five per cent below 1990 levels throughout 2008 to 2012, called the first commitment period. Countries agreed to individual reduction targets, such as Canada’s six per cent.8 Also under the Protocol, developing countries pledged to put measures in place to reduce ghg emissions although they were not bound by Protocol-mandated targets. Nonetheless some, such as China, voluntarily set stringent domestic targets.9 These voluntary targets are often ignored by political leaders in the West who evoke China as a climate change bogeyman to divert public attention from their own inaction. The un climate convention has been ratified by 189 countries, including the us which produces more than 20 per cent of global ghg emissions. Only 164 countries have so far ratified the Kyoto Protocol, with the us and Australia as the holdouts among developed countries. Since only ratifying developed countries are committed to mandatory ghg reductions under Kyoto, the Protocol applied to about 35 per cent of global ghg emissions as of 2005 and that figure was projected to drop to a mere 25 per cent by 2012. Yet scientific evidence is piling up almost daily about the adverse effects of climate change10 and august gatherings of experts are regularly warning that reductions must be many times greater than Kyoto to avoid truly dangerous climate change.11 There is also great urgency to have something in place well before Kyoto expired in 2012 since otherwise the fledgling international market in carbon credits would probably collapse from uncertainty. It was obvious as the Montreal meeting approached that international negotiations must get underway urgently on a successor agreement, one that committed developing countries to mandated reduction targets and that brought the us, into the tent. Yet there was no obvious way forward on negotiating a postKyoto regime. Again both internationally and domestically, the chief obstacle to progress on climate change measures almost always came down to clashes over energy policy and more specifically the production and consumption of fossil fuels, especially oil and coal which are the leading sources of anthropogenic carbon dioxide in Canada and worldwide. The us boycotted Kyoto because Congress deemed unacceptable the possible political and economic costs of even attempting to curb the nation’s fossil fuel consumption. The Liberal government of Prime Minister Jean Chrétien ratified Kyoto in December 2002 despite filibusters in the Commons by the Canadian Alliance as the Official Opposition and vituperative attacks from Alberta Premier Ralph Klein.12 But both Chrétien and his successor Paul Martin were so concerned about offending fossil fuel interests or angering the suv-driving public that their climate change plans were – despite all the hoopla and posturing – essentially

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voluntary schemes with little teeth. As an example of such reticence only after 10 years of talking, strategizing, submitting and studying did the federal government finally move in 2005 to ensure it had the authority to regulate ghg emissions under the Canadian Environmental Protection Act. The lack of political will was at the core of this foot-dragging. In October Martin received a memo about dangerous climate change which he had commissioned from the National Round Table on the Environment and the Economy (nrtee). nrtee was later, as discussed below, to run afoul of the Conservative government, when another climate report was published in 2006. The initial 2005 report singled out the Prime Minister’s Office and the Privy Council Office for failing “to adequately initiate and co-ordinate Canadian strategic policy responses to climate change.”13 The Round Table was merely echoing more authoritative critics such as David Runnalls, president of the International Institute for Sustainable Development. In January, 2005, Runnalls said climate change was “the most consistently mismanaged issue I’ve seen at both the bureaucratic and political level in Canada.”14

the montreal conference and the marti n l ib eral a pproach The Nov. 28–Dec. 9 Montreal climate gathering actually consisted of two formal meetings, entwined like conjoined twins, both held under the unfccc umbrella. The bigger of the two was the eleventh Conference of the Parties to the Convention, abbreviated as cop-11. Slightly smaller was the first Meeting of the Parties to the Kyoto Protocol, which had come into force only on Feb. 16, 2005 after Russian’s ratification the previous November. It was abbreviated as mop-1. In a surreal touch, the black-and-white identifying plaques with each country’s name distinguished those which had ratified Kyoto and were therefore entitled to take part in both mop-1 and cop-11, from those, like the U.S, who had not ratified Kyoto and were officially limited to participating in the cop-11 portion of the gathering. Arrayed outside the Palais de Congress was a three-ring circus of other meetings involving about 7,000 thousand participants from industry, environmental groups, universities, research institutes, aboriginal bodies etc who were intended to transform the unofficial meeting spaces into a climate agora. The Montreal meeting also occurred when there was renewed energy and commitment concerning climate change inside the federal government. The Martin government had assigned primary responsibility for the issue to the Environment department, ending the impasse created when Chrétien had given Natural Resources an equal sway. Earlier in 2005 the government had also unveiled Project Green,15 the latest and most far-reaching of a series of plans to reduce Canada’s ghg emissions.16 As well, the ambitious and politically astute Montreal mp Stéphane Dion had taken over the Environment

35

Canada’s Role in the Post-Kyoto World

portfolio from Victoria mp David Anderson, a committed environmentalist, who had been regularly outmanoeuvred and outmuscled on climate change matters in cabinet. As environment minister of the host country, Dion was automatically president of the unfccc process at Montreal and for the following 12 months. He and his officials began drawing up an ambitious plan for the meeting. By August 2005 they had reduced their Montreal plan to a PowerPoint presentation encompassing 29 slides. Marked Secret, it was entitled “Laying the Foundation for the Post-Kyoto World: Canadian Leadership at the un Conference on Climate Change” and has never been published.17 Late in the month, ec officials briefed at least one committee of the federal cabinet (and perhaps even the full cabinet.) about the proposed strategy and tactics for Canada at the cop-11/mop-1 conference According to several attendees at the committee briefing it seemed obvious that Dion and his Deputy Minister Samy Watson intended to also use the Montreal meeting to move Canada’s own Kyoto efforts substantially forward, with the plan going well beyond Project Green in many aspects. The ec presentation opened with a declaration that “Canada has a strategic interest in successfully pursuing the best climate change system for the future ...” It continued in a similarly self-evident vein: “The goal for the future is to create an [sic] strong international system that is economically attractive and environmentally effective, and that a broad range of countries are prepared to join.” Despite such boiler plate sentiments many aspects of the August plan constituted a major advance on existing federal climate change policies. Publicly the government remained committed to a post-2012 regime which was essentially an expansion of Kyoto – more stringent national reduction targets agreed to by many more countries, especially China, India and the us At its core would be what was called a cap-and-trade approach, where the state sets limits on ghg emissions (the cap) by the biggest polluters, who could either reduce their emissions or buy and sell emission credits in the national or international markets (the trade). These big polluters were dubbed Large Final Emitters, a category that included oil sands operations, coal-fired power stations, mine smelters, concrete plants and steel manufacturing. But privately Dion and Watson were proposing to switch from the existing multilateralism to a sectoral approach that emphasized bilateral deals, promoted through maximizing access to markets and technological fixes. Gone would be the overweening focus on totting up ratification signatures or the need to set national emission reduction targets. Cap-and-trade might survive in some limited form, although this was far from clear. In one regard the plan for the Montreal meeting was an odd one to be championed by an environment ministry. At the time, the highest profile federal climate change program (although not that well known by the public, according to focus groups later18) was the One-Tonne Challenge, an appeal

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Peter Calamai

for ordinary citizens to make lifestyle changes to reduce by one tonne the annual emissions of greenhouse gases generated to support their own activities. Yet the new plan contained not even a passing mention of energy conservation or lifestyle changes as ways to reduce energy consumption, and thus ghg emissions. Similarly there was nothing about environmental stewardship of the Earth nor even the slightest hint of the large and rapidly growing contribution of oil sands development to the nation’s environmental degradation in general19 and greenhouse gas emissions in particular.20 Little wonder then that plan details were still sensitive enough in early October 2005 that Watson argued that their publication in a newspaper would endanger the success not only of Canada’s scheme, but of the un conference itself, then still seven weeks away.21 The twin goals of the Dion-Watson plan were first, to ensure the us did not deny the consensus required under the rules of the Framework Convention for approval of even exploration of a post-2012 regime, much less actual negotiations and second, to win support from other countries for some aspects in a new global system. At the core of the Dion-Watson plan were six “emerging” elements that needed to be covered in any post-2012 global climate change system “that integrates economic realities, sustains growth and development and helps the environment by making broad and deep ghg reductions.” The six elements were: environmental effectiveness, broader participation, advancing development goals in a sustainable manner, building a strong global carbon market, realizing the full potential of technology and addressing adaptation. Behind these bland phrases, however, lay details certain to be controversial at home and abroad. The presentation spelled out, for instance, that “environmental effectiveness” translated as “the deep and broad global emission cuts that science indicates are necessary,” possibly implying something like 60 per cent reductions in greenhouse gas emissions by 2050, the official European Union target. “Broader participation” turned out to be code for extending any new climate change regime to sub-national states, industry sectors, firms and an undefined “entity” category. “Sustainable” was shorthand for consistent with the un’s Millennium Development Goals and the poverty reduction strategies of developing countries themselves. The global carbon market was to be built by maximizing free market forces. Technology’s “full potential” encompassed broad access to intellectual property, strong incentives for the spread of existing technology and direct support for the development and application of “transformative and inclusive” technology. Finally, adaptation to climate change demanded a level of effort “commensurate with risk.” The plan then sketched one version of an “ideal global system” which might integrate those six elements. It was here that Dion and Watson showed just how far they were willing to push beyond anything the federal government had so far mooted in public. The illustrative ideal system contained five components, with

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Canada’s Role in the Post-Kyoto World

substantive details spelled out for only two. Since aspects of this system could still turn up in post-Kyoto proposals, it’s worthwhile to put them on the record here. Global sectoral strategies and targets, which included: 1 Strategies for • setting emission reduction targets. • identifying transformative technologies. • corralling a critical mass of countries “to create an international level playing field.” 2 ghg reduction targets in forms consistent with economic growth, which could mean emissions per unit of output or renewable portfolio standards.22 3 Incentives for developing countries to participate, such as money for mitigation, technology transfer and access to intellectual property rights. 4 Incentives for “entities” in non-signatory states to participate. Their motivation would be an ability to sell into foreign markets denied competitors and gaining a marketing advantage from their environmental track record. 5 Incentives for sub-national governments to participate, assuming their national government approved. Global investment funds to strengthen incentives and attract developing countries, which included: 1 A new pot of official development assistance (oda) called the Global Climate Investment Fund with access conditional on adopting a ghg reduction target. There would be two streams for investment: • large infrastructure projects, application of technologies that promote transformative change and capacity-building to actually implement plans. • emission-reduction technologies to help participating firms in those countries meet sectoral reduction targets. 2 A Global Technology Investment Fund limited to participating countries. It would invest in shared technology development initiatives that supported the strategies of this new global system. 3 A Global Adaptation Fund, also under the oda umbrella, to “assist developing countries with capacity-building critical projects and access to technologies for adaptation. A Compliance regime that offered participants five ways to meet reduction targets: • improving efficiency. • investing in emission-reduction projects in designated sectors. • participating in emissions trading within designated sectors. • purchasing credits from the new Global Technology Investment Fund. • purchasing credits from the new Global Adaptation Fund.

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Peter Calamai

An Oversight approach that relied on existing international bodies to spot audit the country’s [or entity’s?] reporting of ghg emissions. A Trading procedure that used the sector reduction targets as baselines, a major simplification from the Kyoto Protocol process. The plan explicitly pointed out just how this proposed system would appeal to key players like the us (market-based, technology focus, engages major developing countries), the eu (emphasizes significant long-term reductions, flexible implementation, engages us and developing countries), China (growth-oriented, technology development), India (shared technology, adaptation funding) and Brazil (sector approach, adaptation funding.) The presentation emphasized that this “ideal global system” would also pay off domestically in concrete ways: • setting global targets for high-emitting sectors served Canada’s key sectors, such as energy producers, by creating a level playing field. • flexible, global carbon markets matched the reality of Canada-us economic interdependence and our increasing economic ties to China and India. • bigger incentives for the development and application of clean technology played to Canada’s strengths in areas such as carbon dioxide sequestration23 and clean-coal power generation. • global action on adaptation resonated with Canada’a vulnerability from climate change in the Arctic and in agriculture and forestry. The closing third of the presentation outlined tactics that Dion and Watson had already put into play, plus other tactics proposed for wider government implementation. Most were standard fare – a frenetic advance round of bilateral meetings by Dion, selective sharing of a draft resolution, suggested “announceables” such as a new Centre of Excellence for adaptation or carbon sequestration and the choreographing of events outside the Montreal meeting to increase pressure for action inside the formal cop-11/mop-1 sessions. Throughout all four stages of these tactics, “Canada must engage bilaterally with the key players to influence broad international support.” The most key player was, of course, the elephant next door which alone accounted for 20 per cent of global ghg emissions. Even more importantly, other countries took their lead from the negative position of the Bush administration on the Kyoto Protocol. Although not stated explicitly, the most crucial goal of the Dion-Watson plan was to ensure the us did not block any agreement at the Montreal meeting by denying consensus. Senior federal officials and key cabinet ministers had already counted on their fingers. The 2008 presidential elections would dominate the us political scene just as any negotiations on a post-2012 climate change regime were getting down to the crunch. A new us administration, of whatever political stripe, wasn’t going to be really engaged on the

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Canada’s Role in the Post-Kyoto World

subject until at least mid-2009. By then any post-2012 system could have reached what one insider called “the plug-and-play stage.” This computer analogy was meant to suggest that whatever system was devised for global climate change action, it had to be flexible enough that a us administration which had not taken part in its shaping could still find aspects that it could join. The bilateral section of the presentation listed five potential avenues for jollying the Americans along (quoted here essentially verbatim): • identify key players in the Bush administration, state governments and industry. • emphasize and build on positive elements of the us approach, such as technology “collaboratives.” • make a strategic investment in at least one key us technology initiative in order to solidify the relationship – the Carbon Sequestration Leadership Fund, the Methane to Markets program or geoss, the Global Environmental Observation System of Systems.24 • integrate American concerns about energy efficiency and security into climate change dialogue. • strategically use us desire not to be isolated to overcome reluctance to endorse a substantive declaration. Nor did the special consideration for America’s environmental sensitivities end there. By October, Watson was suggesting that Canada would propose that the Asia-Pacific Partnership on Clean Development and Climate be formally recognized under section 7 of the un Framework Convention “to encourage the us to take part in a post-Kyoto regime.”25 Also known as AP6, the partnership was an agreement among Japan, India, China and South Korea – all countries that ratified Kyoto – and Australia and the us, the only two developed countries to boycott the Protocol. Member states in the Partnership pledged allegiance to a “free market and technology” approach to reducing ghg emissions instead of mandatory emission targets. The idea first saw public light at the asean meeting in July 2005 as an Australian initiative but many considered it as the Bush administration’s attempt at a Kyoto end-run.26 Hand-in-hand with the special treatment for the us was a less visible attempt to make that regime, in the language of the Dion-Watson plan, “much less environmentcentric.” On the surface, such a strategy appears more than a little quixotic. The un Framework Convention was born at the 1992 Rio environmental summit and the Kyoto Protocol was triggered by mounting concerns over the environmental fallout from climate change – such as shrinking ice caps and retreating glaciers, more frequent and prolonged droughts, rising sea levels, survival of insect pests in warmer winters, disappearing habitat for rare or endangered species and so on. In the public’s mind at least, climate change was global warming and that equated with an iconic polar bear clinging to the last ice floe.

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But in the Canadian cabinet room, the environment had until recently had little clout. Even politically strong environment ministers, such as Sheila Copps, regularly had sand kicked in their faces by whoever occupied the chairs for Finance, Industry, Natural Resources and Trade. So the DionWatson plan proposed a “whole of government approach” to the build-up for the Montreal conferences and at the two weeks of meetings: “During the unfccc, Canadian Ministers in key economic portfolios could host meetings of their international counterparts (and business leaders) to look at how climate change affects their broader agendas ... This would be a first: it would set an important and much-needed precedent in formally engaging economic ministers in an international climate change event.” While the plans might not have produced an “ideal global system” it was detailed, well integrated and the object of intensive advance preparations. Then on Nov. 28, the very day that the un climate change conference began, the New Democratic Party – supposedly the greenest of the federalist parties in Parliament – forced an election by engineering the defeat of the Liberal government. Fallout from this greatly reduced the chances of success in Montreal. The most obvious consequence was that the Canadian cabinet ministers now had more pressing matters than turning up for photo-ops with their counterparts from other countries. Environmental groups also had other battles to wage, such as campaigning for the Green Party which was running candidates in all 308 federal constituencies. With a federal election campaign underway the major English Canadian news media, with a few exceptions, covered the conference only sporadically.27 Since they were largely spared the public spotlight and much of the customary pressure from environmental non-governmental organizations the delegates were free to posture and quibble over square brackets. The sense of urgency envisioned under the DionWatson plan was almost completely lacking. Yet, to the surprise of many, the Montreal meeting did not end in failure. Agreement was reached on formally implementing the Kyoto commitments as legally binding and on much-needed improvements to specific Kyoto elements, such as the Clean Development Mechanism. Most importantly, in the early morning hours of Dec. 10, the cop-11 session stitched together wording acceptable to the us that would set in motion the process for a post-Kyoto regime.

t h e h a r p e r c o n s e r vat i v e s a n d c l i m at e c h a n g e Three days later, any euphoria would vanish as the Conservative Party released its election platform entitled Stand Up For Canada. The environment proposals occupied a half-page in the 46-page document and led off by criticizing the Liberal government’s environmental record, specifically on implementing the Kyoto Protocol (although the word Kyoto never appears in the

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Canada’s Role in the Post-Kyoto World

document.) “For all the Liberal talk about the environment, they [sic] have done nothing to clean up the environment here in Canada. They sign ambitious international treaties and send money to foreign governments for hot air credits, but they can’t seem to get anything done to help people here at home.” The second sentence signalled three specific elements (plus an overarching disregard for facts) that would continue to resonate in the Conservative approach to the climate change issue: • the claim that the Kyoto Protocol is ambitious. Yet there was near-unanimous agreement worldwide that the treaty’s five per cent reduction target was a stop-gap measure. • the claim that the Martin government had sent money for ghg emission credits to countries such as Russia and the former Soviet Bloc where economic collapse meant emissions were already below the targets for 2008– 2012. In fact no such funds had been disbursed. More to the point, the 2005 Liberal Project Green plan specifically stated that “there will be no purchase of so-called “hot air.”28 • the implication that domestic measures on climate change were paramount to helping “people here at home.” This last distortion exploits the widespread lack of understanding among the Canadian electorate of even the most fundamental fact of global climate change science – since 98 per cent of total ghg emissions originate outside Canada’s borders, the real help for “people here at home” must come from international measures, not domestic ones. The platform then outlined the Conservative environmental proposals in five bulleted items, only one of which dealt with climate change. It promised to “address the issue of greenhouse gas emissions, such as carbon dioxide (CO2), with a made-in-Canada plan, emphasizing new technologies, developed in concert with the provinces and in coordination with other major industrial countries.” That pledge was in line with what the Conservatives had said for months, both in House of Commons debates and on various public platforms, and was as uninformative about details as those previous pronouncements. The really big Conservative climate change move wasn’t in the party platform at all but in the news release distributed along with Stand Up for Canada. The release29 provided details of the Conservative party’s five-year fiscal plan to finance the programs described in the party platform. Under the subheading “Reallocations” were two items listed in millions of dollars. The first read: From the climate change fund to pay for transit pass tax credit

$2,000

Since $2 billion was the total amount earmarked for the fund by the Martin government, this reallocation was tantamount to closing it down. It is a telling

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commentary on political reporting in Canada that when the Harper government later went ahead and made good on this public pledge, the media treated it as something unheralded and environmental activists cried foul, claiming the Conservatives had not indicated they would scrap the fund.30 The allegations from environmentalists were unfair. The Conservatives had never made any bones about their distaste for the Kyoto Protocol, the Climate Fund or the One-Tonne Challenge, which was not refinanced after the funding authorization expired at the end of March, 2006, the end of the fiscal year. Other climate change programs which the Harper government also let lapse had already been identified as ineffective in an internal review by Treasury Board completed in the fall of 2005 but not acted upon by the Martin government before the election.31 The Conservatives were properly vulnerable to criticism, however, on the environmental soundness of encouraging public transit by giving tax credits to regular users. The party platform, for instance, stated that “improved public transit will help both reduce traffic congestion in our urban centres and reduce carbon dioxide and other emissions.”32 Reduce CO2 emissions yes, but only marginally, at less than 100,000 tonnes of carbon dioxide a year, when annual reductions of at least 200 million tonnes were required to meet Canada’s Kyoto target. The estimated cost was about $2,000 per tonne, which meant taxpayers could have benefited from the same emission reductions at one-hundredth the cost by buying carbon credits at the then-price on the international trading market. The outlay could not be justified as a climate change measure. That was the gist of a 10-page “Memorandum to the Minister” presented in late March to the new Conservative Environment minister Rona Ambrose by her senior officials headed by Deputy Minister Watson. The minister, an Alberta mp who had been undistinguished as an Opposition critic, was unhappy with this assessment. Her political aides asked the department’s experts to put some numbers on the clean air and traffic congestion benefits that might reasonably be expected from a 16 per cent tax credit for all transit pass purchases, Option 2 in the first memo, estimated to cost $1 billion over five years. Those numbers were summarized in a two-page, follow-up memo for the minister dated Apr. 4, 2006.33 The calculations and analysis were political dynamite. Not only would the transit pass incentive not lead to any noticeable reduction in ghg emissions, but it would at best have a marginal impact on easing traffic congestion. While transit ridership might plausibly increase between 2.5 and five per cent over the five years, that translated into “a very small increase in absolute terms,” the memo noted, because transit accounts for only 10.5 per cent of all commuter traffic. It continued: “Public transit’s share of commuter travel would correspondingly increase to between 10.76 per cent and 11.03 per cent.”34 Nor would the measure trigger even a one-tenth of one per cent reduction in the production by motor vehicles of two key pollutants that contribute

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Canada’s Role in the Post-Kyoto World

Table 1 Clean air and traffic congestion benefits from transit tax credit Amount reduced (5 year total, in tonnes)

Reduction as a Percentage of National Total

Pollutant Low estimate of impact

High estimate of impact

Low estimate of impact

High estimate of impact

NOx

513.0

1,734

0.0019%

0.0065%

VOC

1,803.3

6,096

0.0056%

0.0191%

175,643.0

593,750

0.0047%

0.0160%

For comparison GHG

Decrease in number of commuter vehicles Low estimate of impact

High estimate of impact

31,227.0

63,887

Decrease as a percentage of total number of commuter vehicles Low estimate of impact

High estimate of impact

0.29%

0.59%

One out of every 346 vehicles

One out of every 171 vehicles

most to urban smog (more correctly, ground-level ozone.) These precursors are nitrogen oxides (written NOx) and Volatile Organic Compounds (voc). With the air of a teacher patiently explaining to a student who hasn’t been paying attention, the memo noted that “emissions (other than greenhouse gases) from new vehicles are very low due to new regulations on cars, pickups, vans and suvs. By 2020, it is expected that the contribution of these vehicles to Canadian ground-level ozone precursors will be less than half a percent (already less than one per cent in 2002) for particulate matter and SOx [sulphur oxides], 6% for NOx (down from 12% in 2002) and 5% for voc (down from 16% in 2002).” This unwelcome news was encapsulated in table 1.35 Despite the calculations by federal officials that the transit tax credit would bring about at best marginal improvements in traffic congestion, do next to nothing to combat urban smog and accomplish only infinitesimal reduction in carbon dioxide emissions at an outrageous cost per tonne, the Harper government opted to proceed with what had been a Conservative campaign promise.36 Nor did it waiver from this course when both the original memo and the follow-up were leaked, giving wide publicity to the unfavourable costbenefit analysis.37 The transit tax credit was formally introduced in the May 2 federal budget with a cost estimated at $370 million over two years. No figures were provided for the expected environmental benefits. But the memo’s contents did prompt one action by Ambrose and Harper: within weeks of the

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briefing the deputy minister at Environment, Samy Watson, was removed and sent to the Privy Council Office “pending his next assignment.”38 That action sent a chill through the Environment Department and the senior ranks of the public service. While Watson could be abrasive and overbearing, he was widely respected as a loyal and gifted mandarin who made sure any analysis for his minister was scientifically sound, even if that didn’t correspond to the politics of the moment. But when a different decision was taken at the political level, he still saw that it was implemented to the best of the department’s ability. Privately, for example, Watson thought setting national ghg reduction targets under Kyoto had been a mistake and should not be part of any post-Kyoto global regime. Yet no hint of those views ever surfaced publicly when Stéphane Dion talked about setting tougher emission targets for post-2012. Several senior Environment officials told this author that the briefing book which Watson handed Ambrose the day she was appointed minister was one of the most comprehensive they’d ever seen. After an initial honeymoon, however, relations between the minister and her deputy soured for reasons that are not clear. One senior Environment official later described a high-level briefing shortly before the transit tax credit memo: “The minister came in and sat at the other end of the table from Samy. Her aide sat in the chair that had been left for her right beside Samy. Ambrose turned her chair sideways so she wasn’t even facing Samy. She didn’t look directly at him once during the meeting.”39 The message that many environmental activists and some federal officials took from the Watson incident was that in the Harper government, ideology could trump science, at least in the climate change arena. The gloominess of this prognosis was deepened by the spectacle of continuing political interference in climate change science by the administration of George W. Bush.40 In Canada, Liberal Party critics and environmental activists also complained about the closing of one federal government climate website and the expunging of the Kyoto Protocol and the One-Tonne Challenge from others.41 As well, activists pointed to supposed links between Conservative insiders and Friends of Science, a loose-knit group of climate change contrarians and “deniers” with headquarters in Calgary.42 While there was no evidence that the Harper government was meddling in climate change research or subverting scientific findings, its approach to any post-Kyoto regime through its first seven months in office was definitely coloured by Conservative ideology and political considerations for winning a future parliamentary majority. It didn’t help that these ideologically and politically influenced positions were accompanied by significant factual misstatements. Consider the pronouncements from Harper and Ambrose about national emissions of greenhouse gases. On April 7, in reply to a friendly question from a Conservative backbencher, Ambrose told the Commons that Canada’s emissions were “actually up by 30 per cent.”43 In comments to reporters outside the

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Commons, Ambrose made clear she was talking about an increase above 1990 levels, the base year for Kyoto reduction calculations. On April 25, Prime Minister Harper weighed in on the topic, saying “… the previous government left us with billions of dollars worth of programs on Kyoto, but no results. Our greenhouse gas emissions have in fact increased by 30 per cent over the targets this [sic] government had set.”44 In fact, according to the Government of Canada’s greenhouse gas inventory for 200445 submitted mid-April to the office of the un Framework Convention, both ministers were throwing around inaccurate statistics. The increase in ghg emissions between 1990 and 2004 was 26.6 per cent, not 30 as Ambrose said. And those 2004 emissions were 34.6 per cent above the Kyoto target, not 30 as Harper said.46 Even more striking was the statistic which both ministers failed to quote, the 0.6 per cent rise in Canada’s ghg emissions between 2003 and 2004, one of the smallest annual increases recorded. This omission makes it unlikely that Ambrose and Harper were simply “rounding” the nation’s most important climate change statistic. There were other instances of what Winston Churchill once wryly called “terminological inexactitudes,” including repeated suggestions that many others among the 35 Kyoto signatories were also unable to meet their reduction targets. On the ctv show Question Period May 21, Ambrose said: “There’s 19 countries that have not been able to put forward a report, including Canada, to show demonstrable progress in reaching their targets.”47 The actual facts, contained in a May 9 un document48, were that only eight countries failed to file such reports by a Jan. 1, 2006 deadline. Among the 27 countries reporting, nine had already met their Kyoto emission reduction targets. If these were examples of ideology and reckless disregard for climate change facts playing out domestically, a May 15-26 meeting in Bonn showed the same influences having an impact internationally. This was a regular mid-year session for the 189 unfccc ratifying countries, gathered as the socalled Subsidiary Bodies. But this time the stakes were higher than usual. After the last-minute agreement in Montreal to move ahead on a post-Kyoto regime, the Bonn session was supposed to determine how to get the ball actually rolling. With the change of government in Ottawa, Ambrose had automatically taken over from Dion as president until the cop-12 meeting in Nairobi late in 2006. Despite Canada being in the chair at the two-week Bonn session, Ambrose stayed only two days, delivering an opening address, holding two bilateral meetings and then flying out.49 One possible explanation for treating this crucial session as a touch-and-go emerged a few days later when newspapers in Canada reported details of the Harper government’s 22 pages of instructions to the Canadian delegation in Bonn. The instructions dealt specifically with Canada’s negotiating position at the Ad Hoc Working Group for Annex 1 Parties (awg), the meeting-within-a-meeting that was

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supposed to lay out a timetable and work program for the actual negotiations on a post-Kyoto regime. They included: 50 • “Canada does not support a continuation of the status quo beyond 2012 and has no preconceived view on how a new commitment period might be structured.” • “Canada would not find a more stringent target than the one it currently has to be acceptable and will resist any pressure to take on a more stringent target throughout the negotiations under awg.” • “Canada will not support agreement or language in the work program that commits developed countries to more stringent targets in the future.” • [Canada will not support] “initiating a process that culminates in an agreement on a specific long-term and/or concentration goal.” • “Canada does not support the creation of a new capacity building fund or additional resources for the implementation of the Kyoto Protocol.” Overarching all this negativity was the Conservative government’s preference (declared in the same instructions) for the Ad Hoc Working Group to spend “at least two years” assessing what aspects of the Kyoto Protocol had worked and what hadn’t. “Moreover Canada will not support agreement on specific timelines for the completion of the work of the awg.”51 Taken all together, the Conservative position amounted at best to support for a voluntary post-2012 regime without specific reduction targets for ghg emissions, unlike the Dion-Watson plan. The insistence on a minimum two-year assessment period was the sleeper. The Conservatives too had counted on their fingers and calculated that the reality of a presidential election in 2008 meant no us government would give serious attention to an international climate change agreement before mid-2009. Yet Ambrose repeatedly made clear in interviews that any post-Kyoto regime had to include “all countries,”52 “all our international partners.”53 In effect, the Conservative government was making us participation in a un climate treaty a condition for Canada’s own, knowing that such participation was highly unlikely within the next three years.54 Some observers feared the Conservatives could be setting up a scenario to get out of the un climate system to instead negotiate a North American agreement on ghg emissions.55 This could be organized along the lines of the European Union “bubble” which sets an overall target for the eu but allows disparate targets for member states. As support for this view consider that a pledge to co-ordinate climate policy on a North American basis was added at the last minute to the March 31, 2006 communiqué from the Cancun summit of Mexico, the us and Canada, dubbed the Security and Prosperity Partnership.56 Or instead, the Harper government might be part of a wider effort to disengage the fora where a post-Kyoto regime is negotiated

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from the un as the implementing body. In this scenario the real negotiations could take place as part of the g8+5 dialogue or within an enlarged AsiaPacific climate partnership.57 There was always the possibility, of course, that the instructions were merely the Harper government’s cautious opening salvo in the international negotiations for a post-Kyoto arrangement. Many federal officials remembered only too well the recklessness of the Liberal government during the final negotiations at Kyoto in December 1997. In prior talks with the federal government, the provinces had been adamant that Canada should not agree to any target more strict than reducing ghg emissions to 1990 levels. But the Clinton administration, spurred by environmentalist and Vice President Al Gore, then told the negotiating session that it would reduce emissions at least five per cent below 1990 levels. Not to be outdone, Prime Minister Jean Chrétien ordered federal officials to offer an even tougher target for Canada of six per cent below 1990 levels. During the negotiations Canada also had not exacted any credits for exporting “clean” forms of energy, such as hydro power and natural gas, and had been outmanoeuvred on the issue of managed forests as natural reservoirs or “sinks” for carbon dioxide. Once bitten, twice shy might well be justified as the Conservative watchword this time. But the signals about climate change policy from the Harper government during the summer of 2006 threw doubt on such interpretation. First, on June 21 came a comprehensive report on long-term energy and climate strategy from the National Round Table on the Environment and the Economy. Established in 1994, the round table is an independent advisory body whose members are approved by the federal cabinet. Membership includes leaders from universities, labour unions, aboriginal communities, the environmental movement, municipalities and – particularly relevant in this case – business. Among the 15 round table members who approved the June report were David Kerr, chair of Falconbridge Ltd., Patrice Best, ceo of Luscar Ltd., Canada’s largest coal producer, and Steve Williams, executive vice president for oil sands of Suncor Energy Ltd. In a nutshell, the group’s report said that over the long term Canada could eat its cake and have it too.58 “Even with a growing economy and increases in oil sands production, Canada can lower greenhouse gas emissions over the next 45 years by as much as 60 per cent from today’s levels using existing technologies.” Two-thirds of this reduction would come from increased energy efficiency. And all this with population rising to 45 million, the economy more than doubling in real terms and oil and gas production outstripping any growth in domestic demand in order to provide exports to the us The round table’s chair Glen Murray told a news conference that Environment Minister Ambrose had already welcomed the group’s proposed approach in a briefing. “We’re singing to the choir when we talk with her,” he said.59 Such optimism seemed justified; the report tracked Conservative ideological

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preferences – reliance on technological fixes like carbon capture and sequestration, no penalization of petroleum-producing provinces, no mandatory emission targets, no trade disadvantage vis-à-vis the us, no purchases of “hot-air” emission credits, keeping nuclear energy but boosting wind power, switching to “clean-coal” at power stations. As well, it was a completely made-in-Canada solution. Alas for the Round Table, in this instance partisan politics trumped not only sound science but also Conservative ideology. Asked a few days later about the report by the cbc’s Susan Bonner, Prime Minister Harper almost spat into the microphone, declaring he wasn’t taking advice from a “Liberal appointee.”60 Then in early July, a closed-door conclave of the federal government’s deputy ministers was informed by pco officials that the Harper government planned to introduce its own version of Brian Mulroney’s 1990 “Green Plan”61 in the fall. Most of the supposed contents are identical to the environment “plan” outlined in the Conservative election platform:62 • A Clean Air Act targeting smog precursors such as nitrogen oxides (NOx), sulphur dioxide (SO2) and particulate matter.63 The SO2 reductions would be trumpeted as action on acid rain as well. • Water quality actions ranging from aquifer mapping and banning transfers between basins to imposing “substantial” penalties for illegal bilge oil dumping. • A clean-up of contaminated federal sites (a program included in the last two Liberal budgets) and “encouraging” the private sector to tackle brownfields. • Legislating an average of five per cent renewable content in gasoline and diesel fuel, meaning substances such as ethanol and biodiesel. This particular aspect has already been announced by Ambrose in May. And finally, that elusive, made-in-Canada plan to address greenhouse gas emissions and climate change. One of the few concrete details known about the plan was revealed in the May 2, 2006 budget: it is going to cost $2 billion over five years, one-fifth of the projected cost for the last iteration of the Liberal plan over a similar period. But as this chapter is written in early August 2006, most other details remain little more than rumour and speculation, not only among environmental activists but even among climate scientists in the federal Environment department.64 It’s probably safe to bet, however, that the climate change elements in the Son of Green Plan will lean heavily on technological fixes like “clean coal” and carbon capture and sequestration.65 The Conservatives will avoid setting meaningful ghg quotas for the big polluters in the petroleum and electricity sectors. There will probably be more emphasis on adapting to climate change and no new money for the Kyoto Protocol programs to spur carbon dioxide reductions in developing countries. There will be a promise to reach agreement

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Canada’s Role in the Post-Kyoto World

with the provinces – especially the oil-producers – about any new climate change initiatives and likely a renewed effort to join the Asia-Pacific Partnership on Clean Development and Climate. Some aspects of Alberta’s Climate Change Central model66 will probably be rolled out under federal auspices as a clearing house for local, small-scale programs to replace those cancelled early in the Harper mandate. Probably as safe a bet is that Son of Green Plan will not incorporate elements from the sector-based approach proposed by Canada at Montreal. A preliminary analysis by the Center for Clean Air Policy67 concludes that global ghg concentrations could be held to 450 parts per million68 in 2020 by using “carbon intensity” targets for industrial sectors such as electricity, steel, petroleum and cement. But the scheme would be by no means the slam-dunk suggested by the Dion-Watson outline.

c o n c lu s i o n s This chapter has looked at the struggle over Canada’s role in a post-Kyoto Protocol world through an examination of the previously unpublished Liberal federal climate plan prepared for the 2005 Montreal climate change conference. It shows that after a decade of Chretien and Martin Liberal government timidity, the federal government came close to breaking free of its deep policy stasis. The Dion-Watson plan would have re-established Canada’s credentials as a leader in the climate change field. The chapter has also shown how partisan political considerations led the new Harper Conservative federal government to distort scientific facts, abandon the promising international initiative and move backward on climate change measures domestically. Despite predictable rending of garments and gnashing of teeth by the environment movement, the Harper government can be justifiably confident that its limited Son of Green Plan will be a political winner with the public. Focus groups held across the country in the summer of 2006 revealed that, outside of Quebec, a majority of Canadians said they had never heard of the term “Kyoto,” had no recollection of environment action by previous Liberal governments (including the One-Tonne Challenge program) and were unaware that the Harper government had declared Canada would not meet its Kyoto commitments.69 The survey firm concluded that the government’s message of a made-in-Canada plan to tackle pollution in general sounded like action and was much closer to public sentiment than messages from environmental groups about something vague called climate change. One of the clearest hints of the continuing driving force in any Conservative government climate change policy was thrown out by Prime Minister Harper in an address July 14 in London to the Canada-U.K. Chamber of Commerce prior to attending the g-8 summit in St. Petersburg, Russia. He told Chamber members that Canada is “an emerging energy superpower”

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with “an ocean of oil-soaked sand ... under the muskeg of Northern Alberta – my home province.”70 Perhaps not surprisingly, the concept of Canada as an energy superpower has been championed by the Energy Dialogue Group, a pro-development lobby of a score of associations in the energy industry.71 Perhaps equally unsurprising is that the group has not championed a climate change plan for Canada. Add this adopted vision of Canada as an energy superpower to the overriding Conservative concerns about alienating the oil-producing provinces of Alberta and Saskatchewan. Then throw an apparent proclivity to let partisan rhetoric trump scientific facts. The upshot is that many observers – and not solely environmental activists – are saying that Canada will be fortunate to reduce greenhouse gas emissions to 1990 levels (not below) by 2020 (not even 2012). Therefore, farewell to any hope for enlightened leadership that would have encouraged major reductions by the rest of the world, whose 98 per cent share of global ghg emissions is poised to inflict a dreadful environmental legacy upon Canada.

notes 1 I am indebted to several senior officials of Environment Canada, some now retired, for information about government climate change programs and policies provided on a not-for-attribution basis over the past few years. Unfortunately in the current charged political atmosphere they cannot be named. Among those who can be identified, Gordon McBean, former head of the Canadian Meteorological Service, now at the University of Western Ontario, and former wmo deputy chief Jim Bruce have been unfailingly helpful. My thanks also to veteran environmental campaigner Louise Comeau for many helpful suggestions and similarly to John Stone, a Canadian member of the ipcc bureau. The final version benefitted from a critical reading by David Andrews, a University of Toronto statistics professor, and Peter Gorrie, the Toronto Star environment reporter. Crucial computer help was provided by Jennifer Coté. 2 The first warning from international scientists about the deleterious effects of climate change was written primarily by Canadian Jim Bruce at a 1985 gathering in the Austrian town of Villach. In November 1988, an international scientific conference in Toronto organized by Canada’s meteorological service issued the first call for major reductions in ghg emissions. 3 The 1995 National Action Plan on Climate Change, Action Plan 2000 on Climate Change, the 2002 Climate Change Plan for Canada and Project Green in 2005. 4 Environment Canada, “Canada’s 2004 Greenhouse Gas Inventory,” Environment Canada, Ottawa, 2006. 5 Only anthropogenic sources of greenhouse gases are included in climate change programs and in modeling of the impact of ghg emissions. That means gases whose production is linked directly to human activity, ranging from driving cars to rearing cattle.

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6 “Modelling of Greenhouse Gas Emissions Reductions in Canada Phase 2, Final Report,” by MK Jaccard and Associates, Vancouver, B.C., December, 2004. Prepared for Sage Climate Foundation and the International Institute for Sustainable Development. 7 Canada’s Kyoto target is 563 million tonnes of greenhouse gas emissions expressed as CO2 equivalent. In 2004, the most recent year for which figures are available, federal government calculations put national ghg emissions at 758 million tonnes, leaving a current gap of 195 million tonnes. The 270 million tonne figure is an extrapolation published by the federal government in April 2005 based on Business as Usual projections (Environment Canada, Project Green: Moving Forward on Climate Change – A Plan for Honouring our Kyoto Commitment, (Environment Canada), 12.) 8 Imprecise reporting about Kyoto commitments has led to a widespread view that reduction targets need only be met sometime between 2008 and 2012, often given as the midpoint of 2010. In fact the Protocol requires that emissions must be reduced by the target amount on average over all five years. Any shortfall in one year is tacked onto the overall target. 9 China’s Kyoto target includes 20 per cent improvement by 2010 over 2005 levels in energy efficiency per unit of gdp, 15 per cent of total capacity from renewable sources by 2020 and efficiency standards for 16 classes of vehicles. 10 Perhaps the most comprehensive of an Everest of such reports, the Millennium Ecosystem Assessment, was issued in March 2005. It was a synthesis of the views of 1,360 experts from 95 countries, patterned after the seminal reports of the Intergovernmental Panel on Climate Change. Ecosystems and Human Well-being Synthesis, Island Press, Washington D.C., 2005. 11 “Avoiding Dangerous Climate Change: International Symposium on the Stabilisation of Greenhouse Gas Concentrations,” held Feb. 1-3, 2005 at the Hadley Centre of the U.K. Met Office in Exeter, U.K. Reported at the time in the Toronto Star by this author. Report of the International Scientific Steering Committee published in December, 2005 by Cambridge University Press. 12 Regarding global climate change, Klein suggested in a speech in 2002 that it was just as likely that “dinosaur farts” caused the Ice Age. 13 “Advice to the Prime Minister in Advance of cop 11.” Posted Oct. 24, 2005 at www.nrtee-trnee.ca. 14 Quoted in “If One Kyoto Plan Not Enough, How about Four?” Peter Calamai, Toronto Star, Jan 22, 2005, F3. 15 Project Green – Moving Forward on Climate Change: A Plan for Honouring Our Kyoto Commitment, Government of Canada, 2005. 16 Mark Jaccard, a Simon Fraser University professor specializing in energy issues, has calculated that the domestic programs in Project Green would meet only 30 per cent of Canada’s Kyoto commitment. Mark Jaccard, Burning Our Money, The Globe and Mail, June 7, 2006, A21. 17 Printout in the author’s possession. 18 See discussion below.

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19 To produce one barrel of oil from the oil sands requires mining 4 tonnes of material, despoiling 2 to 5 barrels of water in the extraction and burning enough natural gas to heat a home for a day and a half. See Dan Woynillowicz, Chris Severson-Baker, and Marol Raynolds, Oil Sands Fever: The Environmental Implications of Canada’s Oil Sands Rush (Pembina Institute, 2005). 20 For 2006, CO2-equivalent emissions from the oil sands are estimated at between 32 and 34 million tonnes. See Matthew Bramley, Derek Neabel, and Dan Woynillowicz, The Climate Implications of Canada’s Oil Sands Development (Pembina Institute 2005). 21 Interview, Oct. 8, 2005. A constrained article by this author appeared Oct. 11 in the Toronto Star “Hopes High for Montreal Conference,” A4. 22 Renewable Portfolio Standards are enacted at the state or provincial level and require a certain percentage of a utility’s power plant capacity or generation come from renewable sources by a given date. 23 Using carbon capture and storage received a boost Sept. 25 with a positive Special Report from a group of experts convened by the Intergovernmental Panel on Climate Change. One of the authors was David Keith, a University of Calgary professor. 24 Two weeks before the Montreal meeting began, Environment Minister Dion said Canada would contribute to geoss. 25 Interview, Oct. 8, 2005. 26 In November, White House environment aide James Connaughton told eu officials that the Bush administration intended to sign dozens of such technology partnerships as its contribution to tackling global warming. Canada Eyes Joining/ us on Kyoto Plans, Peter Calamai, Toronto Star, No. 25, 2006, A13. 27 cbc radio, The Montreal Gazette, and the Toronto Star were the only English language outlets to staff the conference from beginning to end. 28 Project Green, 23. 29 Conservative Party of Canada, “Harper releases plan rooted in Canadian values: Integrity, family, respect for work, achievement – Canada strong and free,” Conservative Communications email, Jan. 13, 2006. 30 Originally called the Clean Fund and renamed the Climate Fund in the 2005 Project Green. None of the $2 billion nominally earmarked for the fund had been allocated by Treasury Board when the election was called in November. 31 Martin Mittelstaedt and Michael Den Tandt, “Ottawa Plan Hacks Green Programs,” The Globe and Mail, Apr 13, 2006, A1. 32 Conservative Party of Canada, Stand Up for Canada, 37. 33 Copies of original and follow-up memos in author’s possession. Both marked Confidential. 34 Taking this estimate to two decimal places is a shining example of what mathematician John Allen Paulos terms “false precision.” One number used in the calculation is given only to one decimal place (10.5) and the other is an estimate with a possible variance of 100 per cent (2.5 to 5). Perhaps Minister Ambrose had some cause for her subsequent rejection of the analysis.

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35 Table rekeyboarded from original, retaining erratic capitalization and irregular formatting in line breaks. 36 Conservative Party of Canada, Stand Up for Canada, 37. 37 The environmental campaigner who provided the documents to the media told the author in an interview in July that the source was a federal government official, but not Environment Deputy Minister Samy Watson as had been widely rumoured at the time. 38 pmo announcement May 5, “Prime Minister Announces Changes in the Senior Ranks of the Public Service.” On Aug 11, Watson was appointed executive director for Canada, Ireland, and the Caribbean at the World Bank. 39 Interview, April 2006. 40 Andrew C. Revkin, “Climate Expert Says nasa Tried to Silence Him,” The New York Times, Jan. 29, 2006, p. 1. 41 Joseph Hall, “Tories Axe Website in Kyoto Assault: Liberals,” Toronto Star, Aug. 5, 2006, A4. 42 “Conservative/Alberta pc Operative Backs ‘Friends of Science’,” news release from Kevin Grandia, manager DeSmogBlog, emailed June 8, 2006. 43 Hansard, online version accessed May 24, 2006. 44 Hansard, Apr. 25, 2006, 491. 45 Although prepared by early April and submitted to the unfccc office by the Apr. 15 deadline, the 2004 greenhouse gas inventory was not made public until an Environment Canada media release issued on May 11. 46 The prime minister had actually made the same erroneous claim as Ambrose – that emissions had risen 30 per cent since 1990 – much earlier, in a scrum in the Commons foyer on March 28. Transcription prepared for Parliamentary Press Gallery by Media Q Inc. 47 ctv emailed transcript of May 21 Question Period broadcast. 48 “Synthesis of reports demonstrating progress in accordance with Article 3, paragraph 2, of the Kyoto Protocol,” Subsidiary Body for Implementation, un Framework Convention on Climate Change FRCCC/SBI/2006/INF.2, May 9, 2006. 49 Canada Newswire news release C9362, from the Office of the Minister of the Environment, May. 16, 2006. 50 Excerpts provided by one of the environmental ngos to whom the confidential instructions were leaked by a member of the Canadian delegation in Bonn. 51 Ibid. 52 ctv May 21 Question Period transcript. 53 Brian Laghi and Martin Mittelstaedt, “Kyoto Backslide Sparks Furor,” The Globe and Mail, May 22, 2006, 1. 54 The Conservatives also wanted participation in any post-2012 regime by China, India, Brazil, and other major ghg producers not subject to mandatory reductions under the Kyoto Protocol. 55 Interview with Louise Comeau, July 16, 2006. 56 Leaders Joint Statement, pmo website, accessed July 28, 2006. 57 This scenario ignores the realpolitik that China, India, and Brazil have more negotiating clout inside the un system, with its consensus approach, than outside.

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58 National Round Table on the Environment and the Economy, Advice on a Long-Term Strategy on Energy and Climate Change,” (National Round Table on the Environment and the Economy, June, 2006). The 32-page document was derived from a commissioned paper, “Energy-Related Greenhouse Gas Emissions in Canada in 2050 – A Low Emission Scenario,” (icf International, May 2006). Chief author of the scenario was Ralph Torrie, a climate change consultant and activist for two decades. 59 Peter Calamai, “Panel Supports Nuclear Future,” Toronto Star, June 22, 2006, A6. 60 Appointed round table chair by the Martin government in March 2005, Glen Murray was a former Winnipeg mayor recruited as a Liberal “star” in the June 2004 federal election who failed to get elected as an mp. 61 Not-for-attribution interview July 6 with Environment Canada climate policy official. Green Plan proposal first revealed publicly on July 11 by Toronto Star columnist Jim Travers (“Harper’s Three Priorities for Fall/Taking Leaf from Mulroney Playbook, Son-of-Green Plan Is on pm’s to-Do List,” A17. 62 Conservative Party of Canada, Stand Up for Canada, 37. 63 Probably particles about 2.5 microns in diameter, but not specified. Scientists are becoming more concerned about health effects from particles one-tenth that size. “On the trail of tiny pollutants,” Peter Calamai, Toronto Star, June 17, 2006, F4. 64 One such researcher, acknowledged internationally as a leader in his particular field, told the author that he and his colleagues hoped they might at least be allowed to comment on the plan after it had been developed, apparently without any call upon their scientific expertise. 65 The Partnership Fund in the 2005 Liberal climate change plan earmarked $250 million to subsidize a pipeline to carry carbon dioxide several hundred kilometres southwest to suitable geological reservoirs in the Foothills. 66 www.climatechangecentral.com. 67 “Sector-Based Approach for ‘Post-2012’,” Ned Helme, Center for Clean Air Policy, printout of a PowerPoint presentation given in Montreal, Nov. 29, 2005. 68 Pre-industrial ghg levels were 190 ppm, current levels are 290 ppm, and danger levels generally considered to be approaching 500 ppm. 69 “Presentation of Qualitative Research Results: Climate Change,” Gandalf Group, July 18, 2006. Commissioned by the Canadian Centre for Policy Ingenuity and Sage Climate Foundation. 70 “Address by the Prime Minister at the Canada-U.K. Chamber of Commerce,” July 14, 2006, pmo website, accessed July 28, 2006. 71 www.energydialoguegroup.org.

3 Canadian Innovation in a Changing World: Towards Better S&T Priority-Setting j a c va n b e e k “It has become increasingly clear that humanity has the resources to address its global challenges; what is less clear is how much wisdom, good will, and intelligence will be focused on these challenges” State of the Future, 2004

Canada’s investment in public science and technology development is relatively modest in comparison with other major economies. However, the returns on our science investments have always been impressive and important in defining the character and competitiveness of the country. In a more globally competitive environment, an innovation system that can tackle a growing number of complex economic problems and enable technological convergence is fundamental to enhancing the economic state of the nation. The ability to establish science and technology priorities is a prerequisite – yet we appear unable to do so. This chapter examines this key problem of s&t policy and institutional priority-setting in several steps, commencing with an examination of the core innovation, productivity and competitiveness imperative. Our capacity to innovate begins with an examination of Canadian r&d investments in a comparative context, followed by a brief stocktaking of the diverse and complex drivers of current innovation and technology development, and then evolving to an examination of the core capacity of Canada’s national innovation system to contribute. The chapter then highlights the fragmented nature of Canada’s innovation eco-system and concludes with suggested steps to better integrate that system.

t h e i n n o vat i o n , p r o d u c t i v i t y, a n d c o m p e t i t i v e n e s s i m p e r at i v e Canada’s macro economic performance has been marked by a string of impressive surpluses for the federal government. A comparative review of oecd

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economies for 20041 underlies the strength of the nation as Canada outperformed the oecd average for 30 democracies (in brackets) in the following important indicators: • • • • •

Tax revenue – 33.8% of gdp in Canada (36.3%); gdp/capita – $31,395 ($28,486); Unemployment rate – 5.6% in Canada for 2005 (6.9%); Deficit – 0.68% of gdp surplus in Canada (-3.57% deficit); Government gross financial liabilities – 72.2% of gdp in Canada (76.3%); and • Inflation – 2.2% change in 2005 (3.4%).

However, in terms of competitiveness, Canada’s share of world trade in the period 1999–2003 declined by 0.7%, mainly due to a stagnation in Canadian manufacturing and weakness in the high technology sector. On the Business Competitiveness Index, Canada fell from 5th in 1990 to 12th in 2003 to 15th in 2004 – among the larger economies, Canada has fallen from 5th to 8th. On the Growth Competitiveness Index, Canada improved slightly from 16th to 15th but we improved overall on the basis of just one of three measures – that for “public institutions”, where Canada moved from 24th to 18th. However, on the macroeconomic stability factor, Canada fell from 11th to 18th. On the technology factor, a key indicator of Canada’s innovativeness and confidence, Canada’s rank fell from 11th to 13th as Korea and Singapore continue to move up and displace Canada amongst others. Productivity is the basis on which prosperity is built and the most important factor in determining the standard of living.2 If productivity declines over time, investment will be harder to attract and those keen to produce new goods and services will do so elsewhere. This loss of investment, in turn, reduces innovation potential through diminished science and technology activity and thus further erodes our ability to compete (see Chart 1) and thus our standard of living. While economic growth is not the only factor in a review of social well-being, a declining standard of living has social, political, environmental and community implications. Productivity fell from an average of 4% growth per year in the period 1946–1973 to 1.4% in the period 1973–2003. In October 2004 the Conference Board of Canada pointed out that American workers on average produce more than $6,000 per person in goods and services than their Canadian counterparts. The suggested reason for this is that overall labor productivity in Canada is 18% less than the us; 3 though in some sectors it is much higher.4 In comparison to fellow oecd member countries, Canada has fallen from second place in productivity behind the us to thirteenth over the last decade, in part because of the following:

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Chart 1 Virtuous Prosperity Loop

(fierce)

Competition (spurs)

(freeing up)

investment funding (to ensure on-going competitive advantage)

The virtuous circle of the new economy

innovation (in technology and business processes)

(giving rise to)

productivity growth (as innovations spread across sectors quickly)

• Canadian manufacturing productivity has been declining since 1981 – Canada has had the weakest productivity performance of any country in the G7 and it continues to decline – hovering around 75% of that found in the us;5 • The sharp decline in the productivity of the Canadian it sector relative to its us counterparts accounts for most of the difference between Canada and the us; • Service sector productivity is lower than in the us and continues to lose ground, partly because this sector is smaller in proportion to the Canadian economy than the us service sector is to its economy; • While the innovation gap is narrowing between the us and Canada – as measured by the proportion of the gdp dedicated to research and development6 – Canada invests 1.6% of gdp in research and development as compared to 2.45% in the us (still a significant difference). Parity with the us and achievement of declared performance targets, would require an annual productivity improvement of some 2.2% or 25% over the next decade. At current rates of improvement, Canada will more likely gain 12% – 14% in productivity over this time.7

c o m pa r at i v e n at i o n a l i n v e s t m e n t s i n r&d Unlike Canada, many competing countries invest more aggressively and target their investments in defined areas of priority (see Tables 1 and 2).

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Table 1 Comparative national r&d investments8

Ratio to gdp (%) 2000 2004 Finland Japan usa Korea Chinese Tapei Germany Singapore Canada uk Australia China India*** and ****

3.38 2.99 2.74 2.39 2.06 2.45 1.89 1.93 1.86 1.56 1.00

3.48* 3.15* 2.68 2.63* 2.50** 2.49 2.25*** 1.93 1.88* 1.69* 1.31***

0.50

1.08*

2004 r&d expenditure (million ppp $)

2004 r&d expenditure based on the figure ‘1’ for Canada

r&d expenditure per person (ppp dollar)

5,205.0* 112,714.7* 312,535.4 24,273.7* 13,493.6 58,687.6 2,659.7 19,326.5 33,705.7* 9,608.6 102,622.9

0.27 5.83 16.17 1.26 0.70 3.03 0.14 1.00 1.74 0.50 5.31

998.5 883.2 1,063.2 507.3 586.7*** 711.4 664.9*** 605.0 566.0 474.9 79.2***

3,631.9*

0.19

3.5***

Source: Office of the National Science Advisor of Canada, May, 2006 and oecd, Main Science and Technology Indicators, 2005/2. *Figures are for 2002–2003. **Government Information Office, Republic of China (www.gio.gov.tw). ***World Bank (2004) (web.worldbank.org). ****World of Science; 2004 and National s&t Management Information System, Department of s&t.

Competitor countries are investing more strategically and reallocating their r&d funds in priority areas (Table 2). A handful of others are striving to evolve to knowledge intensive economies by investing significantly in fundamental research to move from manufacturing to value-added production and a stronger knowledge base (see Singapore, Chinese Taipei, and Korea).

diverse and complex drivers of i n n o vat i o n a n d t e c h n o l o g y Drivers of innovation and technology are both diverse and complex, including: • Continuous demands for improvements in the human-technology interface; • Rising costs of health care; • An ageing population (creating demands for productivity and services that meet their social, physical, educational and nutritional needs); • Conserving and improving the quality of the water and energy supply;9

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Table 2 Comparative national r&d targets and strategies 2004 %gerd/ gdp

Target

Japan

3.15*

Increase r&d investments

usa

2.68

Increase r&d investments

Korea

2.63*

Increase knowledge base

Chinese Tapei

2.50**

Reach 3% gdp by 2008

Germany

2.49

Reach 3% gdp by 2010

Singapore

2.25***

Reach 3% gdp by 2010

uk

1.88*

Reach 2.5% gdp by 2014

Australia

1.69*

Reach 2% gdp by 2010

China

1.31***

Reach 2% gdp by 2020

India***

1.08*

Reach 2% gdp by 2007

Areas of Focus

Strategy

Life sciences, ict, Environment, Nanotechnology Physical sciences, Engineering, Energy, Science Education Fundamental Science, Specific Market Needs, Metallurgy, Ceramics Value-added products, semiconductors digital content, high tech textiles, biotechnology New Technologies, it, Life Sciences, Health Research

Invest $210B/5 yrs. in r&d, an increase of 16% over the previous year American Competitiveness Initiative; invest $136B/10 yrs Increase expenditure on basic research to 25% of total budget by 2007

Biomedical Sciences, Interactive/Digital Media, Environment and Water Technology Health Research, Education, Large Facilities Research Medical and Health Research, ict, Commercialization, Infrastructure Energy, Life Sciences, Environment and New Materials, Indigenous Innovation Biotechnology, Nanotechnology, Pharmaceutical Research

Invest $75-$83B/6yrs in National Development Plan to foster creativity and talent Invest $7.4B/5yrs. in r&d, increase funds for Ministry Education & Research by 5% Invest $8.3B/5yrs. in r&d, an increase of 56% over previous 5 year plan Science and Innovation Investment Framework 2004–2014, Health – $1.8B/yr Backing Australia’s Ability – $6.4B/10 yrs; Backing Australia’s Future – $8.5B/10 yrs. Increase investment in r&d to $112B by 2020

Increase s&t budget by 16% over previous 5 year plan

Source: Office of the National Science Advisor of Canada, May, 2006 and oecd, Main Science and Technology Indicators, 2005/2. Note: All figures are in us dollars unless otherwise stated. *Figures are for 2002–2003. **Government Information Office, Republic of China (www.gio.gov.tw). ***World Bank (2004) (web.worldbank.org).

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Growing demands for continuous access to lifelong learning and education; Growing concerns about personal, industrial and national security; The threat of a global pandemic; Accelerating movement of people globally.

While not exhaustive, this list10 indicates that there will be significant social pressure to encourage innovators to focus their talents and skills on specific questions, with the assumption of sizeable returns for their efforts. In addition, there will also be unpredictable discontinuities and disruptions that will affect Canada’s innovation system. Canada will need a combination of science, technology, engineering, socio-economic and political skills and an adaptive and entrepreneurial culture, nimble and agile thinkers and flexible mechanisms to enable collaborative problem-solving. Among a variety of global issues of concern throughout the World, Canadians have consistently identified three very specific domains likely to be primary over the next 10 to 15 years: Environmental issues are fast gaining prominence globally, as humankind reaches the “tipping point” in its concerns about environmental health – climate change, global warming, water, pollution, and natural disasters. In Canada, environmental issues affect the performance of the energy, resources, transport, construction and agri-food industry sectors. A reliable source of energy will be critical for energy-importing countries such as the us, China, Japan and Europe. While Canada has the advantage of large reserves of non-conventional oil and gas, coal, uranium and hydro, the challenge will be to move to high-efficiency, low-pollution energy production and distributed systems and efficiency of energy consuming operations. Health and wellness issues are crucial but more complex. Aging populations, rising incidences of infectious diseases, metabolic diseases, potential global pandemics, and issues around equitable, affordable and sustainable healthcare systems are challenges with which all nations are grappling. Globalization is allowing for the re-emergence of “old” diseases, new strains of old diseases, and the rapid spread of new ones. Society’s assumptions underlying the way we address issues and the context within which innovation is to occur is also under question in various ways: The conundrum of “global and open + secure and protected”. The more connected we are, the greater the global challenges to our physical safety (e.g. terrorism, identity theft, Internet safety) and to our biological and physiological securities (e.g. declining air quality in our cities, the World’s thirst for water, and our ability to maintain our standard of living). National security, in addition to surveillance and control of our borders, now includes safeguarding citizens and critical infrastructure from potential natural and man-made disasters. Balance of economic and social well-being. It is not well understood that our quality of life and standard of living are connected to our global

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competitiveness, productivity, innovation capacity and to our systems of healthcare, employment and education. Growth in population and consumption = diminishing resources and rising environmental degradation. Most individuals and nations wish to enhance or at least maintain their standards of living – doing so without fundamentally new understandings, approaches and technologies will place an increased burden on the environment. An economic boom can lead to environment bust and fierce competition for scarce resources. Leadership and Canada’s place in the world. Canada is recognized as having both human and institutional weight. We rank highly as a place to live, work, and invest. Our government is perceived as neutral and trustworthy.11 However, our position in the world – highly dependent on and determined by our economic and social well-being – has eroded. The forces that are driving change are creating rapidly-mutating, complex conditions for which we, as a people and our governments, are almost wholly unprepared – conditions with which we neither know how to cope, nor increasingly how to compete.

c a pa c i t y t o r e s p o n d : t h e n at i o n a l i n n o vat i o n s y s t e m The national innovation system represents Canada’s inherent capacity to expand knowledge and create effective responses to the challenges cited above. The Conference Board of Canada (2004) defines innovation as a “process through which economic or social value is extracted from knowledge – through the creation, diffusion and transformation of ideas – to produce new or significantly improved products, services or processes.” 12 This sounds logical and sequential, but innovation is a complex, dynamic social system in which ideas and implementation interact in such a way as to produce social and/or economic value. The process of innovation is often non-linear, iterative and often very “messy.” Not all challenges or opportunities that will use innovative methods and resources require the same level of innovative activity. If what is required is transformative – requiring a fundamental change in process, product or outcome – then the requirement is for substantial investment and innovation. If the requirement is for adaptation, then the innovation may require some new thinking and the utilization of existing or modified technologies. Innovation has many facets and approaches – “one size doesn’t fit all.” Assessing the adequacy of our national innovation system rests on at least three major dimensions: • Demand – expanding and converging technology platforms; • Capacity – a fragmented innovation system (eco-system); • System Design – the need to integrate the system.

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It is very difficult to hypothesize as to which individual technologies will have the greatest impact – each must solve societal problems, benefit individuals, and generate wealth. Some very brief high level predictions that emerged from investigations recently undertaken by the nrc included the emergence of ubiquitous intelligence and communications, growing capacity to manage complexity, breakthrough functionality from new materials, the continued integration of ict and biotechnology, creation of networked business systems, predictive, preventive and personalized medicine – generally, the convergence of enabling technologies and technology-enabling sciences geared to address very specific tasks.13 As problems become more complex, scientific and technology development more often borrows and integrates from a multitude of fields, blending information technologies, biotechnologies, materials sciences, chemistry and others. Converging technologies14 are enabling technologies and knowledge systems (inclusive of the s&t institutions as part of the broader innovation system) that enable each other in the pursuit of a common goal. Convergent technologies can make better use of existing knowledge by discovering productive relationships and stimulating basic research and the generation of new knowledge, suggesting the following implications: Interdisciplinary Excellence – Convergent technologies research programs require and produce new standards for interdisciplinary research. This usually means that researchers from various disciplines pool intellectual and technical resources as they address a problem together. This form of interdisciplinary effort is insufficient when the convergent technologies’ agenda-setting process requires critical and comparative assessments of the viability of proposals. Mutual criticism across disciplinary boundaries is required especially when current or medium-term limits of convergent technologies research need to be determined. Such mutual constructive criticism presupposes understanding and trust – not possible with funding incentives alone. Widening the Circles of Convergence – Today, the “circles of convergence” are formed through a self-assembly process whereby a project’s researchers themselves invite collaborations from complementary disciplines as they are recognized – reactive to the needs of the project. Future research efforts will start with the formation of collaborative relationships and collaborative mechanisms and organizational structures to explore the possible interdisciplinary benefits and proactively identify research agendas. Challenges for Convergent Technologies Efforts – Convergent technologies research will require new models of “product development,” peer review processes, ownership of and rights to ip, and a host of other issues. Put simply, many of the existing precepts about the conduct of research will be challenged and likely spawn new approaches. Research Transparency – Convergent technologies require a transparent and open political process. Because of its openly political character, research utilizing convergent technologies build trust, create legitimacy, and draw on public debate as a resource and inspiration for convergent technologies agendas.

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Table 3 Allocation of s&t performance and funding in Canada Gross Domestic Expenditures on r&d (gerd) by performing and funding sector, 2003 Performing sector (figures stated in millions of dollars) Funding sector

Federal government

Provincial government

Provincial research organizations

Business enterprises

Higher education

Private non-profit

Total

Federal government

2,114

0

1

330

1,919

4

4,368

Provincial government

6

305

14

53

816

17

1,211

Provincial research organizations

0

0

0

0

0

0

0

Business enterprises

54

0

10

9,150

730

8

9,952

Higher education

0

0

0

0

3,603

0

3,603

Private non-profit

0

0

0

0

616

25

641

Foreign

0

0

1

2,527

102

0

2,630

2,174

305

26

12,060

7,786

54

22,450

Total

Source: Statistics Canada, 2004.

When considering the dynamic of innovation drivers and technology breakthroughs at this point in Canada’s development, the issues arising from convergence will range from changes to the intensity of competition, the agility of firms as they adapt to fundamental changes to industry structures, regulatory speed and complexity, ethical issues (personalized medicine), potential social and political upheavals as ubiquitous technologies change how we work together, relate and experience our culture.

a f r a g m e n t e d i n n o vat i o n e c o - s y s t e m If the reader accepts the inevitability of this evolutionary path, it is useful to look at where we are today. The federal government is a principal funder of science and technology in Canada with total expenditures of $8.6 billion (2004). Investment in universities and public research facilities has grown by 10% in the period 1997/8 – 2002/3. However, this was not matched by growth in private sector r&d investments, which grew at only 5%. In real terms, the level of private investment in r&d has declined and, more seriously, the number of companies engaged in such investments has been declining.15 The allocation of funding is presented in Table 3.

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There has also been a change in the ratio of public: private r&d investment. In 1997/8 the ratio of public: private investment was 1.48:1 and at the end of 2002/3 it had declined to 1.18: 1. This represents a serious weakening of Canada’s innovation capacity. Universities have been most successful in securing additional resources for r&d. This has led to creation of a vibrant technology transfer, helping to create some 1,000 companies with annual revenues in excess of $6 billion and creating employment for some 25,000 persons. Some of the funding to universities provided in the name of innovation is temporary. In addition, universities are now relying on the Canadian Foundation for Innovation, the Infrastructure Operating Fund and the Indirect Costs of Research Funds to sustain a great deal of research and development activity. Should these funds change significantly universities would find the sustainability of their research activities problematic since they have been experiencing declining funding in real terms for many years. Public research resources, for both “big science” and continuing r&d have also increased, but not at a level that matches cost growth for these organizations. In addition, an increasing portion of the funding made available is “sunset funding” – guaranteed only for a limited time. Increasing cost pressures impact such bodies in two ways – by constraining research and development activities and by limiting their assistance to firms seeking to leverage r&d. Federal government organizations affect every facet of the system, from education to health care, to industry support, internal and extramural r&d, commercialization and links to government procurement and include 150 Government Laboratories (2004) and 187 s&t Funding Programs (2004). The nature of financial involvement by the federal government is diverse, decentralized and highly dependant upon program specifications (see Table 4). Compounding the potential for fragmentation are the administrative rules that guide participation decisions and intellectual property regimes that define the nature and extent of collaborative boundaries. At present, there are only weak links with the broader government agenda and no central roles for science policy, planning and priority setting, resource allocation or performance measurement. Provincial governments, which collectively fund about 5% of all research in Canada, focuses more on aligning the commercialization of research with provincial priorities (eg. commercializing health research and technology in Ontario and Quebec). Canada has a robust industry base in almost all economic sectors but does a relatively poor job of investing in r&d, compared with other oecd countries. In 2003 the sector invested about $10 billion in r&d or about 44% of Canada’s total r&d investments of $22.5 billion (Table 3). This is one of the lowest participation rates among the oecd countries. When assessing the contribution of the private sector to innovation the following points deserve emphasis:

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Table 4 Pivotal federal funding programs Amount ($M)

Program

Type

100

Industrial Research Assistance Program (irap)

Continuous

2,500 Total

Technology Partnerships Canada (tpc) – Renamed

Revolving

30

tpc – irap

Revolving

63

Technology Early Action Measures (team)

2004–2008

550

Sustainable Development Technology Canada

2002–2010

50

Green Municipal Enabling Fund

2000–2007

200

Green Municipal Investment Fund

Revolving

850

Natural Sciences & Eng. Research Council of Can.

Continuous

3,650

Canada Foundation for Innovation

1997–2010

1,500

Scientific Research & Experimental Development Program (sred)

Permanent

N/A

Renewable Energy/Conservation Tax Incentives

Permanent

200

To support clean soil and water projects

2005–2010

63

Technology Early Action Measures (new funds)

2004–2008

920

Wind Power Production Incentive (wppi)

2002–2017

215

Hydrogen Early Adopters (h2EA)

2004–2008

110

Canadian Federation For Climate & Atmospheric Sciences

2000–2010

250

Venture Capital Funding via bdc

2004

51 per yr, 5yrs

acaaf

Continuous

Source: Federal Government records compiled by nrc.

• Private sector investment is unevenly distributed across industry sectors with the majority performed by the ict and pharmaceutical sectors; • Knowledge intensive start-ups require access to considerable amounts of capital before they generate revenues – and unfortunately, Canadian and venture capital markets are small and not as knowledgeable as their us counterparts; • Each industry sector faces many challenges in commercializing r&d as a result of different technology platforms, regulatory approval processes, markets and safety requirements for commercial use. A high degree of fragmentation has evolved as different industries have had to overcome unique constraints to market new products and services; and • A vast majority of Canadian businesses are smes (99% with less than100 people)16 and therefore, as small companies, face difficult challenges in getting access to capital and competing in global markets. In addition, and not surprisingly, the management capability of Canadian business executives is rated below average compared to their counterparts in other countries (2005 World Competitiveness Report).

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Canada’s postsecondary system includes 90 Universities that are members of the Association of Universities and Colleges of Canada and 175 community colleges (including institutes of technology, university colleges or cegeps). According to the aucc, the Canadian system was a $20 billion enterprise in 2004–05 with the following core features: • 785,000 full-time university students, an increase of nearly 130,000 over the last three years; and 270,000 part-time university students, prompting concerns over how to expand capacity to respond to growing student demand; • 37,000 full-time faculty members, with a growing issue of how to replace up to 20,000 faculty due for retirement or lost through attrition. Universities will also need to hire an additional 10,000 to 20,000 faculty to address growing enrolment; • An estimated 135,000 bachelor’s degrees, 26,000 master’s degrees, and 4,000 doctoral degrees were awarded in 2004; • Scholarships and needs-based aid provided by universities surpassed $800 million in 2003–04, a 5.5-fold increase since 1990. There are a number of federal institutions that support research in academia: • The National Sciences and Engineering Research Council (nserc) supports both basic research and advanced training, with $850 million budgeted to support over 10,000 professors and over 17,000 students in 2004–05. • The Canadian Institutes of Health Research (cihr) is a specialized program that helps fund over 8,500 researchers working at 13 specialized life science institutes across the country at a level of $662 million in 04–05. • The Social Sciences and Humanities Research Council (sshrc) is by far the smallest of the three granting councils, with a 2004–05 budget of $230 million. • Canada Foundation for Innovation (cfi). Founded in 1997 with an endowment of $3.7 billion to fund research infrastructure. • Canada Research Chairs, In 2000, the Government of Canada allocated $900 million to establish 2,000 research professorships in universities across the country. As of August 2004, approximately 1,282 Chairs had been awarded to researchers from across Canada and around the world. • Genome Canada, has provided $560 million in genomics and proteomics research across Canada, which, when combined with funding from other partners, totals $1.2 billion in 112 innovative research projects and sophisticated science and technology platforms. • Network Centres of Excellence is a federal permanent program receiving $77.4 million in annual funding jointly administered through nserc, sshrc, cihr and Industry Canada. In 2003–04 there were 22 nce’s networking 5,900 people (1,400 professors and researchers in University,

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300+ industry and partner researchers and 4,200+ research associates and students) and 900+ Canadian organizations (90+ universities and hospitals, 130+ federal and provincial government agencies and 700 industry and other partners). Pursuing commercially viable activities is not a primary purpose of universities, but it is becoming so and may act to distort both frontier research and affect the supply of hqep – scientists are reluctant to disclose research findings which may be of value to the research community since they hold the hope of using these findings commercially.17 The supply of hqep does not currently meet the requirements for an effective and sustainable innovation system – despite the fact that, between 1997/8 and 2003 there has been an improvement in the proportion of scientists and technologists employed in the workforce (from 5.4% to 6.4% of employees). The Association of Universities and Colleges of Canada (aucc) estimates that some 40,000 additional academics will be needed to meet eroding supply and known demand and growth expectations across Canada.18 Just as universities face the challenge of faculty renewal, replacement and retention, so firms face similar challenges in terms of demographics. The leadership of many organizations is in transition as “baby boom” managers and leaders retire. The work of Jim Collins in Good to Great19 shows that the leading companies in terms of performance grow their talent from inside the corporation.20 This will not happen easily with the decline in the number of individuals aged 35–45 years (a decline of approximately 15% over the next 10 years). Canada has a policy for innovation which states, among other things, that we intend to be among the top five innovative nations in the world by 2010. While the responsibility for this policy file sits with Industry Canada – reflecting the fact that innovation is fundamentally about building competitive industries that effectively leverage science and technology innovation for socio-economic development – innovation is also part of the responsibility of the following federally supported bodies which do not share common goals at present: • Human Resource and Skills Development Canada in its work with Sector Councils and the promotion of a skilled workforce through the Workplace Skills Strategy; • Citizenship and Immigration – with stewardship of Canada’s immigration policy – key to Canada’s economic sustainability and the supply of hqep; • The National Science Advisor, with a role in coordinating the Government of Canada’s investment and development in science and technology (now housed in Industry Canada); • The National Research Council (nrc) – a substantial public r&d organization with over 4,000 employees and a budget close to $0.75billion;

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• Canadian Foundation for Innovation (cfi) –seeks to provide resources in support of the innovation infrastructure (see above); • The Research Granting Councils – see above; • Canadian Academies of Sciences – an arms length from Government agency which connects all of the scientific and engineering professional bodies with operational funding of $30m; • Regional economic development agencies, such as Western Economic Diversification (wd), Atlantic Canada Opportunities Agency (acoa), Canada Economic Development for Quebec Regions (cedq), Federal Economic Development for Northern Ontario (FedNor), Community Futures and the Northern Strategy – which together will receive some $1.085 billion between 2004 and 2010; • Sector Agencies – Canadian Space Agency, Geological Mapping and GeoConnections which together will receive some $1.282billion in Government funding 2004–2010; • Environment Canada – will have responsibility for the development and commercialization of new environmental technologies, funded from the sale of Petro-Canada (estimated at a minimum of $1billion). This is in addition to $90m over 2005–2010 for other activities associated with r&d; • Agriculture and Agrifood Canada and the Canadian Food Inspection Agency – security of the food system and innovation for growth; • Department of Fisheries and Oceans – responsible for sustainability of fisheries and oceans, have secured additional funds in the 2005 Budget (over and above base resources spent on r&d) for work on the integrity of the great Lakes ($40m) and the sustainability of Oceans ($28m over 2 years and $15m ongoing); • Health Canada and Public Health Agency of Canada – who both, in addition to supporting the work of Provincial health systems and conducting regulatory assessments, are engaged in research activities; • Transport Canada – are evaluating and researching safe, sustainable and effective transport systems for Canada; • Natural Resources Canada (NRCan) – who are engaged in leading edge research and technology development with respect to natural resources as well as providing services and support to industry, communities and individuals; • Communications Research Centre – providing advice and leadership with respect to r&d and innovation in the communications sector with an annual budget of approximately $72m. A picture is emerging of a complex, self-regulating innovation “eco-system”21 which has many different players acting in good faith to produce outcomes which have social and economic value (see Table 5). I challenge the reader to map the myriad of organizations and funds identified earlier on to this system.

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Table 5 Principal elements of the innovation system Phases

Elements

Input

Highly qualified and effective people

Public research and development investments in science and technology

Private research and development investments in science and technology

Venture capital of different kinds and at different stages

Process

Basic research on which subsequent discoveries are based

Applied research which seeks to create something of commercial or social value

Pilot testing and prototyping to make sure that an invention or application is robust and works in the way anticipated

Venture capital which, in a small number of cases, leads to commercialization – taking a product or service to market

Sustainable commercial products which are intended to produce profits and employment

Social benefit arising either directly from the innovation or indirectly from the consequence of commercialization or from other forms of adoption.

Outputs Intellectual property as measured by copyrights, trademarks and patents

The fundamental outcome of this system is that Canada’s innovation ecosystem produces 4% of the science and technology available in the world.22 What is clear is that Canada’s r&d community is busy, complex and unfocused. There is also good evidence that Canada’s science and technology expertise is world class and productive.23 This is a complex system with multiple levels of interaction, where changes in the system have an impact on the whole system, but not necessarily that which is intended. Attempts are in hand to map the relationships within this value eco system at this time.24 Some things are already clear from this emerging analysis: • Large firms produce 75% of private r&d and attract 75% of the venture capital invested (small firms account for the balance); • Private r&d produces approximately 93-95% of all new products and services available for consideration for commercialization through their r&d processes (public r&d accounts for the balance); • Government r&d accounts for 67% of public r&d (academic r&d (mainly universities) accounts for the rest); • Public and Private r&d activities in total in Canada are focused on 5% of the economic opportunities available for venture capital investment, or 1-3% of gdp; • Adopt/Adapt is the major form of innovation in Canada;

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• When the ratio of public: private r&d is within certain boundaries (3:1), then the commercial outputs of the system are optimal, when there is an imbalance in these inputs they are not. Currently, the Canadian innovation system is not in balance; • hqep is critical to the flow of ideas to commercialization and for the sustainability of the innovation system. There would appear to be an apparent discrepancy between public policy assumptions about innovation and the way in which the innovation eco system actually works.

c o n c l u s i o n s : t o wa r d s a m o r e i n t e g r at e d i n n o vat i o n s y s t e m This chapter has shown that Canadian progress in s&t and innovation is being overtaken by major challenges ahead requiring a much more focused approach on priorities. We have shown that innovation in Canada has the following characteristics: • Despite positive economic indices, Canada’s productivity and competitiveness performance is not commensurate with a Canada that intends to be a leading nation in the knowledge economy; • Despite significant increases in public spending on r&d, private r&d investment is falling; • Though there have been modest gains in hqep in the workforce, demography and supply of hqep will force Canada to look to immigration as the basic source for economic growth through innovation; • The critical hqep issue is the shortage of managerial talent; • There is a lack of focus in innovation policy, strategy and execution – too many players working with different and sometimes opposing plans and policies; • Social innovation – the focus of a great deal of Canada’s public r&d investment – is strong and Canada’s s&t community is very productive and respected worldwide; • Our entrepreneurial culture is not strong and robust. Many of our organizations are not as nimble or adaptive as they need to be in the face of the challenges of the next decade; • Canada’s innovation “eco-system” is complex, but is currently focused on investment on public r&d which produces 5–7% of product opportunities, while private investment in r&d in Canada is in decline. There are several concrete measures that would start to remedy the present shortfalls in Canada’s innovation system, centring on efforts to: measure our

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performance; articulate the key issues; focus on priorities; and work to eliminate the barriers to better system performance. Alan Cornford, in a variety of papers, has made use of available Canadian data and the competitive capacity index developed by the us Council on Competitiveness to look at the outcomes of investments in r&d in terms of economic and social outputs. In a recent paper, focused on Canada’s capacity for innovation,25 he suggests that: 1. Public r&d through universities and publicly funded research laboratories and services (70% of which produces a great many innovations and developments which have social purposes and are undertaken for the benefit of communities, environmental sustainability or other public policy purposes) provide 100% of the hqep required for innovation; 2. Public r&d generates one fifteenth of the total r&d economic product opportunities (copyrights, trademarks, patents) in which capital could be invested to produce economic gains. Many of these products and services may have significant economic value; 3. Private r&d generates fourteen fifteenths of the total r&d economic product opportunities (copyrights, trademarks, patents) in which capital could be invested. Many of these products and services may also have significant social value; 4. The ratio of private r&d influence on Canada’s innovation capacity versus public influence is 3:1 – for the funds invested, private r&d generates three times as many opportunities as the public sector r&d; 5. The influence of hqep on private r&d in terms of innovation capacity is 2:3 – the ratio of people to product development in the private sector is two persons per three product opportunities provided for consideration to the capital markets; 6. Innovative capacity can be thought of in terms of a 3:2:1 ratio of Private r&d: hqep: Public r&d. Cornford has established target benchmarks for Canada using this analysis26 if the nation’s innovative capacity were to be amongst the best in the world (see Table 6 for targets that are similar to those actually found in the us and Finland). The productivity of r&d investments – the level of product opportunities generated for each new r&d dollar – is declining. It currently sits at 0.38 (down from 0.42 in 1997/8) – 25% lower than in more innovative economies, such as Finland, Sweden and the us and lower than a plausible target benchmark of 0.51. Stern27 has built upon this framework with a more elaborate set of variables which he uses to measure innovation capacity. At the heart of Stern’s system are constituent measures arranged into the domains presented in Table 7. Stern has used 2003 data (the model also uses weighted regression analysis) to build a

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Table 6 Targets for building a best in class innovation system in Canada (Cornford) Feature of the Innovation System

Current Canada Performance

Target Benchmarks

Private : Public r&d Ratio

1.4 : 1

3:1

hqep Workforce – % s&t employed in the workforce

6.5%

10%

Product Opportunities / per $m spent on r&d

0.38

0.51

Venture Investment

0.25

0.25 product opportunity yield

range of capacity indices which can be used to look at a nations “innovative health.” The following table shows Canada’s position on five key domains (composite measures) of innovative capacity. These data suggest that Canada has much to do to strengthen all aspects of capacity building at the level of fundamentals so as to continue to build Canada’s competitive advantage. Adoption of a national innovation performance management approach and measures would contribute to purposeful policy remedies targeting existing deficiencies and encouraging collaborative behaviour. In the fast growing innovation economies (e.g. Finland, Japan) integration, convergence and focus are key words representing action, providing logic to investment decisions and a catalyst for greater voluntary cooperation. They need to be made real in Canada and some limited progress is now slowly being made, but Canada still does not have: a broad understanding and acceptance of the severity of the issues facing the nation,28 nor a clear explicit strategy for science and technology; focused innovation practices that are both sufficiently encouraging and enabling to increase private sector r&d investment and supporting the flow of venture capital into opportunity take up; effective co-ordination between the players in innovation policy,29 both provincially and federally. In the absence of a national science and technology strategy, several initiatives have been pursued aggressively (headed by groups as diverse as the Office of the National Science Advisor, Environment Canada, nserc, sshrc, cihr, nrc, a Competitiveness Panel, and a variety of industry sectors) in the past year using very different strategies, to define a unifying set of national s&t priorities. While these are all laudable and well intentioned efforts to fill a void, they all fall short of expectations. The cited approaches each represent a particular point of view – arguments of industrial, federal and academic myopia can easily be constructed to dismiss each and every effort. A broader system view is not easy to find in these arguments although they are clearly required to respond.

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Table 7 The performance of Canada and 19 other countries in the innovation capacity index developed by Stern (2004) Fundamentals

Rank

Scientists and Engineers Index

Innovation Policy

1

Iceland

2

Japan

3 4

Outputs

Management

Cluster Environment

Linkages

Operations and Strategy

Singapore

Japan

usa

usa

Luxembourg

usa

Finland

Switzerland

Finland

Taiwan

Finland

uk

uk

usa

Finland

Germany

Israel

Denmark

5

Sweden

usa

Italy

Netherlands

Japan

6

Singapore

Australia

Taiwan

Sweden

Singapore

7

Norway

Canada

Denmark

Canada

Finland

8

Switzerland

Israel

France

Denmark

Germany

9

Russian Federation

France

Canada

France

Sweden

10

Denmark

uk

Switzerland

Australia

Hong Kong France

11

Australia

Germany

Singapore

Germany

12

Germany

Netherlands

uk

Switzerland

Israel

13

Canada

Belgium

Austria

Japan

Taiwan

14

Belgium

Austria

Hong Kong

Singapore

Luxembourg

15

France

Ireland

Sweden

Belgium

Netherlands

16

Taiwan

Japan

Korea

Ireland

Austria

17

uk

Malaysia

Netherlands

New Zealand

Belgium

18

Netherlands

Denmark

Malaysia

Korea

Iceland

19

Austria

Sweden

Australia

Italy

Canada

20

Korea

Tunisia

New Zealand

Norway

Ireland

Source: Michael E. Porter and S. Stern, The Innovative Capacity Index, available at www.isc.edu/ Innov-9211.pdf.

To achieve greater coherence of effort there is need for a body or mechanism to establish credible and widely accepted priorities to drive the plans of the many elements of the innovation system. This mechanism or body would have to be connected directly to players in the system and to the centre of federal power to link policy priorities and science investments. The roles of such a mechanism would be to: • Balance the various elements of the innovation “eco system.” Right now, these elements are out of balance and are not producing the required outcomes; • Seek to achieve benchmark relationships between the primary variables that influence innovation (the level of public investment in r&d; the level of private investment in r&d; the flow of hqep in both science and technology

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and management; the level of opportunity take up by the market; the balance between social innovation and innovation intended to have economic outcomes); • Enhance the system’s public value by: o

o o

Focusing innovation activity around a key set of national challenges (defined, in part, through public discussion) and co-ordinate all efforts of government in a focused way – more focused than at present, both in terms of s&t policy and innovation activity; Ensuring the sustainability of our post-secondary and public r&d system; Recognizing that the flow of hqep, especially in management and commerce, is critical to success and imagine a new immigration and people development strategy appropriately;

• Create and sustain a strategic foresight capacity that will help to keep the long term future challenges clearly in the minds of Canadians engaged in innovative enterprise. It is important to recognize that in a systems approach to innovation, it is not just the base funding levels but the inter-relationships between the component elements of the system that produce outcomes. What Canada needs to get right are these inter-relationships. Once an innovation system vision emerges in this country and the required inter-relationships have been identified, the obvious work to eliminate barriers will naturally fall into the areas of access to capital, access to highly qualified and effective people, access to markets, access to intellectual property, access to quality research and development and access to adaptive firms. The social and political leadership required to secure a significant role for Canada in the future, based on Canada as an adaptive and transformative society will be leadership requiring foresight, courage and determination. Our leaders have to sift though the competing priorities, embrace the necessity of improving our productivity and make significant changes to the innovation system to facilitate collaboration, including building a culture of innovation. Our present inability to identify priorities for science and technology has established where we are in realizing this fundamental requirement.

notes 1 Organization for Economic Cooperation and Development, quoted extensively in the Globe and Mail, May 3, 2006, A12–A13. 2 Canada’s standard of living, as measured by gdp per capita, actually outpaced the us by growing at 2.7% from 1997 to 2003, compared with 2.1% in the us However, this performance was attributable to the fact that the proportion of working-age Canadians to the whole population was higher than in the us , and the proportion with jobs was at a record level. This trend is expected to decline by 2010 because of the aging of

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3 4

5 6 7

8

9

10

11 12 13 14

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Canadian Innovation in a Changing World

the population. Despite the higher growth registered between 1997 and 2003, Canada’s living standard remains 14.5% below the us level. For statistics, refer to Institute for Management Development, World Competitiveness Yearbook (Institute for Management Development, Lausanne, 2005). As measured by gdp per worker. See Conference Board of Canada, Performance and Potential 2004-5 – How Can Canada Prosper in Tomorrows World? (Conference Board of Canada, October 6th 2004). The gap for computers and technology is 54%. Andrew Sharpe, The Canada-us Manufacturing Productivity Gap – An Overview, (Centre for the Study of Living Standards, 2005). This is admittedly a crude measure, but easy to track. J. Partridge, “Future Labour Ills May Need Offshoring Fix,” Globe and Mail, May 11, 2005, B3. Based on analysis by Watson Wyatt Worldwide of Canada’s future productivity issues, see http://www.watsonwyatt.com/canada-english/news/ press.asp?ID=14122. The oecd figures are measured according to the 2002 Frascati Manual: Proposed Standard Practice for Surveys on Research and Experimental Development (oecd, 2002). As stated in Section 1.5.1 – the Manual “deals only with the measurement of research and experimental development (comprising basic research, applied research and experimental development). “r&d is an activity related to a number of others with a scientific and technological basis. Although these other activities are often very closely linked to r&d, through flows of information and in terms of operations, institutions and personnel, they must be excluded when measuring r&d.” See National Energy Board, Canada’s Energy Future – Supply and Demand to 2025. (National Energy Board, 2003). Also available at http://www.neb-one.gc.ca/energy/ SupplyDemand/2003/SupplyDemand2003_e.pdf. The work in this and the following section are based upon recent efforts by the National Research Council of Canada (nrc) to define the national challenges. The process, involved over 400 science, industry and government representatives, summarized an extensive literature review targeting the issues of 15 modern economies, research community consultation, and debate and review to validate insights. Results posted on www.renewalwork.com , December–January, 2005. An alternative view of technology drivers can be found at http://www.battelle.org/forecasts/ technology2020.stm. Anholt-GMI Nation Brands Index ranking, August 1, 2005 www.nationbrandindex.com. Ann Golden, Exploring Canada’s Innovation Character: Benchmarking Against the Global Best (Conference Board of Canada, June, 2004), i. Based on nrc: see endnote 10. Discussion herein is adapted from European Commission, Converging Technologies – Shaping the Future of European Societies (European Commission, European Commission Research, High Level Expert Group, August 2004). H.D. Barber and J. Crelinsten, Growing r&d Intensive Firms in Canada – Views of ceo’s in the “Greenhouse” (The Impact Group, March 2005).

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16 According to the Business Register of Statistics Canada, there were 2.2 million business establishments in Canada as of June 2003, and Statistics Canada notes there were 1.5 million smes in Canada in 2001. According to sme fdi data, small businesses (those with fewer than 100 employees) represented the majority (99 percent) of smes in Canada in 2001; there were just 6147 medium-sized businesses (those with more than 100 but fewer than 500 employees). 17 See E. Campbell, “Some Genetics Researchers Don’t Share,” Associated Press, January 22, 2002. See also http://www.massgeneral.org/news/releases/012202data.htm. 18 See Christian Sylvain, “Notes for a presentation to the Government Caucus on Postsecondary Education and Research” (Mimeor, 2002), and also J. Giroux, J., Faculty Renewal – The Numbers, The Direction. (Association of Universities and Colleges of Canada, 1999). Statistics Canada released a report on July 5, 2005 which shows that Canada is producing 3,600 PhD graduates in science and technology each year, with up to one third of life science graduates being most likely to leave Canada for employment or further research. The report also notes that the rate of PhD graduation has declined by 9.5% since 1999. See also C.M. Beach, R.W. Boadway, and R.M. McInnis, Higher Education in Canada. (John Deutsch Institute, Queens University, 2005). 19 J. Collins, Good to Great – Why Some Companies Make the Leap and Others Don’t. (Harper Collins, 2003). 20 S. Caudron, “The Looming Leadership Crisis,” Workforce 78, 9 (1999): 72–9. 21 The term “self regulating” is being used as a term from systems theory – see E. Laszlo. The Systems View of the World – A Holistic Vision for Our Time (Hampton Press, 1996), and E.L. Axelrod, Helen Handfield-Jones, and T.A. Welsh, “The War for Talent – Part 2,” McKinsey Quarterly 2 (2001), 22–34. 22 Tom Brzustowski, “Increasing r&d in Canada: How the Universities Can Help Make the Innovation Strategy a Success,” Natural Sciences and Engineering Research Council, 2003. 23 Based on oecd evaluations of research productivity. 24 This work involves Richard Lipsey, Alan Cornford, Stephen Murgatroyd, and members of the Innovation Expedition. The bullets following this reference point are all based on this work. 25 Innovative capacity is defined as the product opportunities available for investment. That investment can be made by the private sector or the public sector (e.g. military technology, water). All the following bullets are based on Alan Cornford’s analysis of the innovation system in Canada. 26 Michael E. Porter and and S. Stern, The Innovative Capacity Index. Available at http:// www.isc.hbs.edu/Innov_9211.pdf. 27 Ibid. 28 See National Research Council, nrc Renewal Report: Looking Forward: s&t for the 21st Century (Global to Local Perspective) (National Research Council, August 2005). 29 The Federal Government has created a Science and Technology Integration Board which seeks to co-ordinate activity at the level of strategy, resources, and planning.

4 Innovation and Natural Resources: Myths and Realities about the “Old” Economy versus the “New” Economy a . j a i p e r s au d , u m a k u m a r , a n d vi n o d k u m a r 1

There is significant interest in understanding the role of research and development (r&d) and innovation in Canada and for the natural resources sector. Innovation is critical in contributing to Canada’s productivity and overall economic and social well being. It is also recognized that improvements in efficiency alone will not be sufficient to meet Canada’s sustainable development objectives and that innovations in science and technology would be required to provide solutions.2 Most recently, the Final Report by the Expert Panel on Commercialization, released in May 2006, underscored the importance of r&d and commercialization in the innovation process.3 This chapter examines innovation in the natural resources sector, a major sector of the Canadian economy, by focussing on r&d investment expenditures. It examines the myths and realities about natural resources as part of both the “old” economy, and Canada’s historic dependence on resources, and the “new” economy centred on innovation and knowledge. The natural resources sector is defined in this chapter to include the energy, minerals and metals, forestry, and earth sciences geomatics service industries and geoscience industries but excludes agriculture and fishing.4 The sector is closely linked to a broad group of allied industries, including supplier and service industries (e.g., biotechnology, environmental technologies and robotics). Canada’s natural resources base is vast and includes both nonrenewable (e.g., petroleum, natural gas and coal resources) and renewable sources (e.g., forestry and energy sources such as hydro, wind, and solar).5 Canada’s natural resources sector is very capital-intensive, highly competitive and global in nature. The sector faces volatile prices although recently these prices have been strong, reflecting in part the robust and growing appetite for

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energy and concerns about world oil supply disruptions.6 The natural resources sector is a leader in productivity and plays a crucial role in Canada’s economy, contributing significantly to Canada’s economic wealth. Canada has a natural advantage in its rich endowment of resources and its state of the art-knowledge and technology base that sustains and adds value to it. An understanding of r&d trends and how r&d works in the natural resources sector can provide useful insights to policy makers and r&d performers. This is of particular relevance given Canada’s commitment to improving innovation and productivity as reflected in current policy statements such as Budget 20067 and earlier frameworks including Achieving Excellence.8 The government placed emphasis on the natural resources sector in its election campaign as well as proposing a possible expansion in the Scientific Research and Experimental (sr&ed) Tax Credit, considered one of the most generous in the world. The policy context is discussed more fully, later in the chapter. We argue overall that although r&d in the natural resources sector is below the economy’s average, the sector is considered a leader in innovation, undertakes significant capital investment and surpasses other sectors of the economy in terms of productivity. In assessing the r&d estimates, we argue that r&d expenditures do not reflect the level of innovation and productivity in the sector. Further, it would help to dispel some of the myths of the simple old economy and new economy dichotomy and provide some crucial realities about both. The old economy is considered to be a form of sunset industry which are not technologically advanced. The new economy suggests an economy that is knowledge based and technologically advanced and international in nature.9 The chapter draws on the literature in the public domain, highlights key results on how r&d takes place in the natural resources sector from the Statistics Canada 1999 Innovation Survey, and cites recent work by the Centre of the Study of Living Standards undertaken for NRCan.10 The chapter concludes that the sector is very capital-intensive, highly competitive and global in nature and moreover, the natural resources sector acquires a significant amount of its technologies which are embodied in machinery and equipment thus capturing significant embedded r&d. The sector faces several challenges and in order to remain globally competitive, and a leader in productivity, it will need to continue to invest significantly in r&d and innovation. The remainder of this chapter is structured as follows: the first section highlights the importance of the resources sector within the Canadian economy. The second section provides a discussion of innovation and r&d. We then highlight Canada’s innovation policy environment. This is followed by a discussion of key r&d trends in the natural resources sector. The fifth section then assesses these trends by demonstrating that, given the complexity of the sector, the high level of productivity, and significant capital investments, r&d trends understate the level of innovation in the sector. This is followed by our view of the way forward by touching on some key emerging challenges of the sector, and finally by our overall conclusions.

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Table 1 Canada’s Natural Resources Endowment Forestry Forest covers almost half of Canada’s landscape. Canada has 10% of the world’s forest cover, 25% of the world’s natural forest, 30% of the world’s boreal forest and 20% of the world’s rainforest. Minerals and Metals Canada produces more than 60 minerals and metals and ranks first in the world production of potash and uranium and ranks in the top 5 for more than a dozen minerals and metals and is rapidly emerging as major diamond producer. Energy Canada makes a significant contribution to global energy security and diversity. Canada is the world’s largest producer of hydro electricity, the third largest producer of natural gas and possess oil sands reserves in close to 300 billion barrels (equivalent to that of Saudi Arabia’s reserves). Canada is the fifth largest energy producer in the world, and ranks as the number one exporter of oil and natural gas to the United States. Source: NRCan, Sustainable Development Strategy: Moving Forward (Ottawa, 2004).

t h e n at u r a l r e s o u r c e s s e c t o r and the ca nadian economy Canada has a rich endowment of natural resources and state of the artknowledge and technology base. Canada has built a strong economy and a high quality of life for all Canadians on its natural resource endowment and innovations which improve productivity and competitiveness. The overall performance and global competitiveness of the resource sectors has major consequences for other sectors of the economy including environmental, manufacturing, transportation, buildings and infrastructure, health, marine, and financial and other services. NRCan’s Sustainable Development Strategy which adopts the Brundtland definition of sustainable development11 – “development that meets the needs of the present without compromising the ability of future generations to meet their own needs,” puts the importance of Canada’s resources into perspective. The report notes that: “The magnitude and diversity of Canada’s natural resources are truly astonishing. Not only does our landscape supply us with the raw resources that are the foundation of a significant portion of our economic activity, it also provides essential ecological services such as clean air and water – which are essential to our economy, environment and quality of life.”12 Table 1 highlights Canada’s major resource endowment in forestry, minerals and metals and energy. Canada’s recent economic performance continues to be strong relative to other economies. This is reflected in terms of several indicators such as strong gdp growth, low interest and inflation rates, good job creation, budget surpluses, and debt reduction. The Canadian dollar ($cdn) has appreciated

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Chart 1 Natural resources contribute significantly to Canada’s economy

Share of gdp (2003 as of July 2004)

Natural Resource Sectors Total: $141.8 billion

Rest of the economy 87.4%

5.6% 12.6%

3.0 %

4.0 %

Energy

Forest Products

Minerals & Metals

Source: NRCan, Important Facts on Canada’s Natural Resources, November 2004.

more than 30% over the past three years against the $us, reflecting favourable economic fundamentals (including significant improvements in commodity prices particularly oil and natural gas) and the relative weakness of the $us against major currencies. According to Nicholson, Canada’s achievement with respect to macroeconomic policies, human capital development, and trade exposure were considered good although there is still room for improvement specifically with respect to innovation and productive investment including new technologies. Over the past century, the sector has made a significant and sustained contribution to the Canadian economy. The natural resources sector and allied sectors are a cornerstone of Canada’s economy.13 In 2004, the natural resources sector accounted for 13% of gross domestic product (gdp) (see Chart 1), 22% of investment (or about 38% of private/non-residential investment), and 41% of total exports. The sector accounted for almost $146B in exports and contributed significantly towards Canada’s positive trade balance. Without the trade surplus of $72B for natural resources, Canada would have had an overall trade deficit of $26B. The natural resources sector also accounts for about one million direct jobs, which are spread throughout communities of all sizes in all regions of the country. Over 600 communities in Canada depend directly on the natural resources sector. Furthermore, natural resource activities are often the main economic driver for many rural and remote economies, and offer significant opportunities for Aboriginal involvement.

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i n n o vat i o n a n d r&d: c o n c e p t ua l i s s u e s Innovation and Research and Development Innovation is a continuous process of learning, discovering and applying new technologies and techniques from many sources.14 Innovation is the process through which new economic and social benefits are extracted from knowledge.15 The Olso Manual,16 the official world authority on innovation systems, defines innovation as: “The introduction of new or significantly improved products to the market or the introduction of new or significantly improved processes to produce products or deliver them to the market.” Innovation covers all the steps from idea generation to the commercialization of new products or processes; it includes the development of new products or processes, diffusion of knowledge and adoption of new technologies and techniques by firms. r&d and knowledge creation is crucial for the innovation process as stressed by the 2006 Statistics Canada report entitled Buying and Selling Research and Development Services, 1997 to 2002.17 The international acceptable authority on r&d, the oecd Frascati Manual18 (para. 63), notes: “Research and experimental development comprise of creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the stock of new knowledge to devise new applications.” r&d spending alone, however, is an imperfect guide to the innovation performance, particularly of Canadian natural resource industries, which is highly capital intensive. The sector acquires a substantial amount of equipment and processes which include embedded r&d. r&d statistics should be supplemented by other measures of innovation. This finding is supported by Adam Holbrook, Conference Board of Canada, the r&d workshop held at NRCan in March 2005, and the Centre of the Study of Living Standards.19 Commercialization of knowledge is seen as crucial for improving Canada’s productivity.20 Investment into r&d activities alone cannot guarantee success, as shown by the high rate of products and services that do not make it through to the commercialization process. Hans Thamhain argues that the challenge of companies is not so much the generation of effective ideas at the r&d stage but the effective transfer of technology through the commercialization process.21 Commercialization of r&d is a key aspect of Canada’s innovation strategy. To bridge the gap between r&d and commercialization, as good ideas and new technologies often sit on the shelf in the absence of enabling mechanisms or a pull to bring them into the marketplace. The Expert Panel’s Report22 on commercialization could provide useful input to analysing commercialization of r&d within the economy and the natural resources sector.

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Innovation, r&d and Economic Performance Innovation underlies a country’s standard of living, and provides environmental, productivity, competitiveness, economic, and social benefits.23 Innovation is widely recognized as a major driver of productivity growth, living standards, and well being.24 Without increases in labor productivity, there would be no sustainable increase in real wages and incomes of Canadians. Over the last forty years, real hourly compensation of workers in Canada has generally tracked labour productivity gains closely.25 It is estimated that a 2% annual growth compounded over 35 years, can cause a doubling of living standards. Research shows that innovative firms are not only purposeful in their innovation activity but they also generate superior business performance. Companies that perform r&d are far more likely to report innovations. The Conference Board of Canada in its 3rd Annual Innovation Report: Investing in Innovation highlights the strong correlation between r&d intensity and sales from new products as well as between r&d intensity and the overall newness of a firm’s technology to conclude that r&d is a vital area for company success. According to Globerman et al., 1999, firms can benefit by investing in r&d in two ways – first, they can reduce their production costs or improve their product quality relative to other firms, and second, they can introduce new products into the market place.26 Although innovation has always been considered as a driving force in economic growth and social development, the importance of innovation has increased in today’s knowledge-based economy.27 Chesbrough argues that most innovations fail but unless companies innovate they would not survive.28 New goods and services resulting from r&d can greatly enhance a country’s economic efficiency and productivity growth. In economic downturns, investment in r&d is considered even more crucial.29 Half of the World Economic Forum (wef) Growth Competitiveness Index is heavily weighted towards technological innovation, thus underscoring the importance of innovation as a critical factor for productivity, competitiveness and standard of living growth.30 The wef maintains that the us strong performance is attributable to its strong technological base, and a pipeline of innovation that is second to none and further that the us has companies that are aggressive in adopting new technologies and spend heavily on r&d.31 The Conference Board of Canada argues that given that investment in technology boosts productivity, it is plausible to argue that the productivity gap between the us and Canada can partially be explained by under-investment in r&d in Canada’s private sector. Deriving competitive advantages, however, from innovation is a highly intricate process that involves technical complexities, functional interdependences, evolving solutions, high levels of uncertainty, and highly complex forms of integration.32 It is not surprising, therefore, that measuring a country’s innovation capacity could be a significant challenge as noted by Roger Martin and James Milway.33

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c a n a d a’ s i n n o vat i o n p o l i c y e n v i r o n m e n t Government action could be of vital importance to the technological progress and economic development of a country.34 Recognizing the importance of r&d and innovation most countries have developed innovation strategies. Some countries like the uk and Australia have launched formal strategies while others such as the us and Sweden, without formal strategies, have vigorously supported innovation.35 The us, the most innovative country in the world, by almost all measures, has a plethora of methods such as increasing r&d, funding basic research in Universities, funding government laboratories and conducting large amounts of defence research, investment in schools, and the development of partnerships. The government has long been involved in innovation in Canada. The National Research Council was established in 1916 to ensure a consistent structure to support research.36 The federal government’s substantive policy commitment to innovation policies in Canada, however, began largely in the 1970s in response to research showing technological progress was a key determinant of economic prosperity (e.g., that of Nobel Prize Winning economist, Robert Solow37) and continued in decades to follow.38 The 1980s and 1990s saw major announcements with respect to r&d and innovation. This trend continued in the new millennium. Recognizing the importance of innovation and in response to Canada’s poor performance, the Government of Canada launched Canada’s innovation strategy in 2002, by releasing the following two papers – Achieving Excellence: Investing in People, Knowledge and Opportunity39 and Knowledge Matters: Skills and Learning for Canadians.40 The papers formed the basis: for a national engagement strategy, aimed at raising awareness of the importance of innovation and skills and learning issues; and having a dialogue on how Canada can best respond to the challenges of the knowledge-based economy. Over 10 months of consultations, involving over 10,000 Canadians, concluded with a National Summit on Innovation and Learning in November 2002, in Toronto. The Summit brought together more than 500 leaders across the country to take action to make Canada one of the most innovative and skilled countries in the world.41 NRCan participated in this process through the National Round Table on Innovation and Skills in the Natural Resources Sector and Allied Industries. Achieving Excellence argued that investment in r&d yields significant benefits, and successful nations invest strongly in r&d. The strategy proposed a target of having Canada rank as one of the top five countries in terms of r&d performance and to at least double federal investments in r&d by 2010. The strategy highlighted the increasing involvement of government laboratories in partnerships and noted that it may be appropriate to consider new partnership models across government departments, including other r&d players, to address key emerging issues such as security and water safety.

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The Speech From the Throne (sft) in 2004 stressed the importance of innovation and r&d performance. It called for action to improve human resources development, science, health, investment, sustainable development, and immigration to improve Canada’s standard of living and well being.42 The sft also outlined the role of the new Science Advisor.43 Budget 2005 proposed investments in several areas including skills, enabling technologies, regional development, a competitive tax system and efficient markets for achieving a productive and innovative economy.44 These areas are more or less consistent with those outlined in Industry Canada’s Achieving Excellence. The current policy environment places significant emphasis on the natural resources sector as well as innovation. Stand Up for Canada, the Conservative Government’s 2006 election Manifesto, outlined a number of areas for action with respect to natural resources including the forest sector and northern development.45 It also proposed a possible expansion in the Scientific Research and Experimental (sr&ed) Tax Credit. The sr&ed tax credit is one of Canada’s key instruments in stimulating investment in r&d. Budget 2006 also includes some tax proposals (Small Business Limit and Improved Carry Forwards for Investment Tax Credits) that may impact the sr&ed. The basic structure of the program has been in place since the mid-1980s. It is widely recognized as an important program and is Canada’s single largest support for science and technology and is effective in stimulating r&d providing an estimated $2.5 billion. Many provinces provide similar tax credits. Budget 2006 stressed that rising productivity would raise living standards and lead to more and better jobs and will help governments to invest in health care, education, security and communities. Budget 2006 also highlighted the 2006 Speech from the Throne which promised that the government will promote a more competitive and productive economy. Budget 2006 advanced a number of priorities including expenditure and tax expenditures measures with respect to the natural resources sector.46 Budget 2006 expenditure measures include: a $400M over 2 years for the forestry industry to help strengthen long-term competitiveness of the industry, support worker adjustment and combat the Mountain pine beetle. For the Mackenzie Gas Project, Budget 2006 proposes a $500M fund, for 10 years, to support initiatives from the local communities to mitigate any negative socio-economic effects (allocates $120M over next 2 years). With respect to mineral exploration, it extends the 15% Investment Tax Credit available to individuals investing in flow-through shares for the period May 2, 2006 to March 31, 2007 ($65M over 2 years). Budget 2006 also implements the Accelerated Capital Cost Allowance for investments in energy cogeneration equipment / systems in the pulp and paper industry using biomass residue – “black liquor” – ($30M over 2 years). It is expected that this measure will encourage additional investment in technology that reduces emissions of greenhouse gases and air pollutants, while helping to improve the international competitiveness of mills.47

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Regulatory harmonization in areas of multiple regulations and multiple jurisdictions (e.g., environmental regulation) is a priority for industry. Stand Up for Canada, the Conservative Government platform, promised to streamline regulation and “implement the recommendations of the External Advisory Committee on Smart Regulation [eacsr 48] related to mining, such as “single window” approach to federal regulatory bodies in the North for the oil and gas mining sectors.”49 eacsr was established in May 2003 to provide external advice to the federal government on how it could redesign the regulatory system to better serve the needs of Canadians in the 21st Century. eacsr’s report which was submitted to the prime minister on September 20, 2004 includes several recommendations that directly concern the natural resources sector (e.g., recommendations 66–73).

t r e n d s i n r&d e x p e n d i t u r e s i n c a n a d a a n d t h e n at u r a l r e s o u r c e s s e c t o r The popular approach to assess the adequacy of r&d is to quantify the amount of money spent on r&d as a percentage of sales/revenues. According to Globerman et al.,50 the preferred option, on theoretical grounds, may be estimating economic return to r&d. There are, however, practical limitations associated with fully and reliably quantifying future benefits.51 Comparisons of r&d intensity have limitations because they do not address the issue of whether r&d in a particular context is worthwhile. As noted later, r&d is essential to the creation of new knowledge, but expenditures on r&d are not the only, or best, indicator of innovation, especially within Canada’s natural resources sector. Canada ranks about the middle of oecd countries in terms r&d, measured as a proportion of according to oecd statistics. In 2001, oecd countries spent 2.3% of their gdp on r&d (gerd). Canada spent 1.9% and ranked 13th in this group of countries. In 2001, Canadian business enterprises expenditures on r&d (berd) as a percentage of gdp were 1.5%, placing Canada 15th among oecd countries. This is in spite of the fact that Canada now has one of the lowest effective capital gains tax rates and continues to provide a generous tax treatment of business r&d expenditures. Peter Nicholson notes that Canada has been a perennial laggard with respect to r&d spending relative to gdp.52 The number of researchers per capita in Canada is lower than in the g-7 countries and the us. Patents rates are also relatively low and so is overall investment in machinery and equipment.53 Canada does have many strengths with respect to innovation which is not captured through r&d statistics. Its scientific publications are widely cited, it is a leader in the adoption of Information and Communications Technology (ict) including broadband, (considered the second most connected country in the world – gold medal standing according to the Conference Board of

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Chart 2 r&d for the natural resources sector fall below the economy’s average

r&d Expenditures (millions of $1997)

r&d Intensity, 2004 (r&d as % of gdp)

$500 Energy

Energy

0.7%

$400 $300 Minerals and Metals

Forestry Sector

1.0%

$200 $100

Forestry Sector

Minerals and Metals

0.7%

$0 1994 1996 1998 2000 2002 2004

0.0%

0.5%

1.0%

1.5%

2.0%

Source: Statistics Canada, Centre for the Study Living Standards.

Canada,54 and is well integrated with the United States in business terms. Harris underscores the importance of us r&d spending spillover effects on Canadian productivity.55 This is particularly important for the natural resources sector given the close links with the us economy. It should be noted that r&d expenditures is performed by a relatively small number of companies in Canada. According to Statistics Canada, only 100 (or 1.1% of the 8892 companies) reporting r&d in 2002, accounted for 59% of all r&d.56 Computer System Design and Related Services, Aerospace Products and Parts, and Semiconductor and other Electronic Components consistently dominated the industrial sector r&d over the past six years. Preliminary estimates for 2004, suggests that these three sectors accounted for 33% total intramural r&d expenditures in Canada. r&d Trends in the Natural Resources Sector Chart 2 summarizes key trends in r&d in the natural resources sector: • r&d in the natural resources sector is relatively low and has been declining. For 2004, forest products had the highest r&d intensity (1.0 per cent), followed by mining and mineral products (0.7 per cent), and energy (0.7 per cent). This compares to 1.02 per cent for all industries; • From 1974 to1991 the r&d intensity of natural resource industries was on average higher than the business sector average. This situation reversed itself after 1991 with the decline in r&d intensity in natural resource industries and the continued rise at the business sector level; and

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Chart 3 The natural resource system of innovation is different from that of other sectors

Consumers • social needs • cultural needs • advocacy

Adding More Value to Resource Products Innovative Products

Global Marketplaces • customers • competitors • alliances

Resource Manufacturing Industries Innovative Processing Technologies and Resource Products

Resource Harvesting/Extraction Innovative Processes Governments • r&d labs • infrastrucure • education & training • strategic policy

Resource Management Innovative Approaches

Suppliers • firms • universities • consultants

Source: Conference of Board of Canada, Members Briefing, Investing in Innovation in the Resource Sector, 2001.

• While business sector r&d intensity more than doubled from 0.56 per cent of gdp in 1974 to 1.34 per cent in 2004, the r&d intensity for natural resource industries was actually lower in 2004 than in 1974 (0.64 per cent versus 0.83 per cent).

a s s e s s i n g r&d e s t i m at e s a n d i n n o vat i o n in the resources sector The Natural Resources Sector System of Innovation The system of innovation of the natural resources sector is unique and complex. Further, the sector focuses on process innovation rather than product innovation. The system of innovation in the natural resources sector is multi-dimensional with linkages along the value chain (Chart 3). It includes producers, upstream suppliers of equipment and expert services, as well as “downstream” value-added producers and manufacturers. These are separate entities where value is added in each production stage and they interact with

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governments, suppliers, consumers, and the global market place. The highly complex nature of the sector and its inter-relationships with various facets have significant implications for the way r&d takes place and is estimated. Service, engineering and supplier industries are an important part of the r&d chains for these sectors. Laestadius in his study on thermopulp technology in the pulp and paper industry in Sweden found that given the integrated nature of the business only 50% of the cost occurred to the equipment producer and 50% to the user – in fact that the process was highly integrated and only about 20% of total r&d costs were registered in the accounting in either corporation. r&d expenditures capture only one part of the effort necessary for innovation.57 Producers of natural resources often buy technologies rather than develop them with in-house r&d. Capital investments embody advanced technologies and process innovations which improve productivity and environmental performance. In 2004, the natural resources sector accounted for $48B of new investments or more than 22% of Canada’s total investments (the forest sector accounted for $3.3B, mining and minerals $4.8B and energy $40.5B). These capital investments include leading edge technologies and process innovations. The amount of r&d embedded in capital expenditures in the sector remains unknown. It is possible that given the integrated system of the natural resources sector, reported r&d statistics do not adequately capture the level of innovation in the sector. Although the sector invests heavily in machinery and equipment which embody state of the art technologies, r&d statistics may convey the industry as being less innovative than other sectors of the economy such as Communications Equipment, Pharmaceutical and Medicine, Computer Design and Related Services which rank highly in terms of r&d. Resource industries seem to rely heavily on contracting out r&d to supplier firms.58 The Frasccati Manual notes that over the years it has become increasingly clear that such data need to be examined within a conceptual framework that relates to both other types of resources and to the desired outcomes of r&d activities. Stephan Laestadius argues that Swedish position with respect to high technology competition is unclear. He notes that while Sweden (and Swedish industry) scores high with respect to r&d spending to gdp (3%), industrial production and export which are dominated by industries that are classified as low-tech or middle-tech in the oecd classification system.59 The natural resources sector invest directly in r&d, often through partnerships with governments, universities and research institutes, to adapt technologies, design new process innovations or develop new value-added products. According to a us National Petroleum Council’s 1995 study, only a few companies would undertake in-house research if the outcomes of those programs are vital to their future business interests and/or their long term viability.60 More than 50 percent of total oil is produced by organizations with essentially no research, development and demonstration (r&dd) programs

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according to the us npc. Only about a dozen producers (mainly industry leaders such as Exxon, and Shell,) out of 1000 support in-house r&dd. In addition, most the r&dD is focussed on the short term, with expectations for products within three years. Service and equipment-providing companies provide most of the technologies to oil and gas companies. Experience has shown that the prospects for promoting and accelerating innovation are optimized when the generation of expertise, knowledge and technology and the fostering of a business environment are met concurrently – through targeted partnerships among governments, business and academia. There are many reasons for collaborative research including: cost reduction, sharing risks, gaining expertise, internalizing economic externalities, and coordinating strategies. Kumar and Magun stressed that globalization of world markets has also been one of the key drivers of consortia in their study for Industry Canada.61 This is a particularly important consideration given the international nature of Canada’s natural resources sector and the openness of Canada’s economy. The high risk nature of r&d in the natural resources sector suggests that there is a need for sharing the costs of pilot projects. It is believed that firms with a greater propensity of inter-organizational technological collaboration are more likely to produce innovations than those that collaborate less. Laestadius note also that for the Swedish pulp and paper industry, collaboration is very high.62 Since the mid-1990s the Canadian Oil Sands Network for Research and Development (conrad) and the Petroleum Technology Alliance Canada (ptac) have emerged to catalyse innovation in the upstream oil and gas industry while encouraging collaboration. Syncrude and Suncor, Canada’s major oil sands producers are involved in research areas that cover all parts of the value chain of extraction, upgrading, and reusing material including energy usage and collaborate with other companies, governments, universities, and research centres. NRCan’s canmet Energy Technology Centre, Devon is an active member and preferred research provider to the petroleum industry. Canada’s resources sector competitors, including the us, uk, Germany, Sweden, Finland and Australia, are making significant investments in r&d in areas such as non-conventional oil and gas, lightweight materials for next generation vehicles, fuel cells, mining automation, aquaculture and intensive forestry. Just to match our competitors’ efforts, however, the natural resources sector must accelerate the pace of innovation and invest more in r&d. Other challenges include access to strong upstream suppliers, leading edge technologies, outside sources of scientific research and knowledge, and a supportive policy environments that are necessary for innovation in the resources sector to succed.63 Productivity in the Natural Resources Sector The major drivers of labour productivity growth (real value added per hour), in the natural resources industries in Canada are technology, capital

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Chart 4 Natural resource sectors are among the most productive in Canada

Labour productivity level, 2000 (Output per hour, $1992)

$145

Energy

$29

Forest Sector

$0

1.9%

Energy

2.0%

Forest Sector

$57

Mining

Labour productivity growth, 1961--2000 (Average annual growth, %)

$50

2.6%

Mining $100 $150 $200

0.0%

1.0%

2.0%

3.0%

Source: Statistics Canada, Centre for the Study of Living Standards.

intensity, and skills.64 In addition to these three major factors, the price of output and advanced exploration techniques are considered important for driving productivity growth in the natural resources industries. Canada’s natural resources industries have tended to experience faster labour productivity growth than other Canadian industries over the past 40 years (see chart 4).65 Annual productivity growth in the economy averaged 1.8% between 1961–1962 compared to 1.9% for energy, 2.0 for the forest sector and 2.6% for mining. In 2000, the average level of labour productivity in the total economy was $28 ($1992) per hour or below that of the energy, forest, and mining sectors. As noted above, resource-based companies obtain most of their technology through the acquisition of knowledge/equipment from suppliers, rather than developing it directly themselves through their own r&d facilities. As such, they are not “credited” for performing the r&d. Notwithstanding, many resource companies rank among the top 100 r&d spenders in Canada. Adam Holbrook argues that r&d expenditures only capture the relative effort of the acquisition of new technology by specific industrial sectors but says nothing about technological advances within an industry.66 It does not capture r&d done by suppliers to a specific sector. According to a Statistics Canada 1990 study by Fred Wong, r&d is at best an indicator of investment in future high technology and hence the ratios are smaller for petroleum and pulp and paper firms than for computer and bio-technology firms.67 The Conference Board of Canada maintains that the central role played by the natural resources sector in the acceleration of innovation, needs to be recognized and fully supported, in order to ensure a truly effective Canadian innovation strategy.68

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Table 2 Labor productivity growth, 1989–2002 (average annual) (Percentages)

Canada US Finland Australia

Wood Products

Paper Products

Coke Refined Petroleum Nuclear Fuel

Mining

2.9 -1.9 4.3 N/A

1.7 -1 4.3 N/A

2.9 0.6 4.2 N/A

1.2 2 3 6

Non-Metallic Mineral Products 2.3 1.2 2.1 1.8

Basic Metals

4.6 3.3 4.8 N/A

Fabricated Metals

2 1.2 1.6 N/A

Source: Centre for the Study of Living Standards.74

Foreign Direct Investment fdi is an important complement to domestic investment in capital intensive resource sectors such as oil and gas and mining, and forestry. fdi is one of the primary channels of technological innovation.69 Consequently, a high degree of foreign direct investment (fdi) may be a positive indicator of an industry’s ability to be innovative.70 Richard Harris argues that bilateral trade and fdi are important channels for technological diffusion and Canada’s heavily us trade relationship implies that, for the time being, there are no serious alternative countries as sources of technological spillovers.71 Furthermore, multinational firms are considered important for their role in transferring technologies across borders through green field physical investments, implementation of more effective managerial practices and transfer of best practice technologies from home countries. The natural resources sector has been successful in attracting fdi since the mid-1990s. fdi flows ensure that Canadian natural resource firms use best practices and world class technologies. In 2003, fdi in the natural resources sector totaled $96B, representing 27% of all industries fdi; oil and gas and utilities had the largest fdi at $48B.72 Over the 1999–2003 period, the current dollar stock of fdi in mining, oil and gas, and utilities more than doubled, while it dropped slightly in wood products and paper manufacturing and increased at a rate similar to the all-industries average in petroleum and coal and chemical products.73 In terms of r&d intensity as a percentage of gdp across several resource sectors (e.g., wood products, paper and paper products, coke, refined petroleum, mining, basic metals, fabricated metals), in Canada falls below that for other developed economies. With respect to labour productivity, several key resource sectors are comparable to that of other countries. Further investigation would be required to provide a greater comparison. It is recognized, however, that the lack of readily comparative data will place some limitations on a more complete comparison.

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emerging challenges and t h e way f o r wa r d International Markets While global demand for resource products is increasing and Canada’s resource sectors and allied industries have considerable advantages, they face challenging international markets, with increasing competition from traditional and new players and market access challenges for the forest (including softwood lumber) and minerals and metals sectors. Further, as noted earlier Canada’s international competitors are allocating significantly more resources to innovation. The report, People and Excellence: the Heart of Successful Commercialization noted that: “Emerging economies such as China and India are industrializing at a rapid pace, creating exciting market opportunities but also putting strong pressure on traditional manufacturers. Other countries are responding to these new realities by adding value through investments in innovation.”75 Ageing Workforce The resource sectors face some of the similar challenges of the economy as a whole such as an ageing population and lack of available skills. The resources sector also has some unique characteristics which present specific human resource challenges, including operations in rural and remote regions. Shortages of skilled human resources are being experienced in some major resource projects, including the oil sands in Alberta. Investment in post-secondary school education, job training and apprenticeship, promoting a lifelong learning, broader participation of Aboriginals, women, and immigrants in the work force, skills retention and upgrading are seen as strategies for improving outcomes. Access to Resources and Sustainable Development As rising demand for vital resources (e.g., oil, gas copper, nickel, copper, zinc, uranium, forest products) continues to place pressures on known reserves and contributes to record commodity prices, major investments in exploration, development and production would be required over the next several years. Substantial capital investments would also be required in the areas of major energy projects – oil sands and pipeline development (e.g., Mackenzie Valley) in addressing declines conventional reserves. Industry has made important investments in innovations to improve environmental performance and sustainable resource management practices. Despite these improvements, significant challenges remain. Investments in r&d are required to develop more viable sources of clean and renewable energy, such as wind, forest biomass, and nuclear power. Sustainable development technologies are required to reduce

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greenhouse gases include carbon capture and storage and co-generation. Innovations are also required such that natural resource products can be recycled, or produced in ways that mitigate air and water pollution. There is also need to use new technologies and science that contributes to sustainable management of Canada’s forest.

c o n c lu s i o n s This chapter provided a discussion of innovation in the natural resources sector and attempted to dispel some of the myths of the simple old economy and new economy dichotomy and sought to provide some crucial realities about both. Innovation yields both private sector and public sector benefits and the current public policy environment recognizes the importance of innovation in the Canadian economy and places emphasis on the natural resources sector. The natural resources sector, although considered part of the old economy, makes significant contributions to Canada’s gdp, trade, investment and employment and well being. The sector is highly integrated to the rest of the economy and provides a livelihood for hundreds of communities across the country. Further, the natural resources sector has experienced higher productivity than the rest of the economy for several decades and compares reasonably with Canada’s international competitors. The impact of the natural resources sector extends beyond primary production of energy, mineral and forest products given it’s integration with the rest of the economy. r&d intensity which is considered as a key measure of innovation in the new economy is relatively low in the natural resources sector. When compared to our international competitors, r&d investment for the Canadian economy is low. The natural resources sector, however, has a unique and complex system of innovation. The sector is capital intensive and makes significant investments in machinery and equipment which embody r&d and advanced technologies to add value to output. The natural resources sector attracts significant inflow of fdi which is considered crucial for innovation and the sector relies on external expertise by contracting out and undertaking collaborative efforts. Thus, the model of company-based r&d may not adequately capture the nature of innovation in the natural resources sector as in the “new economy.” The sector operates in an increasingly competitive global market in which prices are determined internationally for most major commodities. The natural resources sector is likely to face challenges not only from traditional competitors but from emerging economies as well and in order to remain globally competitive, and a leader in productivity, the sector will need to continue to invest significantly in innovation. Innovation in the natural resources sector, including geomatics, remote sensing, geoscience, is not only required to ensure the future for those sectors, but also to contribute to a sustainable economy and a higher quality of life for Canada as a whole.

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notes 1 Acknowledgements: The authors acknowledge the use of materials of Natural Resources Canada ((NRCan) and in particular of the Strategic Policy Branch), and wish to express thanks to the anonymous reviewers and the helpful comments received from Dr. Hertsel Labib, Director Energy Forecasting Division, and Mr. Michel Berubé, Senior Economist, Energy Policy Branch. Many thanks also to Professor Bruce Doern, for his valuable comments and suggestions. The views expressed in this chapter may not necessarily reflect those of the organizations to which the authors belong. 2 Rao Someshwar, Ashfaq Ahmad, William Horsman, and Phaedra Kaptein-Russell, “The Importance of Innovation for Productivity,” International Productivity Monitor 3, (Centre for the Study of Living Standards, 2001): 3–18. 3 Industry Canada, People and Excellence: The Heart of Successful Commercialization – The Final Report of the Expert Panel on Commercialization, Volume I & Volume II, (Industry Canada, May 2006) See also (http://strategis.ic.gc.ca/comercialization). The minister of Industry appointed the Expert Panel on Commercialization in May 2005. The task of the Panel was to determine how to transform knowledge and technologies (whether developed in Canada or abroad) into new products, services and processes in response to market opportunities; how to ensure that new knowledge and technologies generated new knowledge generated, using public funds, will lead to practical applications; and whether Canada has created the right business environment for commercialization. The final report identified three “core elements” – talent, research and capital which may have the biggest impact on Canada’s commercialization potential and develops 11 recommendations to achieve this (stressing private sector participation for developing policies related to commercialization). 4 Essentially, the definition covers the areas relating to NRCan’s mandate. “NRCan is responsible for federal resource policies and science and technology that support the sustainable development and competitiveness of energy, forest, minerals and metals sectors, and allied industries.” (See also http://search.nrcan-rncan.gc.ca/nrcan/ NRCan_en.jsp for a discussion of the Department’s roles and responsibilities). 5 Fossil fuels such as petroleum, natural gas and coal resources are considered as nonrenewable resources as they took millions of years to form naturally and cannot be replaced as fast as they are consumed. Consumption leads to depletion and hence price increases of supply. On the other hand, forestry is considered as a renewable resource – it grows naturally and in theory can be used sustainably without depleting existing stocks. Similarly, energy sources such as wind, solar are renewable but currently do not play a dominant role in Canada’s energy demand and supply mix. 6 See for example td Economics, td Commodity Price Report, (TDBank Financial Group, July 11, 2006). See also http://www.td.com/economics/commodity/ cpr0706.pdf. 7 Department of Finance, Budget 2006, Focussing on Priorities, (Department of Finance, 2006 – see also http://www.fin.gc.ca/budtoce/2006/budliste.htm).

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8 Industry Canada, Achieving Excellence: Investing in People, Knowledge and Opportunity, (Industry Canada, February 2002). 9 G. Bruce Doern and Monica Gattinger, “New Economy/Old Economy? Transforming Natural Resources Canada” in Les Pal, ed. How Ottawa Spends 2001/2002, (Oxford University Press, 2001), 223–46. 10 Centre for the Study of Living Standards (csls), Report on Productivity Trends in Natural Resource Industries in Canada, (csls, 2004); and Indicators of Innovation in Canadian Natural Resources Industries, (csls, 2005). 11 World Commission on the Environment, Our Common Future, (Brundtland Report), (Oxford University Press, 1987). 12 NRCan, Sustainable Development Strategy: Moving Forward, (NRCan, 2004). 13 Natural resources sectors are also leading exporters of commodities, services, technologies, knowledge and manufactured products. 14 Industry Canada, Achieving Excellence, 2002. 15 Ibid. 16 Organization for Economic Cooperation and Development (oecd), The Measure of Scientific and Technical Activities: Proposed Guidelines for Collecting and Interpreting Technological Innovation Data: Manual (oecd, 1995). 17 Statistics Canada (sc)., Buying and Selling Research and Development Services 1997 to 2002 (Catalogue no. 88F0006XI6 – NO.002) (sc, May 2006). 18 Organization for Economic Cooperation and Development (oecd), Main Definitions and Conventions for the Measurement of Research and Experimental Development (r&d): A Summary of the Frascati Manual, (oecd, 1994) 30. 19 Centre for the Study of Living Standards (csls), Indicators of Innovation in Canadian Natural Resource Industries, (csls, 2005). 20 See Industry Canada, Achieving Excellence, 2002. 21 Hans J. Thamhain, “Managing Innovative r&d Teams,” r&d Management 33, no. 3 (2003): 297–311. 22 See Industry Canada, People and Excellence, 2006. 23 See for example, Organization for Economic Cooperation and Development, oecd Economic Surveys 2002–03 (Paris: oecd 2003); and Conference Board of Canada, Performance and Potential 2003–2004: Defining the Canadian Advantage (Conference Board of Canada, 2003). 24 Richard Harris, Canada’s r&d Deficit and How to Fix It, C.D. Howe Institute Commentary 211, (C.D. Howe Institute, May 2005). 25 See Statistics Canada, Four Decades of Productivity Performance in Canada (Catalogue #15206- XIE), October 26, 2005. 26 Steve Globerman, Masao Nakamura, Karen Ruckman, Ilan Vertinsky, Technological Progress and Competitiveness in the Canadian Forest Products Industry, (NRCan, Canadian Forest Service, 1999). 27 See Statistics Canada, Four Decades of Productivity Performance in Canada. 28 Henry Chesbrough, Open Innovation, The New Imperative for Creating and Profiting From Technology (Harvard Business School Press, 2003).

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29 Jacek Warda, Extending Access to sr&ed Tax Credits: An International Comparative Analysis. Study sponsored by Ernst & Young, ibm, Price Waterhouse Coopers llp and Research in Motion (Toronto Information Technology Association of Canada, December 2003). 30 World Economic Forum., Global Competitiveness Report (World Economic Forum, 2005) develops a Growth Competitiveness Index which is utilized in the analyses of an economy’s potential for economic growth and its current economic performance. 31 Ibid. 32 See Reinhilde Veugelers and Bruno Cassiman, “Make and Buy in Innovation Strategies: Evidence from Belgian Manufacturing Firms,” Research Policy 28 (1999): 63–8; P. Drucker,“The Discipline of Innovation,” Harvard Business Review 76, no. 4 (1998): 73–84; and Hans J. Thamhain, “Managing Innovative r&d Teams,” r&d Management 33, no. 3 (2003): 297–311. 33 See Roger L Martin, and James B. Milway, “Commercialization and the Canadian Business Environment: A Systems Perspective: Comments on Public Policy Support for Innovation and Commercialization in Canada,” (Institute for Competitiveness and Prosperity, 2005), http://www.competeprosper.ca/research/Innovation. 34 Louis G. Tornatzky and Mitchell Fleischer, The Process of Technological Innovation (D.C. Heath and Company/Lexington, Massachusetts, 1990). 35 Industry Canada, Achieving Excellence 2002. 36 Industry Canada, People and Excellence, 2006. 37 Robert Solow, “A Contribution to the Theory of Economic Growth,” The Quarterly Journal of Economics 70, no. 1 (February 1956): 65–94. 38 Industry Canada, People and Excellence, 2006. 39 Industry Canada, Achieving Excellence 2002. 40 Human Resources Development Canada, Knowledge Matters: Skills and Learning for Canadians, (Human Resources Development Canada, 2002). 41 See Innovation Summit information at http://innovation.gc.ca/gol/innovation/ site.nsf/en/in02207.html. 42 Canada, The 2004 Speech from the Throne, (Canada, 2004). 43 Department of Finance, Budget 2005: Moving Towards a Green Economy, (Department of Finance, 2005). 44 Conservative Party of Canada, Stand Up for Canada, Conservative Party of Canada Federal Election Platform 2006 – http://www.conservative.ca/EN/2590/. 45 Department of Finance, Budget 2006: Focussing on Priorities (Department of Finance, 2006), 117, http://www.fin.gc.ca/budtoce/2006/budliste.htm. 46 See External Advisory Committee on Smart Regulation, Smart Regulation: A Regulatory Strategy for Canada (External Advisory Committee on Smart Regulation, 2004). 47 Department of Finance, Budget 2006: Focussing on Priorities, (Ottawa, 2006) http:// www.fin.gc.ca/budtoce/2006/budliste.htm. 48 See External Advisory Committee on Smart Regulation, Smart Regulation: A Regulatory Strategy for Canada (External Advisory Committee on Smart Regulation, 2004). 49 Conservative Party of Canada, Stand Up for Canada, 18.

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50 Globerman, et al., Technological Progress and Competitiveness, 1999. 51 Ibid. 52 Peter J. Nicholson, The Growth Story: Canada’s Long-Run Economic Performance and Prospects,” International Productivity Monitor 7 (2003): 3–31. 53 Ibid. 54 Conference Board of Canada (cboc), Performance and Potential 2003–2004: Defining the Canadian Advantage, (Conference Board of Canada, 2003). 55 Richard Harris, Canada’s r&d Deficit and How to Fix It, C.D. Howe Institute Commentary, No. 211, (C.D. Howe Institute May 2005, see – http://www.cdhowe.org/pdf/ commentary_211.pdf). 56 Statistics Canada (sc), Industrial Research and Development, Catalogue no. 88-202XIE, (sc, 2005). 57 Staffan Laestadius, “The Relevance of Science and Technology Indicators: The Case of Pulp and Paper,” Research Policy 27 (1998): 385–95. 58 Taken from analysis of data for the natural resources sector of the Statistics Canada 1999 Innovation Survey, which was presented by Tim Norris, John Hector, Robin Dunn, and Jai Persaud of NRCan to the Industry Canada conference on innovation, 2002. 59 Staffan Laestadius,“The Relevance of Science and Technology Indicators,” 386. 60 us National Petroleum Council (npc), Research Development and Demonstration Needs of the Oil and Gas Industry, 1995. 61 Vinod Kumar and S Magun, The Role of Consortia in Technology Development, Industry Canada, Micro-economic Policy Analysis Branch, Ottawa, Occasional Paper 3, 1995. 62 Staffan Laestadius,“The Relevance of Science and Technology Indicators,” 390. 63 The Conference Board of Canada, Investing in Innovation in the Resource Sector (Conference Board of Canada, 2001). 64 Centre for the Study of Living Standards (csls), Report on Productivity Trends in Selected Natural Resource Industries in Canada, 2004. 65 Ibid. 66 Ibid. 67 Fred Wong, “High Technology at Work,” Perspectives (Statistics Canada, Spring 1990). 68 Conference Board of Canada, Investing in Innovation in the Resource Sector (Conference Board of Canada, 2001). 69 Jacek Warda, Extending Access to sr&ed Tax Credits. 70 Ibid. 71 Richard Harris, Canada’s r&d Deficit and How to Fix It. 72 csls, Indicators of Innovation in Canadian Natural Resources Industries, 31. 73 Ibid. 74 Ibid. 75 Industry Canada, People and Excellence (Volume I), 1.

5 The Path to Local Sustainable Development: Two Approaches r o b e r t h i lt o n If we do not change our direction, we are likely to end up where we are headed. Chinese proverb

Sustainable development can be seen as a journey that attempts to reconcile the environmental pressures of “Western-style” modern economic growth with the environmental limits of the biosphere – a path leading to more sustainable growth. What is meant by ‘sustainable’ in this sense has been defined by the United Nations as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”1 Unfortunately, the temporal aspect of this definition is often ignored; a short-term perspective in evaluating the consequences of actions and plans is inadequate. As Nola-Kate Seymoar points out, “The concept of responsibility to the seventh generation could be profitably borrowed from Aboriginal cultures as a guiding principle. To look beyond one generation leads to very different conclusions.”2 Sustainable development is broadly interpreted as encompassing three interdependent variables: the environment – ensuring that resources are not consumed faster than they can be replenished; the economy – supporting prosperity and growth; and the social order– respecting the values, culture and human needs of communities. However, as Robert Paehlke observed, defining what efforts are required to integrate sustainable development principles into decision-making depends on what ‘development’ one is hoping to sustain: “Conservation advocates often are most concerned with the sustainability of nature. For others, the meaning of sustainability is bound up with preserving human health and well being, or – most broadly – ‘quality of life.’ For still others, sustainability is primarily about sustaining resources to fuel industrial society as we know it.”3

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In this chapter sustainable development will be explored from its environmental roots, something that must be firmly embedded in decision-making to evaluate the long-term risks to the eco-system. The goal of sustainable development in this sense is to give full consideration to environmental limits, ensuring that there is a balance between the forces of economic development and growth and the protection of the natural and built environment. The chapter explores the origins of the quest for sustainable development and then examines initiatives supported by the federal government. Two case studies are presented that illustrate very different approaches to implementing sustainable development at the local community level: the Green Municipal Fund (gmf) and the National Guide to Sustainable Municipal Infrastructure: Innovations and Best Practices (“InfraGuide”). While both initiatives have received funding from the federal government, they have chosen very different paths in building capacity at the community level. The gmf encourages municipal governments to apply for funding for projects that use best practices in environmental performance, offering financial incentives for investments that involve the use of ‘green infrastructure.’4 The gmf supports partnerships, leveraging both public and private sector funding to encourage municipal actions to improve air, water and soil quality, and to reduce greenhouse gas emissions.5 The Fund is an example of a ‘topdown’ transactional approach that relies on providing local communities with financial incentives as a major part of its change management strategy. In contrast, InfraGuide provides no direct funding to local governments. It relies on a broad network of volunteers – a community of practice – from diverse areas of society whose goal is to share or transfer knowledge to advance societal learning in the transition to greater sustainability. It employs a ‘bottom-up,’ consensus-based approach involving collaborative and deliberative interactions that focus on providing tools to help municipalities make the best decisions possible within the context of social, financial and environmental sustainability and economic development. InfraGuide involves a new approach to environmental governance that aims to build enduring partnerships and interdependencies that, like social movements, are founded on consensus building and collective responsibility for change. Building on the lessons learned from these two case studies, the chapter concludes by considering what the federal government could do to better support the implementation of sustainable development at the local level in Canada. While the federal government has provided funding for several environmental initiatives over the last several years, there continues to be a lack of cohesion in the federal government’s policy instruments and fiscal incentives. As Johanne Gélinas, Canada’s Commissioner of the Environment and Sustainable Development states in her latest report to the House of Commons, “the government continues to talk a good line about sustainable development and sometimes

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commits financial resources, but often fails to adequately implement its own commitments.”6 With the arrival of a new Tory government, there is a now a new dimension to consider: will sustainable development even be on the agenda of the federal government?

s u s ta i n a b l e d e v e l o p m e n t : a c a n a d i a n va l u e ? Many in Canada could not be faulted for assuming that the quest for global sustainability was a distinctly Canadian initiative. In the mid 1990’s, the federal government launched its Foreign Policy Review – Canada in the World – that called for the promotion of such Canadian values as “respect for democracy, the rule of law, human rights and the environment.”7 The new foreign policy trumpeted the need to export or ‘project’ these values abroad as a means of achieving “prosperity within Canada and … the protection of global security.” The federal government presented sustainable development as “a global concern … (to which) Canada is committed (including) its interdependent objectives: protecting the environment, social development and economic well-being.” Sustainable development was touted as “a central component of the Canadian value system … a matter of both common security and good economics.”8 As part of its effort to ‘brand’ Canada through its new foreign policy, the federal government marketed sustainable development not as a goal, but as distinctly Canadian value.9 As Kim Nossal points out, “it is unusual for a country to try to reshape the world in its own image by exporting its values abroad; any attempt to do so puts it in the role of what Robin Hay has called ‘boy Scout imperialists,’ seeking to impose its practices and ideas on a world that it judges to be in need of enlightenment.”10 It is also unusual for a country to lay claim to sustainable development as a central component of its value system and to market this image globally at a time when it was doing little in terms of promoting sustainable development at home. ‘Sustainable development’ was not part of the federal government’s vocabulary in either its domestic policy or fiscal frameworks during the 1990’s. To share enlightenment one must first be enlightened. Shortly before Canada in the World was launched, the federal government outlined its domestic commitment to implement sustainable development in the Speech from the Throne opening Parliament on January 17, 1994: “It will be the policy of the Government to promote sustainable development as an integral component of decision making at all levels of our society.”11 While efforts to counteract environmental degradation were foremost on its agenda for the nation – “special emphasis will be placed on pollution prevention” – the federal government also recognized the potential economic opportunities to be realized in “the development of ‘green’ infrastructures and industries

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and their associated high-technology jobs.” The federal government’s economic rationale for supporting sustainable development closely resembled the arguments later presented by those promoting ‘natural capitalism:’ the promise of creating new ‘green’ technologies would dramatically reduce the environmental impact of economic development without compromising its ability to generate profits.12 What was less clear in the federal government’s commitment was how sustainable development would become an integral component of decision making at all levels of society. Reaffirming its commitment in the 1999 Speech from the Throne, the government stated that, “it will place greater emphasis on sustainable development in government decision making.”13 And again, five years later: “The Government will work with its partners to build sustainable development systematically into decision making.”14 Presumably, any attempt to change how decisions affecting public policy are made should involve a clear and well-defined strategy developed in close cooperation with other levels of government – especially local governments. As the level of governance closest to citizens, decisions made by local governments have a significant impact on the physical environment: land-use, energy, and transportation planning; infrastructure design; green procurement; building retrofits; water conservation; solid waste diversion; and renewable energy. Local governments also play a potentially vital role in educating, mobilizing and responding to the public to promote sustainable development.15 In 2000, the federal government started funding a series of new initiatives aimed at the private sector – creating new ‘green’ technology infrastructure for domestic and overseas markets – and providing cash incentives to municipal governments to encourage them to adopt more sustainable approaches to the management of the infrastructure used in the delivery of public services. While the federal government placed new emphasis on ‘greening’ local government, however, there was a noticeable absence of any strategy linking its various initiatives, including its investments made through its municipal infrastructure programs.

t h e g l o b a l q u e s t f o r s u s ta i n a b l e dev elopm ent International forces calling on all nations to adopt practices in support of sustainable development began as a global movement well before the federal government’s claim that is was a Canadian value. In order to address increasing conflict between the interests of economic development and the protection of the environment, in 1983 the United Nations appointed an international commission to propose strategies to improve human wellbeing in the short term without threatening the local and global environment in the long term. In 1987 the Commission published Our Common Future –

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widely known as the Brundtland Report – which advocated an approach that differed from the prevailing Western-style economic growth that consumed resources with little regard to environmental impact. It called for a strategy that united development and the environment, recognizing the need to expand economic growth but at the same tempering it with a concern for the effects it had on the environment and on the needs of future generations. The Brundtland Report placed environmental issues firmly on the political agenda and became a catalyst that initiated a wide range of further actions, including the 1992 un Earth Summit – the Conference on Environment and Development – held in Rio de Janeiro. The Rio Summit launched the Framework Convention on Climate Change, which led to the subsequent Kyoto Protocol on Climate Change and the worldwide “Agenda 21,” created as the un’s blueprint for global transformation that would put nations on the path towards sustainable development. Agenda 21 introduced detailed expectations of what was involved, “address(ing) the pressing problems of today and also aim(ing) at preparing the world for the challenges of the next century.”16 While the stark economic and social disparities between ‘have’ and ‘have not’ nations was a common theme its developmental and environmental objectives (à la Brundtland), Agenda 21 pointed out that industrialized countries and those in the developing world both faced environmental challenges, although from different perspectives. The consumption patterns of cities in industrialized countries were severely stressing the global ecosystem, whereas settlements in the developing world needed more raw material, energy, and economic development simply to overcome basic economic and social problems. Accordingly, Agenda 21 called on all countries to identify the environmental implications of urban development and to address these in an ‘integrated fashion.’ While Agenda 21 reflected “a global consensus and political commitment at the highest level on development and environment cooperation,” it recognized that successful implementation was first and foremost the responsibility of Governments. As a global contract meant to bind governments around the world to making fundamental changes that were supportive of sustainable development paths, it depended on the signatories to follow through with required actions to put in place national strategies, plans, policies and processes. Agenda 21 recognized the significant role played by local authorities in making sustainable development happen. National plans, strategies and processes relied on both the willingness and the capacity of local governments to implement them: “Local authorities construct, operate and maintain economic, social and environmental infrastructure, oversee planning processes, establish local environmental policies and regulations, and assist in implementing national and subnational environmental policies. As the level of governance closest to the people, they play a vital role in educating, mobilizing and responding to the public to promote sustainable development …”17

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All cities were asked to “develop and strengthen programmes aimed at … guiding their development along a sustainable path.”18 The specific areas that were to be addressed included a number of infrastructure-related issues: the provision of adequate shelter; sustainable land-use planning and management; integrated provision of environmental infrastructure (water, sanitation, drainage and solid-waste management); sustainable energy and transport systems; sustainable construction industry activities; and human resource development and capacity-building for human settlement development. Agenda 21 called on all countries to strengthen the capacities of local governing bodies to deal more effectively with developmental and environmental challenges by adopting “ecologically sound urban design practices:” “capacity building encompasses the country’s human, scientific, technological, organizational, institutional and resource capabilities. A fundamental goal of capacity-building is to enhance the ability to evaluate and address the crucial questions related to policy choices and modes of implementation among development options, based on an understanding of environmental potentials and limits and of needs as perceived by the people of the country concerned. … the need to strengthen national capacities is shared by all countries.”19 As a signatory to Agenda 21, Canada committed to implement policies that would support sustainable development. The federal government was expected “to complete … a review of capacity- and capability-building requirements for devising national sustainable development strategies, including those for generating and implementing its own Agenda 21 action programme.”20 As will be evident in the next section, however, while the federal government provided significant funding for environmental initiatives there was no overall policy framework to guide and integrate its efforts.

f e d e r a l i n i t i at i v e s Implementing sustainable development at the community level involves a significant change management process to help reduce a community’s impact on the bioregion, shrinking the size of its ecological footprint.21 National governments can play a supportive role in this regard, “deploy(ing) a host of policy instruments and fiscal incentives to embed ecological factors into the decision making processes of citizens and governments.”22 However, sustainable development was not part of the federal government’s vocabulary in either its domestic policy or fiscal frameworks during most of the 1990’s. The 1995–1999 Budgets tabled in Parliament made no mention of it although there were references to government support for businesses involved in creating environmental technologies through government programs such as Technology Partnerships Canada. The federal government’s agenda with respect to the environment changed significantly as a result of a wave of international pressure to address Climate

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Change. The Kyoto Protocol required industrialized countries to reduce their collective emissions of greenhouse gases. In the Minister of Finance’s Budget 2000 speech to the House of Commons, he included nineteen references tothe environment and made the commitment that, “protecting the environment is not an option – it is something that we simply must do. It is a fundamental value – beyond debate, beyond discussion.”23 The federal government’s new found interest and concern for the environment heralded a spending spree. Support for climate change saw the federal government commit $210 million over three years for the Climate Change Action Fund (ccaf) and other federal energy efficiency and renewable energy programs. As well, $60 million (subsequently increased by another $50 million in 2003) was used to create the Canadian Foundation for Climate and Atmospheric Sciences (cfcas), which became the main funding body for university-based research on climate, atmospheric and related oceanic work in Canada. While the environment featured prominently in Budget 2000, the major reason driving this interest was based in economics. As the Minister of Finance observed: “those nations which demonstrate how to truly integrate environmental and economic concerns will forge new tools and develop new technologies that others will have to adopt. Tremendous rewards await those nations that get there first, for those (that) do it best … Technology is key.”24 The federal government pursued this theme aggressively, creating a new foundation – Sustainable Development Technology Canada – to “foster innovation by helping companies develop new technologies and bring them to market in areas such as clean burning coal and new fuel cell developments.”25 Registered as a not-for-profit, non-share capital corporation under the Canada Business Corporations Act, sdtc began operations in November 2001 with an initial funding allocation of $100 million. sdtc’s mission is “to act as the primary catalyst in building a sustainable development technology infrastructure in Canada … contribut(ing) measurably to the federal government’s goals for reducing emissions and improving air quality while at the same time fostering technologies that advance the competitive position of Canadian companies in the global marketplace.”26 sdtc bridges the funding gap in the innovation chain for the development of sustainable development technologies including energy exploration, production, transmission and distribution; power generation; energy utilization (industrial, commercial and residential sectors) – buildings and processes; transportation; forestry; agriculture; waste management; emission controls and enabling technologies. In 2004, the federal government expanded the Foundation’s mandate to include soil and water technologies and increased its total funding to $550 million. While sdtc funded projects have the potential to provide positive benefits for local communities, these benefits could only accrue through their timely diffusion in the market place.

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A recently published review of the federal government’s considerable financial support during the past decade for various research initiatives – including those pertaining to the environment – expressed concerns about the results. In April 2006 an Expert Panel on Commercialization released a report that concluded, “… there is a fundamental disconnect between the people who make commercialization happen and government efforts to encourage it.”27 The panel found that there was little integration between many of 150 commercialization programs created by the federal government and recommended that they should be overhauled as part of a process to create “a more coherent, co-ordinated approach.”28 The Green Municipal Fund (gmf) and InfraGuide are potential means of assisting in this regard – at least for environmental initiatives.

c o m m u n i t y c a pa c i t y b u i l d i n g : case studies Agenda 21 recognized the importance of local governments in building “sustainable societies” and called on all countries to “strengthen the capacities of their local governing bodies to deal more effectively with the broad range of developmental and environmental challenges.” While the Canadian government made a commitment in the Speech from the Throne in 1994 to “promote sustainable development as an integral component of decision making at all levels of our society,” the leadership to develop community capacity building in Canada came from the Federation of Canadian Municipalities (fcm) – not the federal government. In the time leading up to Budget 2000 and in parallel with its efforts to lobby for a renewed federal funding for municipal infrastructure, the fcm also sought funding for two new initiatives. The first proposal involved the creation of an endowment that would allow municipalities to explore opportunities using ‘green’ technology. The second proposal called for the creation of technical best practices to help decision-makers and technical staff in communities across the country to “make better informed, smarter decisions about maintaining, repairing and upgrading the infrastructure that sustains the quality of life.” The approaches to capacity building used by these initiatives were very different. The Green Municipal Fund In the Speech from the Throne on October 12, 1999, the federal government observed that, “Canada’s ability to adopt innovative environmental practices and technologies will increasingly be part of Canada’s strength in the 21st century.” Towards this aim, the fcm convinced the federal government to

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provide it with $550 million during the last five years to create the Green Municipal Fund (gmf). Unlike other ‘arms-length’ foundations created by the federal government, the gmf exists as an endowment within an existing ngo. The fcm defines itself as “the national voice of municipal governments since 1901 … dedicated to improving the quality of life in all communities by promoting strong, effective and accountable municipal government.”29 In addition to its lobbying activities, the fcm has also been extensively involved in administering programs on behalf of the federal government, notably international projects funded through agreements with the Canadian International Development Agency (cida). In assuming the responsibilities for managing the endowment creating the gmf, the fcm became an important ‘alternate delivery service provider’ for the federal government. In essence, the fcm agreed to operate as the federal government’s proxy in managing a major program related to community capacity building for sustainable development. The fcm’s involvement as an intermediary in providing funding directly to local governments also allowed the federal government safe passage around the traditionally stormy constitutional turf battles with the provinces. The permanent nature of this relationship is recognized in the fcm’s description of its funding agreement: “(it) has the overall objective to make the gmf a more sustainable, long-term funding source for municipal governments and their partners.”30 The proxy role played by the fcm is very apparent in communication products related to the administration of the program, although the messaging is somewhat confusing and contradictory. The fcm states in its website that, “gmf funding is not federal funding. Applicants should take advantage of any government funding programs for which the feasibility study, field test, or sustainable community plan is eligible.”31 On the other hand, in accordance with its agreement with the federal government, the gmf must ensure that federal Ministers and MPs are invited to participate in local events for gmf-funded projects. At an event held in 2005 announcing funding for a project in Ontario, the local mp declared, “Through the Green Municipal Fund, the Government of Canada is demonstrating its commitment to helping municipal governments develop new approaches to sustainability in communities across Canada.”32 This messaging is very consistent with that used by the federal government in press releases issued by its own departments and agencies. The gmf provides funding for projects in several categories: sustainable community planning and integration; solid waste management; brown field redevelopment; water conservation and treatment; energy services and renewable energy; and sustainable transportation services and technologies. To be considered for funding, an applicant must be an incorporated Canadian municipal government organization or a public non-governmental organization/private-sector organization applying in partnership with a municipal

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government organization. The gmf puts considerable emphasis on partnerships and encourages municipalities to seek partners in the public and private sectors in order to leverage greater sources of capital funding that can be invested in joint projects. Unlike the federal government’s departmentally administered infrastructure programs which attempt to sprinkle funding to as many communities as possible, the gmf is very selective in its approach to disbursing funds. To date, the gmf has provided $302 million for 522 field tests, plans and capital projects, leveraging over $1.9 billion of economic activity in communities across Canada.33 While the number of communities affected by gmf represents only a small fraction of the approximately 5500 communities across the country, the approach used by the gmf in selecting ‘higher-value’ projects is due in large measure to its governance, which is de-politicized and armslength. As one of the Fund’s managers observed, “I would rather have the politicians attend the event and stay out of decision making. They can attend the ribbon cutting.” In contrast to the federal government’s departmentally administered infrastructure programs, gmf offers a range of financial support beyond ‘cash grants.’ gmf offers grants and low-interest loans for “innovative environmental infrastructure initiatives that generate measurable environmental, economic and social benefits.” Grants are provided to support cost-shared planning initiatives, feasibility studies and field tests that are intended to help assess the technical, environmental and economic potential of innovative environmental infrastructure projects. Loans are provided at a low, preferred rate for municipal governments to build “innovative environmental infrastructure.” The Fund also offers a more generous combination grant and loan for large pilot projects that are “highly innovative and have the potential for significant environmental benefits and replication on a regional or national basis.” The process used to select ‘capital implementation projects’ as well as the type of funding that is provided is very rigorous: the approval process is separate from the review, analysis and recommendation stages of project selection. Following a call for proposals, projects submitted for consideration are subjected first to a ‘peer review committee’ and credit advisors, then to the gmf Council,34 and finally to the fcm’s National Board of Directors (composed of 72 elected municipal officials) for the approval of funding. The overriding principle in the selection of proposals is to identify those “judged most likely to provide significant benefits.” A proposed capital project must have an environmental impact that demonstrates “verifiable reductions in energy use or improvements in the environmental effectiveness of systems in … municipal service areas.” The gmf selection process also assesses the extent to which a project demonstrates a degree of innovation in “the development of a new knowledge, practice or advanced technology; the

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unique application of an existing technology; or the adoption of an advanced technology, knowledge, or process new to a region to suit that region’s circumstances.” From a public policy perspective, the gmf is exemplary in its attempt to match the level funding with a measurable ‘return on investment.’ As one of the Fund’s managers explained, the gmf’s operating principle is simple: the greater the public benefit, the greater the funding that is provided. The amount of funding awarded is scaled according to how well a project meets public benefits – basic: 25% loan; superior: 50% loan and grant; exceptional: 80% financing. What sets this process apart from other granting programs – particularly those administered directly by federal government departments – is the determination to relate the amount funding provided to the achievement of public policy objectives and the thoroughness of the due diligence carried out before decisions are made. An official with the City of Edmonton observed that part of the attraction offered by the gmf is its ability to reduce risks for local governments in trying something innovative or different from usual practice. While acknowledging the political and financial risk to a municipality in undertaking feasibility studies, he observed that, “If the feasibility of a process or technology does not prove out then the Green Fund has absorbed some of the cost and thus the risk … it is easier for a municipality to undertake these types of studies with $.50 dollars.” Apart from reducing risks, there are also financial incentives for those who adopt practices is support of sustainable development, particularly projects that increase a community’s self-sufficiency in green energy. As fcm’s director of the Centre for Sustainable Community Development observed, “We have learned a lot about what motivates local governments. They are driven in large part by savings, what can they do to reduce costs … Municipal governments know that there are quick paybacks from reductions in energy costs.” This interest is reflected in the amount of gmf funding (40%) that involves energy-related projects. The director also clarified the role that innovative technology plays in the Fund: “We encourage technology implementation, not technology creation. The innovation is in the application rather than the development of new.” There is, however, no apparent link between the gmf and Sustainable Development Technology Canada. The lack of information sharing is surprising given that sdtc is trying to increase the rate of uptake in the marketplace for the new sustainable development technologies that it funds. While the gmf has provided assistance to municipal governments and their partners, those responsible for administering the Fund have recognized the need to move beyond the current approach of building capacity in local governments one project at a time. Although the Fund’s website includes summaries of the case studies of projects “to help disseminate the knowledge gained from gmf projects and feasibility studies …” it does not present this knowledge in a format that synthesizes the lessons learned. It would be useful

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to expand knowledge sharing to include an analysis of the problems that were addressed, the technology that was used as well as its limitations and other restrictions. Such an approach would provide benefits far beyond those realized by the individual recipients of funding. The gmf website also contains a series of publications encouraging communities to adopt practices in support of sustainable development,35 although those responsible for administering the Fund recognize that this form of information sharing is passive rather than active. According to the fcm, the new focus of the gmf will be on ‘replicability’ and best practices that will build on the lessons learned from the projects that have received funding and to share these lessons across the country rather than “repeatedly funding the same kinds of projects.” The gmf intends to use this information to create workshops and seminars across the country. The gmf is still developing its capacity building program and intends to assist local governments in ‘sustainable community planning,’ which involves the development of long-term, over arching, community-wide plans. Typically these plans are guided by community values and sustainability principles, and set out a shared vision of what the community will look like in a successful and sustainable future and how to achieve the vision. As Nola-Kate Seymoar observed, however, the challenge is to ensure that the vision is not limited to the immediate future. “Today, urban and community planners, developers and politicians are making decisions based upon physical infrastructure designed a hundred years ago. Likewise, the current planning and development choices they make will affect the form and quality of life in cities for the next hundred years.”36 While the gmf’s mission is “to demonstrate municipal leadership in sustainable community development by working with partners to implement holistic decision-making, planning processes and innovative projects,” it faces the challenge of moving from a transactional approach in supporting sustainable practices one project at a time to a broader approach in capacity building to help citizens and their local governments embed ecological factors into their decision making processes. The approach gmf uses to promote greater municipal understanding of sustainability issues – ‘overcoming resistance to change’ through the provision of financial incentives – differs considerably from that of InfraGuide, another initiative administered by the fcm. For InfraGuide, the idea of change involves ‘vision’ that is driven by a community of practice and fueled by the energy of its members. InfraGuide During the early 1990s, public works officials in local governments across Canada and national organizations such as the Canadian Public Works Association and the National Research Council recognized the dire need for better

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public management of infrastructure capital assets. There was growing concern that, like the us and the U.K, local governments across the nation were “neglecting to repair, replace and enhance the public plant and facilities – the ‘Sinews of the Nation’ – in an adequate or systematic way.” 37 Research carried out by the fcm found that, in the absence of widely accepted technical standards, municipal practitioners were making significant infrastructure investment decisions without a full knowledge of the best-available solutions. There was considerable anecdotal evidence that established best practices and proven technologies were only haphazardly applied, particularly in smaller and medium sized communities lacking the resources to develop innovative and cost-effective methods to respond to their growing infrastructure ‘deficit.’38 As a result, the overall cost of the provision of infrastructure for Canadians was increasing considerably. In 2000, the fcm and the National Research Council (nrc) approached the federal government to secure funding for the development of the National Guide to Sustainable Municipal Infrastructure: Innovations and Best Practices (‘InfraGuide’), a compendium of “proven state-of-the-art methodologies for municipal infrastructure planning, design, construction, management, assessment, maintenance and rehabilitation that consider the local economic, environmental and social dimensions that contribute to sustainable communities for municipal infrastructure planning, construction, maintenance and repair.”39 The fcm and the nrc proposed to jointly develop the project and to ensure that it would remain community-focussed, targeting the needs of primary beneficiaries including municipal decision makers (councillors, board members and mayors), municipal officials, and municipal infrastructure professionals. InfraGuide would provide decision-making and investment tools to help municipalities apply best practices in identifying needs, setting funding priorities, and selecting, developing and implementing infrastructure projects that are consistent with the environmental protocols. As the proposal was widely endorsed by a broad community-based coalition, the federal government agreed in October 2000 to provide the fcm with $12.5 million to develop InfraGuide in partnership with the nrc. As a capacity-building exercise, InfraGuide is consistent with Agenda 21’s recommendations to national governments to provide support to local governing bodies “to deal more effectively with the broad range of developmental and environmental challenges.” However, convincing communities to make decisions that better support ‘sustainable’ infrastructure’ involves a significant change management process. As Seymoar observed, encouraging a more integrated approach to decision-making is a radical departure from usual practices in local communities: Typically, the patterns of decision making around urban form, infrastructure, and community services are characterized by short term driving forces, including fiscal

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incentives or disincentives, responses to natural or man-made crises, media reports, public opinion, and lobbying by special interest groups. Those making decisions about financing are faced with competing interests and incomplete information about the impacts of decisions made for one part of the urban system on other parts. Decisions about individual urban projects, involving small or vast sums of money, are usually made outside of an integrated vision or plan.40

A more integrated approach to managing public infrastructure ensures that it is “economically viable, environmentally responsible, and capable of providing appropriate service capacity and maximum value for money.”41 To be economically viable, capital infrastructure renewal costs must be captured, amortized and reflected in the taxes and rates supporting the municipality. To be environmentally responsible, decision-makers must consider the use of resources in the selection of sites, the construction and operation of infrastructure as well as the ultimate environmental impact of using the infrastructure based on its intended design. Providing appropriate service capacity and maximum value for money requires planning, designing and implementing infrastructure in such as manner as to be as effective and efficient as possible. Decision-making that supports ‘sustainable’ infrastructure must involve an overall asset management life-cycle approach to the asset, from the identification of the need to the disposal of the asset. Together, these principles provided the underpinning for InfraGuide and its approach to changing municipal infrastructure decision-making – from policy to practice. From the very beginning, InfraGuide has depended upon a broad network of volunteers. Apart from a small group of full time employees, over 350 volunteers from local governments, provincial governments, the private sector and academia composed the membership of the Project Steering Committee (later the Governance Committee), the Technical Committees, the expert peer reviewers and the Working Groups.42 The close association with the grass roots public works community ensured that InfraGuide’s products reflected a ‘bottom-up,’ community-led approach for identifying priority issues and developing practical solutions. InfraGuide uses a consensus-based approach in developing ‘best practices,’ drawing upon the vast array of existing knowledge regarding municipal infrastructure practices and development. InfraGuide has published more than fifty best practices in areas including decision-making and investment planning, potable water, storm and wastewater, roads and sidewalks, environmental protocols, multidiscipline (involving two or more sectors), and transit. The content of the ‘best practices’ focuses on current and familiar practices, reflecting the experience of practitioners that is validated by academic and institutional researchers. To date, thirty-three national and regional organizations have formally endorsed InfraGuide and over seventy-five municipal councils have passed formal motions endorsing InfraGuide and its products.

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An official from the Province of Newfoundland and Labrador observed that, “InfraGuide is a unique governance model in the country. Its drivers are shared leadership, vision, commitment and action. Consensus building brings ownership and the willingness to share. In sharing, we recognize what is good and what needs to change.” Those who have been closely involved in InfraGuide believe that broadening its successes will depend on maintaining its ‘cutting edge’ approach to governance and participation. A participant from the private sector noted that InfraGuide has succeeded because “it’s a collaborative effort.” The broadly based and inclusive approach used by InfraGuide is charting new ground as an example of a national initiative that is ‘bottom up’ rather than ‘top-down.’ As one member of the Governance Committee observed, “command and control … will not change attitudes and behaviour. InfraGuide provides the underpinning framework to enable change at the local level. That’s what capacity building is all about.” Another colleague supported this view: “Capacity building is not telling a municipality what to do; (rather) it involves them in finding solutions … Municipalities have always learned from each other through peer sharing … They share the information they have.” While InfraGuide’s network of volunteers, its information sharing and the development of ‘knowledge products’ are well advanced, there is still much more to do. The results of a national survey showed that there is a strong commitment to InfraGuide as it continues to support the needs of local governments .43 At the same time, however, the survey indicated that more is needed to support the successful application of the best practices products and services. In other words, the membership of the InfraGuide community needs to be expanded. As a member of the Governance Committee observed, “There is a need for knowledge products, especially for smaller and medium sized communities … the tools have been created but they have not been fully embraced. There is more work to be done.” As another member of the Committee stated, “we have not yet reached critical mass.” As with the Green Municipal Fund, more ‘knowledge transfer’ is required although InfraGuide’s approach differs significantly. Rather ‘overcoming resistance to change,’ InfraGuide endeavours to invite others to join its network. As the Stakeholder Survey noted: “The InfraGuide network benefits from the active participation of more than 350 volunteers with a passion for sustainable infrastructure across Canada … Network members form the “nodes of information dissemination” for all segments of the infrastructure community. Those segments are represented by participants – from city managers to government policy makers and from public works commissioners to front line supervisors … there is well-balanced representation on the network from across Canada.”44 InfraGuide’s network has become its principal driving force. As someone who has been a member for a long time observed, “When InfraGuide started,

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we had no idea of the strength of the network. It was originally intended to deliver only products – best practices. The network and the process used to develop these products are now what is important.” InfraGuide’s success in community capacity building is rooted in its approach to change management, which bears a striking resemblance with that of social movements: change is about releasing energy and is largely selfdirecting.45 InfraGuide’s approach contrasts with initiatives that are ‘programmatic,’ involving planned programs of change with goals and milestones that are centrally led and directed at overcoming resistance to change. Social movements ‘move’ people whereas programmatic approaches try to motivate people. Change in a programmatic approach is driven by an appeal to the “what’s in it for me;” in social movements, there may well be personal costs involved (i.e., such as those experienced by volunteers). There is sense of ‘ownership’ of the change process that comes from those who participate in the InfraGuide network. Whereas change in a programmatic approach is done “to” people or “with” them (leaders and followers) within the InfraGuide network people change themselves and each other – peer to peer. As Bate et al observed, “with regard to social movements, there is no pressure to obtain “buy in” to persuade or to produce a compelling case for change since people have already independently accepted and embraced the need for change: they have inwardly made the case for and to themselves. It has become not an option but an imperative, and by doing so strengthens commitment to overcome any difficulties”.46 Through the development of a unique “community of practice,” InfraGuide represents an interesting approach to change management that offers useful lessons in the wider context of sustainable development.

c o n c lu s i o n s This chapter has explored the origins of the quest for sustainable development and examined the evolution of key initiatives supported by the federal government. It has also traced the links between the international Agenda 21 program and its eventual but slow developing impacts on local government in Canada, mainly through the lobbying and work of the fcm. Agenda 21 called on all countries to strengthen the capacities of their local governing bodies to deal more effectively with the broad range of developmental and environmental challenges. The two case studies on community capacity building presented in this chapter offer some interesting lessons on ways to implement sustainable development at the local level. The fcm developed the concept of the Green Municipal Fund and successfully lobbied the federal government to provide it with a significant endowment that would be used to stimulate investment in innovative environmental infrastructure initiatives generating measurable environmental, economic and

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social benefits. In order to advance the progress of sustainable development in Canada, the Fund relies on financial incentives as the principal driver of its change management strategy. While the gmf is exemplary in its due diligence in selecting worthy projects – relating the amount of funding to the achievement of public policy objectives – its approach has been largely transactional in nature. Its ‘top-down’ programmatic approach to capacity building has yet to engage the broader national community of municipal officials in sharing knowledge, experience and best practices in sustainable development. On the other hand, InfraGuide started as a concept developed within the public works community across Canada. Its approach to governance and change management present some valuable insights into capacity building in support of sustainable development. Through the development of a network of a community of practice, InfraGuide is creating enduring partnerships and interdependencies founded on consensus building and collective responsibility for change. It focuses on local mobilisation through grass roots change by sharing and transferring knowledge needed to provide community decision makers with options that are available in charting public policy that supports sustainable development. Through this approach, the goal of InfraGuide is to improve the decision-making processes for all communities. InfraGuide’s approach to governance is similar to that observed by Robert Durant et al, who stressed that new approaches to environmental governance are “more about the necessity of forming ‘partnerships, joining networks, and learning from the experience of others.’”47 The collaborative problem solving approach used in developing InfraGuide’s ‘best practices’ resembles the processes of ‘discursive consensus formation’ described by James Meadowcroft and William Lafferty.48 The decision-making process for public policy starts at the community level and, as Agenda 21 observed, local governments play a vital role in educating, mobilizing and responding to the public to promote sustainable development. The communities of practice offer the best means of developing a collective responsibility that provides the underpinning framework to enable change at the local community level. The federal government can help in this regard by providing financial support for communities of practice engaged in ‘grass-roots’ capacity building – in other words, facilitating without interfering. With the arrival of a new Tory government in Ottawa, however, there are doubts as to whether the federal government will continue to provide funding for initiatives related to sustainable development. The Conservatives do not feel bound to Kyoto and to the previous government’s Kyoto-related undertakings. Rather, they are committed to implementing “a ‘made-inCanada’ plan focused on ensuring future generations enjoy clean air, clean water, clean land, and clean energy here in Canada.”49 What measures will be included in this plan remain unclear – neither the 2006 Speech from the Throne or the Budget made any reference to sustainable development.

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notes 1 World Commission on Environment and Development, Our Common Future (Bruntland Report) (Oxford University Press, 1987).. 2 Nola-Kate Seymoar, “Planning for Long-term Urban Sustainability: A Guide to Frameworks and Tools,” (+30 Network, March 2004), 13–14 http://www.sustainablecommunities.ca/files/PDF/30_A_Guide_to_Frameworks_and_Tools_final.pdf. 3 Robert C. Paehlke, “Sustainability” in Robert E. Durant, Daniel J. Fiorino and Rosemary O’Leary, eds. Environmental Governance Reconsidered: Challenges, Choices, and Opportunities (Cambridge: mit Press, 2004), 35. 4 Green Municipal Fund, Annual Report 2004–2005 (Green Municipal Fund, 2005), 17. The gmf defines green infrastructure as infrastructure that includes “technologies that prevent pollution, use resources efficiently and capitalize on natural systems to provide municipal services.” 5 Ibid., 2. 6 Auditor General of Canada, 2005 Report of the Commissioner of the Environment and Sustainable Development to the House of Commons (Auditor General of Canada), 12. 7 Foreign Affairs Canada, Canada in the World (Foreign Affairs Canada, 2005) section II – “Charting the Course.” http://www.dfait-maeci.gc.ca/foreign_policy/cnd-world/ menu-en.asp. 8 Ibid., section V, “Projecting Canadian Values and Culture,” emphasis added. 9 The phenomenon of nation states ‘branding’ themselves is explored by Peter van Ham in “The Rise of the Brand State – The Postmodern Politics of Image and Reputation” Foreign Affairs 80, no. 5 (2001): 2–6. 10 Kim Nossal, “The World We Want? The Purposeful Confusion of Values, Goals, and Interests in Canadian Foreign Policy,” Canadian Defence and Foreign Affairs Institute, 13. http://www.cdfai.org/PDF/The%20World%20We%20Want.pdf. 11 Canada, Speech from the Throne (Prime Minister’s Office,1994), emphasis added. 12 See Paul Hawken, Amory Lovins, and L. Hunter Lovins, Natural Capitalism: Creating the Next Industrial Revolution (Boston:Little-Brown, 1999). 13 Canada, Speech from the Throne (Prime Minister’s Office, 1999), emphasis added. 14 Canada, Speech from the Throne (Prime Minister’s Office, 2004), emphasis added. 15 United Nations, Agenda 21 (United Nations), chapter 28.1-28.3. 16 Ibid., chapter 1.3. 17 Ibid., chapter 28.1. 18 Ibid., chapter 7.20. 19 Ibid., chapter 37.1. 20 Ibid., chapter 37.4. 21 Richard C. Tindal and Susan Nobes Tindal,) Local Government in Canada, 6th edition (Scarborough: Thomson Nelson, 2004), 81 citing Neil Bradford, “Why Cities Matter?” 22 Ibid., 81. 23 Canada, 2000 Budget Speech (Department of Finance, 2000), 13. 24 Ibid., 13.

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25 Ibid., 14. 26 Sustainable Development Technology Canada 2004 Annual Report (Sustainable Development Technology Canada), 1. 27 Canada, People and Excellence: The Heart of Successful Commercialization (Industry Canada, 2006), 2. The report is available online at www.strategis.ic.gc.ca/commercialization. 28 Globe and Mail, “Research Programs Need Focus, Federal Panel Says Commercialization Plans Hit Roadblocks,” B6 (Report on Business), April 25, 2006. 29 Federation of Canadian Municipalities, Annual Report, (Federation of Canadian Municipalities, 2005), 2, http://www.fcm.ca/english/publications/ar2005.pdf. 30 Ibid., emphasis added. 31 Green Municipal Fund website, emphasis added. The purpose of this statement was to allow project proponents to ‘stack’ funding from other federal government programs. The Treasury Board Secretariat agreed in 2002 to deem the funding for the endowment as ‘arms-length’ from the federal government for this purpose. 32 Federation of Canadian Municipalities, Communiqué, October 3, 2005. 33 Green Municipal Fund website, http://www.fcm.ca/english/gmf/gmf.html. 34 The Council is composed of representatives from the fcm, the federal government, the private sector, and academia. 35 Examples include “Green Municipalities: A Guide to Green Infrastructure for Canadian Municipalities” (May 2001) and “Demonstrating the Economic Benefits of Integrated, Green Infrastructure” (March 2004). 36 Seymoar, “Planning for Long-term Sustainability,” 7. 37 Simon Webley, Stiffening the Sinews of Nations: Economic Infrastructure in the United States, United Kingdom and Canada, (London: British-North American Committee, 1985), 1. 38 The term “infrastructure deficit” has been used extensively during the last decade to describe the gap in funding to address infrastructure repair and maintenance needed to keep assets in a condition appropriate to their life cycle and to expected levels of service. The fcm relies heavily on this ‘gap’ when lobbying the federal government to justify the need for additional funding for municipal infrastructure. 39 InfraGuide Website, http://www.infraguide.ca/aboutUs/StrategicDocuments_dyn.asp. 40 Seymoar, “Planning for Long-term Sustainability,” 7. 41 Beacon Consulting, “InfraGuide Stakeholder Survey Report.” (Unpublished, 2005), 60–1, emphasis added. 42 The Secretariat supporting InfraGuide includes some employees from the nrc and others whose salary is paid via the fcm’s funding agreement with the federal government. 43 Beacon Consulting, “InfraGuide Stakeholder Survey Report.” Of those surveyed, 334 were decision makers in the infrastructure community who were not involved in InfraGuide committees and/or working groups. 44 Beacon Consulting, ibid., 20. 45 Beacon Consulting, ibid., adapted the work of P. Bate, G. Robert, and H. Bevan who observed on the differences between project/programme approaches to change and

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48

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social movements’ approaches to change The work cited by Beacon was P. Bate et al., “The next phase of healthcare improvement: what we can learn from social movements?” Quality and Safety in Health Care 2004; 13:62–66 2004 bmj Publishing Group Ltd & Institute for Healthcare Improvement. Copyright © 2000, qshc Online by bmj Publishing Group. Accessed November 2005 at http://qhc.bmjjournals.com/ cgi/content/full/13/1/62. P. Bate et al., ibid., citing the work of J.L. Campbell, “Where Do We Stand? Common Mechanisms in Organisations and Social Movements Research”. Paper prepared for presentation at the Social Movement and Organisation Conference, Ann Arbor, May 2002. Durant Robert E., Daniel J. Fiorino, and Rosemary O’Leary, eds, Environmental Governance Reconsidered Challenges, Choices, and Opportunities (Cambridge: mit Press, 2004) xiv, Preface, citing Environmental News Service, March 23, 2003 on the 2003 Third World Water Forum, Kyoto. William M. Lafferty and James Meadowcroft, “Democracy and the Environment: Prospects for Greater Congruence,” in Democracy and the Environment: Problems and Prospects, (Cheltenham: Edward Elgar, 1996), 257–8, emphasis added. Conservative Party of Canada, Stand Up For Canada, (Conservative Party of Canada), 37.

6 Canadian Internet Pharmacies and the usa: Technological and Regulatory Market Change scott bennett

This chapter explores how relatively simple changes in the technology of communication can influence policy and regulation in a specific policy area. In particular, we examine how the introduction and expansion of internet marketing of pharmaceuticals by Canadian firms changed pharmaceutical policy in North America. The primary and most obvious change is in the regulation of drugs sold by Canadian firms to Americans based on internet transactions. In addition, we show other, derivative policy changes in the realms of: professional regulation, protection of drug supply, drug safety, intergovernmental relations and, to some extent, public and private coverage of consumer drug purchases. Thus, this chapter shows how change in communications and marketing technology can alter the commercial, regulatory and political environment in a policy area that has previously been dominated by the rhetoric of scientific professionalism and concerns for proper commercial returns on scientific and technological innovation. We first consider the basic story of how Canadian internet pharmacies began. Then, we consider the American response, in its various dimensions. Next, the Canadian policy response is examined. Finally, we comment on the present state of play in the relevant policy environments and likely future developments.

the eme rg en ce o f in te rne t pharm ac ies and their initial policy environment For many years, residents of the United States have been crossing the Canada-usa border to buy Canadian pharmaceuticals. Canadian pharmaceuticals, particularly brand name pharmaceuticals as opposed to generic

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substitutes, are often markedly cheaper than the same drugs in the usa. This arises from several factors. The primary one in recent years has possibly been the regulation of drug prices in Canada by the Patent Medicines Price Review Board (pmprb). In addition, certain drug prices are kept low in Canada by bulk purchasing on the part of provincial governments and the use of drug formularies by provinces. These latter devices are lists of drugs that are approved for coverage by various provincial drug plans and purchasing arrangements. Having said this, we should note that there are those who hold that the price differences are not as great as one might first think once other factors are taken into account.1 In addition, there are some analysts who do not think the regulatory regime of the pmprb is all that important a part of price levels in Canada. In any event, the perceptions of American consumers have been that prices on many drugs are cheaper in Canada. Prior to the advent of the internet and its elaboration as a commercially useful technology, trips to Canada for cheap drugs were largely limited to Americans living near the Canada-usa border. For obvious reasons, trips to Canada to purchases drugs at ordinary or “bricks and mortar” pharmacies would have been impractical for people living in many parts of the usa. In the year 2000,2 two pharmacy retailers in Manitoba began to offer their normal range of pharmaceutical products online using the internet. This blossomed fairly quickly into a significant exporting activity. Enough businesses and sales volume were created through this activity so that it became possible to establish an industry interest group for internet pharmacy businesses in 2002. This organization is known as the, Canadian International Pharmacy Association (cipa).3 As of 2004, it was estimated that there were 64 Internet pharmacies in Manitoba and probably about 75 scattered throughout the rest of Canada. For the year 2003, it was estimated that the sales of this industry amounted to about $ 800 million.4 According to one estimate, more than one million residents of the usa may have used Canadian Internet pharmacies in 2003.5 Typically, these pharmacies are primarily involved in selling wellknown drugs used to treat chronic illnesses of various kinds. They are utilized by various types of Americans, but are principally of interest to older Americans with little or no drug cost insurance. In the realm of pharmaceutical policy, debates have commonly revolved around such things as patent protection periods, the administrative delays or lags in approving new drugs for use on a mass population basis and the questions of safety and efficacy that are seen as the positive side to drawn out periods of approval. In more recent years, there has been also been a focus on the problems of supplying drugs to poorer parts of the world’s population while, at the same time, offering some guarantees of patent protection. At first, one might be tempted to think that the use of internet pharmacy sales across borders would not create any new, major issues that would unsettle the discourse and tactics within the field of pharmaceutical policy. The major

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question that one might expect to be raised was whether it was legal to sell and ship drugs from outside the usa to American consumers. This was sometimes referred to as the issue of “reimportation” as drugs were often manufactured in the usa, distributed on a wholesale basis to pharmacies and pharmacy supply companies in Canada and then sold back to the American consumer at retail prices lower than those available to them in their own country. The simple answer to whether or not this was illicit behaviour is to be found in American law from 1987 and after that made such sales from abroad illegal, although providing some administrative discretion to the fda (Food and Drug Administration) and border authorities in the us to overlook personal use purchases by consumers travelling out of the country and returning to the usa with limited supplies of prescription drugs for their own use. It was this discretionary turning of a blind eye that had allowed Americans to travel to Canada and purchase drugs in the pre-internet marketing era. Nevertheless, we shall see that this proved to be only part of the equation for defining and debating the issues raised by cross-border internet sales of drugs.6

the american response: businesses, consumers and government As noted, lower prices for drugs in Canada have led many us consumers to purchase from Canadian Internet pharmacies. The price factor is key as Americans have their own internet pharmacies, but broad access to lower prices is what nurtured the rapid growth of American purchases of Canadian internet drugs. It is true that the part of the American population directly impacted by internet pharmacy availability is a subset of the overall group of American drug consumers. Generally, those Americans who do not have insurance or hmo coverage for their prescription drug costs are most likely to look to the Canadian internet pharmacy environment for purchase options. In addition, those Americans without coverage who are older and/or have chronic health care issues are most likely to seek out pharmaceuticals from Canadian Internet pharmacies. Starting in late 2002 and continuing through the following years, the fda began issuing numerous warnings about potential safety problems associated with imported or reimported drugs.7 There were also attempts to clarify the meaning of the traditional usage of allowing people to take small amounts of drugs from foreign countries for the purpose of meeting personal needs. fda officials began to make more frequent official statements about the safety problems associated with imported drugs.8 Safety became a consuming issue from the American regulatory perspective in this nexus of policy concerns. The fda went to great lengths to stress problems and complications connected with imported and reimported drugs.

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About the same time as the fda’s bureaucratic response against internet pharmacies was initiated, the pharmaceutical industry began to apply pressure against internet pharmacies in Canada. In January of 2003, Glaxo Smith Kline (gsk) indicated to pharmaceutical buyers in Canada that their supplies of drugs would be cut-off if they were found to be selling to internet pharmacies or selling directly to consumers in the United States. Other companies rapidly followed with similar actions of their own. For example, AstraZeneca, Wyeth, Eli Lilly, Pfizer, and Novartis took such steps. Some firms ultimately began to change their price structures by raising their prices in Canada. This is true of Glaxo Smith Kline, Eli Lilly, Pfizer, and Bayer.9 It must be remembered that this was a period of broader developments in us pharmaceutical policy. Some of these developments were proceeding with an eye to the 2004 American elections. Near the end of 2003, President Bush signed a bill creating the first major change in Medicare in many years.10 The “Prescription Drug Modernization Act” laid the foundations for other regulations and changes that would develop during subsequent years, and it provided a basis for a drug subsidy component for some consumers administered within the framework of Medicare but reliant on the assumed disciplines of the private market place. As one part of this, the potential importation of pharmaceuticals from Canada was put into place but only with the approval of the fda. Just as was the case with earlier legislation in this area, the fda never enabled this area of regulation. In addition, the new Medicare drug legislation forbad Medicare itself (but not private insurers and some other public agencies) from engaging in price negotiations with drug companies in the process of any bulk purchasing. The new legislation did not immediately moderate the pressures that had created a growth situation for Canadian internet pharmacies, but it ultimately had such an impact and may continue this impact depending on the success of its implementation. Manoeuvres by federal regulators and industry quickly activated responses from other interested parties. In fact, sub-national governments began aggressive actions against the industry and federal regulators to allow expanded importing of cheaper pharmaceuticals from Canada. The first warning shot from the states seems to have come from Minnesota on May 30, 2003. The Minnesota Attorney General initiated court action against Glaxo Smith Kline’s threat to cut off shipments to Canadian distributors. Attorney General Hatch issued civil subpoenas to gsk indicating he was launching an investigation to determine if drug companies were engaged in behaviour that might violate antitrust laws. At this time, Hatch also organized a working group of about 24 Attorneys General from various states in order to pursue related investigative actions. Ultimately, in May of 2004, a judge did indicate that gsk had to supply requested documents.11 The involvement of the state attorneys general marks a turning point in the us policy dynamics in this area. Up to this time, what was witnessed was

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the normal playing out of business strategy and regulatory policy that, in this author’s view, is seldom absent. Large players in a market area attempt to squeeze out smaller or more (commercially if not scientifically) innovative players with the assistance of the more established governmental bureaucratic interests in a policy area. Yet, this seemed to activate state and local governments to extremely high and complex levels of involvement against the brand name drug manufacturers. This was partly connected to the activities of some public interest or consumer groups that were also antagonistic to the interests of the large drug companies. One of the first sub-national governments in the us to explore the benefits of large-scale drug importation from Canada was the city of Springfield, Massachusetts. In July of 2003, that city began purchasing drugs on a group basis from Canada for its employees and retired employees. This is at odds with many of the original players on both sides of the internet pharmacy issue because this business model moved beyond meeting atomized individual needs and broached the realm of group coverage. This poses an even larger threat to pharmaceutical manufacturers and the fda, and it is not totally accepted by the original internet pharmacy operations in Canada. In part, this last problem results from the fact that large group purchases could hurt the whole importation industry by straining the supply of drugs available to Canadians.12 In any event, once the Springfield operation was initiated, many other cities, states and other organizations began to inquire about the possibility of group purchases from Canada to meet the needs of public employees and retirees. A bit later, some sub-national governments also promoted websites that would help their citizens to locate appropriate pharmacies in Canada using the internet. By this point, the momentum in favour of some sort of change in drug importation policy had reached sufficient magnitude to begin to draw Congress into a complex network of policy forces. In July 2003, Representative Gutknecht of Minnesota with others was able to get a bill through the House of Representatives, and it would have substantially legitimated importation of prescription drug into the us (H.R. 2427, the Pharmaceutical Market Access Act (Gutknecht-Emanuel bill). However, a version of this bill did not get Senate approval before the end of the 108th Congress (January 26, 2005) and never became law. Yet, it is important because it marks one of the earliest partially successful actions in a series of major Congressional involvements in this aspect of pharmaceutical policy. In addition, it marked one of the early indications of cooperation between state officials and members of Congress. The bill was principally sponsored by a Representative from Illinois and a Representative from Minnesota, and they were already working closely with their respective state governors.13 As the political system became mobilized at various levels and as innovations in the importation model took hold, the fda became more aggressive in warning consumers about the risks of imported drugs and in disciplining some companies involved in drug importation.14 The disciplining of companies was

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primarily focused on American pharmacies that were serving as intermediaries between American consumers (particularly those not at ease with the internet) and Canadian exporting pharmacies. Warning consumers about drug safety employed a classic public affairs approach of blurring definitions so that consumers would be likely to confuse all imported drugs with particularly problematic examples of imported drugs from less developed countries.15 This was a continuing practice of the fda over recent years. Within it were hidden some legitimate concerns that legislators tried to address in various proposed bills. Apart from the usual business interests, the opposing sides in this debate also mobilized consumer and professional groups of various kinds. For example, those stressing the lack of safety of drug imports were able to obtain support from groups as varied as religious organizations concerned about importation of abortion drugs16 as well as professional associations such as the ama and the American Psychiatric Association.17 On the other side of the popular representation spectrum were such seniors groups as The American Association of Retired People (aarp)18 and trea Senior Citizens League (tscl) and large coalitions such as fairdrugprices.org.19 The fda’s attempt to highlight safety problems with imported pharmaceuticals was met forcefully by proponents of cheaper drugs for us consumers. Governmental activists in Illinois issued a report that was very positive with respect to safety standards observed in most Canadian pharmacies that might be involved in importing to the usa.20 In addition, Senate advocates of drug import reform used the Senate’s advise and consent power on federal appointments to strike back at certain officials within the fda.21 In early 2004, there was a high profile meeting of drug import advocates in Washington. Several of the more active governors attended, as did a bipartisan collection of members of Congress. Illinois, Minnesota, Wisconsin and West Virginia were heavily involved in changing drug importation policy, and many other states were not far behind. As time passed, Vermont became particularly active in this policy area. On the congressional side, some of the early activists were of course Emmanuel, Gutknecht and Sanders from the House. From the Senate Dorgan, Snowe, McCain, and Kennedy were established as leaders in this area. Some of the more prominent governors and members of Congress attended the February 2004 meeting.22 The governors in attendance used this event to highlight some of the recent actions they had taken or were about to take. Just before this event, Minnesota had created a website for citizens of the state to make it easier for them to find and compare internet import pharmacies. Wisconsin was about to do essentially the same thing, building on a website that already dealt with domestic pharmacy comparisons. West Virginia had recently created a pooled purchasing system to buy discounted drugs for the senior citizens of its state, and was about to enter into more discussions with foreign internet pharmacies to see if additional savings for consumers could be achieved. There was also a proposed multi-state purchasing pool involving West Virginia, New Mexico, Missouri and Delaware.23

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As 2004 progressed, it was marked by increased legislative efforts in Congress with respect to internet pharmacies and drug importation. At this time the Gutknecht-Emmanuel Pharmaceutical Access Bill was still in play and had been passed by the House in 2003. A mark-up of that bill was used in Senate committee discussions, but the Senate reached no final action on it during the 108th Congress.24 Many other bills on this topic were introduced in the Senate. The most important was sponsored primarily by Senators Dorgan and Snowe with prominent assistance by Senators McCain and Kennedy and was entitled, “The Pharmaceutical Market Access and Drug Safety Act of 2004,” otherwise known as Senate Bill 2328. This was introduced on April 24, 2004.25 To a great degree, any legislation concerning us pharmaceutical regulation involves amending certain existing foundational legislation, and this was true of the legislative proposals just described. For example, the Dorgan-Snowe bill would have impacted the discretion of the Secretary of Health and Human Services under The Food, Drug and Cosmetic Act, allowed importation from a wide range of countries, modified the Clayton Antitrust Act and probably changed some patent legislation.26 In late 2004, state governments continued to be active as part of the constellation of players in this policy area. More states implemented or tried to implement imported drug purchases for state employees and retirees, websites to facilitate drug purchases online and, in some cases, bulk purchasing of drugs for public employees and/or regular citizens. Beyond this, state leaders were becoming increasingly impatient with fda reticence to approve imports or to cooperate with efforts to develop new legislation in the area of drug importation. Vermont applied to the fda for permission to import drugs and to establish a pilot program to evaluate the potential of this sort of policy, and, when the fda did not approve this application, the state sued the fda in us District court.27 The contours of interest group representation became more apparent and were characterized by continuing and, in some cases, increased activity and energy. This sort of activity is enormously complex in such an important area of us policy. In very general terms, the most salient features area: • Senior citizen and consumer groups tended to be strongly supportive of

drug importation. • State and local governments were generally supportive of importation and

internet pharmacy options for such importation. Yet, it is also true that there were instances of states resisting this trend, but not necessarily for obvious reasons. • The research oriented pharmaceutical companies and many health related professional groups tended to be against importation and internet pharmacies. • The pharmacy profession itself was not exactly an exception but seemed to be willing to accept importation and internet pharmacies subject to certain

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licensing and regulatory arrangements. There was at least a willingness to listen to various sides of the relevant policy arguments but also a strong emphasis on safety and professional prerogatives as intermediaries. • The fda continued to actively oppose importation even though some of its past leaders accepted its inevitability.28 If anything, there were more intensive efforts at interdicting drug shipments to consumers from internet pharmacies and increased efforts to publicize the safety issues connected with drug importation. • Other federal regulators offered alternative perspectives. The General Accounting Office (gao) produced studies suggesting that the safety issue was not a great concern as long as one was referring to imports from a limited set of countries.29 • Free market and private sector think tanks tended to oppose importation. This was largely based on the view that was important to protect the returns to intellectual property that were due to research oriented pharmaceutical companies. However, other issues were sometimes mentioned in this type of commentary, including drug safety. As 2005 began, the second administration of President G. W. Bush was inaugurated, and the 109th Congress convened. Some of the legislative efforts that had died with the end of the last session of Congress were reintroduced.30 In a period spanning late 2005 and early 2006, the most significant parts of the Medicare reform of 2003 began to be implemented. In the very early stages of implementation, enrolling Medicare users in drug discount card programs was used as a transition procedure.31 Then, people began to enrol in the actual Medicare drug benefit program. This program ran into some early implementation problems because of form and rule complexity and because one could potentially choose among many private drug plans being offered under the Medicare umbrella.32 However, this is often the case with public programs, and it is not certain that this program will collapse because of early start-up problems. However, there has been some speculation that the start-up problems may be having negative political impacts.33 We have now covered perhaps the most complex aspect of the internet pharmacy phenomenon-its relationship with and influence on us public policy. Now, we turn to the relevant policy events in Canada.

th e r e s p o n s e i n c a na da : b u s i n e s s e s , consumers and government As noted earlier, one of the first actions that had a potential impact on the Canadian internet policy scene was the 2003 decision by Glaxo Smith Kline (gsk) to threaten reduction of drug shipments to Canadian distributors unless internet pharmacies were shut down or more tightly regulated. This was

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followed by similar actions by other major pharmaceutical companies.34 We have seen that American state governments took action against this by virtue of its possible violations of anti-trust laws. These challenges were not successful beyond a very limited point, but they did shape the contours of the debate in this area of policy. The important point here is that the actions of the major drug companies determined that reliability of drug supplies for Canadians would be become a central aspect of the way the internet pharmacy issue was managed in Canada. Typical of the development of this aspect of the issue was a statement issued by an official of the Canadian Research Based Pharmaceutical Companies (Rx&D) in July of 2004. This organization is the industry interest group for the brand name or research oriented pharmaceutical companies in Canada, and many of these firms are essentially elements of the largest international research oriented pharmaceutical companies. Rx&D and its parallel organizations in other countries are extremely powerful and effective business interest groups. The July 2004 statement stressed the supply reduction threat of using drug supplies intended for Canada as exports to the United States. It drew attention to some indications that the drug supply in provinces such as Manitoba was allegedly being adversely affected by exports to the us by Manitoba based internet pharmacies. It further noted how various professional groups and Canadian consumer interest groups were becoming concerned about the Canadian drug supply.35 Ultimately, it is true that certain types of consumer groups were expressing concern with the possibility of internet exports causing a domestic drug shortage. Some of the organizations that can be cited in this regard are the Association for the Fifty-Plus (carp), the Canadian Hepatitis C Network, The Canadian Treatment Action Council (ctac), and The Best Medicines Coalition.36 As is normally the case, it is difficult to discern just how many consumers are represented by such consumer groups or whether they have a detailed understanding of the issues at play. However, it is clear that, at a minimum, certain consumer activists and policy entrepreneurs were becoming aware of the issues surrounding internet pharmacies. It is of some interest to note that, at least in this instance, consumer groups in Canada were lining up on the same side of an issue as the large brand-name pharmaceutical interests. At the same time, they were lining up on the opposite side of the issues of interest compared to American consumer groups. Think tanks were also active in the debate on internet pharmacies in Canada. In October 2004, the C.D. Howe Institute issued a report analysing the internet pharmacy situation.37 In short, it concluded that differentials between prices to some American consumers and Canadian consumers had more to do with the purchasing power of provincial governments compared to the purchasing power of uninsured Americans. To this were added some established perspectives indicating that the two markets had different buying

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power to begin with and price structures often varied with the buying power of the market. It also suggested that it would be advisable to shutdown the internet pharmacies before changes to American law were made that might open the floodgates and facilitate much greater exportation of drugs to the us. On this last point, the authors had in mind the debates in the us that might have forced the fda to use regulations under existing or proposed legislation to regularize importation of drugs to the us. In addition, with many governments in the us considering or implementing bulk pharmaceutical purchasing, it was thought there might be a tidal wave of demand that would reduce Canadian drug supplies. Proper implementation of the Medicare drug benefit might go some way to reducing this demand, but it was unclear what the net effect of that benefit would be. Some of these concerns about reduction in Canadian drug supply may, in retrospect, seem overstated, but, even now, it is difficult to say this with certainty. In February 2006, the Fraser Institute issued a report examining the internet pharmacy issue against the backdrop of price controls and patents with specific reference to possible implications for Canada’s prescription drug supply.38 The internet pharmacy market had changed somewhat since earlier reports. However, the essential features of the trade were still in place. Basically, this study concluded that provincial purchasing monopsony and federal price regulation were important in creating a differential between American and Canadian drug prices, even after differences in buying power were taken into account. Interestingly, it did not categorically recommend the removal of internet pharmacy trade. Instead it argued for changing the overall structure of Canadian drug pricing and regulation so that provincial purchasing monopsony would be diluted and price regulations done away with. In effect, the distortions revealed in the dynamics of the internet drug trade were seen as an opportunity to shift Canadian drug pricing to more of a private or “free” market situation. Again, the spectre of possible increases in the volume of American purchasing due to potential policy changes in various us jurisdictions was noted. As a secondary, but interesting point, the study also revealed that internet pharmacy exports were shifting from brand name to generic drugs. This might seem a bit unexpected as many generic drugs are actually cheaper in the us than in Canada while this is not true with brand name drugs on patent in general. However, it was noted that the growing generic component of the internet trade was restricted largely to those drugs that were off patent in Canada but still on patent in the us. This raises further issues about the ethics and economics of Canadian intellectual property activity.39 Another important part of the Canadian policy discourse had to do with the interests and standards of certain professions. In most cases, a Canadian medical professional must signoff on any prescriptions filled in Canada, even by internet suppliers. Pharmacists involved in drug exporting from Canada

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can encounter severe professional discipline if this or related professional rules are ignored. In 2003, professional pharmacy organizations began to participate in the debate concerning exports to the United States. For example, the Canadian Pharmacists Associations (cpha) was sufficiently taken with internet pharmacy issues that they issued a series of guidelines and promoted further study in this area. In fact, even at this time, they were developing formal policy understandings on the topic in conjunction with their American counterparts.40 In addition, an organization that represents the various provincial and governmental regulatory bodies for pharmacists called on the Canadian government to be more active in establishing standards for online pharmacies. The National Association of Pharmacy Regulatory Authorities (napra) asked the government to ban cross-border prescription drug sales until a regulatory framework had been developed to govern them. At a public policy conference in Toronto in 2004, a napra representative called for the binational adoption of standards for approving internet pharmacies after a period of consultation. Although reporting of these sorts of interventions is not always precise, it would appear as though this proposal essentially involved the adoption of the vipps (Verified Internet Pharmacy Practice Sites) protocol developed by the American National Association of Pharmacy Boards (napb).41 At about this time, the cpha released new and more specific concerns relating to internet pharmacies.42 By 2003 some cases had arisen that involved the direction disciplinary intervention of the professional pharmacists’ standards bodies. The Ontario College of Pharmacists successfully undertook punitive regulatory action against a pharmacist who was selling to American consumers from an organization that was not approved as a retail drug store in Ontario. An Ontario physician involved in signing prescriptions for the American patients was referred to the Discipline Committee of the College of Physicians and Surgeons of Ontario for possible sanctioning.43 It should be kept in mind that this sort of disciplinary activity has been relatively rare. We have seen that the governments at all levels in the United States were active in the development and debate of internet pharmacy imports. However, within the realm of Canadian government, we can see that the highest levels of the federal government were only marginally involved. The federal Minister of Health, Ujjal Dosanjh, did make general statements indicating that he would not allow Canada’s drug supply to be threatened by exports to the us. One of his earliest public statements on this was made on December 12, 2004.44 Dosanjh and federal officials followed this with additional seemingly hard rhetoric in June of 2005 when there was more speculation about reducing drug exports to the us.45 However, this did not lead to major concrete action. Just before the election campaign of 2005–2006 was called, the Minister did introduce a bill to provide potential protection for the Canadian drug supply in light of exporting by internet pharmacies, but this died when the House adjourned for the campaign.

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On some occasions, provincial government ministers made representations to their federal counterparts regarding the status of internet pharmacies. For example, the Government of Manitoba made representations to the federal government in favour of internet pharmacies because they were a growing element in Manitoba’s economy and because Manitoba was concerned about threats by major pharmaceutical companies to reduce drug supplies to Canada.46 Apart from the above, the federal Department of Health (Health Canada) made various statements and representations on relevant issues. However, it was not involved in any particularly pointed or focused actions. In May 2003, Health Canada issued a report indicating that exported drugs are subject to the same regulation as drugs sold in Canada. The fda interpreted this as a guarantee of the quality of drugs shipped to Americans from Canada and, hence, a possible basis for liability of Canada to American consumers. Health Canada officials stressed that this was not the case.47 Of course, provincial agencies monitored the internet pharmacy situation either because of their regulatory responsibilities or because of their commercial implications. With respect to the involvement of governments, as partly noted in the previous sections, some American state governments were doing their own reviews (sometimes onsite) of the safety standards of Canadian exporting pharmacies with particular emphasis on internet pharmacies. At the end of the day, there was no draconian prohibition of drug exports to the us either from regular “bricks and mortar” pharmacies or from internet pharmacies. There was some disagreement about the extent to which the activities of the exporters was impacting on the drug supply for Canadians. However, enough concern was being generated about this by 2003 and 2004 so that Canadian exporters were sometimes referring American customers to pharmaceutical sellers in places such as the United Kingdom and other countries with well-established modern pharmacy systems.48 Ultimately, the concern with adequacy of drug supplies for Canadians gained enough traction so that even the interest group association representing internet pharmacies, Canadian International Pharmacy Association (cipa), was promoting a policy of moderate exports to the us while keeping a prudent eye to the needs of Canadians.49 The Canadian scene was characterized by relatively inactive government, pursuit of slightly nuanced turf imperatives by professional associations and activation of consumer groups and pharmaceutical manufacturers acting more or less in harmony. Consumer groups acted mostly to protect against incursions of American demand into the Canadian health care scene and price structure while pharmaceutical companies acted mostly from imperatives of the international research pharmaceutical industry with an eye to preserving profits and protecting intellectual property. A Conservative minority government came to power in 2006. This ended a long period of Liberal dominance that began in 1993. At this time, there is no

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clear indication that the matter is a high priority to the new Conservative government. To the extent that pertinent points can be deduced from Conservative statements in recent years, the following might prove relevant: • While acting as official opposition, the Conservatives introduced and

passed a motion that would, if pursued to its logical completion, have militated against bulk purchasing of pharmaceuticals by foreign interests. This addressed the security of drug supply problem while, at the same time, preserving a role for internet pharmacies in non-bulk transactions.50 • The minority government must be sensitive to the needs of regions such as Quebec where the interests of the pharmaceutical manufacturers are important. At the same time, the core support for the Conservatives comes from some of the Western provinces where internet pharmacies are relatively common. This suggests that any policy of the new government must balance these two perspectives to some degree. • The new minority government is more positively disposed toward the American federal government than the previous Liberal minority. This might lead to further interaction between officials regarding safety issues. Based on the above, we would not expect the new government to give the internet pharmacy issue a high profile but, if necessary, to stress the importance of protecting Canadian drug supply by preventing bulk exports while, at the same time, not totally discouraging transactions between internet pharmacies and individual foreign consumers.51

c o n c lu s i o n s : t e m p o r a ry e q u i l i b r i u m i n p o l i c y a n d i t s l i k e ly f u t u r e The events discussed in this chapter could be wrapped up in various conceptual packages. However, our main objective has been to show how a change in marketing and communication technology generated a wide variety of other effects in political, regulatory, business and interest group behaviour. It has been shown how the beginnings of internet pharmacy exports to the United States from Canada provided a trigger or at least an accelerant to change in many of these other areas of public policy and did so at various levels of governance. Furthermore, this new use of basic communications and marketing technology modified the use and importance of scientific and professional rhetoric connected with the regulation of a highly technical policy area. In the United States, the old language of scientific and professional safety and efficacy, met its biggest challenge through the actions of sub-national governments and, to a lesser degree, active consumer interest groups. When importation of drugs accelerated due to changes in technology, some state governments and federal agencies were already primed with knowledge of

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relevant technologies and their related regulatory issues due to an earlier rise in state government and states’ rights activism.52 They were also primed to do battle in such areas in the generally litigious world of American policy making. In fact, local and state governments even extended the utilization of internet technology by setting up their own web sites to refer their citizens to Canadian and other overseas pharmacies. Some of these web site systems were run by consortiums of states and were quite ambitious in nature. As noted the states also explored the realm of group purchases of drugs on behalf state employees, retirees and, in some cases, other citizens. Canada has not experienced similar phenomena in relations between its sub-national and national governments. While there are certainly conflicts among Canadian governments that sometimes relate to the general realm of health care, the controlled and relatively inexpensive drug-pricing regime has not created particular sensitivities in the area of general pharmaceutical policy. At the same time, there had been few major disputes about division of government responsibility for the commercial application of new technology. In general, intergovernmental affairs in Canada tend to be dominated by highly aggregated disputes about tax domains and revenue sharing against a backdrop of vague symbolism focused on framework legislation such as the Canada Health Act. The extent that the issues of internet pharmacy trade could penetrate the realm of Canadian public policy would be determined by some of the traditional issues of pharmaceutical policy regulation having to do with patent rights, safety and a general concern not to expose a highly challenged health care system with dramatic changes in prices structure. The primary new consideration amidst these traditional concerns was the possibility that drug importation/reimportation would deplete the supply of drugs available for the Canadian population. This was the immediate fear of some Canadians, and its long-term effect might be a challenge to the existing price regulation structure. Ultimately, even the organization representing the internet pharmacies, cipa, said it was prudent to be sensitive to this issue, but questioned that it had actually become a problem. As we look to the immediate future, it is likely that supply and price structures will prove to be the critical pivots in Canada. While it is true that sales from Canadian internet pharmacies dropped somewhat after their initial explosive growth,53 there are reasons to believe that this could change.54 At another level, the internet pharmacy issue has laid a foundation for other kinds of changes relating to the continentalization of North American policy making. Apart from newly formed relationships between American consumer groups and the Canadian internet pharmacies and the general similarity of perspective held by groups representing the brand name pharmaceutical industry, the relationship between American and Canadian regulators has taken on new dimensions as has the relationship between some American and

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Canadian health care professional organizations. In part, this was another aspect of the Smart Regulations movement that not only influenced domestic reorganizations but also accelerated calls for cross-border harmonization of many regulatory regimes. In effect, traditional scientific and professional regulators were pushed toward greater interaction due to the emergence of consumer and sub-national government activism strengthened by technology. Thus, a small change in the marketing technology of legitimate pharmaceuticals has played an important part in reshaping the economic and political environment of North American pharmaceutical policy. In all likelihood, this change and related technological changes will continue to have important effects.

notes 1 Aidan Hollis and Aslam Annis, “Rx for Canada: Close the Internet Pharmacies,” C.D. Howe Institute Commentary: No. 205 (October, 2004) http://www.cdhowe.org/pdf/ commentary_205.pdf. See also Steven Morgan and Jeremiah Hurley, “Internet Pharmacy: Prices on the Up and Up,” Canadian Medical Association Journal 170, no. 6 (16 March 2004): 945–6, http://www.cmaj.ca/cgi/reprint/170/6/945. 2 Roger Parloff, “The New Drug War,” Fortune, (8 March 2004): 144–56 (146 in particular). 3 Canadian Internet Pharmacy Association cipa, home page of cipa, http:// www.ciparx.ca/. 4 Parloff, “The New Drug War.” Note that some would estimate the figure to be more in the range of $600 million. See for example, ims Health Canada, “What’s New: Retail Prescriptions Grow at Record Level in 2003,” and ims health Canada Web Site: News Releases Section, (2004), http://www.imshealthcanada.com/htmen/1_0_9.htm. Differences in estimates may be due to differences between figures including all internet pharmacy sales and figures focused only sales to the usa. 5 Patricia Barry, “More Americans Go North for Drugs: 50-Plus Consumers Find Price Relief in Canada; Internet Fuels the Trend,” aarp Bulletin Online (April 2003), http:// www.aarp.org/bulletin/yourhealth/a2003–06-25-moreamericans.html/page=1. 6 Potential discretionary power was expanded for importation in 2000 but never officially enabled. See National Economic Research Associates, “Drugs from Canada Debated as Part of Medicare Drug Bill,” Physicians Economic News (15 October 2003), http://www.nera.com/MediaCoverage.asp?pr_ID=1633. 7 us Food and Drug Administration (fda), “Importing Prescription Drugs,” from the Imported Drugs Section of the Hot Topics Heading of the fda Web Site, http:// www.fda.gov/importeddrugs/. 8 William K. Hubbard, “Canadian Drug Re-importation: Is There a Safety Issue?” Statement by William K. Hubbard, fda Associate Commissioner for Policy and Planning before the Committee on Government Reform, Subcommittee on Human Rights and Wellness, us House of Representatives, 12 June 2003, http://www.fda.gov/ola/2003/ canadian0612.html.

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9 Parloff, “The New Drug War,” 154–5. 10 CNN.Com, “Bush Signs Landmark Medicare Bill into Law,” CNN.com Web Site, 8 December 2003, http://www.cnn.com/2003/ALLPOLITICS/12/08/elec04.medicare/. 11 Government of Minnesota-Attorney General’s Office, “Hatch Applauds Landmark Decision that Prescription Drugs May Legally be Imported from Canada,” Web Site of the Office of the Attorney General of Minnesota: Health care Section, 10 May 2004, http://www.ag.state.mn.us/consumer/PR/PR_040510GlaxoSmithKline.htm. Also note that the working group of attorneys general was part of the “Antitrust Working Group” of the National Association of attorneys general. This was clarified in a personal communication dated February 27, 2006 from Mike Hatch, attorney general of the State of Minnesota. 12 Parloff, “The New Drug War,” 154. 13 House of Representatives Office of Rahm Emmanuel, “Congressman Emanuel, Governor Rod Blagojevich and Other Members of Congress Call on Conferees to Include Importation Language in Medicare Bill, “18 September 2003, http://www.house.gov/ emanuel/pr_030925topstory.shtml. 14 Parloff, “The New Drug War.” 15 Hubbard, “Canadian Drug Re-imporation,” and us Food and Drug Administration (fda), “Importing Prescription Drugs,” fda Web site, http://www.fda.gov/ importeddrugs/. 16 Jim Vanderhei and Juliet Eilperin, “Drug Firms Gain Church Group’s Aid Claim About Import Measure Stirs Anger,” Washington Post, (21 July 2003): sect. A, 1, http:// www.washingtonpost.com/ac2/wp-dyn?pagename=article&node=&contentId=A31678–2003Jul22¬Found=true. 17 Kate Mulligan, “Government News: Drug Reimportation Bill Wins House Vote,” Psychiatric News, American Psychiatric Association 38, no. 16 (15 August 2003): 6, http:// pn.psychiatryonline.org/cgi/content/full/38/16/6. 18 Barry, “More Americans Go North for Drugs,” and: trea Senior Citizens League, “Drug Reimportation Archives,” Legislative Issues and Action Section of The Senior Citizen’s League Web Site, http://www.tscl.org/PresDrugsarchives.asp. 19 Fairdrugprices.org, “Who We Are,” Web Site of Fairdrugprices.org:Who We Are Section, http://www.fairdrugprices.org/whoweare.htm. 20 Ram Kamath and Scott McKibbin, Report on Feasibility of Employees and Retirees Safely and Effectively Purchasing Prescription Drugs from Canadian Pharmacies, Illinois, Office of Special Advocate for Prescription Drugs, Illinois Department of Central Management Services, 2003. 21 Julie Rovner (associated with Congress Daily), “Medicare Nomination May Stall over Drug ‘Reimportation’,” GOVEXEC.com: Daily Briefing, (25 February 2004), http:// www.govexec.com/dailyfed/0204/022504cdam1.htm. 22 Government of Illinois-Office of the Governor, “Governors Hold Historic Meeting on Prescription Drug Costs: Capitol Hill Summit Features Governors, Congressional Leaders on Reimportation Issue, “Illinois Government News Network, 24 February 2004, http://www.illinois.gov/PressReleases/ShowPressRelease.cfm?SubjectID=3&RecNum=2 776.

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23 Ibid. 24 Andrew S. Krulwich and Paul A. Dame, “Drug Importation: From ‘Quick Fix’ to ‘Quagmire’ via Public Policy, Economics, and the Law,” Briefly: Perspectives on Legislation, Regulation and Litigation Series: National Legal Center for the Public Interest 9, no. 3 (March, 2005): 5-9, http://www.nlcpi.org/books/pdf/BRIEFLY_Mar05.pdf. 25 Ibid. 26 Ibid. 27 Government of Vermont – Office of the Governor (contact Jason Gibbs), “Subject:Vermont Files Suit Against fda Over Drug Reimportation,” Web Site of the Office of the Governor of Vermont: Press Releases Archives Section, (19 August 2004), http:// www.vermont.gov/tools/whatsnew2/index.php?topic=GovPressReleases&id= 848&v=Article. 28 Amanda Gardner, “Support for Canadian Drug Imports Hits Groundswell,” HealthDay News, (6 May 2004), http://www.americaputmeoutofbusiness.com/news-may07-04-001.php.and: Pharmaceutical Research and Manufacturers of America (phrma), “Think Drugs Imported From Canadian Websites Are Safe: Think Again!,” Web Site of phrma:Importation: Internet Pharmacies, http://www.phrma.org/ index.php?option=com_content&task=view&id=454&Itemid=120. 29 us General Accounting Office (gao), “Internet Pharmacies: Some Pose Safety Risks for Consumers and Are Unreliable in Their Business Practices: Highlights of gao-04888T.” Testimony before the Permanent Subcommittee on Investigations, Committee on Governmental Affairs, us Senate, (17 June 2004), http://www.gao.gov/highlights/ d04888thigh.pdf. 30 Senate Office of Byron Dorgan (contact Barry E. Piat or Rebecca Pollard), “Dorgan, Snowe Others Introduce Prescription Drug Importation Bill,” News Release from the Office of Senator Byron Dorgan, (9 February 2005), http://dorgan.senate.gov/newsroom/ record.cfm?id=231823. See also House of Representatives – Office of Gil Gutknecht, “Market Access for Prescription Drugs,” Web Site of Representative Gil Gutknecht: Issues & Votes Section, http://www.gil.house.gov/Issues/pdrugs/pdrugs.htm. 31 Grace-Marie Turner and Joseph R. Antos, “Fixing the New Medicare Law #3: How to Build on the Drug Discount Card,” Backgrounder #1752: Health Care Research, (The Heritage Foundation: 26 April 2004), http://www.heritage.org/Research/HealthCare/ bg1752.cfm. 32 Senate Democratic Policy Committee, “Problems and Pitfalls Implementing the Medicare Drug Benefit,” Web Site of the Democratic Policy Committee of the us Senate: Reports Section, 24 January 2006, and: Senate Democratic Policy Committee, “Preparing for the Medicare Drug Benefit,” Web Site of the Democratic Policy Committee of the us Senate, November 18, 2005, . 33 Robin Toner, “Drug Plan’s Start May Imperil G.O.P.’s Grip on Older Voters,” New York Times, 19 February 2006, http://www.nytimes.com/2006/02/19/politics/ 19older.html?_r=3&pagewanted=1&th&emc=th&oref=slogin&oref=slogin.

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34 Parloff, “The New Drug War,” 154–5. 35 Russell Williams “Internet Pharmacy: Governments Must Take Action to Protect the Integrity of the Canadian Drug Supply,” Web Site of Canada’s Research-Based Pharmaceutical Companies (Rx&D): Media Centre: 2004 News releases, (20 July 2004), http://www.canadapharma.org/Internet_Pharmacy/Op-Ed_Internet_Pharmacy_ July_20_2004.pdf. 36 Ibid., and David Garmaise, “Consumer Groups Call for ban on Internet Pharmacies,” Canadian hiv/Aids Policy & Law Review 9, no. 2, (August 2004), http://www. aidslaw.ca/Maincontent/otherdocs/Newsletter/vol9no22004/treatment.htm#2ga. 37 Hollis and Annis, “Rx for Canada.” 38 Brett J. Skinner, “Price Controls, Patents, and Cross-Border Internet Pharmacies Risks to Canada’s Drug Supply and International Trading Relations,” Critical Issues Bulletins (The Fraser Institute: February 2006): 4–6, http://www.fraserinstitute.ca/admin/ books/files/PriceControls&XborderPharmacies1.pdf. 39 Ibid. 40 Canadian Pharmacists Association, “Pharmacists across North America Support Call to Address Internet Drug Sales,” Web Site of the cpha: Media: Newsroom: News Releases, (13 May 2003), http://www.pharmacists.ca/content/media/newsroom/ news_releases/release_detail.cfm?release_id=77. 41 Elizabeth Raymer, “Forum Tackles International Pharmacy issues,” Pharmacy Post News (April 2004), http://www.napra.org/pdfs/news/pharmacypostnews/2004april/ forum_tackles_international_pharmacy_issues.pdf. 42 Canadian Pharmacists Association, “Position Statement on Cross-Border Prescription Drug Trade,” Web Site of the cpha: About cpha: What’s Happening: cpha Takes Action, (February 2004), http://www.pharmacists.ca/content/about_cpha/ whats_happening/cpha_in_action/pdf/Crossborderprescriptiondrugtrade.pdf. 43 Ontario College of Pharmacists, “The Canadian Drug Store Inc. Pleads Guilty,” Web Site of the Ontario College of Pharmacists: Media Section , (17 July 2003), http:// www.ocpinfo.com/client/ocp/OCPHome.nsf/web/News+Release+July+17+2003? OpenDocument. 44 Peter Pitts, “Drug Importation Is Dangerous to Public Health,” Web Site of Pacific Research Institute: Press: Opinion Editorials: Archives 2005, (3 February 2005), http:// www.pacificresearch.org/press/opd/2005/opd_05-02-03pp.html. 45 Rob Gillies, “Canada to Announce Proposal Restricting Internet Pharmacies From Prescription Drug Trade,” Associated Press Story on Health Section of the abc News Web Site, (23 June 2005), http://abcnews.go.com/Health/wireStory?id=876622. 46 Brian L. Beirne and Michael Tucker, “us Reimportation of Prescription Drugs,” Yale Law School Student Scholarship Series 17 (2005): 7–8, http://lsr.nellco.org/cgi/ viewcontent.cgi?article=1016&context=yale/student (hosted by the Berkeley Electronic Press). 47 Ibid. It is worth noting that there was some interesting interactions between American and Canadian pharmaceutical regulators going on at this time, but we cannot develop the details here.

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48 An example of one internet pharmacy that explicitly refers to such arrangements is: Americaputmeoutofbusiness.com, “Daren Jorgenson Business Model for Utilizing the Internet to Market His Canadian Online Pharmacy,” Web Site of Americaputmeout of business.com: Mission Statement. http://www.americaputmeoutofbusiness.com/ daren_jorgenson_mission.php. 49 Canadian International Pharmacy Association (cipa), “International Pharmacy Industry Supports Federal Strategy to Protect Canada ‘s Prescription Drug Supply,” Web Site of cipa: What’s New Section, (29 June 2005), http://www.ciparx.ca/artinternational-pharmacy-industry-supports-federal-strategy.html. 50 House of Commons-Office of Member of Parliament Steven Fletcher, “House passes Conservative motion to ban bulk drug exports, protect Internet pharmacies,” (6 October 2005), http://www.stevenfletcher.com/archives/000527.php. Note that the motion was in the nature of an approval of the direction of a parliamentary committee’s inquiry concerning internet pharmacies. It was not a motion pertaining to the passage of an actual bill. 51 A June 12, 2006, interview with Steven Fletcher, member of Parliament, substantially confirmed our view of some elements of the probable Conservative position in this area. Mr Fletcher took the view that some of the Conservative policy on this issue had been guided by the perception that the internet pharmacy industry was past its peak, in part because of the narrowing spread between Canadian and us currency. However, as we suggest elsewhere, while there was a drop in the sector’s revenues, there may still be strong demand from the us depending on the implementation of the Medicare Drug Benefit, and a variety of other issues. Mr Fletcher was the senior health critic for the Conservatives in opposition and is now the parliamentary secretary to the Minister of Health. 52 Mary Hillebrand, “Clinton Cracks Down on Net Pharmacies,” E-Commerce Times. (22 March 2000), http://www.ecommercetimes.com/story/2791.html. and: us General Accounting Office (gao), “internet pharmacies: Adding Disclosure Requirements Would Aid State and Federal Oversight,” United States General Accounting Office Report to Congressional Requesters, (19 October 2000), http:// www.gao.gov/new.items/d0169.pdf., and Clare Nolan, “Internet Raises Questions About States Rights,” Stateline. org (18 January 2000), http://www.stateline.org/live/ ViewPage.action?siteNodeId=136&languageId=1&contentId=13901. 53 Skinner, “Price Controls, Patents, and Cross-Border Internet Pharmacies,” 6. 54 Beth Gorham, “Canadian Online Pharmacies Rebound from Sales Slump,” Canoe Network – C News, (9 May 2006), http://cnews.canoe.ca/CNEWS/Canada/2006/05/ 09/pf-1571818.html.

7 Promoting Partnerships in Biotechnology for Development ba s m a a b d e l g a fa r a n d halla thorsteinsdót tir

Interest in the potential role that modern biotechnology can play in transforming developing economies, contributing to sustainable development, and improving public health has been gaining international salience. In Canada, this has resulted in various efforts to better understand how Canadian strengths in biotechnology can be effectively utilized to address developing country needs as well as to support their efforts in building technological capacity. Canada has significant strengths in biotechnology research, commercialisation, and in establishing and managing a biotechnology innovation system. Knowledge in all these fields is in demand in developing countries. Close partnerships between Canada and developing countries in biotechnology would allow sharing of this knowledge which could be mutually beneficial. In a recent address at the 12th Conference of Montreal the Honourable Maxime Bernier, Minister of Industry, noted that “by encouraging international partnerships, our ever-increasing knowledge base will become a source of mutual enrichment.”1 The purpose of this chapter is to examine key issues and factors in defining Canada’s role in using biotechnology partnerships to achieve international development objectives and to suggest a basic strategy for Canadian engagement. The chapter is divided in six main sections. The first section provides some key definitions. The second explores Canada’s biotechnology strategy particularly as it relates to international development concerns. The third discusses the importance of science and technology partnerships, and emphasizes the importance of promoting international collaboration as part of a broader conceptual framework based on our understanding of innovation systems. The fourth briefly presents major developing country needs in

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health, agriculture, and environment. The fifth discusses innovation systems and outlines the factors and conditions that can influence biotechnology partnerships in developing countries. Based on these observations, the sixth section then presents strategies to plan and promote collaboration between Canada and developing countries. Conclusions then follow.

core concepts This chapter adopts the oecd’s definition of biotechnology. Accordingly, biotechnology is “the application of science and technology to living organisms as well as parts, products and models thereof, to alter living or nonliving materials for the production of knowledge, goods and services”.2 International development policy means the federal government’s programs and policies that are intended to define and guide Canada’s role vis-àvis developing countries, and positively impact development outcomes in those countries. This includes activities aimed at sustainable development, poverty reduction, humanitarian assistance, and global security. Although the Canadian International Development Agency (cida) is the primary department responsible for international development, other federal government departments notably the Departments of Foreign Affairs and International Trade, Health, Environment, and Industry also play important roles. The International Development Research Centre focuses on promoting science and technology in developing countries. A national system of innovation (nsi) represents the institutions that contribute to the creation, diffusion, and use of new economically useful knowledge in a specific country and the linkages and synergies between institutions. These institutions include not only formal ones like firms, universities, research centres, and government, but also institutions in a wider sense, such as social norms and laws (for example intellectual property rights).

c a n a d a’ s b i o t e c h n o l o g y s t r at e g y a n d i n t e r n at i o n a l d e v e l o p m e n t The benefits of modern science have not reached billions of people living in developing countries.3 There are concerns that lack of genomics and related biotechnology knowledge will result in a genomics divide between developing and industrialized countries.4 In light of this situation a renewed global interest in the potential of international science and technology (s&t) cooperation, and biotechnology in particular, has recently emerged. In harmony with these developments, Canada is renewing its global commitment to promote international development through harnessing knowledge in s&t. To this end, the government has been exploring ways to effectively implement those elements of Canada’s Biotechnology Strategy that target activity with developing countries. These efforts stem from a

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desire to position Canada as a world leader in biotechnology combined with an increasing concern that global inequalities in health, quality of life, and income are ever more the result of inequalities in knowledge. Ongoing research and discussions about biotechnology and international development at the federal level are largely concerned with possible ways forward including the need for guidelines.5 Canada’s biotechnology policy has generally not had international development as a key concern with the exception of some fragmented efforts.6 The Canadian Biotechnology Strategy (cbs) was introduced by the government in 1998 to “promote the scientifically-sound development, application and export of biotechnology through strategic investments that: modernize the regulatory system; support cutting-edge r&d; increase access to investment capital; strengthen Canada’s intellectual capital; engage Canadians directly in shaping relevant policies; create highly qualified human resource capacity; and update patent laws.” It is only recently that developing country needs have been brought to the fore as part of discussions to renew the cbs. Thus, Canada’s Blueprint for Biotechnology from 2004 recognized Canada’s capacity to address developing country needs. It states: “Canadian excellence in biotechnology … places the country in an ideal position to do much more in developing and delivering biotechnology applications to address problems in the developing world. In the face of increasing disparities between the rich and poor nations in the world, the challenge is to harness the potential of new knowledge and innovation for global human welfare.” 7 The formation of an interdepartmental Working Group on International Development and Cooperation (wg) which works closely with Canada’s Biotechnology Secretariat signifies the government’s effort to better integrate multi-department activities related to biotechnology within the framework of Canada’s international development policy. This is in line with the government’s International Policy Statement – A Role of Pride and Influence in the World (IPS) which “charts a new course for a whole-of-government approach to development cooperation”.8 Among the sectors targeted for programming in the IPS that are relevant for this paper are health, private sector development, and environmental sustainability. The policy commits the government to support and assist developing countries in their efforts to build and strengthen these sectors. These programming sectors are directly related to achieving the Millennium Development Goals (mdgs), to which Canada along with all other member states of the United Nations, is committed. The IPS includes a renewed commitment to “deliver a visible and lasting impact on the mdgs.”9 The mdgs were conceived by the international community to promote sustainable development and eliminate poverty worldwide. The goals include: (1) eradicate extreme poverty and hunger; (2) achieve universal primary education; (3) promote gender equality and empower women; (4) reduce

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child mortality; (5) improve maternal health; (6) combat hiv/aids, malaria, and other diseases; (7) ensure environmental sustainability; and (8) develop a global partnership for development.10 Work has been done to define indicators to measure and track progress towards these goals. Since its inception the Working Group has been active in trying to gain a better understanding of Canadian strengths in biotechnology and the needs of developing countries. There is as of yet, however, no central repository for such knowledge. It also appears that much of the policy research emphasis has been placed on the scientific and technological aspects of biotechnology, with much less attention being paid to the policy frameworks that in many instances are a precondition for cooperation in this field, for example, frameworks related to biosafety and intellectual property. A better understanding of innovation systems, whether national or regional, of selected developing countries will also be critical for future progress on both the scientific and regulatory fronts. More recently, the efforts of the Working Group have been focused on developing a unified federal approach to biotechnology and international development so that departments with different mandates and expertise can make relevant contributions. Thus far the WG has drafted the major goal, objectives, and expected benefits of cooperation with developing countries in this field. The overriding goal is to “enable developing countries to access biotechnology benefits to substantially decrease poverty and achieve sustainable development”.11 The objectives include: • help developing countries to increase knowledge and build capacity in biotechnology; • establish minimum protection standards; • support technology partnerships; • enable regulatory environments; • create systems for effectively managing the benefits and risks associated with biotechnology; • increase public awareness and confidence in biotechnology. These efforts would be based on the most pressing needs of the country or region in question with a notable emphasis on agricultural and environmental biotechnologies. Major benefits are seen to be related directly to increasing food supplies and indirectly to improving public health. It is acknowledged that any approach will take a holistic view of the innovation systems in both Canada and its chosen partners.12 The wg faces many challenges in the coming months. These include the engagement of major government actors active in biotechnology and/or international development, and reaching agreement on a federal government approach to biotechnology assistance. Although some basic features of a future

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approach are discernable at this stage, including a focus on Africa and key priority areas, little else is evident as the WG grapples with what type of assistance would have the greatest impact and benefits, and how to identify those countries that will best be able to absorb the assistance that Canada has to offer. In essence, responsible officials will have to develop appropriate criteria for selecting international s&t partners and projects that demonstrate effectiveness and feasibility of wide scale implementation and benefits. There also appears to be a pressing need to secure the commitment of higher levels of government if Canada is to make a noteworthy international contribution in this field. We believe that partnerships forged within an innovation systems framework offer the most viable and sustainable approach to biotechnology assistance. It also permits Canadian partners to tailor their contribution to the existing capacity in a developing country or region. From this perspective, cooperation is feasible even with countries that appear to have limited absorptive capacity. Success will hinge on the ability of both sides to identify mutually beneficial opportunities presented by biotechnology and then on how to cooperate to turn these opportunities into reality.

s&t pa r t n e r s h i p s a n d d e v e l o p m e n t Promoting s&t in developing countries has been on the global agenda for several decades. It was not until the 1970s, however, that s&t aid policies began to incorporate participatory approaches where developing countries were being encouraged to make their own choice of technology and to establish their own scientific communities. Policies, largely involving overseas training, were aimed at institution building and development of human resources in s&t.13 Over the following decades, the participation of developing countries in s&t programs was reinforced by a better understanding of innovation processes that underscored the unique s&t demands of different countries. The centrality of building endogenous capacity and involving key indigenous actors in s&t development became clear and accepted. As more experience was gained in capacity building initiatives in developing countries, international partnerships started to become the preferred tool to promote science intensive development.14 Under such arrangements, researchers in developing and industrialized countries work together on the same research projects and typically publish and/or patent the results jointly. Emphasis is placed on mutual interest and shared benefits. In addition to strengthening domestic capacity, collaborations have made it possible for scientists in developing countries to become integrated into international networks of scientists which has increased their visibility, research outputs, and access to international knowledge networks. Collaborations with scientists in developing countries can contribute to Canada’s commitment to promote s&t capacity building for poverty reduction and sustainable development in developing countries.

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International collaboration is not limited to research however. In recent years, firms in industrially advanced and developing countries have also been collaborating in various formal and informal ways.15 Generally, collaborations between biotech firms have become so common that they are considered a defining characteristic of the sector.16 Several reasons have been identified as to why firms collaborate, among which are the need to mitigate risks associated with technology intensive projects17; to benefit from complementary expertise; and to gain access to future markets.18 Collaborations of this nature can help Canadian firms internationalize into emerging and developing country markets. Limitations of Partnerships Collaboration is far from being a win-win situation for all partners under all circumstances. Some research indicates that generally the roles of participants in north – south collaborations are not equal, a fact which leads to various concerns. These include: • an inability of developing country partners to initiate and plan projects on account of weak funding and scientific merit in relation to industrial country partners, relegating them to the task of data collection; 19 • a loss of sight of local problems due to close integration with the international scientific community or when projects are initiated by industrial country partners;20 • a risk of appropriation of research results/material from developing countries and the challenge of striking a balance with regard to benefit sharing and ownership of research results; 21 • an absence of impacts that go beyond the immediate partnership on science and technology development including the creation of innovative products and services due to weak links with local businesses and other stakeholders.22 Such collaborations tend to ignore the complex interactions, knowledge flows, and institutional requirements that must exist in order for innovation to take place. In effect, research collaborations are only expected to have sustainable impacts if they are part of more holistic innovation systems. Efforts to promote appropriate, responsible, and sustainable biotechnology development in developing countries by Canada will depend on the extent to which the needs and capacities of all participating innovation systems are understood. This applies to collaborations involving research, development, commercialisation, and governance. We now turn to the potential value of biotechnology for meeting developing country needs in health, agriculture, and environment to explore if and how Canada’s strength in biotechnology can be relevant for international development.

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n e e d s f o r b i ot e c h n o lo g y s o lu t i o n s in deve lopi ng countr ies The quality of life of people in the world is enormously uneven. Millions of people in poorer parts of the world who have not had access to the fruits of s&t suffer from malnutrition, poor housing, lack of clean water, and die from preventable illnesses.23 Many initiatives have been launched to improve the health and quality of life of people in developing countries. Perhaps the most ambitious and comprehensive attempt to promote sustainable development and eliminate poverty is embodied in the mdgs. We use the mdgs along with other supplementary information as guidelines to identify the primary needs of developing countries. Health Needs and Biotechnology The first of the mdgs to eradicate extreme poverty and hunger is closely related to health. There is a direct relationship between poor health and poverty but it is a complex two way relationship. The health of people suffers when the economic situation is poor, and economic development is limited when people have ill health.24 In addition, three other mdgs are directly related to meeting health needs in developing countries. These include reducing child mortality; improving maternal health; and combating hiv/aids, malaria and other diseases. In order to improve health and meet the mdgs, concerted efforts have to be made to address diverse health problems and to target various populations. The five most common infectious diseases in the world are hiv/aids, diarrhoeal diseases, malaria, childhood diseases, and tuberculosis.25 Addressing these health crises is challenged by the rapidly rising incidence of noncommunicable diseases which include diabetes mellitus, cancer, pulmonary diseases and asthma, and cardiovascular diseases.26 Thus, even though noncommunicable diseases do not receive specific mention in the mdgs they present serious problems for developing countries and must be addressed if efforts to improve health are to be effective. There are several recent reports that highlight the role of science and technology in general, and biotechnology and genomics in particular, in improving health in developing countries.27 To this end, the Canadian Program on Genomics and Global Health, University of Toronto, carried out a technology foresight exercise to identify the potential biotechnologies that could improve public health in developing countries.28 The cpggh took this work further and explored how the top 10 biotechnologies identified could contribute towards meeting the mdgs. The results are presented in table 1. Biotechnology can play an important role in improving health in developing countries by complementing and supporting other traditional public

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Table 1 How genomics and related biotechnologies can support the mdgs29 Millennium Development Goal

Statistics/Facts

Biotechnology to address mdg

Goal 3: Promote gender equality and empower women.

In 2001 55% of hiv cases in subSaharan Africa were women.

• Female control over sexually transmitted diseases (std) protection. • Vaccine and drug delivery.

Goal 4: Reduce child mortality.

About 11 million children die before reaching their fifth birthday (who, 1998).

• • • •

Goal 5: Improve maternal health.

Over 500,000 maternal deaths per year.

• • • •

Goal 6: Combat hiv, malaria and other diseases.

hiv/aids, malaria and tb responsible for about 40% (5 million) of all deaths in developing world.

• • • •

Average hiv infection rates in teenage girls are five times higher than those in teenage boys.

In 2002, 3.1 million people died of aids, 2 million of tb, over 1 million of malaria.

Goal 7: Ensure environmental sustainability.

5 million deaths per year can be attributed to waterborne diseases.

Molecular Diagnostics. Vaccine and drug delivery. Recombinant vaccines. Female control over std transmission protection. • Nutritionally enriched genetically modified (gm) crops. • Combinatorial chemistry. Molecular Diagnostics. Vaccine and drug delivery. Recombinant vaccines. Female control over std transmission protection. • Nutritionally enriched gm crops. • Combinatorial chemistry.

• • • • •

Molecular Diagnostics. Vaccine and drug delivery. Recombinant vaccines. Female control over std transmission protection. Bioremediation. Sequencing pathogen genomes. Bioinformatics. Enriched gm crops. Combinatorial chemistry.

• Bioremediation.

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health measures. Improving sanitation, service delivery, and better health education all contribute to improving global health. Balancing improved delivery of existing public health measures with a search for new solutions using the advances in life sciences will offer the most promising strategy for improving health outcomes in developing countries. Agricultural Needs and Biotechnology Agricultural reform, including the application of new technologies, strives to achieve food security, poverty reduction, and environmental sustainability. As a result, it contributes directly to the attainment of two mdgs including to eradicate extreme poverty and hunger, and to ensure environmental sustainability. About 840 million people living in developing countries, or 13 percent of the world’s population, are food insecure. In Africa the population has been increasing at a rate of 3 percent annually while food and agricultural production have been growing at a rate of less than 2 percent. With few exceptions, mean yields of most African food crops are below world averages forcing the continent to increasingly rely on food aid.30 Major agricultural problems in this region include low yield, poor soil fertility, drought, salinity, overuse of chemical pesticides, and pest resistance. Low productivity of Sub-Saharan agriculture is partially the result of inappropriate technologies. There is a potentially significant role for biotechnology to play in improving agriculture in developing countries. This is particularly true in Africa where the availability of arable lands is limited and the need to conserve natural resources is vital. Increasing the productivity of major crops, reducing chemical inputs of fertilizers and pesticides and replacing them with biobased products, integrating soil and water nutrient management, and improving the productivity of livestock are some of the possibilities of biotechnology.31 A number of developing countries already have active agricultural biotechnology programs and are growing transgenic crops. The United Nations Food and Agriculture Organization recently published a report that identified several major agrobiotechnology applications considered useful for developing countries. These include genomics, bioinformatics, genetic mapping techniques, molecular markers, cell and tissue culture, in vitro selection, genetic engineering, various breeding and reproduction technologies for fish and livestock, diagnostics, vaccines, and animal nutrition.32 By enhancing nutrition, improving incomes, and in turn reducing poverty, agricultural biotechnologies have the potential of helping to achieve several of the mdgs. As with health, the application of agricultural biotechnology in developing countries must be a part of serious efforts to overcome various systemic obstacles which include the creation of infrastructure for the transfer, evaluation,

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and adoption of relevant technologies. Achieving food security also entails educating women, enhancing incomes, increasing productivity, and creating farm-to-market systems among many other priorities. A holistic approach is necessary to ensure the greatest benefits for the community involved. Environmental Needs and Biotechnology Ensuring environmental sustainability is a critical mdg particularly as this goal has repercussions for the achievement of the other mdgs including those related to health, disease, and child mortality. Developing countries face a dual environmental challenge. There are rural/agricultural environmental problems such as deforestation, soil erosion, water pollution, and problems associated with pesticide use as well as environmental problems associated largely with industrialization and urbanization particularly traffic congestion. These burdens are not mutually exclusive with important linkages between the environmental problems generated by rural and urban areas. There appear to be a small number of biotechnology applications that are relevant and useful for a broad range of industries including chemical, pulp and paper, textiles and leather, food processing, metals, minerals and energy. These economically viable biotech applications are supporting cleaner processes, lowering waste production, and reducing energy use. A recent unctad report identified several industrial and environmental biotechnology opportunities for developing countries. These include industrial enzymes, bioplastics, biofuels, bioremediation, biofertilizers, and biopesticides.33 It is expected that developing countries will derive the greatest benefit from biotechnologies that will add value to their raw materials or transform their waste into useful products thereby empowering the poor and augmenting incomes.34 As can be seen from this discussion several biotechnologies can be used to address the needs of developing countries. Nevertheless, it must be kept in mind that the application of some biotechnologies, particularly those related to agriculture, has been strongly contested in many developing countries. The potential adverse implications of agricultural biotechnologies for the environment and human health have actually raised serious concerns worldwide.35 These concerns are mostly related to the potential loss of ‘agricultural biodiversity’, ethical issues, and the unjust domination of global agricultural production systems by giant multinational corporations and large commercial farms. In contrast, health and environmental biotechnologies appear to be generally acceptable to most people in developing countries.36 Harnessing Canada’s strengths in diverse biotechnology sectors will have to take account of these sensitivities. Policies that appear to be pushing agricultural biotechnologies in support of large commercial interests in parts of the world that are unwilling or not yet ready to apply these technologies are likely to meet with strong resistance. It is important that developing countries have

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access to knowledge concerning risks and benefits of biotechnology. Avoiding undesirable outcomes requires public participation and acceptance of different biotechnology applications in developing countries, in addition to implementing a reliable system of benefit sharing between biotechnologists and the primary conservers of genetic resources and holders of traditional knowledge. In the next section we will examine some of the key factors and conditions needed for successful collaboration and biotechnology innovation more broadly.

i n n o vat i o n s y s t e m s and bi ote chnolo gy developm ent Reaping the gains of biotechnology applications will only be possible for those countries that have or are building the required s&t capacity. Strengthening innovation systems, including creating enabling environments through institution building and policy reform, supporting industry and entrepreneurship, and promoting public awareness is critical in this regard. Attention must also be paid to the nature of the relationships that link the diverse elements of an innovation system. The presence of robust linkages in an innovation system creates a synergy between its elements that makes the whole greater than its individual parts. Many developing countries, including several in Africa, are actively pursing biotechnology research and development agendas. According to the High-Level African Panel on Modern Biotechnology of the African Union and the New Economic Partnership for Africa’s Development (apmb), African countries pursuing biotechnology programmes can be grouped into three broad categories: 1 Countries whose r&d programmes are still in their infancy and genebased techniques are yet to go beyond the laboratory and greenhouse, e.g., Uganda, Zimbabwe and Cameroon. 2 Countries whose genetic engineering r&d programmes have transited from the laboratory to confined field trials, like Egypt and Kenya. 3 Countries that have developed their genetic engineering r&d programmes beyond confined trials and field trials to product development and commercialization, e.g., South Africa.37 The extent of a country’s progress appears to be associated with the maturity of the national system of innovation and the strength of key elements, particularly industry. Biotechnology partnerships can support developing countries in their efforts to strengthen various aspects of their innovation systems. For this to occur, collaborations should be aligned with the innovation systems of developing countries. It is important for interested Canadian actors to understand the extent of a

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country’s capacity in order to maximize the impact of such partnerships. Knowing what capabilities a country has in biotechnology and the nature of its innovation system can help in the design and implementation of successful partnerships whether they are of a research, entrepreneurial, or regulatory nature. The following sub-sections briefly discuss key elements of innovation systems that impact the development of biotechnology in developing countries. Basic Scientific and Technological Capacity Even the simple use of some biotechnology-based products requires basic capacity. This is the case, for example, when developing countries establish and implement biosafety measures. Such capacity is characterized by the existence and interaction between key elements in an innovation system including universities and public research institutes, innovative firms, public and private investment, and stable and coherent public policies and regulations. These factors are part of a dynamic realm that is continuously being transformed by global, technological, commercial, and regulatory forces. Thus, the concept of basic s&t capacity is not fixed but rather differs through time and place and with regard to different technologies and fields of science. Universities and Public Research Institutes Science and technology can only flourish where there is a critical mass of professionals, backed by good facilities, effective information flows, and sustained funding. When examining the biotech sector in developing countries it is clear that universities and public research institutes play a major role as is the case in the scientifically advanced countries. Universities are relied upon to train scientists, engineers and technically qualified personnel; perform of basic research; and interact with industry and society in order to react to changing demands. Leadership Political leadership is essential for building s&t capacity and for supporting specific initiatives like biotechnology. “Those countries [in Africa] that are developing their scientific and technological capacity most rapidly are those whose presidents or prime ministers have taken a deep personal interest in this area, and have given their personal backing to political and policy initiatives in this field”.38 Several studies of developing countries have emphasized the importance of political will in the development of national health biotechnology sectors.39 Long-term government support both in terms of funding and policy initiatives is key for success in biotechnology.

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Leadership is not confined to policy or even to senior levels of government. Individual leadership within various spheres of an innovation system is very critical as well. Visionaries who understand the potential of specific technologies to benefit their societies and economies, and who can drive the development and production process can be found in universities, public research institutes, and the business sector. In fact the ingenuity of these key actors is crucial for addressing major challenges associated with the sector’s development and with the shortcomings of the innovation systems in which they must operate. Strategy Very few countries can undertake all aspects of biotechnology’s diverse specializations given limited resources and expertise. This reality underscores the need for countries and sometimes regions to choose particular niche areas and develop appropriate strategies that will guide the development of the sector. Good strategies tend to encompass three key ingredients, including priority setting with the involvement of key stakeholders, focus on local needs and/local strengths, and provision of funding. Priority Setting and the Involvement of Key Stakeholders The identification of research priorities is the first step in strategy formulation that provides focus and guidance for further steps. This process must be seen as fair and transparent.40 Consulting with stakeholders is particularly important as they are inevitably relied on to research, produce, and use biotechnology goods and services. A critical aspect of consulting with stakeholders is public engagement. Public attitudes tend to influence the acceptance or rejection of a technology that has certain benefits, costs, and risks associated with it. Public engagement at the local level is used to assess the impact and acceptability of various risks associated with biotechnology. The near absence of local ngos specialized in s&t issues, however, is translated into limited public awareness of the extent to which s&t has become a part of global commerce and social development. As a result, certain social groups often experience the introduction biotechnology applications, particularly those related to agriculture, as a threat to their livelihoods and ways of life. The Royal Society of Canada has identified three main risks of biotechnology including those related to health and environment, socio-economics, and philosophy and religion.41 The debates surrounding each of these issues will undoubtedly differ among different societies and groups. The key to effective communication is the dissemination of accurate information on the benefits, costs, and risks of various biotechnological applications. Understanding the tools as enabling technologies may open up new opportunities

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even when current applications and products are not suitable. In the end, acknowledging and respecting diverse views is critical for the credibility of any public engagement process. Focus on Local Needs and /Local Strengths The ultimate aim of consulting with key stakeholders should be directed at identifying local needs which biotechnology can potentially address or local strengths which can support biotechnology development. A local focus serves to stimulate the biotechnology sector to come up with applied solutions to actual domestic needs thereby enhancing endogenous capacity. It also encourages knowledge flows between different actors of the national innovation system. Close connections between the producers and users of knowledge have been identified as an important source of innovative ideas that may result in improved product development.42 Funding The provision of adequate funds to undertake the implementation of a biotechnology strategy is obviously critical but very challenging for developing countries. Most developing countries lack venture capital markets and biotechnology is seen as too risky for conventional lenders. Multinational enterprises and other private sector actors are also weak sources of funding. The absence of good governance structures may be a hindrance in some countries to attracting local and foreign funds that demand transparency, adequate monitoring, and financial accountability.43 These challenges have compelled national governments to provide the lion’s share of financial support for biotechnology projects. Linkages Linkages of all sorts are critical for innovation since they support key actors in the production, diffusion, adaptation, and use of new knowledge.44 Fostering productive linkages between actors with varying levels of expertise and with different roles enhances collective capacity to solve technical problems and is crucial to using local resources optimally. These observations are particularly important in developing countries where the value of limited resources has to be amplified. Private Sector Involvement The participation of private firms in developing countries is important for developing biotechnology knowledge into products and services and commercialising them. The performance of many developing countries in this

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respect is generally poor with biotechnology mainly promoted through government initiatives. Three issues are particularly important for progress on this front: the first involves improvements in local linkages between industry and other elements of local innovation systems, particularly academia; the second involves establishing the conditions that nurture the formation of science based spin-off companies from public research organisations; and the third involves the promotion of international alliances and the enhancement of trade opportunities in biotechnology-based goods and services. In the absence of open export markets it will be difficult for private actors in developing countries to commit the level of investments associated with biotechnology research, development, production and marketing. Regulations Developing countries which currently use biotechnology and those aspiring to do so must have appropriate regulatory regimes in place for safety and trade purposes. Regulatory regimes should be strong, flexible, and effective.45 They must also accommodate the characteristics of different technologies and conform to international agreements. Canadian expertise in developing regulations and coordinating mechanisms can be useful for developing countries in this regard.46 Four major regulatory regimes associated with biotechnology are discussed next. Drug and Health Product Approvals Developing countries need stringent international regulatory regimes for health biotechnology products that are efficiently and equitably applied. Creating a strong, reliable, and facilitating regulatory environment is as essential as having adequate infrastructure, human resources, and private sector involvement. Several developing countries are making significant efforts to build effective regulatory systems for health products. Intellectual Property Rights Today all countries are bound by the rules of the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights Agreement or trips and many have already harmonized their national intellectual property regimes with the Agreement’s requirements.47 According to the trips patents shall be available in all fields of technology for a period of twenty years providing they meet specific criteria. With regard to biotechnology Members are permitted to exclude from patentability plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. Members must provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination of the two.

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Conservation and Traditional Knowledge Many biotechnology applications are based on plants, raw materials, and traditional knowledge found in developing countries. The quest to conserve and protect such resources has not been easy. Proposed ipr regimes remain vague and other feasible models are in short supply. Although many international organizations have sought to develop mechanisms to protect these resources the only two legally binding instruments today are the Convention on Biological Diversity (cbd), which leaves several important issues unresolved, and the International Undertaking on Plant Genetic Resources for Food and Agriculture (iu) which has notable exceptions to its membership including Canada, the us, China, and Japan. Biosafety and Environmental Protection The state of biosafety in most developing countries is still very embryonic. Given limited expertise, resources, and traditions of unstable and non-transparent enforcement many developing countries face complex challenges in adopting adequate and appropriate biosafety measures. In response, the United Nations Environment Program and the Global Environmental Facility have developed a biosafety project to help developing countries build biosafety regulations in their national laws. Alternatively, establishing regional biosafety regimes may contribute to significant saving in terms of human and financial resources while also enhancing trade in biotechnology-based products by simplifying regulatory procedures.

c o l l a b o r at i o n s t r at e g i e s In order to benefit from biotechnology, developing countries in cooperation with international partners must exert serious efforts to increase indigenous capacity to perform and manage biotechnology research. Managing collaborations that are mutually beneficial and sustainable in the long run involves promoting interactions and knowledge flows between different innovation systems. From this perspective, Canada must pursue different strategies to reflect variations in the innovation systems of its developing country partners and focus on areas of mutual advantage to enhance the sustainability of collaborations. This section presents several common collaboration strategies that can be thought of as starting or entry points from which other elements of the concerned innovation systems are considered. Joint Technology Foresight Exercises In order to determine what biotechnologies to focus on when promoting partnerships, Canada, together with selected developing countries, can conduct technology foresight exercises. Technology foresight is a process that defines possible future alternatives for s&t development and attempts to link those alternatives with the economic and social needs of the participating

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countries or regions. Foresight exercises may be used to guide the choices of policy makers on where to invest in a particular technology to yield the greatest benefits. They also help to increase communications, encourage a long term focus, foster better coordination among different stakeholders, develop consensus on a future vision, and commit to specific goals.48 There are several different ways that Canada could conduct technology foresight exercises with developing countries. Bilateral foresight exercises involve specific developing countries and include panel members from different sectors i.e., scientists, policymakers, and industry representatives, both from Canada and from the developing country partner. Quantitative research to support the foresight exercises could be carried out both in Canada and in the participating country. Alternatively, a regional foresight exercise including several neighbouring developing countries and Canada could be performed. Panel members would similarly be drawn from different sectors in all the participating countries. Regional foresight exercises may help to encourage more south-to-south collaboration in biotechnology and would be beneficial in consolidating limited s&t resources particularly in the case of Africa. It should be kept in mind, however, that regional foresight exercises are a novelty and thus remain largely experimental. Supporting Human Resource Development It is widely accepted that strengthening education and training through improving access to new knowledge and technology is critical in fighting poverty and achieving sustainable development. Universities and public research institutes represent the core of biotechnology innovation systems in many countries. “The coverage and quality of education – especially tertiary education in the physical, biological and engineering sciences – exerts a determining influence on what can be achieved in scientific research, technological development and innovation”.49 Yet in many developing countries, support for education and training that reflects advances in biotechnology tends to be limited. International collaboration can therefore play a key role in improving this situation. Strengthening human resource education and training can take several forms. The most common of these include fellowship programs, internships in the country and abroad, small grants for individual research and dissertation projects, science education programs in schools, expansion of higher education programs and facilities for science and technology, specialized programs for technology management, sabbatical leave programs for researchers, and short term courses given by high level foreign specialists.50 Direct support granted to young scientists in developing countries can augment weak incentive systems and poor financial compensation. It also encourages young scientists to remain and work in their home countries. The International Foundation for Science

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(ifs) has been providing such support since the mid-1970. The ifs model provides small grants in addition to supporting activities like purchase of equipment, supplies, scientific literature, and the organization of workshops.51 Canada’s International Development Research Centre also supports developing country researchers who are working to address local needs “by funding institutions … and supporting partnerships between developing country organizations and their Western counterparts.”52 Support and training could also be provided in regulatory affairs, science policy research, and bioethics. Targeted training for midstream professionals in developing countries where students spend a short time in Canada and their home institutes take an active part in planning their education, can be used to avoid ‘brain drain’ and to ensure that training is locally relevant. The Masters of Health Science in Bioethics programme offered by the University of Toronto Joint Centre for Bioethics to developing country students is a good example. Canada could also set up specific Canada Research Chairs in biotechnology in selected developing countries53 which could be modeled after the Canada Research Chairs program. Strengthening Biotechnology Infrastructure A significant obstacle to strengthening human resources education and training in biotechnology in developing countries is the poor quality or altogether absence of needed resources including supplies, equipment, and facilities. Collaborations to support biotechnology facilities in developing countries can go a long way toward remedying this problem. Such collaborations may include the “creation, reorganization, and consolidation of science and technology research centres; strengthening university, government and independent laboratories; establishment of science support institutions like libraries, information centers, laboratory maintenance and repair facilities, metrology institutions, and calibration and standardization services.”54 It is particularly important to support the creation and maintenance of robust information and communication networks. Scientists in developing countries rely on the Internet for communications with their global research partners. The Internet is heavily relied on for electronic mail, transfer of data files, and other digital documents to aid collaboration.55 idrc has extensive experience in dealing with ict-related issues in developing countries as it is a lead supporter of ict initiatives in Africa.56 Canada also has experience in supporting centres of research excellence in developing countries. Well supported centres of research excellence enhance a country’s capacity to create, manage, and maintain critical masses of highly qualified scientists and the facilities required for their research. Regional networks allow countries to benefit and learn from each other’s experiences in biotechnology research and may encourage more south-to-south collaborations in this field.

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The approach to establish regional centres of excellence was widely supported by African delegates at a recent meeting with international donors in London.57 Strengthening Research Partnerships Research partnerships have become the preferential mode to build capacity in new science intensive fields in developing countries. They make it possible for developing country researchers to gain access to facilities and expertise that are needed in order to complete research projects. They have enhanced access to technological information, facilitated information and material exchange, improved coordination and consultation, and produced new and useful knowledge.58 In addition, these collaborations have resulted in tighter integration of developing country researchers in international scientific communities. They have also “… helped in the allocation and even harmonization of research activities, and have made research activities possible in countries going through crises.” 59 An increasing number of research problems today can only be addressed through international collaboration. Collaboration becomes a scientific imperative when a project requires access to local sites or resources for study as in the case of biodiversity prospecting; dependence on ‘local’ conditions which may be natural, institutional, or infrastructural, e.g., monitoring climate change; existence of government regulations that require cooperation to gain national access; and when needed expertise are not available locally.60 Scientific activities of common interest can also attract researchers to work together. Promoting Collaboration between Firms Biotechnology research in developing countries has been largely driven by government programmes and there tends to be weak linkages with the private or productive sector both at home and abroad. Finding ways that developing countries can gain access to the expertise of private actors in developing, testing, and commercialising biotechnologies is critical for further development. Encouraging collaborations between Canadian firms and their counterparts in developing countries is one alternative. The technology foresight exercise described above could be very useful in identifying firms that share interests. Firms may then be encouraged to collaborate in research, development, testing, manufacturing or commercialising their products and services. The collaborations can strengthen the competitiveness and productivity of both firms. Those willing to participate in collaborative research may be supported through subsidized loans, matching grants to establish the collaboration, tax incentives, special training programs about the countries involved, working capital for experimentation and trial production runs, technical assistance and marketing

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activities.61 Industrial country governments may also encourage such partnerships through pre-purchase commitments of r&d outcomes. An International Network of Centres of Excellence in Biosciences that links Canadian actors in the biotechnology sector with actors in developing countries can also be used to encourage partnerships.62 The idea is to bridge Canada’s domestic science and commercialization agendas with the global challenges facing developing countries in various fields. These networks could provide expertise on issues relating to developing and commercialising biotechnology products and services as well as funding for essential endeavours to strengthen the whole innovation process. Supporting Regulatory and Legal Capacity Building in Developing Countries Support for regulatory and legal capacity building in developing countries is very complex. Biotechnology presents unique challenges in this regard because of the deep ethical issues that surround the technology and its regulation. Moreover, the ethical, legal, and regulatory requirements of each of the sectors discussed in this study, namely health, environment, and agriculture differ. Canada’s experience in biotechnology regulation places it in a strong position to provide policy support to developing countries on a variety of biotechnology related issues. The three main policy areas where there appear to be both developing country needs and Canadian expertise to address them are in intellectual property rights; legal, ethical and biosafety issues; and raising awareness.63 Canada could, for example, set up specific executive courses in developing countries for training professionals in these fields. On a more general level, it has been suggested that promoting s&t in countries with poor governance could encourage improvements. John Mugabe, the s&t advisor to nepad recently stated that it was science that had “provided the basis for the ‘peer review’ mechanism in nepad in which African countries scrutinise each other’s performance in governance, transparency and accountability in return for aid partnerships from developed countries.”64 Thus while concern for good governance on the part of the international donor community is important, lack of it in certain developing countries should not be viewed as a barrier to s&t collaboration. In such instances s&t collaboration may make its greatest contribution by keeping communications open, stabilizing international relations, and most critically by bettering the lives of those most affected by poor governance.65

c o n c lu s i o n s It has been variously acknowledged that Canada is well positioned to make a significant contribution to international biotechnology development. Canada’s

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interest in moving forward is reflected in its renewed global commitment to promote international development by harnessing knowledge in s&t, a clear acknowledgment of the role of biotechnology in addressing developing world problems, and the formation of a specialized working group to coordinate departmental activities. Nevertheless, several issues are challenging the government’s momentum including the need to engage major federal players, and to develop guidelines for selecting international s&t partners and projects. The absence of a high-level champion in the government is challenging progress even further and worse yet is affecting international perceptions of Canada’s seriousness in this field.66 In light of this situation, this chapter has examined key issues and factors in defining Canada’s role in using biotechnology partnerships to achieve international development objectives and it has suggested a basic strategy for Canadian engagement in using biotechnology partnerships to achieve international development objectives. When developing countries aspire to break into new science intensive fields the importance of international s&t collaborations cannot be overstated. Despite the promise that some developing countries are showing, few are able to undertake the entire range of research and development activities that eventually lead to the commercialization of biotechnology products. Modest s&t capacity, shortages of skilled human resources, limited institutional capacity, poor funding, and weak or non-existent legal and regulatory regimes limit the ability of these countries to identify and benefit from biotechnology applications in key social and economic sectors. The goal of international collaborations with developing countries in the field of biotechnology should be to enhance endogenous capacities to improve health, agriculture and environment. Collaborations should conform to the innovation systems of the participating developing countries and that of Canada as well. Performing technology foresight exercises with developing country partners will go a long way toward ensuring that collaborations in biotechnology complement national s&t strategies and build on local needs and existing strengths. The strategies discussed in this chapter provide several collaboration alternatives that can help in addressing developing country needs while benefiting Canadian partners as well. It is indisputable that Canada has significant expertise in biotechnology research, commercialization, and governance. Capitalizing on these strengths to promote international development will require considerable commitment and close collaboration.

notes 1 The Honourable Maxime Bernier, minister of Industry, “Partnerships and Global Prosperity,” Speaking Points, Plenary Conference of Montreal, Montreal, Quebec, June 5, 2006.

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2 Organization for Economic Cooperation and Development, Economic aspects of biotechnologies related to human health (oecd, Report no. dsti/stp/Bio(98)8/final, 1998). 3 United Nations Development Program, Human Development Report: Making New Technologies Work for Human Development (undp 2001). unmp, Innovation: Applying Knowledge in Development, Lead authors: C. Juma and L Yee-Cheong (un Millennium Project: Task Force on Science, Technology and Innovation, 2005, 1–220). 4 P. Singer and A. Daar, “Harnessing genomics and biotechnology to improve global health equity,” Science 294 (2001): 87–9. 5 Personal communications. Delphi Group, A Discussion Paper Highlighting Key Considerations for a Canadian Strategy on Biotechnology and Developing Countries, Draft Report, (March 2006). Bruce Doern, Canadian Biotechnology Stewardship: A Commentary on Issues and Options Regarding Developing Countries (Paper Prepared for Health Canada, February 2006). 6 Bruce Doern, Canadian Biotechnology Stewardship, 12. 7 Canadian Biotechnology Sectariat, A Government of Canada Blueprint for Biotechnology: Realizing Canada’s Potential (Biotechnology Assistant Deputy Ministers’ Coordinating Committee. Canadian Biotechnology Strategy 2004, Canadian Biotechnology Secretariat) 1–34. 8 www.acdi-cida.gc.ca/INET/IMAGES.NSF/vLUImages/IPS_PDF_EN/$file/IPS-EN.pdf. 9 http://www.acdi-cida.gc.ca/CIDAWEB/acdicida.nsf/En/JUD-13175444-H69 (accessed June 7, 2006). 10 Pleas see www.developmentgoals.org for a full list including targets. 11 Canadian Biotechnology Secretariat, “International Development and Cooperation: Policy Development,” Second Draft for Discussion Presentation, International Development and Cooperation Working Group (December 2005). 12 Ibid. 13 J. Gaillard, “Donor Models for Strengthening Research Capacity,” in M.J. Garret and G. C.G. Aldershop, Basic Sciences and Development: Rethinking Donor Policy, (Ashgate Publishing Limited, 1998). 14 J. Gaillard, “North-South Partnerships: Is Collaboration Possible Between Unequal Partners?” Knowledge and Policy 7, no. 2 (1994): 31–63; F. Sagasti et al., The Sisyphus Challenge: Knowledge, Innovation and the Human Condition in the 21st Century, (foro Nacional/Internacional, February 2003); J. Salomon, F. Sagasti et al., The Uncertain Quest: Science, Technology and Development (United Nations Press, 1994); L. Velho, “The Meaning of Citation in the Context of a Scientifically Peripheral Country” Scientometrics 9, no. 1–2 (1986): 71–89. 15 A.B. Sim and Y. Ali, “Performance of International Joint Ventures From Developing and Developed Countries: An empirical study in a developing country context,” Journal of World Business 33, no. 4 (1998): 357–77. 16 W.W. Powell, K.W. Koput, et al., “Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology,” Administrative Science Quarterly 41, no. 1 (1996): 116–45.

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17 B.B. Tyler and H. K. Steensma, “Evaluating Technological Collaborative Opportunities: Modeling Perspective” Strategic Management Journal 16 (1995): 43–70. 18 Hagedoorn J. “Inter-firm r&d Partnerships: An Overview of Major Trends and Patterns since 1960.” Research Policy 31 (2002): 477–92. 19 D. Maselli , J. -A. Lys J. et al., Improving Impacts of Research Partnerships, Swiss Commission for Research Partnerships with Developing Countries, (kfpe, 2004), 1–86. 20 J. Gaillard, “North-south Partnerships.” F. Sagasti et al., The Sisyphus Challenge. 21 F. Sagasti et al., The Sisyphus Challenge. 22 J. Gaillard, “Donor Models for Strengthening Research Capacity”; L. Velho, “The Meaning of Citation,” 174. 23 undp, Human Development Report 2001. 24 World Health Organization, Macroeconomics and Health: Investing in Health for Economic Development, (Report of the Commission on Macroeconomics and Health 2001). 25 World Health Organization, The World Health Report 2004 – Changing History. The World Health Organization. 26 World Health Organization. The World Health Report 2003 – Shaping the Future, (World Health Organization, 2003). Available: http://www.who.int/whr/2003/en. 27 undp, Human Development Report, unmp, Innovation. World Health Organization, Genomics and World Health, A Report of the Advisory Committee on Health Research, (World Health Organization 2002). 28 A.S. Daar, H.Thorsteinsdóttir, et al., “Top 10 Biotechnologies for Improving Health in Developing Countries,” Nature Genetics 32 (2002): 229–32. 29 T. Acharya, A.S. Daar, H. et al., “Strengthening the Role of Genomics in Global Health,” PLoS Medicine 1, no. 3 (2004): E40. 30 Food and Agriculture Organization (fao), The State of Food and Agriculture: Agricultural Biotechnology Meeting the Needs of the Poor (Food and Agriculture Organization, 2004), 208. 31 I. Serageldin, and G. Persley, Promethean Science: Agricultural Biotechnology, the Environment and the Poor, (cgiar Secretariat, World Bank, 2000). 32 fao, The State of Food and Agriculture, chapter. 2. 33 unctad, The Biotechnology Promise: Capacity-Building for Participation of Developing Countries in the Bioeconomy, (United Nations, 2004). 34 Ibid., 6. 35 unctad, Key Issues in Biotechnology, Commission on Science and Technology for Development, (Geneva 28 May – 1 June, 2001); M.S. Swaminathan, “Genetic Engineering and Food Security,” G.J. Persley and MM Lantin, eds., “Top 10 Biotechnologies,” in Agricultural Biotechnology and the Poor, (World Bank, 1999). 36 Daar et al., unctad, “The Biotechnology Promise,” Halla Thorsteinsdóttir and Basma Abdelgafar, Promoting Development Through Partnerships: Canada’s Collaboration in Biotechnology with Developing Countries, Study for Canadian Biotechnology Secretariat, University of Toronto Joint Centre for Bioethics, (March 2005).

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37 High Level African Panel on Modern Biotechnology, Biotechnology in Africa’s Development, Draft Report of the High-Level African Panel on Modern Biotechnology of the African Union and the New Economic Partnership for Africa’s Development (July 11, 2006). 38 D. Dickenson, “Linkage, Strategy, Leadership: Keys to African Science.” Science and Development Network Editorials, February 7, 2005. 39 cpggh Project, Nature Biotechnology, 22 (Supplement, 2004): DC25-DC30. 40 unctad The Biotechnology Promise, 21. 41 A. Rath, “Biotechnology, Millennium Development Goals, and Canada,” Working Paper, Canadian Biotechnology Secretariat, 2004. 42 B.A. Lundvall, National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning (Pinter, 1992). H. Thorsteinsdóttir, T.W. Saenz , et al. “Cuba – Innovation Through Synergy.” Nature Biotechnology 22 (Supplement, 2004): DC19-DC24. 43 B. Oyelaran-Oyeyinka, Partnerships for Building Science and Technology Capacity in Africa, The Africa-Canada-uk Exploration: Building Science and Technology Capacity with African Partners (Canada House, 2005). 44 B.A. Lundvall, National Systems of Innovation. 45 unctad The Biotechnology Promise, 32. 46 A. Rath, “Biotechnology, Millennium Development Goals, and Canada,” 3. 47 This excludes least developed countries which were given until 2016 to fully implement the trips with possibilities of further extensions due to socio-economic hardships. 48 B.R. Martin, “Technology Foresight: Capturing the Benefits from Science-related Technologies,” Research Evaluation 6, no. 2 (1996): 158–68. 49 F. Sagasti et al., The Sisyphus Challenge, 85. 50 Ibid., 96. 51 J. Gaillard, “Donor Models for Strengthening Research Capacity,” 50. 52 J. Chataway, J. Smith, et al., Partnerships for Building Science and Technology Capacity in Africa: Canadian and uk Experience. The Africa-Canada-uk Exploration: Building Science and Technology Capacity with African Partners (Canada House 2005). 53 D. Cambell and G. Coté, et al., Canadian Biotechnology Initiatives Addressing Developing Country Issues (Science-Metrix, 2005), 45. 54 Sagasti et al., The Sisyphus Challenge, 96. 55 C.S. Wagner, I. Brahmakulam, et al., Science and Technology Collaboration: Building Capacity in Developing Countries? (rand Science and Technology, 2001). 56 See B. Oyelaran-Oyeyinka, Partnerships for Building Science and Technology Capacity in Africa, 15. 57 E. Masood, “Africa ‘Needs More World Class Research Centres,’” Science and Development Network News, 01/02/2005. www.scidev.net. 58 F. Sagasti et al., The Sisyphus Challenge, 100. 59 Castillo 1994 in J. Gaillard “Donor Models for Strengthening Research Capacity,” 62. 60 C.S. Wagner, I. Brahmakulam, et al., Science and Technology Collaboration: Building Capacity in Developing Countries? 49–51. 61 F. Sagasti et al The Sisyphus Challenge, 97.

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62 D. Cambell and G. Coté, et al., Canadian Biotechnology Initiatives Addressing Developing Country Issues. 63 W. Stefan, and D. McLean, “Canada, Biotechnology Policy and International Development – A Scan of Developing Country Policy Needs and Current Canadian Response,” Draft for Discussion, The Cornucopia Group Inc., 2005. 64 E. Masood, “Africa Needs More World Class Research Centres.” 65 See also P. Dufour, Knowledge, Innovation and Development: Enhancing Canada’s Standard of Living Through Emerging Global Partnerships. Ottawa, Canada, Conference Board of Canada for the td Forum on Canada’s Standard of Living, 2002, 5. 66 Confidential communication.

8 Biotechnology Regulatory Regime Shift in the Growing Bio-health Products Era g. bruce doer n

The purpose of this chapter is to examine regulatory regime shift, awareness and inertia in the changing regulatory governance of biotechnology.1 A realignment of regulatory governance is occurring because of the relative shift in product growth from biotechnology in food to biotechnology in health, centred around genome-centred and related bio-health products. Such products, also labelled as biopharmaceuticals, are therapeutics or preventative medicines that are derived from living organisms using recombinant dna technology. Recent examples include a nasally delivered influenza vaccine for the prevention of flu and a drug for the treatment of osteoporosis in postmenapausal women at high risk of fracture. But products range across several aspects of health prevention and treatment, including vaccines, tests that speed diagnosis and enhance patient response to treatment, genetic testing, therapeutic drugs, stem cell therapy, and biologics.2 Some kinds of these vaccines and gene therapy products have been available for several years but now are emerging in ever larger numbers in the research and regulatory pipelines (see more below). As a result of these technologies and other pressures discussed below, there is a broadening awareness of the wider total components and boundaries of biotechnology regulatory regimes both within countries and internationally. Both the bio-food and the bio-health aspects of the biotechnology regulatory regime have existed for some time but there has been much greater overall political awareness over the past twenty years of the food side of the regime. The changes in bio-health products have necessitated a greater awareness of the full array of regulatory regime institutions, in particular: intellectual property bodies, biologics and genetic therapy directorates, and

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medical/drug pharmaceutical approval and pricing agencies. The changes to be explored are partly driven by the technology itself but they are also partly caused by the pressures of hundreds of fast forming new bio-health firms. The underlying politics of biotechnology and the broader set of business interests and agencies involved is also a crucial feature, as are ngos and other interests which strongly resist some but not all of these developments. The chapter examines five features of regulatory regime shift dynamics: a) much higher product volumes requiring regulatory assessment and approval; b) more tailored products aimed at smaller markets than normal pharmaceutical drug products; c) the need to re-balance the pre-and post-market assessment aspects of regulation; d) new combinations of drugs, devices and diagnostics which require greater integrated regulation rather than the current system of separate realms for drugs and for medical devices; and e) enhanced regulatory capacity which may point to the need for greater shared international regulation. Some of these features are not inherently new per se for health and safety regulatory governance overall (e.g. high volume issues and international regulation) but many are and hence they create the notion of regulatory regime shift and new kinds and levels of regulatory awareness. The analysis necessarily treats the issue of regime shift as a mixed question. There are factors and forces which are different but there are others which have longer trajectories of historical continuity not only in biotechnology regulation but in the larger realms of drug, food and environmental regulation.3 However, key biohealth product issues have created a heightened awareness of the entire biotechnology regulatory system in larger public debates. And of course the degree to which regime shift is occurring is also a product of institutional inertia caused by interests which are sceptical of biotechnology in any of its forms of product and process use, including direct resistance by ngos and caution by regulatory bodies themselves. The chapter starts with an initial focus on Canada, one of the middle-sized producers of biotechnology products, but it quickly and necessarily moves to a consideration of us and eu developments. The larger comparative and international context is crucial not only because the overall regime shift and awareness is global but also because the underlying us versus eu politics also changes in bio-health product regulation and is quite different than the heretofore more polarized politics of biotechnology regulation in food. While this chapter covers a smaller subset of biotechnology regulatory issues focussing ultimately on biotechnological health products, even this narrower realm is a large, complex and fast changing subject of growing interest to governments, industry, health and patient lobbies and civil society.4 The analysis proceeds in four sections. The first section provides the conceptual argument about regulatory regimes and about the core pressures for biotechnology regulatory regime shift and awareness and also the pressures leading to regulatory inertia and caution. The second section provides a brief profile

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of the Canadian biotechnology regulatory regime as a multi-agency and multi-statute system crafted mainly in an era dominated by concerns and awareness about biotechnology in food and agriculture but now increasingly engaged in change due to the growing volume of biohealth products in Canada and in the us and eu. The third section then examines the above mentioned five dynamics and features of the biotechnology regulatory regime as awareness increases regarding the volume and nature of bio-health products. Conclusions then follow.

regimes, change, and core pressures The chapter’s conceptual focus is on regulatory regimes as analytical and practical governance constructs. A regulatory regime consists of a complex array of laws, values, rules, regulatory bodies and processes interacting with different firms, researchers, stakeholders and citizens. Our focus is first on mapping a regulatory regime and then on understanding the shifts in the structure, shape and dynamics of the regime and changes in public awareness and in inertia from opposing or sceptical interests and institutions, including regulators themselves. Overall, this requires a basic appreciation of pressures which are promoting regime change and also those resisting it or producing inertia to slow it down. Regulatory regimes as an analytical focus have been employed in several realms of regulatory governance and related realms of policy analysis, both for basic analytical mapping purposes and to understand changes across time.5 In this chapter we characterize change as regime shift, awareness and inertia largely to convey the fact that the older underlying regime for biotechnology, circa the 1980s and early to mid-1990s, has had both food and bio-health regulation substrata but is now being influenced by changes and pressures which are drawing much more attention and awareness to the biohealth side of overall regime development. There is a greater awareness of the need to overtly factor into analysis a broader array of rule makers involved in biotechnology as a whole in this context. Thus the essential task in the chapter is to map the foodcentred aspects of biotechnology regime and then the bio-health aspects of the regime and to examine some of the causes and key dynamics and features of regime shift, awareness and inertia. The biotechnology regulatory regime is one which basically assesses and approves products derived from the application of biotechnology before they are allowed on the market and which also engages in some forms of post-market review. But it is also the regime that makes the overriding rules that are to govern biotechnology. It also has key compliance and enforcement responsibilities. In the Canadian case, as we see further below, the regulatory regime centred on four departments and agencies. This included Environment Canada

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and the Department of Fisheries and Oceans but, in product approval terms, by far the most dominant in political debate has been bio-food product approval centred in Heath Canada and the Canadian Food Inspection Agency (cfia). The largest political controversies for this regime have tended to be on food and these controversies were escalated at the global level by serious differences between the us and the eu. Key differences arose in part because of stronger support in the eu for concepts such as the precautionary principle. The net result was that the eu often opposed or was sceptical about biotechnology food products.6 In these disputes biotechnological health products stood, relatively speaking, in the background of political consciousness and controversy. (see further discussion below). There have been, of course, important debates about the overall dimensions of health and biotechnology on such crucial ethical issues such as cloning, assisted reproduction, and stem cell research.7 New bio-health products were certainly available but they were still small in number. But from the middle to late 1990s to the present much larger numbers have emerged and are now in the research and regulatory pipeline (see data below). On the public definitional front, the biotechnological regime now explicitly gives much more attention to the inclusion of rule making realms such as intellectual property, biologics and genetic therapy directorates, human reproduction regulators, research ethics bodies, and agencies involved in doing technology assessments of these new technologies. The regime also crucially includes the governmental regulatory bodies which determine which products and services can be offered and paid for under Medicare, and the pricing of pharmaceutical products by government purchasers of drugs which, in Canada, includes federal bodies such as the Patented Medicines Prices Review Board. In short, these other regulators, along with the core bio-food regulatory bodies constitute the broadened regime and hence the need to examine regime shift. The core pressure for change came from the biotechnology industry which lobbied hard to ensure that its member bio-economy firms could survive and prosper as they developed new technologies and products. They successfully put their claims in the context of national innovation agendas where many countries saw biotechnology as central parts of their efforts to thrive in the knowledge-based economy. Any discussion of this industrial pressure must be set in the context of the structure of the biotechnology industry and how rapidly its composition has changed in the last few years. Several changes need to be highlighted. The first is that the industry is awash with fast changing corporate re-structuring as new sub-sectors of the industry emerge including integrated bio-pharma companies, contract research companies, drug discovery companies, and diagnostic companies. In this restructuring context it must also be stressed that virtually all of the 400 or so Canadian companies are new in the last decade.

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The industry is essentially dominated by small and medium-sized firms with limited cash flow to survive the high front-end r&d development and regulatory costs. These shortages in risk capital are likely to be even greater as the issues of high volume and tailored niche products (see further discussion below) come into the pipeline. The bio-health industry lobby strongly argues that the regulatory regime is much wider than the drug or product approval process. Access to patients and to the managed medical market requires attention to all aspects of rule making and rules which effect products. This includes intellectual property regulatory processes and competences/capacities in the new high volume context, but it also extends to drug formulary processes largely controlled by provincial governments in Canada but also federally through the Patented Medicines Prices Review Board. The us system of price setting is also relevant to Canada because it is the only one that allows full actual costs of development to be included (albeit several current legislative initiatives in the us may change this situation). All other key market countries use formulas based on the average of costs in several countries. Thus Canadian biotechnology firms want the us to be one of the countries so listed for Canadian pricing or better still, a Canadian formula that better recognizes real costs. It must be stressed, however, that all medium-term scenarios envisage some form of managed prices, because of the growing costs of drugs in public and private health care systems. Even in the us, the pro-industry Bush Administration is increasingly concerned about, and sympathetic towards the power of the ageing population “grey lobby” which is actively lobbying against drug companies and their high prices in the us (compared to many other countries). The biohealth-centred industry argued that market forces increasingly required nationally and internationally efficient and effective regulatory regimes. The high proportion of international alliances among smaller and larger firms was also linked to this argument. For these and related reasons, industry sources became concerned by what they see as the slower average approval time for new drugs. For Canada, this average is 608 days compared to Australia, 536, the us 496, Sweden, 360 and the uk 344 days.8 They were certainly aware as well that effective health and safety regulation, nationally and internationally, is also vital to their corporate prosperity. Without regulation by governments, there is no biotechnology product that is credible product (see more below) in the eyes of patients and consumers. These commercial forces and technological changes suggest new market pressures but they represent the views of the realigned biotechnology industry anxious to portray the need for regulatory change. But there are obviously other pressures that come into play from regulators and ngos concerned about other related values and needs. In the field of biotechnology, governments have never automatically marched to the drum of such industrial lobbies. There is considerable inertia involved as they take into account alternative points of view. This has come

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Table 1 The Core and the Broadened Canadian Biotechnology Regulatory Regime A) Core Regulators When Focus Seen to be Mainly on Bio-food Health Canada (Food and Drugs Act (and regs); Pest Control Products Act (and regs); Canadian Environmental Protection Act and regs (shared with Environment Canada) Canadian Food Inspection Agency (Fertilizers Act; Feeds Act; Seeds Act, Plant Protection Act, Health of Animals Act … and regs for all of above statutes) Fisheries and Oceans Canada (Fisheries Act, and regs) Environment Canada (Canadian Environmental Protection Act) and products for use not covered under other federal legislation. B) Broadened Set of Regulators When Focus and Awareness Shifts to Biohealth Products i.e. the regulators above … plus greater awareness of and roles of: The Biologics and Genetic Therapies Directorate of Health Canada Canadian Patent Office (Industry Canada) Patented Medicines Prices Review Board Provincial health departments as purchasers and determiners of formulary drugs to be covered and paid for under medicare. Various federal and provincial research ethics regulatory bodies us regulators such as the Food and Drug Administration approving high volumes of biohealth products which Canadians also then want

from ngos opposed to biotechnology or insistent on appropriate public interest and stewardship standards of regulation and regulatory processes. Such pressure has certainly been present in Canada and indeed such ngos have been given explicit arenas for expressing their concerns such as through the establishment of the Canadian Advisory Committee on Biotechnology (cbac). Moreover, the regulators themselves, armed with complex statutory mandates and duties have never simply done the bidding of the industry (see further discussion below).

t h e s h i f t i n g b i o t e c h n o l o g y r e g u l at o r y regime: the canadian case Space does not allow for a detailed account of the current Canadian biotechnology regulatory regime but its basic characteristics need to be summarized in relation to its overall rationale and its multi-agency and multi-statute nature.9 Table 1 summarizes the full regulatory regime beginning with the core system when biofood was the initial focus of debate and then the broadened regime as pressures and awareness shifted to biohealth. As indicated, the initial core federal biotechnology regulatory regime is centred on the statutes and mandates of the four main federal departments and agencies with direct regulatory roles: Health Canada; the Canadian Food Inspection Agency (cfia); Environment Canada; and Fisheries and Oceans Canada. The cfia is a key regulator because of its primacy in enforcement in areas related to plant, feeds,

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seeds and animal biotechnology. Health Canada regulates food biotechnology under its novel foods regulations whereas the cfia does not regulate food biotechnology except in its enforcement capacity. The roles of Environment Canada and Fisheries and Oceans Canada complete the system as a whole. When one goes “inside” the regulatory regime there are ultimately several pathways and erstwhile stages of product assessment depending upon the intended use of the biotechnology product. Thus the pathways are not just the product of laws and regulations per se, but also grow out of different physical and technical realities inherent in the nature of biohealth products, and of foods versus animal feeds, seeds versus aquatic products etc. There are also different institutional cultures in each of the main regulatory bodies.10 Bio-food has been the main public focus of the regime but this, as we have already seen, is changing. The broadened regime to which we have already referred in the previous section of this chapter is one which adds a more practical awareness of each of the agencies or bodies in the second part of Table 1. It is on to this full regulatory tableau that the new pressures, products and processes from bio-health traced in the next section of the chapter are being added, embedded, and thought about by key players.

k e y b i o - h e a lt h d y n a m i c s a n d r e g u l at o r y r e g i m e s h i f t To the forgoing map of the Canadian biotechnology regulatory regime we now need to add an examination of five key bio-health dynamics which are at the heart of the shifts and changed awareness about the biotechnology regulatory regime. Not all of the dynamics are new per se in terms of general regulatory governance. For example, the issues of high product volume have had to be faced by national regulators before in areas such as a chemicals and drugs. So also has the need for greater international regulatory governance and cooperation. But other features are new or raise issues about the possible need for a reconfigured biotechnology regime as a whole. And almost immediately, our analytical focus must now shift from its exclusive Canadian case study starting point to encompass interacting us and eu developments. Each of the five key dynamics are examined in turn. High Volume Growth: Hype or Reality? The first issue is the claimed need to deal with much higher volumes of biohealth products. There is a certain amount of hype to these predictions about future high volume growth. Some of this is simply tactical and part of a lobbying effort to get regulators to change their behaviour and get up to speed in the global marketplace. Estimates certainly vary depending on what is being counted and what stage of research and regulation one is talking about. But the prospect of much higher volumes in bio-health products is evident and

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plausible. For Canada, recent data indicates that the number of products and processes in the pipeline at all stages of development have grown markedly. Canadian data indicates that in 1998 there were fewer than 20 bio-drugs on the market with 6 accounting for 80percent of sales and there were about 300 biotherapeutics in the pipeline. In 2004, 540 bio-drug productswere at various stages of development (Data provided by the Biotechnology Secretariat, Industry Canada. As indicated, the numbers actually approved are of course much smaller and well below the us data shown below. The average time of eight years for completion of the full cycle of development and regulation means that there is a backlog even before one takes into account the true impacts of greater volumes and the changed technology and nature of the products. Industry spokespersons suggest that the knowledge base has doubled in the last five years and that there has been a significant shift to platform technologies where computer simulations are being used for new products and suites of new products. In a few cases this has led to some firms reducing the 8 to 12 year clinical trial process to 6 to 12 months. In the United States, there are currently more than 370 biotechnology drug products approved and in the market, a seven-fold increase in the last decade. (http://www.bio.org/speeches/pubs/er/statistics.asp). In 1993 there were 7 products approved but in 2003, 37 products were approved. From 1996 to 2003, the average number of approvals was 27.6, three times the average in the period from 1986 to 1995. Biotechnology patents granted per year in the us have been well over 7500 per year on average for the period from 1998 to 2002, again triple the figure of the previous decade. The exact scale of future predicted volume estimates vary. But again, there is no doubt that the volume is growing and that regulators have to be able to deal with this volume nationally and internationally. The us fda has taken steps to improve its capacity to regulate this higher volume of products and has reduced approval times needed. Given that the us has ten times the population compared to Canada and ten times the market and its fda is the lead global pharmaceutical regulator, it is not clear that Canada can or should reply to the volume issue per se by increasing its own capacities (see more below). But this question needs to take into account the next set of features of regime shift and awareness. The us data is not only of interest comparatively but also as a direct indicator of product pressure on Canada. Once available in the us, there are demands for biohealth products to be available in Canada, both from proponent companies seeking Canadian regulatory approval and also from Canadian patients and the medical community (see more below). The Tailoring of Products The notion of more tailored products refers to a shift to many more products (drugs and devices) derived from the genome mapping and dna characteristics of small sub-populations where resulting products are directed at very

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small sub- markets and niche markets. Drug products now are aimed typically at huge target markets but bio-health products are actually and potentially different. But the extent to which this happens depends, as we have seen earlier, on the availability of risk capital for firms, especially for the numerous small firms developing these products. Similar pressures, but on a lower volume scale, have already been encountered in the past concerning so-called orphan drugs. These were drugs which would not otherwise have reached the market because of market imperatives but which were crucially needed and useful to smaller sub markets of patients. The us and the eu developed special incentives to enable some such products to get to market11 but Canada has no such system. There will be many more such potential orphans in the new tailored biohealth product market that is at hand. This also means that a much larger proportion of actual or potential drugs may not be available in a middlesized country such as Canada since the local market may be too small to support the cost of regulatory review. This characteristic is important in its own right but it is ultimately tied to other features of likely market and patient pressures. The Internet and the existence of patient lobby groups and selfinformed patients means that individuals will learn about prospective new bio-health drugs/devices/products and will exert pressures on national regulators to approve them or to allow them to be imported. One impact of this is that health/drug regulators may have to make greater use of their provisions regarding exceptional circumstances, regulatory provisions which allow faster approval or temporary use (such as has been used for some aids-related drugs/products). Health Canada, for example, operates a Special Access Program which “provides access of non-marketed drugs to practitioners treating patients with serious or life-threatening conditions when conventional therapies have failed, are unsuitable, are unavailable, or offer limited options” (http://www.hc-sc.gc.ca/english/protection/drugs/html). But the logic of the combined volume and complexity dynamic and the tailored product dynamic is that there may be more and more exceptions or “special access” needs. With these products approved and available in other countries, and likely flowing into middle-sized countries such as Canada, increasing the amounts under special access programs, it can be anticipated that it will raise serious questions about what is the value-added to the regulatory system and whether it is worth the cost. Re-Balancing the Mix of Pre-Market Versus Post-Market Regulation In the regulation of drugs the core logic of the current system is still strongly pre-market-oriented, largely a model of regulation dating back several decades to the thalidomide crisis. There are aspects of post-market regulation

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as well but typically far fewer regulatory resources go into this kind of monitoring and reporting activity. One of the broad implications of the current drug regulatory system is that once they are approved/licenced then they are on the market for the long term. But in the bio-health aspects of the changed regulatory regime for biotechnology there will be a need to re-balance the mix of pre-market versus post-market aspects of regulation. There will still be a great need for stringent pre-market processes on safety and efficacy but also greater post-market activity is likely to be needed. And this is also likely to increase the number of drugs that might have to be recalled or reviewed in the wake of adverse or unforeseen effects discovered through post-market assessment of actual product use, efficacy and impacts. Concerns are also growing regarding the regulation of the research itself. These concerns centre on the need to prevent the unintended release of experimental chemicals. Debates about xenotransplantation are raising concerns regarding the possible accidental introduction of human susceptibility to new diseases originating in the donor species. Numerous ethical and other issues are centred on the treatment of donor genetic material for scientific research.12 The Changing Nature and Meaning of Drugs, Medical Devices and Diagnostics Current and future products will include higher numbers of those which are combinations of drugs and medical devices inserted into the body. Typically drugs and medical devices have separate regulatory statutes and regulatory bodies or sub-agencies. For medical devices in a country such as Canada, the larger focus of regulation has been on post-market review rather than on premarket approvals, in part because many are made/manufactured in the us or abroad. This is the reverse logic to that described briefly in the previous section on drugs where the focus is on pre-market approval. So when drugs and devices are combined as products, there are also logical needs for the re-balancing or re-thinking of the pre-and post-market aspects of regulation already examined. Regulatory Capacity: The Need for Greater Shared International Regulation? The biotechnology industry in Canada, dominated by small and medium-sized bio-health firms are arguing strongly that the current multi-departmental regulatory regime capacity in Canada is unlikely to do the job and hence shared international regulation is needed. Regulatory capacity can refer to many interlocked abilities, competences, budgets and systems of information bound up in agency staff (s&t staff and non-s&t) and equipment and on-going training and capacities to recruit or to buy expertise. While the precise nature of these

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claimed needs is contentious, there is little doubt that pressures for new and expanded performance in regulatory capacity are already growing and are likely to increase in the coming decade. The s&t backgrounds of regulatory assessors and staff are likely to have to change to a considerable extent to be able to assess products centred on the newer biosciences and the genome. This is already happening in biotechnology regulatory agencies and in other regulatory bodies such as patent agencies. The sciences and technologies needed will put a premium on acquiring expertise that is scarce and hard to acquire not only because it is scarce but also because of lower and less competitive public service salary scales. The lack of technical equipment is already emerging as an issue of capacity. The best industry-standard equipment will be needed as a tool for assessments and monitoring but again, given many public sector and regulatory agency budget pressures, it is not at all clear that Canada’s set of biotechnology regulators can afford such equipment. Because this and other aspects of capacity are tied to budgets and funding, the question will naturally arise as to where the funds will come from, such as taxpayer funding, versus user fees and other forms of pooled or shared funding. For example, the fda did increase its use of user fees to pay for a ramp-up of its capacities. Health Canada’s regulatory bodies have not been keen to use such devices on the grounds that it is contrary to the public interest for such forms of industry payments to be used. The capacity question also is germane to the issue of pre- and post-market regulatory resources and balances already noted above. If a middle-sized country such as Canada opts for a “full service” and “made in Canada” regulatory system, whatever reconfiguration of these tasks is decided upon in the next few years, these will undoubtedly cost more in budgets, types of s&t staff and equipment and information systems. As indicated earlier some increased resources have been given to Health Canada in the last three years but it is not clear that resources adequate for further increased volumes will be available. If Canada wished to avail itself of, or become a part of, a formal multicountry regulatory governance model then it is some version of a North American model which would immediately come to mind. As indicated in our discussion above of the five dynamics of bio-health regime changes, regime shift and awareness elements do not all point in the same direction. The greatest pressure for greater international regulation and for a North American model is coming from the biotechnology industry. But it is not automatic that Canada would opt for such a North American model for bio-health aspects or for biotechnology as a whole. Nor is it automatic that the us system would welcome such integration. Several factors would enter into any such future debate.

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First, Canada’s health product regulators already have very close cooperative relationships with the us Food and Drug Administration (fda). The prevailing view is likely to be that the current system of cooperation works well and preserves sovereignty. Though a pure North American model would involve Mexico, there is no doubt that any consideration of this in Canada as a viable model in the medium term would turn on the realities and perceptions of Canada being tied more closely to the us Unlike the eu model of several countries, many of roughly equal size and power, any North American model starts with the issues of dealing with one dominant power, whose own biohealth industry is a direct competitor. The advantages of a more integrated North American system would clearly be that the fda is virtually the only regulator that would already have full scope regulatory capacity for risk assessment in the new bio-health economy. It also practices quite open and transparent regulatory processes and is aware at some important level that it is already a defacto global regulator. However, the us biotechnology regime overall is, like that of Canada, a complex multiagency system. It is both a biohealth and a food biotechnology regulatory system. It has its own wide array of interests favouring and opposing biotechnology and its regulatory regime has its own built in inertia. At a time when such industries and technologies are seen as crucial to us growth and prosperity, it is not at all clear that there would be much support in the us for more explicitly having the us become the focal point as the North American bio-health or biotechnology regulator. Moreover, other aspects of drug and food regulation are not easily separated out from those of biotechnology.

c o n c lu s i o n s This chapter has examined regulatory regime shift, awareness and inertia in the regulatory governance of biotechnology. It has shown that a realignment of regulatory governance is occurring because of the relative shift in biotechnology product growth from biotechnology in food to biotechnology in health, centred around genome-centred and related bio-health products. These varied kinds of vaccines and gene therapy products have been available for some time but they are present in the research and regulatory pipelines in ever growing numbers. We have argued that there is a broadening awareness of the wider total components and boundaries of biotechnology regulatory regimes both within countries and internationally. The analysis has shown that both the bio-food and the bio-health aspects of the biotechnology regulatory regime have existed for some time but there has been much greater overall political awareness over the past twenty years as a whole of the food side of the regime. The changes in bio-health products have necessitated a greater awareness of the full array of regulatory regime institutions, in particular intellectual property bodies, biologics and genetic

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therapy directorates, and medical/drug pharmaceutical approval and pricing agencies. The analysis has shown that the changes are partly driven by the technology itself but they are also partly influenced by the pressures of hundreds of fast forming new bio-health firms. The analysis has drawn particular attention to several features of regulatory regime dynamics namely: the question of higher product volumes; the issue of more tailored products aimed at smaller markets than normal pharmaceutical products; the need for rebalancing the pre-and post-market assessment aspects of the regime; the need to regulate new combinations of drugs, devices and diagnostics; and needs for enhanced regulatory capacity which point to the possible need for greater shared international regulation, especially for smaller or medium-sized countries such as Canada. We have stressed that some of these features are not inherently new per se in terms of overall regulatory governance (e.g. volume issues and international regulation) but many are and hence they create the notion of regulatory regime shift and new kinds and levels of regulatory awareness and inertia. Overall, these issues have created an awareness of the entire biotechnology regulatory regime in larger public debates. We have also argued that the degree to which regime shift is occurring is also a product of inertia from interests which are sceptical of biotechnology in many of its forms of product and process use and also from regulators which must manage biotechnology in the context of larger statutory mandates and public interest norms and pressures. These combined changes also mean that a new awareness of the breadth of the biotechnology regulatory regime must be kept fully in mind and must inform any strategies for regulatory change. It is ultimately a regime of laws, rules, values and multi-agency processes which encompass not only the various product approval processes but also closely tied realms such as intellectual property rules, biologics and gene therapy regulatory bodies, and the pricing of pharmaceuticals in health care systems. Finally, the chapter has explored briefly the issue of whether greater international regulation of biohealth products is inherent in the regime shifts observed. The possibility of a North American multi-country model based on some of the eu’s institutional experience is certainly there for Canada to advocate and pursue but there are many issues that would enter such a debate as regime shift and awareness continues.

notes 1 Thanks are due to several officials interviewed by the author on a not for attribution basis. These are individuals both from the several Canadian biotechnology regulatory bodies and from industry and ngos. 2 See World Health Organization, Genomics and World Health. Report of the Advisory Committee on Health Research (Geneva: World Health Organization, 2002).

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3 See Arthur Daemmrich, Pharmacopolitics: Drug Regulation in the United States and Germany (University of North Carolina Press, 2004), and Mark Cantley, “The Regulation of Modern Biotechnology: A Historical and European Perspective. A Case Study in How Societies Cope with New Knowledge in the Last Quarter of the Twentieth Century,” chapter 18 of Volume 12: Legal, Economic and Ethical Dimensions (edited by D. Brauer), of the treatise Biotechnology (second edition, 2000), edited by H.-J. Rehm and G. Reed. 4 See World Health Organization, Genomics and World Health; United Kingdom, Our Inheritance, Our Future, White Paper on Genetics. (London: Government of the United Kingdom, 2003) and Abraham, J., and Graham Lewis “The Europeanization of Medicines Regulation,” in Abraham, J. and H. Lawton Smith, eds. Regulation of the Pharmaceutical Industry (Palgrave MacMillan, 2003), 42–81. 5 See Bruce Doern,“The Interplay Among Regimes: Mapping Regulatory Institutions in Britain and North America,” in Bruce Doern and Stephen Wilks, eds. Changing Regulatory Institutions in Britain and North America (University of Toronto Press, 1998), pp. 29–50, and John Braithwaite and Peter Drahos, Global Business Regulation (Cambridge University Press, 2000). 6 See Garbriele Abels, “Experts, Citizens and Eurocrats – Towards a Policy Shift in the Governance of Biopolitics in the eu” European Integration 6 (2002): 121–41, and Robert Paarlberg, “The Global Food Fight,” Foreign Affairs, 79, no. 3 (2000): 24–38. 7 See Martin Bauer and George Gaskell, Biotechnology: The Making of a Global Controversy (Cambridge University Press, 2002). 8 Wayne Bryant and Laura King, “Navigating the Regulatory Process,” Insights (Winter 2003): 11. 9 Canadian Biotechnology Advisory Committee, The Regulation of Genetically Modified Foods (Ottawa: Canadian Biotechnology Advisory Committee, 2002), and Bruce Doern, Inside the Canadian Biotechnology Regulatory System. (Ottawa: Canadian Biotechnology Advisory Committee, 2002) 10 See Doern, “Interplay Among Regimes,” and Michael Prince,“The Canadian Food Inspection Agency: Modernizing Science-Based Regulation,” in Bruce Doern and Ted Reed, eds. Risky Business: Canada’s Changing Science-Based Regulatory Regime (Toronto: University of Toronto Press, 2000), 208–33. 11 See Thomas Maeder, “The Orphan Drug Backlash,” Scientific American 288, no. 5 (May 2003): 70– 7. 12 See Claire Foster, “Regulation for Ethical Purposes: Medical Research on Humans,” in J. Abraham and H. Lawton Smith, eds. Regulation of the Pharmaceutical Industry (Palgrave MacMillan, 2003), 181–94.

9 Renewable Energy Policies and the Provinces judith lipp1

Canada is a sleeping giant when it comes to developing its new renewable energy (re) resources. Rich in all forms of renewables – hydro, wind, solar, biomass, geothermal and ocean energy – the lack of activity to develop these resources (large hydro excepted) has been disappointing. Only in the last five years have dedicated policies emerged to encourage non-hydro renewables, and although there has been significant progress in the wind power sector, this country lags behind many others and continues to ignore other re technologies. But the tide is turning, with new policies and re developments reported more regularly. There are few jurisdictions in Canada today that do not provide some support to this sector. Recent policy announcements could provide important lessons about how this sector is best supported if Canadians are to gain the full range of benefits that accrue to re use – benefits that go beyond environmental protection to economic development, employment, export potential and innovation. Just a few years ago there were only a few new re projects producing electricity in Canada.2 Since 2000, a number of re support programmes have been introduced, mainly to help address the country’s climate change commitments. Starting in 2002, several provinces made formal commitments to re development in the form of renewable portfolio standards and some power utilities began to offer green power products to their customers. Procurement of renewable electricity by provincial and federal departments was also used to encourage the sector. These policies helped to create the conditions needed by the wind industry to gain a firm footing in the Canadian electricity market (in many provinces). With an annual growth rate of 38% (between 2000 and 2005), a near ten-fold increase in installed wind capacity

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(from just over 100 mw to 900 mw between 2000 and 2005), and a further ten-fold increase projected to 2016, the wind sector is en route to a promising future in Canada.3 The same cannot be said of other new renewables. Solar, biomass and small hydro are available in abundance in Canada but support for these technologies has been slow to emerge. Recent policy announcements, however, could also change that trend in some provinces. As used here, the term renewable energy does not include large hydropower generation, which already accounts for about 60% of the country’s electricity supply mix.4 Large hydro (above 10 mw), is a well-established industry that does not need additional support to compete in today’s electricity markets. The chapter focuses on re specifically for grid-connected electricity generation since this is the sector that has received the most attention in Canada. Although renewables can be an important energy source for heating and as a transportation fuel, there has been even less policy activity with these applications in most provinces. The chapter traces the policies and trends of re electricity generation in Canada. Particular attention is paid to provincial policy because under the constitution the provinces have the most influence on the electricity sector. Policies at the federal level have also played an important role in fostering renewables and these too are described. Yet much uncertainty remains about how things will continue, especially under the new Conservative federal government. If Canadians are to maximise the benefits of a re industry, a comprehensive policy framework is needed for the country as a whole, one that co-ordinates federal and provincial activities. If ignored, Canada could be foregoing an important opportunity for fostering new technology and expertise that protects the environment and helps create energy security. The chapter begins with an overview of the multiple benefits that re can provide, helping to meet economic, social and environmental objectives. This is followed by an overview of common policies used to support re. The needs of the re industry, its drivers and decision-making power are also presented. This sets the context for the discussion of policies and activity trends in the re sector for each jurisdiction in Canada showing who is doing what. The chapter concludes with a number of questions about the future and a discussion of where things need to go.

m e e t i n g m u lt i p l e o b j e c t i v e s Three main objectives are mentioned repeatedly in energy policy statements throughout Canada: fostering energy security, protecting the environment, and fuelling economic prosperity.5 re is one of the few energy sources that can help address all three principles simultaneously. Widespread deployment of re can help reduce dependency on finite fossil fuel sources of energy, reduce the environmental impacts resulting from the energy sector, and create new industries and jobs. The re sector can do this by:6

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• diversifying electricity supply sources • reducing the need for imports • distributing electricity closer to point of end use, thereby reducing transmission losses • reducing price volatility in energy markets • reducing the impacts on air, land and water • mitigating climate change • creating new export opportunities • fostering rural and regional economic development • developing new skills, industry innovation and manufacturing opportunities Canada’s electricity sector accounts for about 18% of Canada’s greenhouse gas emissions.7 Generating power from re does not emit carbon dioxide (CO2) (with the exception of biomass, which is CO2 neutral). Meeting electricity demand though re sources is therefore an important strategy for meeting Canada’s climate change commitments (see Chapter 2). The imperative to do so has never been greater given Canada’s presidency of the climate change negotiations this year (until end 2006) and the growing climate crisis already felt so severely in Canada’s North. re sources are more environmentally benign in other ways. They do not emit sulphur dioxide, nitrogen oxide, particulate matter, volatile organic compounds or mercury, thereby addressing serious environmental concerns like smog, acid rain and mercury accumulation. Developing and using more re can be an effective strategy for achieving Canada’s international environmental commitments and improving local air quality, while at the same time providing economic opportunities.8 With a growing global interest in renewables for all of the above reasons, there is an opportunity to develop new expertise, foster innovative industries, create jobs and export new energy technology and clean power. The German re industry has created more than 160,000 direct and indirect jobs and had a € 16 billion (Can $ 23 billion) turnover in 2005.9 Achieving these benefits, however, requires long-term commitment with clear targets and consistent supportive policies.

enabling mechanism and market drivers Government policy is important for removing a range of barriers that prohibit re development. Conventional energy industries (fossil fuels and nuclear) are still heavily subsidised, making it difficult for re to compete without support. In Canada, the Auditor General’s Office reported that subsidies to fossil fuel sources at the federal level alone were in the order of $40 billion dollars over the last 30 years.10 The nuclear industry too is directly and indirectly supported, creating an uneven playing field in which renewables have a hard time competing.

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Recognising this imbalance, many governments have begun to support the re sector using a variety of mechanisms. The effectiveness of particular policies is still under review and no one approach works in all contexts. There are, however, a number of conditions that the industry needs to see met before it can compete. One role of policy is to address these conditions. Industry needs For the re industry, market stability is crucial. Support policies are needed to help provide stability, which in turn reduces investment risks. Because risk has a price, support mechanisms that help reduce risk can be used as an alternative to raising the level of compensation. To this end, the type of policy is important and some have shown to work better than others.11 Certainty requires a few basic conditions be met: guaranteed grid access, a competitive price, and a buyer. Also needed are public support and streamlined administrative procedures to reduce transaction costs.12 The public and policy makers need to understand the benefits of re and accept new infrastructure on the landscape. This includes supportive local planning procedures and co-operative neighbours. Of course, the industry too must be mindful of its responsibilities if public support is to be secured. Sensitive project siting, environmental impact reduction, and community engagement are equally important to ensure public acceptance. Policy Options Policies to support new technology need to be applied at a number of stages. Most new technologies follow a similar path, starting with technology development and ending (ideally) with full commercialisation. Along this continuum, different policy instruments can be applied to reduce barriers and create market stability. This relationship is shown in Figure 1with needs of the re sector on the left and policies used to address each one on the right. Many of these take place simultaneously. The policies on the right are applied in varying degree by different countries depending on the national or regional emphasis (e.g. development of new technology, incentives for new installations, educating the public, etc.). Government policy to support technology can be broadly categorised as regulatory, fiscal, procurement, educational, and research and development (r&d). This is outlined in Table 1, where the most common policies under each category are listed. Many of these are widely accepted and applied mechanisms that have helped re development and deployment. There is still uncertainty about which policies, in what combination and under which contexts, are the most effective for fostering re technologies, although certain lessons have begun to emerge through experience in Canada and elsewhere.13 Several of the most common policies are described below. Not all are

180 Judith Lipp Figure 1 The path of re development to deployment

Sector Needs

Technology development

Policy Approaches

Technical studies Resource assessments

Research & development

Grid access

Market rules / regulation

Competitive price

Fiscal measures (e.g. fit)

Willing buyers

Procurement Regulation (e.g. rps)

Streamlined administrative procedures

Institutional co-ordination

Public support

Information and education

Full commercialisation

necessarily appropriate or needed at all levels in Canada, but federal and provincial support should be complementary. Research and Development r&d is used to further the knowledge base of a particular technology and to accelerate its commercialisation. Training or skills development for a particular industry can also fall in this category. r&d can be costly but can stimulate a new industry and develop new technical know-how. Research is often carried out collaboratively where government’s role is to provide funding or ensure attractive conditions to foster development. Renewable Portfolio Standards (rps) rpss obligate electricity utilities to produce (or purchase) a certain minimum proportion of their electricity supply from re sources. Since it guarantees that a certain level of re will be purchased in a given period, an rps creates the certainty needed by re

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Table 1 Policy options to support re Regulatory

Fiscal

Procurement

Educational

Research & development

Government purchases (federal, provincial and municipal)

Information campaigns

Funds dedicated to technology development, deployment and commercialisation Support for centres of excellence and knowledge clusters Government resource assessment

Pricing

Tax based

Renewable portfolio standard

Feed-in tariffs

Tax exemptions

Tendering

Production incentive / Marketing incentive

Accelerated depreciation

Disclosure labels

Net metering

Tradable green certificates Green power programmes

Investment tax incentives

Education and training support Green power programmes

Emissions capping

Adapted from Humphries (2002).14

developers to move forward with projects. For instance, a 10% rps by 2010 in New Brunswick guarantees a market for about 400 mw of renewable electricity by that date. The details of the supply contracts are negotiated through requests for proposals (rfp) issued by the utility. Several developers may bid and projects are chosen on the basis of several criteria, with price usually given priority. An rps is often legislated and is most effective when penalties are put in place for non-compliance. The rps is used extensively throughout North America at the regional level (i.e. by states and provinces). Tendering Several Canadian provinces have committed to a certain quantity of re over time rather than to a percentage of total supply. The term to describe this variation on the rps is tendering. rfps are also made in this case but are usually issued by a government body. The main difference between the rps and the tendering approach is that the latter is often used to stipulate other conditions of the supply contract and does not just select projects on the basis of price alone. Although cost is still important, the rfp in a tendering approach may also stipulate conditions such as type of resource, location of projects and local content. In this way the rfp can be used to stimulate local or regional manufacturing and increased local employment. Quebec has used

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tendering in this way to provide regional development in the Gaspé region. The distinction, however, is not entirely clear and some provinces speak of both an rps and a tendering process but mean the same thing by it, where the former represents a target and the latter is the means to achieve the target. The language used by each province is repeated here. Both approaches have been effective for large-scale re developments like big wind farms but are prohibitive to smaller developers and less competitive technologies because price per kWh is the main selection criterion. Net-metering A net-metering arrangement enables individual customers, co-operatives or small businesses (e.g. farms) to offset their requirement for purchased electricity by installing micro-generators. Typically wind, solar, or mini-hydro power systems are used for self-generation. During times of surplus production, i.e. when more power is produced than is consumed onsite, the electricity meter runs backward and the surplus power is ‘sold’ to the utility at the retail price.15 Net-metering regulations require utilities to permit access to the grid and to provide technical and administrative support. The grid serves as a storage mechanism for surplus power and as a reservoir for times when the small system cannot meet demands. Net metering is useful for early adopters and do-it-yourselfers but without additional incentives, it is not a significant driver of re development. Feed-In Tariff (fit) A fit is a statutory arrangement regulating the price paid to re producers. As such it is both a regulatory and a pricing policy. fits encourage the development of re by ensuring that a higher than wholesale market price is paid for each unit of eligible supply. In the advanced version of the fit, prices may vary by technology and plant location to account for variations in technology maturity and resource availability. The producer of that power is guaranteed the fit for each unit of electricity exported to the grid if the form of generation meets the stated criteria; no bidding process or tendering is involved. This eliminates the cost and uncertainty of a competition process and is therefore more inclusive of a range of project sizes. The cost above the wholesale price is evenly spread among all electricity consumers, which in some jurisdictions is collected as a systems benefit charge. This contrasts with the rps/tendering approach where increased tariffs may only be available to selected winners after competitive tendering. fit policies originated in Europe but have been introduced in 32 countries world-wide.16 FITs have the advantage of supporting a variety of technologies, project sizes and geographic locations. Other fiscal policies This category of re support can take a number of forms including pricing and taxation mechanisms. Power production incentives are a direct payment (subsidy) to re producers. In Canada the federal

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government pays $0.01 per kWh to wind developers to ensure a certain level of return, thereby ensuring a low-risk investment.17 Green credits for re generation are complementary to other policies, especially the rps. They provide utilities with an alternative approach to meeting re targets. Those unable to meet the rps have the option of purchasing the required re from sources where no physical electricity trade occurs. That is, environmental qualities are sold separately from the power. Taxation policies include capital tax allowances, exploration allowances, tax exemptions and corporate tax write-offs. Green procurement As a consumer of electricity, government can pay an important role in supporting renewable power by contracting for green power to run its operations, a policy known as procurement (see Chapter 11). These contracts, if fixed over a long time, can provide the guaranteed market needed by developers to go ahead with a project. By committing to buy a certain proportion of their electricity from re sources, governments support green pricing programs and send a message to consumers that the product is credible.18 Green Power Programmes (gpp) Also known as green pricing, gpps are a way to stimulate the re market by asking consumers to pay more for electricity from re sources. Electricity suppliers may use them to distinguish themselves from their competitors in an open market.19 gpps are usually a policy of electric utilities to raise awareness and revenue for re projects. Governments may support such programmes by purchasing green power for public buildings and/or by endorsing the programme in other ways. In most countries these programmes have not been successful in ‘pulling’ the re market with uptake of gpps remaining low even after several years. In England, after five years of ggps, less than 0.5% of the uk customer base has signed up for green power.20 us influence Market restructuring, leading to grid and market access by independent power producers (ipps), has been an important factor in the development of re worldwide. In Canada it was initially us energy policy that ensured that the market was opened to new producers and monopoly industries were unbundled. The us Federal Electricity Regulatory Commission (ferc) requires all jurisdictions trading power with the us to ensure independent generators open and fair access to their transmission grid. This is known as an open access transmission tariff (oatt). ferc also requires the unbundling of utilities to create separate business units for the transmission, generation and distribution activities of large power monopolies.21 These measures are required to

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level the playing field for new entrants into the market. ferc also stipulates that all jurisdictions trading with the us must allow electricity wheeling, where power from one jurisdiction can be moved to another through a third that is not involved in the trade. This is important for provinces not adjacent or otherwise directly connected by transmission line to the us since it provides them access to a large and growing market. The us further influences the Canadian re market because of its voracious energy appetite. us electricity use is expected to increase 45% within the next 20 years. Such a demand growth will require more than 1,000 new large power plants to be built (about one a week for the next 20 years). As this need is unlikely to be fulfilled domestically, the us is looking abroad for new supply contracts.22 In some cases, demand is for green power to address air-quality and climate-change commitments at the state level. Large hydro is not always eligible as green power in many us jurisdictions, thereby influencing Canada’s big electricity exporters like Quebec and Manitoba to invest in wind power. Responsibility for Energy Policy Political decision-making for the Canadian energy sector is a responsibility shared between the provinces, territories and the federal government as laid out in the Canadian constitution. In the case of re policy, jurisdiction falls almost exclusively to the provinces since the resource to be harnessed is available locally and because the provinces preside over the electricity sector. This includes decisions about market structure and the regulation of industry.23 The territories have less autonomy over their resources but negotiations are on-going to devolve the power of the federal government over territorial resources. Under the Constitution Act, the federal government has the mandate to regulate inter-provincial and international movements of energy and energyusing equipment. This includes: broad taxation and spending powers; development of industry standards; support for energy science and technology; policies of national interest including economic development, energy security and research and development; and resource management and energy development in federal jurisdictions (i.e. the north and offshore).24 Negotiation of international treaties such as the North American Free-Trade Agreement and the Kyoto Protocol are also the responsibility of the federal government although their implementation in Canada are often later discussed and agreed on a province-by-province basis. Energy issues are co-ordinated through the Council of Energy Ministers which meets at least once a year to discuss current energy issues. Given the diversity of interests represented, opinions on the role and degree of

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involvement of government in managing the energy sector can differ significantly. This means that perspectives and approaches vary, evident in the heterogeneity of energy policies across this country. Although similarities are evident with regard to policies to support renewables, there are also significant differences, especially regarding the level of commitment and the implementation of various policies.

p r o v i n c i a l a n d n at i o n a l a c t i v i t i e s 25 A peculiar pattern emerges when tracing the development of re across Canada. On the two (west and east) coasts there is, so far, little new re activity with not a single commercial wind turbine (or other new re system) yet installed. And there has been little policy formulated to support re in British Columbia (bc) and Newfoundland and Labrador (nl), despite excellent resources (especially wind). Looking to the north, similar inactivity is evident for grid-connected electricity. Although the Yukon has two turbines in operation, there is little policy in place to encourage additional development in the region. Significantly more is happening in the next provinces over. Alberta currently leads the country in installed wind capacity, while in the east Prince Edward Island (pei) has the most ambitious renewable electricity target possible – 100% by 2015. Saskatchewan in the west and New Brunswick and Nova Scotia in the east are showing some support for re but activities have mainly supported the wind sector with limited resource and policy diversity. The most progress is taking place towards the centre of the country. Manitoba, Ontario and Quebec have all made a strong commitment to re development. In Manitoba and Quebec, the focus is on wind power while Ontario is supporting wind as well as other green power, namely solar, small hydro and biomass. Ontario and pei represent the most interesting cases from a policy perspective as both jurisdictions have introduced both rps and fit policies to support their ambitious plans. The following section examines the policies and developments of each province in more detail and also covers federal government activities. Ottawa has introduced several important policies that complement provincial mechanisms and have helped catalyse action in the provinces. Although this is a paper about policies to support new facilities for electricity generation, the reality is that wind energy has dominated that development to date (Figure 2). The strong focus on wind is a detriment to solar photovoltaics, small hydro, biomass and other re technologies in this country. The reason these have been ignored is partly due to price and hence competitiveness of these technologies, but is also the result of the policy mechanisms used.

186 Judith Lipp Figure 2 Total installed wind capacity by province for 2006 and projections to 2016

4000 3500 2006

Installed wind capacity (mw)

3000

2016 2500 2000 1500 1000 500 0 al

sa

mb

on

qc

nb

ns

pe

nl

Numbers for 2006 (to July) are from the Canwea website (www.canwea.com). Projections for 2016 are based on policy commitments to date. bc, yt, nt and nu do not appear because less than 1mw has been installed in these jurisdictions and no commitments for future development have been made.

s low o f f t h e m a r k : b r i t i s h c o lu m b i a , newfoundland & labrador, the ter ritories Despite having some of the best wind regimes in the country as well as ample biomass and small hydro resources, bc and nl have done surprisingly little to develop the new re sector in their respective provinces. Newfoundland recently announced a 25 mw commitment for wind energy, to be achieved through a tender process, but that is a one-off initiative not backed by other policies. Moreover, there has been a moratorium on small hydro development since 1990 on the island of Newfoundland. Attention in both provinces has been on large hydro developments. In nl, sights are set on the massive (nearly 3000 mw) Lower Churchill Falls in Labrador. With these vast resources, there is little imperative to develop smaller re projects. The other problem faced by nl is its isolation from electricity markets. With no interconnection from the island, production there would be for island use only. British Columbia has not issued much in the way of dedicated policy to support new renewables either. The province has set a voluntary target for clean energy where clean refers to renewables, co-generation and efficiency

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improvements at existing plants. The target is to acquire 50% of new supply from these clean sources over the next decade. This voluntary measure has not yet resulted in any new re developments. Despite the preparation of two documents on behalf of the Ministry of Energy, Mines and Petroleum Resources calling for the development of ‘alternative energy and power technology’ including renewables, and the introduction, in 2005, of a wind policy that provides favourable rent conditions for projects on crown land, there has been little activity on the ground. The strategy papers are little more than wish lists and a call to do more, but these have not yet been translated into formal policy that stimulate the re sector.26 The province is, however, expected to release a new energy policy paper with support for renewables anticipated within that. bc too has large hydro resources but dry summers in recent years have made this resource more unpredictable than once thought possible. This could open the way to wind development because wind and hydropower generation can be compatible. The intermittent nature of wind requires it to be firmed and shaped for electricity use; when the wind blows, water can be stored in reservoirs and released to generate power at the time of need.27 Some provinces have recognised and are taking advantage of this compatibility. Apart from two wind turbines in the Yukon with a power rating of 810 kW there are no significant re developments to report from Canada’s north. There are some community-based pilot projects exploring the feasibility of solar, wind and geothermal energy including off-grid power systems for remote locations. Although important applications, these do not fall within the scope of this assessment. Early Adopter: Alberta Canada’s big oil province is also its biggest wind generator at present (soon to be overtaken by Quebec and Ontario). For the past few years, Alberta has led the country in total installed wind capacity (although exceeded by Prince Edward Island and Saskatchewan on a per-capita basis). These developments are principally attributed to Alberta’s strong wind resource and its market structure rather than dedicated re policy, although the government’s green-power procurement has been a factor as is the federal wppi program (see below). The Alberta electricity market was restructured and opened for competition in 2002. The liberalisation of the electricity market coincided with the electricity crisis in California and high natural gas prices resulting in high electricity prices in the regional electricity pool to which Alberta is connected. This situation created the right conditions for wind power development, with the market opening to allow ipps to participate and high enough prices to make wind competitive.

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The high prices and future market uncertainty also made wind attractive from a procurement perspective. By securing long-term contracts with wind generators (and one biomass plant) it was possible to get renewable power at a cost equal to or lower than fossil-fuel electricity and avoid market volatility. The Alberta government committed to and now purchases 90% of the power it uses from wind and biomass sources – 20-year contracts were negotiated. Although a relatively small load, these contracts help provide the industry with a secure market. Green-power marketing to other consumers also takes place in Alberta but demand is low. The Government of Alberta takes a free-market approach to the electricity sector and is therefore unwilling to support particular supply sources. Under its climate change mandate, the Alberta Environment Ministry has tried, through a consultation process, to develop a provincial re strategy. But with no consensus achieved among the stakeholders and no regulatory powers, an official policy has failed to emerge. One goal of the group, however, has been achieved despite the absence of any dedicated policies. A renewable electricity target of 3.5% (by 2008) has already been met. The policy dialogue was recently re-initiated by Alberta Environment and various policy options are again in discussion including a rps and net-metering for the province. There are several more re (wind and biomass) projects scheduled for construction in Alberta over the next few years, but electricity prices have fallen and are projected to drop further, making wind and biomass less competitive and their future expansion increasingly uncertain. In the case of other renewables and small-scale development, things look worse. The current market conditions are prohibitive for these groups. Gaining grid access is just one of the barriers although this should change if a net metering regulation, currently being discussed, is introduced. The lack of support for the re sector suggests that the Alberta wind rush may soon be over. Small Province, Big Dreams: Prince Edward Island The 2004 adoption of the Renewable Energy Act by the Government of Prince Edward Island sets the policy framework to increase that province’s wind energy capacity from 14 mw to 200 mw in 2015, i.e. approaching 100% of electricity demand. Some power will likely come from off-island sources to achieve the full target. The Act contains several policy innovations that together present a far more comprehensive approach to re development than had been available anywhere in Canada at the time. These are needed to achieve the ambitious targets and to help pe become a North American leader in re r&d. The province is already off to a good start. At 5% in 2005, the Island gets the largest percentage of its electricity from green power and has the second largest installed wind capacity per capita in Canada. It is home to the Canadian Wind Test Centre and was recently awarded the site of the Canadian

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Wind Energy Institute (cwei), set to open in 2006. cwei will support the development of wind power generation in Canada and wind-energy-related products and services for Canadian and export markets.28 A hydrogen village experimental project is also located in pei. Apart from the rps, several other support mechanisms have also been announced under the Act including net metering for small renewable energy systems and a guaranteed feed-in tariff (or minimum purchase price as it is called in the Act) for wind developments. The fit is set at $0.0775 per kWh for electricity connected to the grid and is comparable to the price paid to developers competing under an rfp (in other provinces). The fit will stay in effect for wind until the 15% target is met but will be in place for other renewable technologies such as biomass and photovoltaics beyond that target. To prevent wind turbines from being erected in every corner of the island large-scale wind developments are restricted to designated development areas. The regulations came into effect in December 2005.29 The motivation for electricity independence comes from pei’s heavy reliance on power from nb, the lack of indigenous conventional energy resources, and the desire to become more energy-secure. There is also recognition that re presents an economic opportunity for the island and an innovation niche that remains to be filled in Canada.30 A Reasonable Start: New Brunswick, Nova Scotia, Saskatchewan The rps is the mechanism of choice and the main policy used to support re in New Brunswick (nb) and Nova Scotia (ns). Both provinces require their electric utilities to provide a certain percentage of supplied power from re sources. Renewables, under this approach, almost always means wind development since it is the cheapest option to meet the requirement. New Brunswick introduced an rps in 2005 requiring nb Power to supply 10% of the electricity sold in the province from new renewables by 2016. nb Power has promised to purchase 400 mw of wind power from private producers over the next 11 years to comply with the rps. Presently there is only one power-purchase agreement signed for a 20 mw wind farm. The province has legislated net metering and access to the distribution grid by small, embedded generation units in an attempt to encourage small re developments. These policies are important for ensuring grid access by small developers but in isolation are insufficient to spur significant development. The same can be said about the gpp stipulated in the Energy Policy White Paper. Although some consumers will no doubt support renewables by purchasing green power, the impact is likely to be small – as evidenced in other jurisdictions – and therefore cannot be counted on as a significant driver of re development. The rps is also the main mechanism to support re in Nova Scotia although to date it remains a voluntary program. In the 2001 Nova Scotia

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Energy Strategy, a 2.5% rps by 2005 was presented and agreed to by Nova Scotia Power (nsp), the province’s main electricity supplier. A legislated target of 5% by 2010 has been tabled but not yet passed. There are now 41 mw of installed wind capacity in the province with contracts made between nsp and wind developers for another 60 mw. If the rps is legislated, it will guarantee a market for about 200 mw of new renewable-based electricity production to 2010. Eligible projects are to include wind, small-scale hydro and biomass-sourced electricity.31 Most of the projects commissioned have been wind developments, with one land-fill gas site under development in the Halifax region. Other policies and activities include a green-power offering from nsp and a net-metering provision to allow small self-generators such as farms and households to interconnect micro-generation units (under 100 kW) to the grid.32 The need for additional power capacity, combined with a regional commitment to reduce greenhouse gas emissions, are the main drivers for re development in pe, nb and ns. These provinces are contemplating a collaborative approach to re development and are discussing strategy to maximise the amount of re used in the regional electricity system.33 Saskatchewan has developed no official policy for re, but SaskPower, the province’s electric utility, has developed a number of wind-energy projects. As a Crown corporation, the activities of SaskPower reflect support for re by the government. SaskPower’s ‘Green Power Portfolio’ is a voluntary measure to provide incremental generation needs from new capacity that does not result in greenhouse gas emission through 2010. This commitment has resulted in 175 mw of installed wind-power capacity from three projects in the province. SaskPower also offers a gpp to its customers. Saskatchewan’s executive government is procuring wind power from the utility, purchasing 22.5% of its power needs from SaskPower’s wind portfolio in 2004–2005. The procurement runs for ten years with a commitment of $400,000 per year to 2011/2112. Prairie Powerhouse: Manitoba With a 100 mw wind farm completed in 2006, Manitoba falls mid-rank among the provinces in terms of installed re capacity, but a recent announcement to install 1000 mw of wind power by 2015 will move Manitoba into third place. Manitoba is considered a North American leader on climatechange action and has been running successful heat-pump and energyefficiency programs for a number of years.34 The 1000 mw call is for large wind projects (10 mw +), but policy to support small projects is also being developed. The details of the large-project rfp are due out soon and may include a bid condition requiring some materials to be sourced locally. A production incentive may accompany the rfp. Support for 50 mw of small wind projects will be set aside and is expected to

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include a price guarantee, streamlined environmental assessment, and guaranteed grid access to address the needs of small developers. Details of the small re support programme are expected in fall 2006. Manitoba has huge hydro resources that can be used as a storage system for wind generation. With surplus hydropower, Manitoba is hoping to develop better transmission links to Ontario to export its wind power. Ensuring Economic Development: Quebec Quebec is another hydro powerhouse that has embraced wind energy. Quebec was the first province in Canada to promote large-scale re development with the 2003 adoption of regulations to allow Hydro-Québec (hq) to launch a tender process for wind and biomass energy. Later that year, a call for tenders for the purchase of 1,000 mw of wind power was launched. A program to allocate public land for wind-farm construction was also introduced at this time. The province has supported an assessment of wind energy resources by commissioning a complete inventory of wind energy potential to identify commercially viable sites and assess the possibilities for connecting wind farms to the hq network.35 A second tendering process for an additional 2000 mw of wind power was announced in 2005. Quebec has used the rfp process to promote regional development by requiring all projects to comply with a content component and specifying the region in which development is to occur. To be considered under the first rfp, bidders must commit to building wind farms in the Gaspésie-Îles-de-Madeleine region of Quebec and guarantee a minimum 60% local content of the total project costs.36 This means that certain hardware components and the majority of labour must come from the specified region. To date, 212 mw have been built and 1,200 mw are under development. Installations under the second rfp will bring the province’s total installed wind capacity to almost 3,500 mw by 2013 which would represent approximately 7% of the province’s energy generation.37 The second rfp is open to other regions of Quebec but will also require guaranteed regional and provincial content (30% of turbine costs and 60% of wind-farm costs, respectively). Project commissioning will be spread from 2009 to 2013, with instalments of 300-450 mw and purchase contracts made for 15-25 years.38 Beyond wind, however, there is little support for new renewables or small developers in Quebec. The province has its sights set on additional large hydro developments to supply growing domestic demand and for export to the us. Beyond Wind: Ontario Ontario recently made headlines with the announcement of a variable-price fit for wind and other re technologies. Referred to as a standard offer contract (soc) in Ontario, the announcement, made in March 2006, will provide

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$0.11 per kWh to small (under 10 mw) wind-, hydro- and biomass-power producers and $0.42 per kWh for solar-power producers starting in fall 2006. The prices are fixed by contract for 20 years and are expected to add 1000 mw of re to the Ontario grid over the next 10 years. Beyond the SOC, the province supports small generators and a range of technologies through net-metering (for projects under 500 kW) and through tax incentives. The latter include a rebate of the provincial retail sales tax on the purchase or upgrade of residential solar, wind, micro-hydroelectric or geothermal energy systems.39 Ontario had already made a commitment to large-scale renewables in 2004 with an rps announcement of 5% (1,350 mw) by 2007 and 10% (2,700 mw) by 2010. This is being achieved through a tendering process involving several rfp rounds. Two of these have been issued and projects for 1,370 mw contracted (220 mw have been built by mid-2006). Additional support for large re projects comes through a 100% corporate income tax write-off and capital tax exemption for the cost of assets used to generate electricity from clean, alternative or renewable sources.40 The re agenda in Ontario is driven by the need for new, clean electricity generation, to address growing demand and a commitment to shut the province’s coal-fired power plants by 2009. Renewables will fill some of the impending supply gap in Ontario, but current activities will cover only 10% of generation by 2010. Coal now supplies a quarter of the province’s power demand. More power (or a lot less consumption) will be needed to allow these plants to be closed as scheduled. The big question being asked in Ontario today is whether renewable electricity expansion, combined with energy demand management, is the way forward or whether a nuclear renaissance is needed. If a commitment is made for the former, a lot more re activity can be expected in the province and an already comprehensive policy framework could be strengthened. If the nuclear strategy is pursued, re may well be ignored (beyond current activities). Despite strong beginnings, the future for re in Ontario, as in so many provinces, still lacks the certainty and support needed to foster an industry boom that goes beyond new supply to skills development, economic development and export potential. Important Initiatives: the Federal Government The federal government has played an important role in the development of wind power in Canada, but like the provinces has largely ignored other green power technologies. Under the Liberal government, a number of programmes and measures were introduced to support various re technologies; wind was usually favoured by these. One of the first direct actions was the introduction, in 1996, of the Canadian Renewables and Conservation Expense (crce), an income tax modification to encourage the generation of more environmentally friendly forms of energy. Intangible costs similar to expenses

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that may be renounced as Canadian exploration expense associated with the development of projects are fully deductible and can be carried forward indefinitely. It also allows these expenditures to be renounced to shareholders that have entered into a flow-through share agreement.41 To be eligible as crce, at least 50% of the capital costs have to be described in Class 43.1, which provides an accelerated write-off of capital-cost allowance (30-50% on a declining-balance basis) for certain system components that save energy and/or use renewable forms of energy. The 2003 federal budget introduced a number of spending items to address climate change including a Wind Power Production Incentive (wppi). It pays producers $0.1 per kWh for the first ten years of operation of eligible wind projects commissioned before April 1, 2010. The first wppi provided financial support for the installation of 1,000 mw of new wind-energy capacity by March 2007. The last Liberal budget (2005) quadrupled the wppi target to 4000 mw, allocating a further $200 million over five years and a total of $920 million over 15 years for expansion of the program.42 A Renewable Power Production Incentive (rppi) was also announced in 2005, allocating $97 million over five years to encourage the installation of up to 1,500 mw of non-wind renewable power. The details of rppi were still under consultation when the new government was elected and its implementation now stalled. Its future, like that of several other programs, is uncertain. Other support for renewable power comes from funds to community greening initiatives that cover municipal re projects, several re demonstration initiatives and a now-expired market-incentive program (mip) for gpp providers. Further support was given to GPPs through a commitment in 2000 to procure 20% of federal government electricity demand from green power purchased in several provinces.43 r&d for renewables is mainly funded at the federal level but there are huge allocation inequities between various energy sources. In 2000, the federal government invested $17 million on research activities of renewable energy technologies, an amount higher than in any of the previous 11 years. A quarter of this was allocated to biomass and 15% to wind. “Of the total spending in r&d of the energy sector in 2000, renewables received 7.3%, nuclear took 29%, fossil fuels was 24% and conservation received 25%”.44 In 2005, $200 million over five years was allocated to help develop a Sustainable Energy Science and Technology Strategy of which re is one component.45 The programs and funds described here (and summarised in Table 2) have been important for enabling re (especially wind) to gain a toehold in the Canadian energy market, but these actions are not enough to ensure a secure future, as evidenced in other countries. What Canada needs to address are the requirements of industry to maximise the benefit of re through a national renewable energy strategy developed collaboratively with the provinces, industry, municipalities and other stakeholders. That discussion was

194 Judith Lipp Table 2 Comparison of provincial developments and program features Regulatory

Fiscal Pricing

bc

al

sa

nb

ns

pe

nl fg

rfp for 3000 MW wind power rps: 10% by 2016 (~440 MW) rps: 2.5% by 2010 (~100 mw) (not yet legislated) rps: 15% by 2010, 100% by 2015 (~200 mw) rfp for 25 mw

Other

Tax based

50% new pst exemption power from for re equipment clean energy 3.5% of elecgpp available 90% tricity from alternative energy by 2008 ggp available 22.5%

mb rfp for 1000 mw wind power on rps: 10% by 2010 (~2000 mw)

qp

Procurement

gpp planned

Some municipal support

Saskpower commitment to purchase 175 mw wind Net metering

fit: $0.11/ kWh wind, biomass & small hydro; $0.42 for solar pv

Corporate 20% income tax deduction for new assets for re; sales tax rebate on green buildings; capital tax gpp available exemption for re technologies

Net-metering

gpp legislated

Net-metering

gpp available

Net-metering

fit: $0.07/ kWh for wind, biomass & solar pv

Net-metering

wppi: $0.012/kWh

Class 43.1 accel- 20% erated depreciation; crce – 100% write-off of pre-development expenses

r&d support through sdtc and provinces (e.g. pei hydrogen village), demonstration & commercialisation programmes through mip and canmet; municipal support)

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begun under the previous government, but remains uncertain under the Harper Conservative Government. The uncertainty does not bode well for continued growth of the re sector. Policies and support at the provincial level will certainly continue to carry things forward but the lack of federal support for Kyoto and discontinuation of some climate-change programs adds uncertainty rather than reduces it, thereby risking to stall the momentum that had been gathering in recent years.

c o n c lu s i o n s New renewable power accounts for less than 2% of total installed electricity capacity in Canada today. Present developments and policy trends will lead to a significant growth in wind power over the next ten years but even if all targets are met, less than 5% (more likely only 3%) of Canada’s electricity will come from re sources. The majority of that will be from wind energy with other renewables barely contributing. The level of re activity varies greatly by province and can largely be explained by the policies in place to support the sector (Alberta excepted). There are obvious re leaders among the provinces, based on activities and policies to date. Many provinces are still working on energy plans that may introduce new policy and could shift the ranking. The fairly recent experience with this sector in Canada and the policy heterogeneity for addressing re across the country prevents clear conclusions from being drawn about which approach works best. Although large wind targets have been set in Quebec, Ontario and Manitoba, it remains to be seen if these can be met. The lack of support for other renewables, except recently by Ontario, prevents lesson from being drawn in the Canadian context about how solar, ocean, geothermal, biomass and small hydro energy are best encouraged. There is also great uncertainty surrounding federal support to all renewable energy. Comparing Canada to world leaders in renewable energy development, it is evident that this country still has some way to go and important lessons to learn. The resources are available in abundance, but the means to exploit them have not yet been fully realised. A 2006 Ernst and Young assessment ranked Canada in 10th place in terms of attractiveness for renewable energy investment.46 In terms of installed capacity Canada is even further behind, falling below most European countries, the usa, Japan as well as China and India. A recent review of re trends in the oecd countries also concluded that Canada is behind many countries in the application of emerging sources of re and provides low levels of government support for technological development and market deployment.47 An abundance of conventional energy resources, low electricity prices, and lack of commitment to addressing climate change and other environmental problems can explain much of the re inertia in this country. Policies like the

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fit that have worked so well in Europe are thought, by many, to be too expensive to support in this country. High global oil and gas prices, however, have given new impetus to oil sands development in Alberta, resulting in support being directed at that sector. Coal is also available in abundance in Canada and r&d funds are allocated to investigate cleaner coal-burning processes. To foster a renewable energy future – that is, to achieve a significant portion of Canada’s electricity needs from renewables in the years ahead – requires strong commitment and more action today. The first important steps have been taken but mainly for the wind sector. As wind becomes an established industry in Canada, the time has come to turn attention and support to the other renewables. There is a growing world market for these and huge opportunities to export technologies that will help achieve energy security and address climate change while creating a new industry. Canada has not been an active player in this industry and continued inaction on innovation and development risks this country continuing in its current position as a market-taker rather than market-maker. More leadership is needed at the helm, provincially and federally, and in collaboration. A clear vision with an enabling framework addressing the many facets of the industry – r&d, skills development, export potential, public support, technology innovation and maximising environmental benefits. The re sector will continue to grow by sheer force of will by committed groups and individuals, but reaping the full range of benefits requires commitment and planning. Defining both is a good place from which to move forward.

notes 1 Research for this chapter was made possible through the Killam Foundation and the Social Sciences and Humanities Research Council which together provide funding for the author’s PhD research. 2 The term “new” is used to set apart renewable energy technologies that are not as well established and competitive as large hydro facilities. It includes solar, wind, bio-

mass, small-hydro, ocean and geothermal energy. 3 Canadian Wind Energy Association, www.canwea.ca/downloads/en/PDFS/ Rapid_growth_eng_April_06.pdf, accessed 24Apr06. 4 Canada’s installed electricity capacity is dominated by large hydro generation with 57%, followed by coal with 22%, 13% nuclear, 5% natural gas and 3% oil. Power generated from biomass contributes around 1% and new renewables less than 1%, dominated by wind with 0.7%. 5 National and provincial energy policy objectives can be seen on various government websites. For NRCan’s policy objectives visit http://www2.nrcan.gc.ca/es/es/ policy_e.cfm and for the province of Quebec see http://www.mrn.gouv.qc.ca/english/ energy/policy/index.jsp, both accessed 29Apr06.

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6 Many texts discuss the benefits of re, see for instance: J. Sawin, Mainstreaming Renewable Energy in the 21st Century (Washington: World Watch Institute, 2004) and H. Geller, Energy Revolution: Policies for a Sustainable Future (Washington: Island Press, 2003). 7 Environment Canada, Canada’s Greenhouse Gas Inventory – Overview 1990–2003 (Environment Canada, 2004) http://www.ec.gc.ca/pdb/ghg/inventory_report/2003_ factsheet/2003Factsheet_e.cfm, accessed 21Jun06. 8 H. Geller, Energy Revolution: Policies for a Sustainable Future. 9 Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (German Environment Ministry) http://www.erneuerbare-energien.de/inhalt/, accessed 3Aug06. 10 Auditor General of Canada (2000). Government Support for Energy Investments. (Auditor General of Canada, http://www.oagbvg.gc.ca/domino/reports.nsf/html/ c003ce.html#0.2.2Z141Z1.7K9U7D.1J0OUF.63, accessed 29May05. 11 C. Mitchell, et al., “Effectiveness through Risk Reduction: A Comparison of the Renewable Obligation in England and Wales and the Feed -in System in Germany” in Energy Policy 34, no. 3 (2005): 297–305. 12 C. Jones, “French Revolutions: Could New Policies Boost France’s Wind Industry?” in Renewable Energy World, (March-April 2006): 56–65. 13 P. Ekins, “Step Changes for Decarbonising the Energy System: Research Needs for Renewables, Energy Efficiency and Nuclear Power,” Energy Policy 32 (2003): 1891–904. 14 D. Humphries, Renewable Energy: Practices and Policies for Sustainability. Masters Thesis, York University, 2002. 15 H. Geller, Energy Revolution: Policies for a Sustainable Future. 16 World Watch Institute, Renewables 2005 – Global Status Report (World Watch Institute, 2005) .http://www.worldwatch.org/brain/media/pdf/pubs/ren21/ren21-2.pdf, accessed 20Jun06. 17 Natural Resources Canada, Wind Power Production Incentive: Terms and Conditions (Natural Resources Canada, 2005) http://www.canren.gc.ca/programs/index.asp? CaId=107, accessed 26Apr06. 18 H. Geller, Energy Revolution: Policies for a Sustainable Future. 19 J. Lipp, “The uk Green Electricity Market: Is It Sprouting?” Renewable Energy 24 (2001): 31–44. 20 J. Markard, B. Truffer “The Promotional Impacts of Green Power Products on Renewable Energy Sources: Direct and Indirect Eco-effects” in Energy Policy 34 (2006): 306–21. 21 Federal Energy Regulatory Commission, Order no. 888: Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, http://www.ferc.gov/legal/maj-ord-reg/land-docs/order888.asp, accessed 3Aug06. 22 D. Cheney, C. Powell et al., National Energy Policy: Report of the National Energy Policy Development Group. (Washington, D.C. us Government Printing Office), referenced in Marjorie Griffin Cohen, From Public Good to Private Exploitation: gats and the Restructuring of Canadian Electrical Utilities, Canadian-American Public Policy series 48 (December 2001).

198 Judith Lipp 23 Bruce Doern and Monica Gattinger, Power Switch: Energy Regulatory Governance in the Twenty-First Century. (University of Toronto Press, 2003). 24 Natural Resources Canada, Energy in Canada 2000. (Natural Resources Canada, 2002). 25 Unless noted otherwise, the information in this section comes from provincial, territorial and federal energy department (or energy units within other departments) websites, as well as from interviews with representatives from these departments. Consent to be referenced has not been obtained for all interviewees therefore no citations for information from interviews could be included. 26 British Columbia Ministry of Energy, Mines and Petroleum Resources, http:// www.em.gov.bc.ca/AlternativeEnergy/Alt_Energy_%20Home.htm, accessed 25July06. 27 Manitoba Ministry of Energy, Science and Technology, www.gov.mb.ca/est/energy/ wind/index.html, accessed 4Apr06. 28 Atlantic Canada Opportunities Agency, press release http://www.acoa.ca/e/media/ press/press.shtml?3403, accessed 24Apr06. 29 Government of Prince Edward Island, press release, http://www.gov.pe.ca/news/getrelease.php3?number=4419, accessed 24Apr06. 30 Jamie Ballem, minister of Environment, Energy and Forestry for pei, presenting at the Green Power in Atlantic Canada Workshop, St. Andrews by the Sea, 19 September, 2005. 31 Nova Scotia Government, Seizing the Opportunity: Nova Scotia’s Energy Strategy, Volume 1&2 (Halifax, 2001). 32 Nova Scotia Power, http://www.nspower.ca, accessed 26Apr06. 33 Council of Atlantic Premiers, press release, http://www.cap-cpma.ca/default.asp?id =190&pagesize=1&sfield=content.id&search=268&mn=1.62.5.29, accessed 20Jun06. 34 The David Suzuki Foundation ranked Manitoba first in its climate change performance report, All Over the Map: A Comparison of Provincial Climate Change Plans, DSF, 2005. 35 Quebec Ministry of Natural Resources and Wildlife, www.mrn.gouv.qc.ca/english/ energy/sources/sources-wind.jsp, accessed 26Apr06. 36 Hydro Quebec, www.hydroquebec.com/distribution/en/marchequebecois/ ao_200302/pdf/diapositives.pdf, accessed 26Apr06. 37 CanWEA, press release http://www.canwea.ca/downloads/en/PDFS/PRQuebecJune 29ENG.pdf, accessed 26Apr06. Note, several wind farms had already been developed in Quebec prior to the rfp rounds, hence bringing the total installed capacity to almost 3500 mw by 2013. 38 Hydro Quebec, www.hydroquebec.com/distribution/en/marchequebecois/ ao_200503/index.html, accessed 26Apr’06. 39 Ontario Power Authority, http://www.powerauthority.on.ca/Page.asp?PageID=122& ContentID=847&SiteNodeID=170&BL_ExpandID= accessed 25July06. 40 Ontario Ministry of Energy, Targets and Progress http://www.energy.gov.on.ca/ index.cfm?fuseaction=renewable.targets, accessed 25Jul06. 41 Department of Finance, http://www.fin.gc.ca/news96/96-046_2e.html#Canadian, accessed 29Apr06.

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42 Natural Resources Canada, http://www.nrcan.gc.ca/media/newsreleases/2005/ 200512a_e.htm, accessed 6Apr05. 43 Natural Resources Canada, www2.nrcan.gc.ca/es/erb/erb/english/View.asp?x=68, accessed 29Apr06. 44 M. Islam et al., “Current Utilization and Future Prospects of Emerging Renewable Energy Applications in Canada,” Renewable and Sustainable Energy Reviews, 8 (2004): 493–519. 45 There are various streams for re r&d funding. The description here is not exhaustive. 46 Ernst & Young Renewable Energy Country Attractiveness Indices, 2006, http:// www.ey.com/global/download.nsf/International/ECU_-_EY_CountryAttractiveness Indices_Spring2006/$file/EY_CountryAttractivenessIndices_Spring2006.pdf, accessed 20Jun06 47 International Energy Agency, Renewable Energy: Market and Policy Trends in IEA Countries (International Energy Agency, 2004).

10 The Human Nature Connection: Sustainable Development Policy Implications e l i z a b e t h n i s b e t, john zelenski, and steven murphy

This chapter examines the manner in which psychology can contribute to our understanding of why people behave in either sustainable or unsustainable ways, and how we might promote environmental behaviour by examining individual differences in human-nature relationships. Environmental issues are psychology issues because ecological sustainability is, in part, dependent on human behaviour. Because many environmental problems are caused by human activity, they can potentially be reversed (or lessened) by human behaviour. Psychologists study the many factors that influence environmental choices and actions, attempting to disentangle psychological reasons (e.g., lack of knowledge, hopelessness) from structural barriers (e.g., lack of a local recycling program, or poverty). Psychology can identify the barriers to inaction and the methods most successful in persuading people to act responsibly. We argue that in order to achieve sustainable development we need to understand individual differences in the emotional and cognitive bases of environmental actions, as well as the attitude and value systems that motivate or inhibit sustainable behaviour. Psychology can promote sustainability by illustrating how the restoration of our relationship with nature may also promote wellbeing. The well-documented research demonstrating the restorative benefits of nature suggests that an increased connection to the natural world (“nature relatedness”) may be useful in promoting psychological health. We contend that many people may have lost their connection to nature, and that this may partly explain destructive environmental behaviour, as well as human unhappiness. Indeed, mending broken person-nature relationships may benefit both human and environmental health. Widespread knowledge of this relationship may

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provide personal incentives (i.e., greater happiness) and therefore motivation to live sustainably. We discuss how the benefits of a strong bond with the natural world can help promote sustainable development, particularly in regards to motivating individual behaviour change. The chapter is organized into six sections. First, we discuss how psychology is relevant to sustainable development, pointing out some of the structural barriers that may hinder environmentally responsible behaviour. Next, we discuss how attitudes, beliefs, and personality differences may lead people to act destructively, despite concern for the environment. We introduce the construct of “nature relatedness” and discuss the benefits of being connected to nature, in terms of motivating sustainable behaviour at the individual and organizational level. This is followed by some practical examples of how nature relatedness may promote sustainable development. We contrast the One-Tonne Challenge program with the Suzuki Foundation’s Nature Challenge to illustrate the importance of incorporating nature relatedness into sustainability initiatives, and provide a brief analysis of the Harper government’s plans to address climate change. The chapter concludes with suggestions on how nature relatedness principles might guide future sustainable development policy.

s u s ta i n a b i l i t y a n d t h e c o l l e c t i v e e f f o r t s o f i n d i v i d ua l s We can view sustainability in terms of the collective efforts of individuals. Sustainable development policies and regulations are proposed, adopted, and implemented by individuals, albeit often working together. These policies must be endorsed and carried out by people however, not simply prescribed by government. The focus of sustainable development is often on broad goals, neglecting these individual or personal factors. Psychology is able to link environmental issues to individual human decisions and actions, providing insight into how to move societies towards sustainable living. Failure to transform our societies to a sustainable way of living will result in human suffering. Sustainable development is necessary not just for political reasons, but also for our health and ultimate survival. One quarter of worldwide disease is due to preventable environmental factors.1 The World Health Organization estimates that almost a quarter of the world’s death, illness, and disability could be avoided if exposure to unhealthy environments was reduced.2 These figures take into account basic hazards such as unsafe drinking water, but also disease related to pollution from transportation, second hand tobacco smoke, and physical inactivity (as a result of urban design, for example).3 Ensuring clean water, air, land, and sustainable ways of living are key to reducing the environmental disease burden and achieving wellbeing and quality of life for all people on the planet.

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Researchers have long been investigating why there is such a discrepancy between attitudes and behaviour or why people say one thing, but do another. People can hold pro-environmental attitudes and care about the environment yet behave destructively.4 For example, Canadians are concerned about air pollution and smog, and the resultant damaging health effects.5 Forty five percent of Canadians indicated that driving a vehicle was the individual behaviour that most contributed to environmental damage, yet few were willing to reduce the impact of driving by using alternative forms of transportation.6 If people do not always act responsibly toward the environment, it does not necessarily mean that they are uncaring.7 Many people are aware and concerned about environmental problems, even if it is not always reflected in their behaviour.8 We know that Canadians value nature and want a healthy, safe environment.9 There are many reasons for non-environmental behaviour, some psychological (e.g., feeling overwhelmed or not responsible), and others structural (e.g., geographic or socioeconomic barriers). Solving environmental problems requires an understanding of what is causing the attitude-behaviour discrepancy and what motivates people not only to behave irresponsibly, but what inspires people to behave in environmentally friendly ways as well. It is important to disentangle the sources of inaction in order to target interventions effectively. People may not act environmentally if their choices are limited – if there is no recycling program, no public transportation system, or if they are restricted financially. Indeed, environmental attitudes are accurate predictors of behaviour when constraints beyond one’s control such as financial, material, and social circumstances are included.10 When we rule out structural barriers to sustainable behaviour, we are left with the psychological factors. Although these psychological factors may be important to removing structural barriers (e.g., when manifest as public opinion), the psychological aspects of sustainable behaviour are particularly important where there are no structural impediments. These are important questions in terms of policy, because policy only matters as much as people are willing to carry it out. The best recycling and car pooling policies in the world are ineffective if people continue to throw recyclables in the garbage and drive alone to work. To encourage behaviour change we need to understand the psychological barriers at work. Why might people make choices that are destructive over convenient, affordable, and sustainable options? How do we motivate behaviour change, encourage and maintain cooperation with sustainable development policies?

m o t i vat i o n , at t i t u d e s , va l u e s and beliefs Motivation, attitudes, values, and beliefs have all been the subject of investigation for researchers trying to understand why some people act sustainably

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and others do not.11 In some cases, people may not have the social support or knowledge to behave environmentally. People also may not act environmentally if the situation seems hopeless, if they feel overwhelmed by information and helpless to prevent the problem, or have no confidence in their ability to take action.12 Amotivation occurs if people believe environmental strategies are ineffective and if they feel low self-efficacy in executing the behaviour and integrating it into their lifestyle.13 Environmental problems are often not observable to our senses (ozone depletion or climate change, for example) so the threat may not seem personal or imminent. In addition, the environmental consequences of behaviour are not always felt directly, as the scale and nature of global environmental changes may make them intangible.14 People have trouble considering the interests of the environment when those interests are either unknown or not personally salient.15 The result is that people are not likely to associate their own unsustainable behaviours with the adverse effects, such as driving an inefficient vehicle with global warming or smog alerts. If people do not perceive a situation to be personally relevant, any environmental attitudes they may hold are not likely to be triggered to guide their behaviour.16 This may explain why the best efforts at educating people about environmental issues do not always result in behaviour change. Climate change, for example, may seem so overwhelming and complicated an issue, with such conflicting scientific information, that people feel they are unable to contribute to the solution. The majority of Canadians consider climate change important and support the Kyoto Protocol, however the accord is so complex that two-thirds of Canadians do not understand how it works.17 Despite the fact that almost 90% of Canadians know about the Accord, 39% do not accept the scientific evidence behind climate change or believe that humanmade gases are responsible for global warming.18 The volume and conflicting nature of information about the issue may be seen as a reason to reject the science. Without suffering any of the consequences of our unsustainable behaviour directly or personally it is easy to dismiss evidence of the problem and our contribution to it. If people do not fully understand environmental policy, such as Kyoto, it may be difficult to inspire the behaviour change necessary to implement it. If governments want people to back Kyoto we need to foster dialogue and debate on the specifics and ask ourselves why so many people do not accept scientific evidence. Indeed, the political leaders of many countries, including the Harper Conservatives, highlight the flaws inherent in Kyoto and are heavily influenced by business lobbyists and concerns about economic drivers. Very little government or media attention is focused on the basic tenets of Kyoto – clean water, air, and land, in order to foster sustainable development for generations to come. Where a number of efforts to encourage sustainable activity go wrong is in assuming that attitude or knowledge alone are sufficient to influence behaviour.

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This leads program planners to attempt behaviour change solely through the dissemination of information, often with little impact.19 However, we know that knowledge of the problem is not enough. Information-intensive campaigns fail to induce behaviour change partly because they underestimate the difficulty and the variety of factors involved. The fact that many people are concerned about the state of the environment yet continue to engage in destructive action is evidence of the need to explore all potential barriers to sustainable behaviour. Often, identifying these barriers is the most important yet most neglected step in designing campaigns to promote sustainable behaviour.20 Without clearly understanding what prevents people from making more environmental choices it is difficult to employ an effective strategy for change. In order to maintain behaviour change, interventions must be constructed in such a way that people perceive the environmental consequences of their actions and the benefits of conservation.21 Numerous factors, both within and beyond individual control, have considerable influence over environmental actions. Hines and colleagues looked at the determinants of environmental behaviour by analyzing 128 empirical studies.22 Both psychological and structural factors predicted pro-environmental behaviour. Of the psychological factors, knowledge and skills were important, but so were personality and attitudes. So what are the characteristics of people who behave environmentally? Dissatisfaction with the state of one’s local environment seems to be a potential determinant of pro-environmental conduct.23 That is, people appear motivated to remedy environmental problems that have an immediate and personally salient impact. For less tangible environmental threats, the ability to think long-term or consider future consequences may be an important contributor to environmental choices.24 For example, public transportation was more important to those with an orientation toward the future who also believed cars were harmful to the environment.25 This link between environmentally friendly behaviour and long-term thinking is not surprising considering the slow and often imperceptible nature of global environmental changes. However, we still need to understand why some people are able to think long term or why some act upon their dissatisfaction with the environment while others do not if we want to learn how to inspire more sustainable behaviour.

n at u r e r e l at e d n e s s Sociobiologist Edward O. Wilson argues that humans possess an innate need to affiliate with all other living things – that our desire to connect with nature is embedded in our biology.26 Wilson suggests that the relatively short period of our evolutionary history we have spent living in cities likely has not erased all we have learned about nature’s value. The desire to connect with all other living things is an adaptive advantage so we will appreciate and protect the

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environment upon which our survival depends.27 We are drawn to nature – the popularity of outdoor activities, our fondness for natural scenery, and our relationship with animals are evidence – but there is considerable variability in the extent to which people feel connected to their natural environment. A number of researchers are now suggesting that these differences in people’s connection to the natural environment may provide insight into environmentally unfriendly behaviour. At a collective level, damaged person-nature relationships may be contributing to global environmental destruction.28 People are more likely to want to protect the environment if they feel connected to it. Environmental concerns relate directly to the degree to which people see themselves as part of the natural world.29 Logically, feeling part of nature should motivate individuals to act sustainably. Conversely, it is difficult to value something that is not part of your experience, or to care about something you do not feel a part of. Looking at personal relationships people have with nature may be one way to understand and predict differences in behaviour. Drawing on psychology, philosophy, and ecology literature, we have proposed the construct of “nature relatedness” (nr) to describe individual differences in the cognitive, affective, and physical relationships people have with the natural environment. Nature relatedness is a sense of interconnectedness with all other living things. It is not simply a love for nature or an enjoyment of only the aspects of nature that are pleasing or useful to humans. Rather, we view this construct as reflective of an understanding of how human health is interwoven with the state of the planet. Nature relatedness is a self-concept that includes the natural world, an appreciation for biodiversity, and a personal guide for our interactions with our environment. People most connected to nature are likely to express more concern and behave more responsibly toward the environment.30 We have tested some of these hypotheses by creating a self-report scale that assesses individual differences in human-nature relationships, and have examined how these differences in connectedness are related to environmental attitudes and actions. We have found that being related to nature leads to more concern for the environment and more sustainable behaviour.31 A strong connection to nature is predictive of a more ecocentric perspective, or caring about the impact of environmental problems on all living things, and not just concern for one’s own interests. Those high in nature relatedness are less satisfied with local environmental conditions and government policy, indicating a greater awareness of the issues. People who feel most connected to the environment are also more likely to identify themselves as environmentalists and engage in environmentally responsible behaviour. They are more likely to purchase fair trade products and to sign a petition related to improving recycling services.32 Being more related to nature means you also are more likely to reflect pro-environmental views in behaviour. Nature related

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people are more likely to go out and volunteer with environmental organizations, and to act on their pro-environmental beliefs and values. Although many people endorse pro-environmental attitudes, nature related people hold these views more strongly and translate them into action. So, the people most likely to support and carry out sustainable development policies are nature related. In addition, we have found that nature relatedness predicts environmental behaviours more accurately than narrower measures of environmental attitude. This is likely due to the fact that nature relatedness is comprised of more than thoughts, opinions, or beliefs, but also includes emotions and experiences related to the natural environment. There is a gap between how people feel about the environment and how they behave. Psychology can and should find ways to reduce this gap, and determine how to ensure concern leads to action. Improving people’s relationship with nature may achieve this, given that nr is related to both environmental attitude and behaviour. At the same time, nr is distinct from environmentalism, involving far more than activism. And, unlike other aspects of environmentalism, we have found that this sense of connectedness with the environment is related not only to sustainable behaviour, but to how happy people are. There is already well-documented research demonstrating the physical health benefits of nature as a corrective or remedial measure to counteract stress, anxiety, or to aid in the recovery of illness.33 For example, systolic blood pressure in stressed pre-surgical patients was lower after a few minutes of looking at serene nature scenes, compared to more exciting outdoor scenes or no photographs, and dental patients reported feeling less stress and had lower heart rates on days when a nature mural was displayed than on days without it.34 Nature and natural settings seem to have relaxing, healing and restorative benefits both physically and psychologically.35 This suggests that being closely connected to nature could have psychological advantages and that increasing nature relatedness may make people happier. This also implies that a disconnection from nature may be leading not only to an unhealthy environment, but to unhealthy and unhappy humans as well. Researchers, philosophers, and scientists from a variety of backgrounds have written about the importance of the human connection with nature. Expanding on the biophilia hypothesis, Kellert suggests that nature adds meaning to our lives, and that a strong bond with the natural world is essential for optimal human emotional and psychological development.36 Only recently, however, have psychologists begun to examine and test these relationships empirically. What they are finding is that a strong bond with nature predicts pro-environmental behaviour, but also increased well-being or happiness.37 We have discovered links between nature relatedness and a variety of happiness indicators in a large number of subjects of varying age, both students and business people. Nature relatedness is associated with autonomy, personal growth, self-acceptance, and having a sense of purpose in life,

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indicative of a sense of meaning and orientation toward the future.38 In addition, individuals more connected to nature report experiencing more vitality and positive emotions.39

t h e a d va n ta g e s o f n at u r e r e l at e d n e s s People’s personal relationship with nature, their emotions and experiences, are important if we are to understand what promotes and prevents sustainable behaviour. In other words, identifying with nature, feeling part of the environment, motivates people to protect it, but also contributes to a sense of well-being or happiness. And it is this psychological benefit of being connected to nature that may inspire and sustain environmentally responsible behaviour. Widespread knowledge of the benefits of nature relatedness may encourage people to behave sustainably as well as dispel the myth that living environmentally requires relentless deprivation. Mending broken person-nature relationships may benefit both human and environmental health. As individuals become more related to nature, they should feel more positive emotions. This sense of well-being they experience should then result in more pro-environmental behaviours. So the question is, can we increase people’s nature relatedness and thereby increase sustainable behaviour and well-being? We think of nr as fairly stable over time and across situations, though not completely fixed, and that it may be altered with experience or education. We explored this idea in a study of Canadian university students, comparing those enrolled in environmental courses to others without environmental education.40 Path analyses indicated that students in geography, natural history, and environmental studies classes had more sustainable attitudes and behaviours as a result of changes in their nature relatedness. Students in the environmental courses also had increases in well-being as a result of changes in nature relatedness. The advantages of being connected to nature are also relevant in the workplace. In a study involving middle managers we found that being connected to nature was good, not just for people’s well-being in their leisure life, but that those who spent more time outdoors and in nature also reported more productivity at work and were more satisfied with their jobs.41 There seems to be a spillover effect, with those who are more connected to the natural environment experiencing the psychological benefits in both their work and home life. Thus, sustainable development may contribute to economic drivers, and needs to be discussed within a broader context that includes productivity gains that ultimately contribute to gdp. One’s connectedness with nature is also likely to influence sustainable values and environmental decisions both at home and in business. Within organizations, the motivation for ecological responsibility is often due to individual concern. Environmental responsibility in corporations is usually attributed to powerful individuals

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who champion sustainable policies – values held by top management who are responsible for influencing the decision-making process.42 In business, there can also be attitude-behaviour inconsistencies. For example, corporate greening may be motivated by a desire to raise profits, to stay competitive, to improve company morale or the corporate image, and not due to environmental awareness.43 Despite the widespread concern about the environment by individual Canadians, many business leaders continue to doubt the human contribution to pollution and global warming.44 Identifying environmental leadership characteristics is key to establishing support for sustainable development. It follows from our findings on the relationship between nr and environmental behaviour, however, that the individuals promoting sustainable development within organizations are likely to be connected to nature and motivated by a true commitment to environmental and social responsibility. It is easy to be a “pro-environment” business, in the same way that it is difficult to be against employee well-being. Corporate social responsibility is extending into the realm of the environment with sponsorships for green spaces in urban areas, and other programs targeted at making the public aware of the company’s aspirations of having a “green” image. Whether or not these visible signs translate into sustainable business practices when firms are faced with difficult environmental decisions is difficult to ascertain. The point is that there is nothing inherently wrong with sustainable development practices that are in the best business interests of the firm, but it likely is only when shareholders place a premium on environmental protection and leadership that we will see widespread corporate change. Of course, shareholders are also the citizens whose individual environmental behaviours we wish to change, perhaps by increasing their nature relatedness.

t h e p r a c t i c a l i m p l i c at i o n s o f n at u r e r e l at e d n e s s Nature relatedness research has a number of practical implications. For example, programs or interventions designed to increase connectedness might be used to reduce stress in the workplace, thereby increasing productivity and job satisfaction, to increase compliance with environmental programs, or as a mental and physical health promotion strategy. While the findings on nr need to be tested further, there is reason to be hopeful that it is possible to restore damaged human nature relationships. We suggest that it is these psychological benefits of being related to nature that provide the motivation for pro-environmental behaviours. Given the numerous structural and psychological barriers that inhibit sustainable activities, increasing nature relatedness has the potential to help inspire and maintain behaviour change where other types of interventions may fail. Environmental education, if designed

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to increase people’s connectedness with nature, could promote more environmental behaviour. Public education programs may be more effective in inducing behaviour change if some element of nature relatedness is included. Effective communications that promote our inclusion with nature might counteract some of the persuasive media messages aimed at increasing consumption of natural resources. To illustrate the foregoing, we use, as an example, the issue of climate change and recent government efforts to engage Canadians around this issue. In the spring of 2004, the Martin Liberal government launched the OneTonne Challenge (otc) campaign. The program was to provide a framework to encourage reduction of greenhouse gases as part of the government’s overall climate change efforts and Kyoto targets.45 The Liberal government funded 114 community programs working to reduce climate change, promote conservation, and encourage sustainable behaviour, at both the individual and corporate level.46 The otc was widely publicized through television ads featuring comedian Rick Mercer, encouraging Canadians to do their part in reducing climate change by driving less and turning down their thermostats. Individuals were directed to a website or brochure providing detailed information on steps they could take to decrease their greenhouse gas emissions by 20 percent, or approximately one tonne. A large focus of the campaign was on transportation, citing passenger road transportation as responsible for half of personal emissions in Canada.47 Other suggestions for action ranged from installing ceiling fans and washing clothes in cold water to recycling more and planting trees. The otc website featured a tool for calculating greenhouse gases, fuel and home energy saving tips, as well as links to a variety of information about climate change. In November of 2004, the Senate Committee on Energy, the Environment and Natural Resources released the first interim report on the progress of the program.48 The One-Tonne Challenge, clearly, was not the resounding success the government had hoped. Despite the millions of dollars spent on ads, it seems they did not make a major impact on most Canadians.49 The report points to a number of factors we have already discussed, above, as barriers to behaviour change: climate change has little impact on most people’s daily lives; the problem may be so overwhelming that many people doubt their own ability to make any difference; many people simply will not be persuaded to voluntarily make major behaviour changes; we need strong economic incentives and regulations to make energy efficiency mandatory.50 The report outlines fifteen recommendations for government action in the areas of fiscal and regulatory reform to improve the effectiveness of climate change programs. In June of 2005, the Committee released its second interim report, “Sustainable Development: It’s Time to Walk the Talk”.51 The document criticized the government for failing to make any real progress on sustainable development and continually relying on mostly ineffective voluntary measures

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to achieve change. In March of 2006, the Harper Conservatives quietly cancelled the otc, cutting funding to community groups across Canada who had been promoting the program.52 So how could the otc have been improved? Making the campaign (and the issue) more personal could have tapped into people’s sense of connectedness with nature and inspired them to want to protect it. People need to know the direct effect their behaviour has on the environment, by presenting the information clearly and in ways that trigger the desire to connect with the natural world. Highlighting potential macro economic benefits and providing large-scale information is not likely to feel personally relevant to people. Because no one can see or touch one tonne of greenhouse gases, trying to motivate behaviour change using these intangible targets is not likely to work. The One-Tonne Challenge expected all Canadians to reduce their emissions by the same amount – one tonne – regardless of differences in their starting point or potential for reductions. The program did not account for variability between households, in terms of the breakdown of emissions, giving participants limited choices when entering their energy consumption information into the online assessment tool. Some areas were even neglected entirely (e.g., water use, food sources and choices). The generalized assumptions in the calculators likely produced some inaccurate household emissions scores. In fact, many people may not fit the average national profile featured in the campaign’s literature, and the types of sustainability initiatives that will be most effective may vary significantly between communities, and among individuals.53 While Canadians need national leadership on sustainable development and environmental issues, campaigns to promote sustainable behaviour must feel personally relevant if they are to succeed. In contrast to the One-Tonne Challenge, a different global impact assessment tool, the David Suzuki Foundation’s “Nature Challenge” is based on the Union of Concerned Scientists’ model of the environmental impact of consumer decisions.54 From beginning, the name of this initiative explicitly connects individuals’ behaviour with the natural world. Doctor Suzuki’s name is synonymous with nature, due to his lifelong experience as a scientist, broadcaster, and educator about humans’ interactions with our environment. The calculator assesses a wide range of daily activities and provides feedback on how those individual actions affect nature.55 The website frames individuals’ results by comparing to the average Canadian household (like the otc), however it also quantifies amounts with salient visual images and figures. For example, a household with 1.4 cars and 2.6 people produces greenhouse gases weighing the same as six Ford Explorers (an image of the suvs stacked on top of each other accompanies the figures). Similarly, buckets of paint are used to illustrate pollutants to a river or lake; the number of daily toilet flushes is given to quantify water use.

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Nature was not a prominent feature in any of the otc promotional material. The campaign focussed on energy reduction, saving money, improving air quality, and protecting the environment as the Canadian thing to do, but neglected to link any of the conservation actions with the personal benefits of environmental protection. The otc relied primarily on information and awareness in order to motivate behaviour change. We suggest that, in conjunction with well-designed and implemented programs, planners need to consider nature relatedness in their campaigns. Tapping into the human desire to connect with the natural world and promoting the benefits of nature should be an underlying theme in any strategy to promote sustainable development. If we apply this knowledge about how people feel and think about nature with knowledge and skills to help people act responsibly, we should be able to inspire sustainable behaviour. With the One-Tonne Challenge program and other initiatives like it ended, it is unclear how the Harper government plans to address climate change issues, but the future looks bleak. The Conservatives have cut funding to Environment Canada programs on climate change by 80 percent.56 The Tories have also backed away from the Kyoto accord, instead, attempting to design a “made in Canada” environmental policy. Unfortunately, our environmental “sins” occur on a global scale. Pollution often cannot be contained within city, provincial, or even national borders. Canadians have a duty, not only to each other, but to all other humans, to stop behaving destructively. This responsibility is acknowledged in the Kyoto Accord. It is clear that Canadians care about preserving nature. More than three quarters think protecting the environment should be the number one priority for the country.57 In contrast, the Tories’ May 2006 budget does not make the environment a priority. The government has promised investment in public transit infrastructure and tax credits for individuals who purchase public transit passes.58 As the sole initiative proposed so far, however, this does not bode well for the country’s progress on climate change. Improvements in public transportation and reduced fares are unlikely to motivate large-scale behaviour change. Almost 74% of Canadian commuters drive to work. Another 7% commute as passengers, meaning less than 20% use public transportation, walk, or bicycle.59 Ironically, Canadian children say they would prefer to walk rather than be driven to school, and there is evidence that this is an important opportunity to discover, be adventurous, and connect with nature, benefiting both emotional and physical well-being.60 Unfortunately, however, travelling in a personal vehicle is often associated with increased social status and safety, making it unlikely that a nominal tax credit for public transportation will motivate many people to change their driving habits. This is an important issue, as driving less and using alternative forms of transportation would not only improve air quality and reduce greenhouse gas emissions, but also improve the quality of human health. It is

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estimated that environmental modifications could reduce physical inactivity (and the resulting poor health effects) by an estimated 31% in North America.61 Most cities, are designed for quick rather than healthy, sustainable transportation. There are considerable benefits, however, in designing transportation and other urban areas with access to nearby nature.62 Urban planning that incorporates opportunities for connecting with nature could promote physical and mental health, as well as foster sustainable behaviour by providing the structural and social support for more environmental choices. Personal comfort and convenience, along with status and social pressure are forces unlikely to be influenced by small economic rewards – especially among those who can afford to continue making unsustainable transportation choices. If people have social and psychological associations to certain resources, then they may simply give up other purchases to continue affording the environmentally damaging one. Incentives are futile if driving a luxury, yet inefficient, vehicle is considered a sign of success and taking public transportation is a sign of failure.63 Economic incentives such as the proposed transit tax credit are ineffective without similar disincentives (i.e., fees) for using inefficient transportation. As well, economic enticements are not always effective in motivating the desired behaviour, particularly if the rewards are long-term or potential in nature.64 Financial incentives can be a useful tool, but more is needed to back up and maintain behaviour change. The environmental costs of energy are still not reflected in the price, contributing to the disconnection between behaviour and consequences. If there is no cause-effect observable for people’s unsustainable behaviours, it is unlikely that individuals view their actions as having any harmful environmental effects.65 Unfortunately, we all suffer when the environment is degraded, whether we are directly or indirectly responsible, or not. Currently, the cost of unsustainable behaviour is relatively cheap, and until it changes, making the person-environment connection more salient, behaviour is likely to remain the same. The introduction of carbon taxes, as Quebec has recently done, is an attempt to incorporate some of the environmental costs of petroleum products into the price. As there is likely to be some resistance to this, fostering connectedness and restoring damaged human-nature relationships may help people to understand and accept some of the increased (real) costs of protecting the environment. The rewards for behaving sustainably are rarely immediate, so in order to make behaving this way attractive, we need to foster motivations that rely on internal, versus external pressures. While it is essential that we strive to achieve social conditions supportive of sustainable behaviour, in the interim, we need to encourage intrinsic motives for environmental behaviour. By doing so, we promote concern for the planet which, in turn, should result in citizens pressuring industry and government to act responsibly and creating a social climate conducive to long-term behaviour change.

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Sustainable development, in part, requires that individuals have the opportunity to act environmentally. Government must provide the climate for sustainable behaviour by supporting conservation programs and investing in sustainable technologies. Governments, as organizations, also have a responsibility to lead to the way, or set an example of sustainable business practices. By not only setting policy, but also practicing it, government (along with other organizations) influence the norms around environmental behaviour and set the standards for citizens to follow. In addition, by supporting sustainable infrastructure such as recycling programs, education about conservation, and waste reduction, governments can encourage sustainable behaviour by making these choices easy and the norm. Removing the structural impediments to pro-environmental actions is the first step in encouraging sustainability. It will take a widespread and dramatic sea change to achieve sustainability across communities, provinces, and nations, and among people of diverse economic, social, and cultural backgrounds. Because it is individuals who either support or defeat government, and because it is individuals who must act or not act in accordance with any prescribed policy, we must find ways to motivate sustainable behaviour, en masse. If current unsustainable behaviour can be curbed, as people strive to preserve the environment they are connected to, the demand for sustainable development policy and sustainable products should reinforce the positive activities of government and industry and oblige less responsible organizations to do the same.

c o n c lu s i o n s As the state of the environment worsens, people may long to connect with nature even more. However, as the environment becomes further degraded our appreciation for the role of natural diversity in healthy human development may be diminished.66 We need to preserve species and habitat so that future generations have the opportunity to experience the joys and benefits of the natural world. Thus, we argue that the connection to nature must be made personal on two levels. First, we may be able to restore potentially damaged nature relatedness relationships. Living in cities may create a sense of detachment from the physical world and any reattachment may prove both effective for mental and physical health as well as for fostering more sustainable behaviours. Urban nature oases and sustainable development could promote this reattachment. Second, we believe that interventions need to be targeted on the immediacy of people’s actions. That is, people need to know and feel that their efforts are making a difference toward something they believe in. We all seem to want to pass along clean air, water, and biodiversity to our children and grandchildren, yet people may need to be reminded of the impact of their choices on their own children’s lives. By understanding that as

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individuals we can make a difference, and having a reason to make a difference, we may be motivated by personally meaningful intrinsic factors. Social and economic development programs should aim to improve people’s quality of life, not just increase production or consumption. A healthy environment and opportunities to connect with nature can contribute to physical and psychological health. We suggest that these objectives can be supported and sustainable behaviour can be fostered by incorporating nature relatedness into sustainable development policies. Being related to nature makes people happier. And happy people are more productive, healthier people.67 Nature related people are also the ones who support sustainability initiatives and work in their communities to get others on board; they are the government and industry leaders on sustainable development. If we can increase people’s connection to nature they are more likely to actually do what they say they will for the environment, closing the gap between attitude and behaviour. A better understanding of how our health is interwoven with the state of the planet will hopefully allow us to move toward sustainable patterns of living in ways that promote both physical and mental health.

notes 1 World Health Organization, “Preventing Disease Through Healthy Environments: Towards an estimate of the environmental burden of disease.” Report prepared by A. Prüss-Üstün and C. Corvalán, 2006. 2 Ibid. Globally, 24% of healthy life years lost and 23% of premature mortality can be attributed to environmental hazards. In developped regions, 17% of deaths are attributable to environmental factors, versus 25% in developing areas. 3 Ibid. 4 See R.E. Dunlap, K.D. Van Liere, A.G. Mertig, and R.E. Jones, “Measuring endorsement of the new ecological paradigm: A revised nep scale,” Journal of Social Issues 56 (2000): 425–42; S. Kaplan, “Human nature and environmentally responsible behaviour,” Journal of Social Issues 56 (2000): 491–508; K.V. Kortenkamp and C.F. Moore, “Ecocentrism and Anthropocentrism: Moral reasoning about ecological common Dilemmas” Journal of Environmental Psychology 21 (2001): 261–72; and J.A. Pooley and M. O’Connor, “Environmental Education and attitudes: Emotions and beliefs are what is needed,” Environment and Behaviour 32 (2000): 711–23. 5 Focus Canada, Environics International Ltd., Toronto (1998). 6 Ibid. 7 See Kaplan, “Human nature”; and P.W. Schultz, “Empathizing with nature: The effects of perspective taking on Concern for environmental issues,” Journal of Social Issues 56 (2000): 391–406. 8 See Dunlap, et al., “Measuring Endorsement of the nep”; and Schultz, “Empathizing.” 9 Ekos Research Associates Inc., “Citizens’ Dialogue on Public Health Goals in Canada.” Submitted to the Public Health Agency of Canada, October 31, 2005.

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10 See F.G. Kaiser, S. Wölfing, and U. Fuhrer, “Environmental Attitude and ecological behaviour,” Journal of Environmental Psychology 19 (1999): 1–19. 11 See J.B. Allen and J.L. Ferrand, “Environmental locus of control, sympathy, and proenvironmental behaviour: A test of Geller’s actively caring hypothesis,” Environment and Behaviour 31 (1999): 338–53; R.E. Dunlap and A.G. Mertig, “Global concern for the environment: Is affluence a prerequisite?” Journal of Social Issues 51 (1995): 121–37; Kaiser, et al., “Environmental attitude”; A.M. Nordlund and J. Garvill, “Value structures behind proenvironmental behaviour,” Environment and Behaviour 34 (2002): 740–56; L.G. Pelletier, S. Dion, K. Tuson, and I. Green-Demers, “Why do people fail to adopt environmental protective behaviours? Toward a taxonomy of environmental Amotivation,” Journal of Applied Social Psychology 29 (1999): 2481– 504; and L.G. Pelletier, L.R. Legault, and K.M. Tuson, “The Environmental Satisfaction Scale: A measure of satisfaction with local environmental conditions and government environmental policies,” Environment and Behaviour 28 (1996): 5–26. 12 See Kaplan, “Human nature.” 13 See Pelletier, et al., “Why do people fail to adopt environmental protective Behaviours?” 14 See R. B. Bechtel and A. Churchman, eds. Handbook of Environmental Psychology (J. Wiley, 2002); M. Thomashow, “The ecopsychology of global environmental change,” The Humanistic Psychologist 26 (1998): 275–300; and D.D. Winter, “Some big ideas for some big problems,” American Psychologist 55 (2000): 516–22. 15 See Kortenkamp, “Ecocentrism and anthropocentrism.” 16 See T. Kurz, “The Psychology of environmentally sustainable behavior: Fitting together pieces of the puzzle” Analyses of Social Issues and Public Policy 2 (2002): 257–78. 17 ipsos Reid polls in June and October 2002 showed that Canadians supported the ratification of the Kyoto protocol by 86% and 74% respectively. “Three-quarters of Canadians support Kyoto: poll” ctv news, October 8, 2002. ipsos Reid Poll, “Poll shows Canadians in the dark about Kyoto” CanWest News, May 29, 2006. 18 Ibid. 19 See D. McKenzie-Mohr, “Fostering sustainable behaviour through community-based social marketing,” American Psychologist 55 (2000): 531–7. 20 See McKenzie-Mohr, “Fostering sustainable behaviour.” 21 See Kurz, “The psychology of environmentally sustainable behavior.” 22 See J.M. Hines, H.R. Hungerford, and A.N. Tomera, “Analysis and synthesis of research on responsible environmental behaviour: A meta-analysis,” Journal of Environmental Education 18 (1986–1987): 1–8. 23 See Pelletier, et. al., “Environmental Satisfaction Scale.” 24 See J.J. Lindsay and A. Strathman, “Predictors of recycling behaviour: An application of a modified health belief model,” Journal of Applied Social Psychology 27 (1997): 1799–823. 25 See J.A. Joireman, P.A.M. Van Lange, and M. Van Vugt, “Who cares about the environmental impact of cars? Those with an eye toward the future” Environment and Behaviour 36 (2004): 187–206.

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26 See E. O. Wilson, “Biophilia and the Conservation Ethic,” in S. Kellert and E. O. Wilson, eds. The Biophilia Hypothesis. (Island Press, 1993), 31–41. 27 Ibid. 28 See G.S. Howard, Ecological psychology: Creating a More Earth-Friendly Human Nature, (University of Notre Dame Press, 1997); P.W. Schultz, “Inclusion with nature: The psychology of human-nature relations,” in P. Schmuck and W. P. Schultz, eds. Psychology of sustainable development (Kluwer Academic, 2002), 62–78. 29 See S.R. Kellert, Kinship to Mastery: Biophilia in human evolution and development, (Island Press, 1997). 30 See S. Conn, “Living in the earth: Ecopsychology, health and psychotherapy,” The Humanistic Psychologist 26 (1998): 179–98; and Schultz, “Inclusion with nature.” 31 E.K.L. Nisbet and J.M. Zelenski, “Nature relatedness: Restoring connectedness to the natural environment and increasing psychological well-being through environmental education.” Paper presented at the 6th Biennial Conference on Environmental Psychology, Bochum, Germany, September, 2005. 32 Ibid. 33 For a comprehensive review of studies concerning nature as a corrective or remedial measure to counteract stress, anxiety, or to aid in the recovery from illness see R.S. Ulrich, “Biophilia, biophobia, and natural landscapes,” in S. Kellert and E. O. Wilson, eds. The Biophilia Hypothesis (Island Press, 1993), 73–137. Also see T.R. Herzog, C.P. Maguire, and M.B. Nebel, “Assessing the restorative components of environments,” Journal of Environmental Psychology 23 (2003): 159–70. 34 See Ulrich, “Biophilia, biophobia.” 35 For a summary of the health benefits of nature see H. Frumkin, “Beyond toxicity: Human health and the natural environment,” American Journal of Preventive Medicine 20 (2001): 234–40. 36 See Kellert, Kinship to Mastery. 37 See F. S. Mayer and C. M. Frantz, “The connectedness to nature scale: A measure of individuals’ feeling in community with nature,” Journal of Environmental Psychology 25 (2004): 503–15. 38 See Nisbet, et. al., “Nature relatedness.” 39 Ibid. 40 Ibid. 41 E.K.L. Nisbet, S.A. Murphy, and J.M. Zelenski, “Time in nature is well spent: A cross-sectional and experience sampling approach to assessing nature relatedness, emotions, and psychological well-being.” Paper presented at the annual meeting of the Canadian Psychological Association, Montreal, Quebec, June, 2005. 42 C.P. Egri and S. Herman, “Leadership in the North American environmental sector: Values, leadership styles, and contexts of environmental leaders and their organizations,” Academy of Management Journal 43 (2000): 571–604. 43 P. Bansal and K. Roth, “Why companies go green: A model of ecological responsiveness,” Academy of Management Journal 43 (2000): 717–36; A. Crane, “Corporate greening as amoralization,” Organization Studies 21 (2000): 673–96.

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44 B. Schecter, “Asia-Pacific Partnership outpolls Kyoto Accord,” Financial Post, May 29, 2006. National Post/compas studies, conducted in conjunction with bdo Dunwoody and the Canadian Chamber of Commerce. Surveys over the past four years show business leaders on the survey’s panel are not convinced global warming is caused by pollution, or that the Kyoto Accord would help the environment. Eleven per cent said they have some doubt about whether global warming is taking place. Forty-nine percent believe global warming is happening but are uncertain as to why or whether it is a normal variation. 45 Environment Canada, “Government asks Canadians to take the one-tonne challenge to help meet climate change goals,” March 26, 2004. 46 Environment Canada, “Environment Minister Stéphane Dion announces $3.5 million for community environmental projects throughout Canada,” May 13, 2005. 47 Government of Canada, “Your guide to the one-tonne challenge – take action on climate change” (Environment Canada, Catalogue. No. M144-27/2003E, March 2004). 48 “The One-Tonne Challenge: Let’s Get On With It!” First Interim Report of the Senate Standing Committee on Energy, the Environment and Natural Resources. November 24, 2004. http://www.parl.gc.ca/38/1/parlbus/commbus/senate/com-e/enrg-e/rep-e/ repintnov04-e.htm. 49 K. Jaimet, “Federal Kyoto ads cost $17M, but no one remembers them: Despite little success, government to spend another $45M on ads,” Ottawa Citizen, December 31, 2003, A4. 50 Senate Standing Committee on Energy, the Environment and Natural Resources, “The One-Tonne Challenge: Let’s Get On With It!” 51 Senate Standing Committee on Energy, the Environment and Natural Resources, “Sustainable Development: It’s Time to Walk the Talk,” Second Interim Report (http:// www.parl.gc.ca/38/1/parlbus/commbus/senate/com-e/enrg-e/rep-e/repintjun05e.htm, June 2005). 52 M. Mittelstaedt, “Ottawa stops funding One Tonne Challenge,” Globe and Mail, April 1, 2006, A3. 53 See, for example, a one-year community study of reductions in green house gas emissions funded by the Canada Mortgage and Housing Research Division, J. Thompson, M. Goemans, C. Goemans, and A. Wisniowski, Jane Thompson Architect, “The household environmental monitoring project” (cmhc Research Highlights, Technical Series 06-104, http://www.cmhc-schl.gc.ca/odpub/pdf/65035.pdf, January 2006). 54 C. Pazderka, A. Rowan, and E.E. Tamm, “The Science of the Challenge: David Suzuki’s Nature Challenge” (http://www.davidsuzuki.org/files/WOL/ChallengeScience.pdf, 2006). 55 David Suzuki Foundation, “The Nature Challenge” (http://challenge.davidsuzuki.org, 2006). 56 M. Mittelstaedt and M. Den Tandt, “Ottawa plan hacks green programs,” Globe and Mail, (Toronto, April 13, 2006), A1. 57 Centre for Research and Information on Canada, Portraits of Canada 2005, (http:// www.cric.ca/pdf/cahiers/cricpapers_jan2006.pdf, 2006). On the basis of a list of 12 policy choices, 78% chose the environment first (a number one priority for 76% in 2004).

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58 Department of Finance, The Budget Plan 2006, Focusing on Priorities – Canada’s New Government: Turning a New Leaf. 59 Statistics Canada, “Commuting to Work, 2001 Census” (Statistics Canada, Catalogue No. 97F0024XIE2001010, 2003). 60 See C. O’Brien, “Planning for Sustainable Happiness: Harmonizing our internal and external landscapes.” Rethinking Development: 2nd International Conference on Gross National Happiness, Antigonish, Nova Scotia, June 2005. 61 World Health Organization, “Preventing disease.” 62 See R. Kaplan and S. Kaplan, The Experience of Nature: A Psychological Perspective (Cambridge University Press, 1989). 63 Kurz, “The psychology of environmentally sustainable behavior.” 64 Ibid., and M.H. Gonzales, E. Aronson, and M.A. Costanzo, “Using social cognition and persuasion to promote energy conservation: A quasi-experiment,” Journal of Applied Social Psychology 18 (1988): 1049–66. 65 Ibid. 66 See Kellert, Kinship to Mastery. 67 See S. Lyubomirsky, L. King, and E. Diener, “The benefits of frequent positive affect: Does happiness lead to success?” Psychological Bulletin 131 (2005): 803–55.

11 Putting the Squeeze on Procurement: Procurement Policy as a Lever for Innovation, Science, and Environment ba r ba r a a l l e n

This chapter explores how procurement policy is associated with the agenda for innovation, science and the environment (ISE). It argues that procurement is an overloaded instrument or policy lever, indeed one of the few left for governments given the reduced availability of tariffs and subsidies, but also in light of the major post-Gomery suspicions about procurement. As a policy instrument, procurement is being squeezed – what room is left in the face of international rules and new national regulations is being hotly contested by the information technology industries. The recent explosion of concern about procurement policy has been a result of two separate but interrelated factors. First, with the growing integration of national economies, domestic economies are increasingly subject to regulation and shaping by non-domestic forces – especially international trade agreements. Second, in Canada, growing concern with accountability in contracting, highlighted by the Gomery Inquiry and the ensuing political fall-out, has ensured that all aspects of procurement and related spending policy have been under close scrutiny. Even up until five years ago, procurement remained one of the few remaining policy instruments that could be easily manipulated by government to pursue specific objectives both purely economic as well as socio-economic. Increasingly inclusive of procurement requirements, trade agreements began to close that window, and the judgements of the Canadian International Trade Tribunal began to shape the landscape of procurement in terms of bureaucratic choice about how government purchases. While it could be argued that Gomery itself did not cause the downfall of the Liberals, it certainly played a large part in bringing the Conservatives to power – and understandably a Conservative focus on accountability in government and especially in procurement and contracting.

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Figure 1 Procurement Instrument in the ISE environment

Product-related innovation in purchasing

International procurement rules – i.e. nafta Global – ‘‘ethical purchasing’’

Organizational innovation in purchasing, processes and systems

Environmental purchasing

Support of and for smes and other industry

National legislation – i.e. Accountability Act

Canadian International Trade Tribunal decisions

Harper’s shift in direction with respect to Kyoto and innovation, science and environment (ISE) policies generally, marks an important point with respect to how procurement policy will be used as a lever within these policy realms. ISE policies, rules, and institutions have appeared at various times in association with procurement policies rules and institutions; in recent decades related to innovation and environmental policy evolving out of the earlier traditional industrial and regional policy realms. The connection between industrial strategy and procurement (regarding support of product innovation rather than traditional support of the aircraft industry through loans and market protection) remains an important one. Within the defence area, targeted support of the associated aircraft and vehicle industries increasingly has shifted to technological innovation support. The politics of small and medium-sized enterprises (smes) and how government should support them through policies promoting innovation now garners significant media attention. In the spring and summer of 2006 this political climate resulted in the Conservatives facing one of their first major confrontations with business associations. Procurement policy has increasingly been used to promote other policy objectives such as the development of innovation, science, and environmental

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protection. The Gomery affair highlighted how contracting is problematic as it relates to spending for purposes outside of lowest cost and best value, but it only touched the surface in terms of the complexity of how procurement is interwoven into policy objectives in Canada. Figure 1 conceptually maps how these issues are related and provides the framework for this chapter. In terms of structure, the chapter first introduces the terms and concepts being utilized throughout the work, then assesses the recent events associating the rising use of procurement with ISE aims in the context of the historical use of the procurement instrument. It will then look at procurement as a policy instrument, focussing on the environmental policy aspects and how Canada has formulated its ‘greening government operations’ policies. Conclusions then follow regarding the possible future of procurement in the ISE realms.1

t e r m s a n d r e l at i o n s h i p s a s s o c i at i n g procurement and ise Procurement is both a policy area and a process. When expressed in policy language, procurement reflects the fundamental values embodied in legislative and regulatory frameworks, underpinning the activity of purchasing.2 The procurement process itself involves the determination of what to buy, the identification, qualification, selection of suppliers, the design and management of the contracting process including negotiation, the monitoring of suppliers and payment of suppliers.3 Most of the theory and literature on innovation has come from new product development, where an innovation in technology can be observed and agreed upon, even if the implications or impact are not yet known. Innovations in governance and services are more ambiguous, typified by a change in the relationships between service providers and their users.4 Hartley (2005) draws on typologies of innovation and describes seven forms of innovation: • Product innovation – new products or re-engineered products; • Service innovation – new ways in which services are provided to users (like on-line tax forms); • Process innovation – new ways in which organisational processes are designed, this could involve different routing of contract management; • Strategic innovation – new goals or purposes of the organization, for example community policing; • Governance innovation – new forms of citizen engagement and democratic institutions; and • Rhetorical innovation – new language and new concepts, for example a carbon tax.5

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In ISE terms, we naturally tend to think of product innovation, and this parallels the traditional association of industrial policy with promoting the development of new technologies. Product innovation appears to have the most direct link to improving and expanding the economy through effective policy making. While product innovation is critical, these other forms of innovation hold an important place in how procurement is linked to the innovation and ISE agenda. Electronic procurement, for example, is a product innovation that also has significant service, process, strategic, governance, and rhetorical elements to it. Another prominent concept is ‘green procurement’. Green procurement is now a common term that falls under the umbrella of sustainable procurement. Green public procurement is the purchasing by public sector bodies of products or services that have a lower impact on the environment over their whole life cycle than the standard equivalent. It involves the integration of environmental issues into purchasing decisions based on price, performance and quality. This means that products or services that consume fewer natural resources should be given preference over competing products or services exerting a greater environmental impact. It also entails the incorporation of environmental criteria into contracts for the purchase of goods, works and services. Sustainable procurement involves purchasing in an environmentally sound way that considers not only the initial purchase but also the entire lifecycle of the good or service, as well as the ‘ethical’ nature of the purchase. Sustainable procurement, involving ethical issues, raises a particular conundrum. Efficient procurement has traditionally meant purchasing at the lowest price and least cost. But the notion of sustainability introduces the idea that purchases may involve other issues beyond lowest price. From a public sector point of view, many would argue that the lack of a ‘bottom line’ and the responsibilities of governments make ethical purchasing and social responsibility non-negotiable. It is not hard to argue that government should be the leader in ethical purchasing. The ‘it’s too expensive’ and ‘it’s not my problem’ excuses do not go very far in current debates. Certainly government’s concerns go beyond narrow economic, technical and legal requirements of servicing the public. There are however, troublesome issues for government with respect to purchasing in a socially responsible manner. For example, the short-termism of budgeting often takes priority over the environment or society. The sustainability question is not are we doing things as efficiently as possible but are we doing the right things as efficiently as possible. Government traditional accounting methods, risk averseness and, short pay back periods on projects can make strategic, ethical purchasing difficult. Governments generally require long-term financial stability in suppliers. It is often difficult for startups to enter the government market or for companies with alternative business models to win business. From a government’s perspective the reasons

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for ethical purchasing are consistent with government values, but what about suppliers? Do suppliers have a greater chance of supplying to government if they are ‘sustainable’ and purchasing ethically themselves, but their solutions cost more? Sustainable behaviour will sometimes result in net costs to firms, especially smes, which they therefore cannot be expected to take on voluntarily. The backdrop against which public sector procurement is undertaken is far more complex than in the past and it is to this issue we now turn.

f r o m t h e r e g i o n a l i n d u s t r i a l pa r a d i g m to the modern “ise” picture The territory of government spending through procurement was historically inwardly focused and politically charged in terms of regional development issues, from the early Trudeau years to the late 1980s and early 1990s, at which point the expansion of national and international trade agreements began a relative shift in domestic policy. Strategic state procurement had been a crucial component of modern industrial policy6, but this capacity was increasingly being eroded by restrictions on domestic preference in purchasing. The North American Free Trade Agreement was particularly significant amongst other trade agreements impacting Canadian purchasing. While nafta did not result in Canada’s objectives being fulfilled entirely, the procurement chapter broke new ground by including services and construction-related procurement for the first time.7 In terms of nafta, procurement is defined broadly to include procurement by such methods as purchase, lease or rental, with or without an option to buy. It specifically does not include non-contractual agreements or any form of government assistance, including cooperative agreements, grants, loans, equity infusions, guarantees, fiscal incentives, and government provision of goods and services to persons or state, provincial and regional governments (Article 1001(5)). The general rule of Chapter Ten, set out in Article 1003, is that the three governments must treat goods and services from another nafta country – and suppliers of such goods and services – “no less favourably” than domestic goods, services, and suppliers with respect to purchases by covered government entities.8 In terms of trade rules, procurement had typically been in violation of this ‘national treatment’ principle. It had been written into the rules that countries could engage in this exception. This was an important change in that domestic favouritism was largely no longer possible.9 What is not included in the procurement clauses seems to leave some room and protect the ability of the federal government to promote regional development within Canada through purchasing broadly defined. Grants, loans, and other instruments are not considered part of the procurement package in terms of the nafta chapter. However, one has to look more carefully at where these instruments fall and their relationship to the procurement function. As

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rules in the specific procurement chapter of nafta squeezed the discretion that still existed in terms of using procurement for socio-economic development, efforts to promote regional industry were funnelled in other directions. Even so, these came under international scrutiny. For example, Technology Partnerships Canada came under attack as an unfair and anti-competitive program supporting the aircraft industry.10 Rather than large subsidising programs, pursuing industrial development through procurement was reflected in the call for its use as an instrument of innovation and technological development. This had been identified as early as 1984 in the Wright Report on programs for technology development. It pronounced that procurement is one of the most effective means by which government can promote technology development.11 In the European Union, there is a well-supported effort to enhance the use of public technology procurement as an instrument of innovation policy, although in harmonization efforts the eu regime has rejected in principle the instrumental use of public procurement. The limitation or suspension of competition, in practice remains characteristic of many sectors in the eu.12 In Canada, there has been reluctance to use procurement mechanisms directly to leverage innovation and technological development despite on-going calls for this approach. The Canadian Advanced Technology Association (cata) released a consultation paper in February of 2003, Government On-Line (gol): By, For and About Canadian Innovation. cata calls on the federal government to commit itself to innovation in it, based on its dominant position as the largest consumer of goods and services in the country. The paper calls on Ottawa to become a model user, a first customer, and to create a procurement system that is fast and fair and forward looking. cata President John Reid encouraged the government to make gol an agent for prompting, pioneering and presenting Canadian innovation. The group wants the process to make government buying a real catalyst for innovation in Canada and a critical sale that can turn a bright idea into a hot commodity.13 While generally supportive of these ideas, the government is not keen on overtly framing its technological agenda in terms of the use of government buying to stimulate it innovation. In 2005, Bernard Courtois, the President and ceo of the Information Technology Association of Canada (itac) spoke of the link between productivity and the ict Industry. In a speech to the Standing Senate Committee on Banking, Trade and Commerce he cites an Industry Canada study of four economic sectors, which found that the importance of ict as an enabler has surpassed that of ict as an economic sector in its own right. He points to numerous studies that show that firms that implement ict and organizational changes have a higher incidence of productivity and process innovation. As ceo of itac, Courtois is expressing concern for the slow uptake of ICTs for small firms that employ the majority of Canadians (firms under 500 people). Advanced e-business applications such as e-procurement,

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supply chain management, finance and human resource management are not being used. itac decided to create an ‘e-Team’ which will address this issue and help to demonstrate the value for smes in adopting the new business models. Adoption of advanced applications is viewed as critical to growth and competitiveness. itac as an industry association is naturally lobbying government to increase spending and support of the ict sector.14 This example of itac’s efforts to promote smes stresses the fact that governments not only deal with organizational and financial management issues, governments must operate in ways that advance various other policy objectives, such as supporting smes.15 As a major purchaser a government can provide enormous incentive for suppliers to become web-enabled (a form of indirect process innovation).16 For some smes, the implications may be negative as they may be unable to afford the it infrastructure, but in principle e-procurement should bring greater access to tendering opportunities with governments through the development of electronic markets. On the one hand, governments may be stimulating more efficient, sophisticated business processes and opening to a wide range of potential vendors. On the other hand, it may be shutting out some small and medium sized businesses who do not have the resources, either human or financial, to become fully internet-enabled.17 By encouraging more rapid and more effective uptake of e-commerce, governments are using this as a technique of securing competitive advantage. Offering inducements and support for e-commerce adoption are not nearly as powerful as requiring businesses to operate on-line if they want to do business with government.18 In light of the rules of the trade agreements that are increasingly preventing subsidization and directed support of sectors and regions, the ‘enhancing competitiveness’ approach may be the only way that the government can help businesses and other potential beneficiaries. Canada’s policies have been much more about the competitiveness approach than pushing or pulling businesses into process innovation through procurement mechanisms. Recently, the pwgsc Parliamentary Secretary’s Task Force – GovernmentWide Review of Procurement made new rules about the use of standing offers and the consolidation of purchases. In the consultation period, industry associations voiced their concerns that this would have a negative effect on small business.19 pwgsc’s efforts to respond to these concerns are summarized in Figure 2.20

a rising tide of interest in the procurement lever In the light of the new purchasing approaches, and the apparent willingness of government to actively use the procurement instrument, a groundswell of

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Figure 2 Excerpt from Public Works and Government Services Canada Budget 2005 – The Way Forward Buying Smarter • Combining the purchasing power of departments doesn’t mean using only one supplier. For instance we will require, where appropriate, that small and medium sized businesses be included in major contracts. And for some industries, the suppliers will likely all be from the small and medium sized business community. • We will make it easier, simpler and faster to do business with the government. We have already eliminated the fees to access federal government tenders. And we are simplifying our contracts, by removing complex language and making them shorter. • We are setting up an office of small business as an entry point into how to do business with the government. It will also assist in understanding niche markets, oversee all procurement plans over $10 million to ensure that small business needs are taken into consideration, and advise procurement staff on subcontracting plans. • Through our Contracts Canada office, we continue to meet with and inform suppliers across Canada about how to do business with the government. • We have in the past and will continue to use tools such as Regional Standing Offers to ensure that businesses right across the country can have access to government business. • We are also creating commodity councils for each of the commodity groups that are being coordinated with industry representatives and other stakeholders at the table. The councils will determine the right balance in our purchasing decisions among factors such as efficiency, effectiveness and the effects on small and regionally based businesses. The councils may also recommend other measures to ensure the interests of small businesses continue to be supported.

interest is forming around re-examining procurement as a way to promote innovation and the environment. In the fall of 2005, the Prime Minister’s Advisory Council on Science and Technology (pmacst) held a roundtable on the theme: Using Canadian Government Procurement to Improve Technology Development, Diffusion, Adoption and Adaptation. The objective was to provide strategic policy advice for the Government of Canada on how the federal government can leverage its procurement policies and practices to support and enable technology development and innovation throughout the economy. This group had the unique opportunity to draw on knowledge from across government and industry at the strategic policy level. The pmacst was established in 1996 to provide the Prime Minister with expert, non-partisan advice on national science and technology goals and policies and their application to the Canadian economy. The Council is mandated to review the nation’s performance in research and innovation, identify emerging issues of national concern, and advise on a forward-looking agenda with a view to positioning Canada in an international context. The members of the Council are eminent Canadians representing different sectors of business, academia, and research institutions, and come from across Canada.21 Over three presentation and discussion sessions on non-defence procurement, defence procurement, and lessons from private sector practices, the group gathered knowledge and ideas that could be used to formulate policy

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recommendations. Two key areas were highlighted: how to stimulate innovation, and the accessibility of the us market. Discussants emphasized that in order to stimulate innovation; mindsets must shift from a ‘lowest-cost approach’ to a ‘best value for money’ framework. Many of the experts noted that there needs to be improved access to international markets and because of the small size of the domestic market, government must be an early adopter – a test-bed for innovations. This does not mean politically motivated subsidies but targeted technology development that meets government requirements and provides future export opportunities. It is critical that the us market be accessible to Canadian companies, especially important in light of the fact that in recent years it has become increasingly isolationist on some aspects of technology. In terms of support for r&d, us defence procurement contracts contain a 2% overhead that is dedicated for r&d work in the performing company. The group agreed that this may be something for Canada to consider as well. Other issues of concern were the barriers to creative use of procurement in the Agreement on Internal Trade (ait), the risk averseness of federal government with regard to innovation policies and practices generally, and the possible negative impacts of centralizing trends resulting from the Taskforce outcomes. The key policy actions highlighted were: • The Canadian government has 34 policy goals for procurement. This is too complex as the government cannot invest in everything. • Canada needs to learn lessons about leveraging procurement from other small market countries. • Innovation promotion will add dollars to procurement and this is necessary. • There needs to be both recognition and substantive action with regards to the potential effect of demand aggregation on sme involvement in the public sector market. • Raising public awareness and understanding of the role of government as first user is critical to the foundations of an innovative environment for business. • Canada has been ‘strategy averse’ when it comes to procurement. An integrated strategy that takes account of the ait and industrial policy is required. Three key points can be garnered from the roundtable event. First, this roundtable sets an important benchmark for the analysis of procurement at the highest levels. Procurement has long been used as a lever in public policy in a multiplicity of ways, but without an overarching strategic framework of related and coordinated policies. The trend internationally, is to think of procurement much more broadly, and indeed strategically. This means clearly articulating

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how procurement interacts with other levers, and how the economy can benefit from this. For example that may mean developing case studies around successful smes and communicating this broadly. Second, the connection being made between procurement, innovation and technological development is critical to Canada’s economic success. Getting the procurement policy right is key to how smes develop in this country. How the innovation chains and technology networks can benefit from effective government planning and competitive positioning needs to be clear. Third, the new government has an opportunity to have a positive impact on innovation and technology in Canada through the development of a new, integrated, procurement policy. While the Conservatives seem to be attempting to do this, at the same time they appear to be turning their backs on the last few years of consultations with industry especially with respect to the ict sector. Most recently, a controversy erupted in Ottawa with the release on June 30th 2006 of a Request for Standing Offer (rfso) for temporary help services. The rfso was likely to shut out smes as the government’s focus turned to a search for framework contractors. Shortly thereafter on July 7th, and as a result of the media and industry association uproar, the Minister of Public Works, Michel Fortier announced that the rfso would be revised pending further consultations with industry and smes regarding the proposed changes to procurement tools and techniques. The problem had been building in previous months as advocacy groups prepared to mount a campaign outlining that pwgsc had made arbitrary decisions running counter to consensus commitments that had been made during eighteen months of public private sector consultations on the new procurement guidelines and frameworks. It appeared, despite ongoing consultations and the belief by smes that their concerns would be taken into account, that the Conservative government had ignored their issues and continued to move towards larger, longer contracts, centralized procurement, and vendor qualification that could exclude smaller businesses from competing for work. In a cata Alliance release, the group suggested “pwgsc has changed their “Way Forward” into a “Way Backward” policy directly against measures being taken by Canada’s global competitors to enhance their innovative sectors.” They argued that changes to procurement methodologies will have negative impacts such as fundamental structural changes to the it marketplace, with potential longer term impact on the viability of a number of sectors, elimination of Canadian content and associated jobs and critical knowledge base, shutting out of many smes from fair and competitive bidding, skewing of the marketplace in favour of offshore suppliers, disregard for the value added of intermediaries, and a focus on price only with no regard for value added services.22 The President of cata, John Reid said, “The fundamental issue remains the lack of an overall industrial/economic strategy and business model for

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Canada; other countries have and are using government procurement as an economic lever, why not Canada? There does not appear to be a single substantive vision for how the government should conduct procurement with the context of an industrial strategy.”23 itac, cata, and an expert group gathered by the editors of Summit Magazine (Canada’s magazine on public sector purchasing) have all undertaken studies to develop ‘blueprints’ for how procurement should operate in Canada. cata’s study, “Partner for Prosperity – Prosperity, Global Supply and the Role of Government Procurement” contends that the government is no longer interested in consultation, also charging that the government has relied upon an A.T. Kearney study that was not tendered for in the usual manner. The policy ‘battle’ that is going on involves the newer ‘industrial’ networks of technology associations, where there still remains the possibility of shaping the procurement instrument within the rules. The Conservatives are determined to cut costs associated with procurement, and whether the industry associations will have any impact remains to be seen. Harper’s Accountability Act is the linchpin; whatever emerges from the government will undoubtedly adhere to the Act principles, no matter the opinions of the industry associations. The following an excerpt from the Accountability Act that focuses on procurement. Cleaning up the Procurement of Government Contracts The Context In carrying out its programs and providing services to Canadians, the Government of Canada is one of the largest purchasers of goods and services in the country. It is important that the bidding process for government contracts, including those for polling and advertising, be fair, open, and transparent. What this means for Canadians Through these measures, the Government will ensure that the procurement process is free of political interference, and that a clear process is in place to address complaints from potential suppliers. It will also provide greater opportunities for small vendors and vendors in all regions of Canada to compete for government contracts. The Action Plan To reinforce Canadians’ confidence in the procurement process, the Federal Accountability Act will: • Include an overarching statement of principles on procurement that commits the Government to promoting fairness, openness, and transparency in the bidding process; • Require that contracts include integrity provisions; and create the position of a Procurement Auditor to: o Review procurement practices across government; o Handle complaints from potential suppliers;

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Review complaints regarding contract administration; Manage an alternative dispute resolution process for contracts; and Submit an annual report to be tabled in Parliament.

In addition, the Government will: • Engage an independent procurement expert to review the draft policy on managing procurement to ensure that its requirements reinforce a fair, open, and transparent procurement process; • Introduce a Code of Conduct for Procurement to consolidate the existing suite of conflict-of-interest and anti-corruption policies, which would apply to both suppliers and public-service employees; and • Provide more resources and greater regional presence to the Office of Small and Medium Enterprises within Public Works and Government Services Canada, to help businesses maintain access to government opportunities and ensure they are treated fairly. In addition, the Government is also introducing reforms to government public opinion research and advertising.24

It remains to be seen how the Government will assuage the industry’s concerns with the new procurement policies. At the same time as the pressure mounts on Government to do with the issues of innovation and economic productivity, there is increasing demand on procurement as an environmental policy instrument.

p r o c u r e m e n t a s a n e n v i r o n m e n ta l pol ic y in s trum en t At the outset of this chapter, we defined procurement policy and process. In this section we move to examining how and why procurement as a policy instrument is exceedingly problematic. We return briefly to look at the interrelationship of procurement policy to process and its use as a policy instrument. Figure 3 depicts the interrelationship of policy, process, and the operationalization of these through contracting. Procurement is used as a tool or instrument of public action. A tool or instrument of public action is an identifiable method through which collective action is structured to address a public problem.25 There are three notable features of this. First, each tool has common features that make it identifiable. Second, tools structure action such that relationships that tools foster are institutionalized.26 And finally the action structured by tools is “collective action” aimed at responding to public problems. So much of the problem with procurement is that government tries to use it to address a wide range of public problems.

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Figure 3 The Interrelationship between policy and process

Procurement policy: the values and objectives made explicit and asserted through guidelines, norms, laws, regulations

Procurement instrument: the use of purchasing and related activities to implement policy and accomplish policy goals; through direct spending, grants, loans

Procurement activities: processes operationalized in various forms of contracts

The lack of the term ‘procurement’ in some of the better-known instrument classification literature raises the question as to why it has not been included as such. In their effort to develop an approach to building theory on instrument choice and policy design Linder and Peters outline some of the difficulties associated with defining an instrument. They note that only in rare cases will an instrument serve only one function or objective at a time. The functions may be explicit or implicit.27 Procurement is a perfect example. The original focus of the classification literature was on individual instruments and their attributes. Since the seminal 1982 study, The Choice of Governing Instrument, interest has moved towards how the choice of instrument is made as well as in the mix of instrument.28 More recent work has focused on how procedural policy instruments are aimed at managing policy processes in order to assure general support for government aims and initiatives.29 Salamon, in The Tools of Government suggests that a proliferation of the tools of public action, the instruments or means used to address public problems has occurred.30 We would argue here however, that the actual capacity to use these tools has been reduced. Substantial pressure on traditional government structures and processes has emerged from trade liberalization and associated impacts from globalization, as well as more domestic concerns such as the pressure to downsize government structures and budgets. The effective governance of networks thus has become a critical capacity of organizations, in the face of multi-lateral agreements and multi-player arrangements. Where once government activity was largely restricted to the purchase and delivery of goods and

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services by government bureaucrats, it now involves a huge array of loans, loan guarantees, grants, contracts, social regulation, economic regulation, insurance, tax expenditures, vouchers, and various forms of collaborative relationships and outsourcing arrangements.31 Government uses its broad range of policy instruments to guide or regulate economic activity. This is particularly significant because each instrument set has its own operating procedures, skill requirements and delivery mechanism – its own “political economy.”32 The economics of procurement in 2007 is based in neo-liberal ideology and the pre-eminence of the market. The increasing expansion of the trade agreements have put in place more rules about how government must interact with the private sector, from expanded competitiveness rules covering everything from how a bid must be written and advertised to how bid complaints must be handled. This increased ‘regulation’ of procurement as policy tool for government indicates its growing importance. However, the expanding activity in terms of policy change in the procurement field had led to growing conflict over how to use it in order to advance government objectives. The oecd has analysed procurement as just one instrument amongst others that can be used to manipulate environmental policy itself. In 2002, oecd member governments agreed on a Council Recommendation to “improve the environmental performance of public procurement’. The Recommendation formalises the declaration of support for the use of environmentally-preferable public procurement practices expressed in the oecd Environmental Strategy for the First Decade of the 21st Century, and which was adopted by oecd Environment Ministers in May 2001. oecd Member country governments have applied a number of different types of instruments that have procurement elements: • information-based tools such as catalogues and websites, designed to provide environment-related information to procurement officers and others; • training and communications tools, designed to increase environmental awareness amongst procurement officers and others; • accounting and financial tools designed to better reflect environmental characteristics of products when choosing between alternative goods and services; and • standards and directives, which mandate the incorporation of specific characteristics (performance-based or technology-based) in goods and services purchased.33 Partly what determines how the procurement instrument can be used is the nature of the national market and the public demand. This is a complicated relationship with respect to achieving environmental objectives, in that government needs to know the nature of the market in terms of the environment in order to choose what policy to pursue – always in the face of limited

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resources. In general, the higher the share of public demand in total demand the greater the impact that green procurement policies and programmes can potentially have on the natural environment.34 The economics of using procurement as a tool for environmental policy involves sorting out what impacts particular approaches will have. For example, private purchasing may become greener if the government policy reduces the costs of purchasing green products (e.g. by encouraging innovation that creates new, greener products or by enabling green suppliers to realise economies of a significant scale) or increases market acceptance of green products (e.g. by demonstrating their commercial feasibility). Conversely, private purchasing may also become browner (i.e. less green) if the government policy results in higher prices for green products or lower prices for brown products (e.g. through standard supply-and-demand responses). The likelihood and magnitude of these reinforcing and counteracting effects depend on specific features of the product markets.35 Canada’s policy on green procurement seems to be attempting to both make private purchasing greener, and increase market acceptance of green products. The policy statement says, “It is the objective of this policy to advance the protection of the environment and support sustainable development by integrating environmental performance considerations into the procurement decision-making process.”36 Highlights of the policy explanation outlined here focus on creating a type of ‘demand’ for environmental products. • This policy means the federal government will buy goods and services that are less harmful to the environment and human health than competing goods and services that serve the same purpose, where it is cost effective to do so. That means a healthier environment for Canadians. • It is intended that environmentally preferable goods and services become more affordable for Canadian businesses and households, and that green industries can thrive in Canada and internationally. • The policy encourages Canadian businesses to be innovative and develop new goods and services that are less harmful to the environment and help make Canada an international leader in a growing industry. • The policy also means that government will demonstrate environmental leadership and influence industry and citizens to use environmentally preferable goods, services and processes. It will stimulate innovation and market development of, and demand for, environmentally preferred goods and services, making these available and mainstream for other sectors of society; and will support emerging environmental technologies. The changes being made to purchasing processes, including the consolidation of purchasing power (read larger contracts), are touted as providing “the

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ideal opportunity for the government to green its purchasing practices and to ensure it gets the best prices possible for environmentally preferable goods and services. It also makes it possible to integrate environmental criteria into the procurement process, to help government make environmentally wise and cost-effective purchasing decisions … The Policy on Green Procurement will change the way government operates. It will integrate environmental performance considerations into our day-to-day practices. It will be visible throughout government – from the office supplies we use, the government vehicles we drive, to the materials and technologies we use to build and maintain our office buildings.”37 Some of the government’s goals in developing this policy are to: • • • •

Reduce greenhouse gases and air contaminants Improve energy and water efficiency Reduce waste and support reuse and recycling Reduce toxic and hazardous chemicals and substances.

In terms of actual impact, and thus the success of Canada’s policy, it is important to know whether or not the sectors in which public sector demand is important are also those sectors which tend to generate significant environmental impacts. Input-output tables for Canada, Japan and Austria, give rough estimates and indicate the most important sectors are administration services, health, education, research and defence. Next most important include shipbuilding, construction, energy services, transport equipment and transport services.38 The co-existence of these factors (high public demand intensity and high environment-intensity) is key to the relative importance of greener purchasing programmes in actually bringing about environmental improvements. Only a subset of 26 of the 65 sectors listed in the basic input-output tables had greater-than-average public shares of demand as well as greater-thanaverage environmental implications. For example, public purchases of products from the pulp, paper and paperboard sector have significant implications for both air pollutants and water pollution. The effects of individual sectors are more directed in environmental terms in cases such as the purchase of railroad equipment. This will primarily have effect on local and regional air pollutants such as sulphur dioxide, nitrogen dioxide and volatile organic compounds.39 In some cases, the most important environmental impacts of public procurement will be indirect. One such example is government purchases of motor vehicles. These will have upstream effects through the production of a number of environment-intensive sectors such as structural metal products, electrical apparatus, plastics and rubber. Often the environmental impacts are only captured in production and not from use.40 As Johnstone and Erdlenbuch point out, “perhaps most significantly, the means of implementation depend crucially upon the degree of centralisation

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of procurement decisions … Programmes are often initiated by central governments, but lower-level governments have been central to the initiation of the programmes.”41 Certainly in Canada, there are many examples of provincial-level programmes that use the procurement tool to advance environmental objectives, but often it is even city, regional, or industry initiatives that have the most impact. In Sydney, Nova Scotia the procurement process for cleanup technology has been particularly problematic. In such cases, environmental initiatives may have both positive and negative results. In Manitoba a number of corporations partnered to establish the Manitoba Green Procurement Network Inc. in order to proactively address implementation of Environmentally Responsible Purchasing guidelines, to demonstrate good corporate citizenship, and as strategy to build market attractiveness. The object is to advance the knowledge, policies, and practices of environmentally sensitive procurement. There is added complexity when ‘green’ or ‘environmental’ procurement becomes associated intricately with ethical or socially responsible purchasing. It is now nearly impossible to separate the two, given the integration of global supply chains. The growth of Fairtrade and campaigns such as “Make Poverty History” have increased public awareness of the challenges of global trade. Brands that have been targeted have suffered damage to their reputations, investors ask whether they are doing enough to protect reputations. Nike and Wal-Mart have experienced consumer backlash in recent years as well as other high profile corporations. Responses are slowly emerging. In February 2006, U2 star Bono launched Red, a fashion label that will sell ethically sourced products and give a portion of its revenues to fight Aids in Africa. Gap, Giorgio Armani and Converse are among the first big brands to sign up. Interestingly, the ‘global’ issues are often being taken on at sub-central government levels. Various Canadian jurisdictions are working towards ‘No Sweat’ purchasing policies. The Manitoba New Democratic Party has adopted resolutions pushing for a provincial No Sweat purchasing policy. Toronto City Council has strongly endorsed the idea of becoming a No Sweat city. Councillors voted unanimously in support of a resolution calling on the City to “enact a purchasing policy requiring the purchase of garments, uniforms, or other apparel items from No Sweat manufacturers.” The aim of the No Sweat policies is to improve working conditions in the garment industry by requiring city suppliers to respect international labour standards and local labour laws. As an international supplier Canada is being criticized for its lack of socially responsible policies. For example Canadian military goods that are refurbished or used in manufacturing in another country do not require a Canadian permit (export control) for transfer to their final destination. In recent years, Canadian CH-135 helicopters were refurbished in the us before being shipped to Columbia. Under Canadian regulation, the point

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of manufacture or substantial overhaul is accepted as the final destination, even though the final point for military use is a third country. A final yet critical question is the extent to which we can know whether pursuing environmental policy with a procurement instrument yields positive results. If adequate information cannot be captured, government may be spending taxpayer money without adequate accountability – an issue the Harper government will be paying attention to. Certainly it is nearly impossible to capture the impact of purchasing in a socially responsible manner. Improved health and well being through ethical purchasing is not easily measurable. Do improved customer satisfaction numbers demonstrate ethical purchasing, or perhaps reductions in carbon-dioxide emissions? Whole life costing has been suggested as an improved way to capture changes through social responsible purchasing but further attention and value to qualitative data will be increasingly important as well. Decisions about ethical purchasing have to be seen in longer context than normal decisions about purchasing.

c o n c lu s i o n s Procurement is problematic as a policy instrument for innovation, science and the environment. Given the legacy of using procurement to help support particular industries (such as the aircraft industry), the view that procurement is a critical component for the development of smes in Canada, and also that it functions as a lever for environmental policy through sustainable purchasing and ethical purchasing, procurement been overloaded as a tool for leveraging activity in the domestic context. We have argued that procurement as a policy instrument is being squeezed with pressure from international and domestic regulation, as well as most recently in the wake of the information technology associations’ backlash to the changes in procurement policy. It is perhaps, one of the only main tools that is left in light of reduced availability of tariffs and subsidies. But, the multiplicity of uses of the procurement tool does not mean that it is appropriate in every situation. Recent history has shown the potential for abuse of procurement and how the complexity of contracting can result in lack of oversight. The Conservatives are appropriately tightening the noose around procurement through the Accountability Act, and being careful, perhaps too careful, in allowing too much outside-government influence as to how procurement mechanisms will function under their reign. Ironically, typically pro-business Conservatives find themselves in a very unhappy position – the industry associations, notably the important technology associations, are up-in-arms about the way in which the Government is handling the evolution of procurement policies and processes. Harper and his Industry Minister need to find a compromise in order both to ensure that the procurement process is brought under control while at the same time

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satisfying business that they will not be shut out from government business. smes are the engine of the economy and procurement is too important a policy area to be left to ad-hocery.

notes 1 This chapter will not look in depth at provincial uses of the procurement instrument, while recognizing this is an important part of the larger story. 2 See B. Allen, “How Ottawa Buys: Procurement Policy and Politics Beyond Gomery,” in G.Bruce Doern, ed., How Ottawa Spends 2006–2007 – In From the Cold, The Tory Rise and the Liberal Demise (Montreal &Kingston: McGill-Queen’s Unversity Press, 2006), 98. 3 This is a summary of a detailed list of activities involved in the procurement process. Another important aspect is the establishment of procurement strategies, control systems and performance management systems. 4 See J. Hartley, “Innovation in Governance and Public Services: Past and Present,” Public Money and Management, January 2005, 27–34. 5 Ibid. 6 See P. Clancy, Micro-Politics and Canadian Business: Paper, Steel, and the Airlines (Peterborough, Broadview Press, 2004), 37. 7 The nafta procurement chapter begins by listing the government entities and enterprises covered by its provisions which apply to contracts for certain types of goods, services and construction work that exceed threshold values: for federal government entities, us$50,000 for contracts for goods, services or any combination thereof, and us$4.5(now 6.5) million for contracts for construction services; for government enterprises, us$250,000 for goods, services or any combination thereof, and us$8.0 million for contracts for construction services; and for state and provincial government entities, the applicable threshold, as set out in the Annexes. 8 us Department of Commerce International Trade Administration ,Office of nafta and Inter-American Affairs, , 12/05/04. 9 Interview A15, 13 May 2004. 10 Technology Partnerships Canada (tpc) is a technology investment fund established in 1996 to contribute to the achievement of Canada’s objectives of increasing economic growth, creating jobs, and supporting sustainable development. tpc supported government initiatives by investing strategically in research, development and innovation in order to encourage private sector investment, and so maintain and grow the technology base and technological capabilities of Canadian industry. tpc was theoretically intended to encourage the development of small and medium sized enterprises (smes) in all regions of Canada. Peter Hadekel in Silent Partners: Taxpayers and the Bankrolling of Bombardier (2004) noted that the government had to camouflage its support of aerospace by allowing other sectors to come in, like biotechnology and environmental science, although two-thirds of the funding was set aside for aerospace. (p.167) On August 2, 1999, the Appellate Body of the World Trade Organization confirmed an earlier ruling that found the way tpc was administered in

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support of five projects relating to the regional aircraft industry was inconsistent with wto rules. Under the ruling, Canada was obliged to make adjustments to the administration of tpc support for the Canadian regional aircraft industry. tpc Contribution Agreements for the Canadian regional aircraft industry were amended in order to terminate all obligations to disburse funds effective November 18, 1999. As a result, some $16.4 million of funding pursuant to those agreements was cancelled. tpc continues to exist in a modified form. Most recently, tpc has come under scrutiny in terms of its transparency. The Minister of Industry announced on August 11, 2006 that increased transparency and accountability would be required for all future projects funded under tpc. < http://www.ic.gc.ca/cmb/welcomeic.nsf/ ddb0aecf65375eb685256a870050319e/85256a5d006b9720852571c7004cdfa6! OpenDocument>, 12/08/06. See Canada, Task Force on Federal Policies and Programs for Technology Development, Chairman D. Wright, Report in S. Arrowsmith, Government Procurement and Judicial Review (Carswell, 1984), 83. See Charles Edquist, Leif Hommen and Lena Tsipouri, eds. Public Technology Procurement and Innovation (Kluwer Academic Publishers, 2000), 8–9. See R. Bray, “it Procurement still under fire,” Summit: Canada’s Magazine on Public Sector Purchasing, Vol. 6, No. 3, (Ottawa: Summit: The Business of Public Sector Procurement Inc., 2003), June, 6. Information Technology Association of Canada, Notes for Bernard Courtois, President and ceo itac, to the Standing Senate Committee on Banking, Trade and Commerce, May 11 2005. www.itac.ca, 27/05/05. See D. Coulthard and T. Castleman, “Electronic Procurement in Government: More Complicated than just Good Business,” Global Co-operation in the New Millennium, The 9th European Conference on Information Systems, Bled, Slovenia, June 27–29, 2001, 1002. See D.Neef, e-Procurement: From Strategy to Implementation (Upper Saddle River: Financial Times, Prentice Hall, 2001), 110. Coulthard and Castleman, “Electronic Procurement in Government,” 1000. Ibid., 1001. The author attended consultations with it sector industry associations in October 2004. Public Works and Government Services Canada, Budget 2005, The Way Forward, Buying Smarter, , 15/05/05. Drawn from Highlights of Discussions and Record of Proceedings – Consultation Roundtable – Using Canadian Government Procurement to Improve Technology Development, Diffusion, Adoption and Adaptation, September 23rd, 2005, Montreal Quebec [Author was on the panel]. Canadian Advanced Technology Alliance, (CATAAlliance), http://cata.ca/media_ and_events/press_releases/cata_pr06130601.html, 17/07/2006. Ibid.

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24 See Government of Canada, Federal Accountability Act, , 03/06/06. 25 See L.M. Salamon ed.,The Tools of Government – A Guide to the New Governance (New York: Oxford University Press, 2002), 19. 26 Salamon points out that tools are “institutions” in the sense of new institutionalism (e.g. they are regularized patterns of interaction among individuals or organizations) – they define who is involved in the operation of public programs, what their roles are, and how they relate to each other. Thus, they importantly shape the set of considerations that effectively come to bear in the all-important implementation phase of policy. Salamon, Tools of Government, 20. 27 See S.Linders and B.G. Peters, “Instruments of Government: Perceptions and Contexts,” Journal of Public Policy 9, no. 1 (1989): 43. 28 See M.J. Trebilcock and D.G. Hartle, et al., The Choice of Governing Instrument – The Calculus of Decision (Ottawa: Minister of Supply and Services Canada, 1982) and Policy Research Initiative – Conference on Instrument Choice and Global Democracies, Faculty of Law, McGill University, Montreal, September 26-27, 2002, http:// policyresearch.gc.ca, 1/09/04. 29 See M. Howlett, “Complex Network Management and the Paradox of Modern Governance: A Taxonomy and Model of Procedural Policy Instrument Choice,” Paper Presented to The Annual Meeting of the Canadian Political Science Association, University of Sherbrooke, Sherbrooke, P.Q., June 6, 1999, 2. 30 Salamon, Tools of Government, 2. 31 Ibid. 32 Ibid. 33 See N. Johnstone and K. Erdlenbruch, “Introduction,” The Environmental Performance of Public Procurement – Issues of Policy Coherence, Organisation for Economic Co-operation and Development (oecd, 2003), 10. 34 Ibid. 35 See D. Marron, “Greener Public Purchasing as an Environmental Policy Instrument,” oecd Journal on Budgeting 3, no. 4 (2003), p. 73. 36 Public Works and Government Services Canada, http://www.pwgsc.gc.ca/greening/ text/proc/pol-e.html, 12/06/06. 37 Ibid. 38 Johnstone and Erdlenbruch, “Introduction,” 11. 39 Ibid. 40 Ibid., 12. 41 Ibid., 10.

12 Transforming Health Sciences Research: From the Medical Research Council to the Canadian Insitutes of Health Research joan murphy

The focus of this chapter is on an unusual and significant event within Canada’s science policy. In June of 2000 one of Canada’s three research granting councils, the Medical Research Council (mrc) was decommissioned and replaced with the Canadian Institutes of Health Research (cihr). From 1960 to 2000, Canada’s premier research granting agency for basic, bio-medical, and clinical health sciences was the mrc, which invested close to 4.5 billion in health research during its time.1 Then in June of 2000, Health Canada’s 8 million dollar National Health and Development Research Program (nhdrp)2 and the much larger 275 million dollar mrc were brought together and folded into the cihr. In defiance of organizational obstacles and potential political risks, Canada’s new, premier bio-medical and health sciences research institution became the uniquely structured, broadly mandated and generously funded, cihr. The task of the cihr, its Governing Council and the cihr’s thirteen virtual Institutes is to transform health research in Canada. All the fundamental elements of the former mrc apply to the cihr. This includes promoting research and research training in health sciences by funding research at Canadian universities, research institutes, and hospitals.3 The objectives and programs of the cihr’s problem-based, strategic approach to health research go considerably further than that of the mrc by “encouraging interdisciplinary, integrative health research; promoting the dissemination of knowledge and the application of health research; forging an integrated health research agenda across disciplines, sectors and regions; and facilitating the commercialization of health research in Canada promoting economic development through health research.”4

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Under the cihr how research is organized, conducted and funded in Canada and, from a policy perspective, why health research is undertaken, has changed. To assist in making this transformation happen, the budget of the cihr is reaching the target set in 2000 for publicly funded health research of 1 billion dollars annually.5 Events on the scale of replacing a research granting council are not singular events. They are historical processes that join together with other events to derive new outcomes. As events develop and unfold, they are conjugated with other events and processes. Mapping their origins, managing their outcomes and interpreting their results can be complex undertakings. The emergence of the cihr among Canada’s institutions responsible for research and development is a significant, complex event. It is also an ambitious institutional change project that continues to unfold. The chapter’s primary interest is in mapping the events that lead to the cihr and reflecting on the nature, scale and scope of several interconnected issues that gradually contributed to the transformation of health sciences research in Canada. It also considers how this transformation has been evolving since and discusses some of the challenges faced by the cihr over its first 6 years. Many factors bear on the transformation of the mrc to the cihr – how and why publicly funded health sciences are conducted, supported and funded in Canada. Some relate to the expanding continuum of a diverse group of sciences that are directed at health issues. This continuum spans the traditional basic, bio-medical and clinical sciences of the mrc, which in the last couple of decades had become heavily impacted by information and biotechnology. It also includes the newer sciences on health services and systems, population-based health, health policy research, and behavioral, social sciences and humanities research focused on addressing health issues.6 As the continuum of health sciences expands and as the traditional sciences are impacted by new technologies, so to do the possibilities to use these sciences to pursue different, broader, public and private purposes. This has given health sciences research a much higher policy priority in the 21st century. This diverse group of sciences and the important interdisciplinary work conducted where scientific boundaries blur, are under increasing societal expectation and scrutiny to improve health and well-being, and social and economic conditions. The mrc had been producing internationally recognized excellence in health science for more that 4 decades.7 However, the perceived rigidity of its hierarchical decision making structures and its siloed sciences were considered incapable of adjusting to the challenges and demands of the knowledgebased economy and society (kbe/s). The cihr’s encompassing mandate and its unique, virtual institute structure, is intended to move the cihr beyond the constraints of a traditional granting council.8

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The cihr is a change project on a massive scale. Early on in the cihr’s mandate, it was considered a success story.9 Its integrated, multi-disciplinary research agenda, its networked institutional arrangements, its 13 virtual Institutes, and its purported distance from political interference were considered institutional innovations worthy of emulation both domestically and abroad. However, the organizing concepts and principles of the cihr, although quite elegant in design, from an implementation and operational perspective, are uncharted territory. Today the heavy lifting of implementing a new health science research model, delivering on an expanded health, social and economic mandate, and building the management and financial frameworks to remain accountability for a larger slice of public funds, continues. Some six years into the cihr’s ambitiously expanded research agenda and policy objectives, the legend of the event of the mrc-cihr transformation, is being confronted with the realities of somewhat impatient notions regarding the evaluation of outcomes. This comes at a time when some of the very ideas that the cihr was built on such as knowledge transfer and translation, multidisciplinary research, and commercialization are themselves coming under closer scrutiny. To reflect on the transformation in Canadian health science research, this chapter is organized into four sections. The chapter starts with a brief overview of the history of publicly supported health sciences research in Canada. The second section considers the 1990s as the decade of change within health sciences research in Canada. The third section provides an over view of the creation of the cihr and presents its unique structure. The final section discusses a few of the recent challenges faced by the cihr. Conclusions then follow.

h i s t o r i c a l o v e r v i e w o f p u b l i c ly f u n d e d h e a lt h s c i e n c e s r e s e a r c h under the mrc It is useful to briefly examine the history of publicly funded health research in Canada. This provides background and highlights how some of the early institutional characteristics and policy choices for health sciences research in Canada that have had lasting consequences. The federal minister statutorily responsible for health sciences research is the minister of Health. Up until 2000 these responsibilities were largely administered through the mrc. The mrc provided the minister with advice on health research matters, through whom it reported to Parliament. Previous to the mrc becoming an autonomous agency in 1969, the responsibility to support and build capacity in Canada’s bio-medical and clinical research communities fell to the National Research Council (nrc). From 1939 to 1959, medical research was supported first, through National Research Council’s committee structure and subsequently as a division.10

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The model used by the nrc to support bio-medical and clinical sciences was quite different than that used to support its primary research focus, chemical and physical sciences. Much of the nrc’s scientific activity on chemical and physical sciences was conducted in its government labs. There was no lab structure build by the nrc to support basic, bio-medical and clinical sciences. The location of health sciences research in Canada has always been in universities, their affiliated teaching hospitals and the foundations of hospitals or the voluntary health research charities.11 In once sense Canada’s long-standing commitment to conduct health science in educational and treatment centres reflected the applied nature of bio-medical and clinical sciences. But it also reflected a general neglect of bio-medical and clinical research in Canada’s federal science policy of the time. Bio-medical sciences were not seen as the important ‘big science’ projects of the 40s and 50s when Canada’s science policy was focused on bolster up a resource based economy. Nor were the newer bio-medical and clinical sciences held in high-regard by the established chemical and physical scientific community, which preferred the real science of basic, curiosity-driven research.12 By 1957, the first steps were taken to set a path for systematic support for bio-medical and clinical research in Canada. The deans of Canada’s twelve medical schools expressed concern to Prime Minister John Diefenbaker that “Federal support for medical research is alarmingly inadequate to support those investigations which are now in hand, and those which, in the public interest, should be undertaken.”13 In 1958, after consultations in Canada and abroad, a delegation from the Association of Canadian Medical Colleges (acmc) made several recommendations to Cabinet. In 1960 the government responded to the recommendations by establishing the Medical Research Council of Canada as an autonomous subsidiary of the National Research Council.14 Just above half of the 4 million recommended by the acmc, the budget for the mrc in 1960–61 was 2,307,000 up from 629,000 in 1957–58 as a Division of the nrc.15 In 1961 the dean of each Canadian medical school was awarded a general grant to be used as they saw fit for the development of bio-medical research in their university programs. This grant reinforced the decision that the primary location for these research activities would be in universities.16 In 1964 the Royal Commission on Health Services (Hall Commission) released its report, which became a key impetus for Medicare in Canada. As a result, there was a huge expansion of university research and training in medical sciences.17 With no laboratories of its own, mrc was responsible for supporting research and research training in health sciences in universities, and their affiliated hospitals and institutes. The overall objective of the mrc was to produce excellence in Canadian basic, applied and clinical research. A secondary, somewhat more reluctantly embraced objective was the first non-science input into the national health sciences research agenda. This was to promote

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geographic equity across Canada’s rapidly growing, university-based biomedical and clinical research and training programs.18 University education and health care delivery are provincial responsibilities. However, the mrc’s objective of geographic equity allowed the federal government to use research funds to assist the provinces in developing what would eventually become Canada’s Medicare program. To deliver on Medicare’s principles of a publicly funded, universally accessible health care system, the provinces need medical manpower capacity and service delivery infrastructure. Federal investments in bio-medical and clinical research greatly assisted the provinces, regardless of their “have or have not” fiscal and economic status, in building this capacity. The 1970s were a prolonged period of restraint, as the federal government attempted to regain a measure of control of its finances in the face of tight fiscal circumstances and competing demands. This corresponded with the first wave of bio-medical and clinical science research becoming more complex and integrative pursuits. As an illustration, during the 1970s physicians and Ph.Ds joined with what had been considered non-health sciences such as bioengineering to resolve health problems.19 The common arrangement was bioengineers working with physiologist or biophysics or receptive clinical divisions in cardiology or surgery to address health issues such as the development of new instrumentation.20 The mrc’s granting structure responded to these new demands by funding what was referred to at the time as universitybased ‘Research Centres of Excellence’.21 These centres were intended for multi-disciplinary science projects. At first these projects failed miserably but by the late 1970s they were becoming more successful. By the mid-1980s the private sector’s role in bio-medical and clinical research was growing. As Canada’s fledgling pharmaceutical sector became economically viable, demand for clinical research and trials increased. At the same time, many of the most exciting scientific projects funded by the mrc required research inputs from the private sector. University and public labs simply could not produce large enough quantities of substances such as recombinant dna (initially used in growth hormone trials) or vaccines – to make clinical research viable. The mrc’s clinical research and clinical trial programs were under pressure. The mrcs response was to pursue (initially reluctantly) partnered projects and funding arrangements with the private sector. The conditions were set that eventually led to a second non-science input directing the mrc’s research agenda and mandate – to support the growth and expansion of Canadian industry in the health areas. During the 1980s biotechnology also emerged as a significant, horizontally enabling technology offering important potential economic and health benefits.22 The advent of biotechnology in the 1980s pushed basic, bio-medical and clinical sciences even more toward multi-disciplinary,

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multi-sectoral, team-based research projects. The granting structure of the mrc responded again with significant emphasis being placed on support for what was referred to as ‘group sciences.’23 During the 1990s a key challenge for the mrc was to respond systematically rather than reactively to new conditions emerging in health sciences research. Given the expanding range of sciences directed at health, and the growing number of research partners involved in this work (which included the voluntary sector through the very powerful health research charities), the mrc attempted to adjust its mandate, programs and approach. It was not entirely successful because of the tight fiscal climate of the 1990s. This raised concerns among the bio-medical and clinical research communities that expanding the mandate of the mrc, would simply dilute their research budgets. The result would be diminished funding and research opportunities. The Organizational and Granting Structure of the mrc The mrc’s organization and granting structure have evolved considerably from the 1960s when it had a part-time president but a full time secretary, to 1990 when it had a full-time president and a 53-member Secretariat. The Secretariat comprised the Office of the President, Programs, Science Evaluation, University-Industry Programs, Corporate Management, and Communications. Under the direction of the president, the Secretariat served the Council, Executive Committee, and all the Council’s other committees. The mrc was located in Ottawa and its budget was 184 million.24 The stated objectives of the mrc were “With no laboratories of its own, mrc is responsible for supporting research and research training in health sciences in universities, and their affiliated hospitals and institutes. The mrc also has a further objective: to promote cooperation between industry, universities and health care institutions in order to enhance the development of knowledge and its application. In addition, the Council administers the health-related grants awarded under the Network Centres of Excellence Program.”25 In 1991 the mrc had a twenty-one member Governor-in-Council. Members were drawn from the scientific and lay community. They served without remuneration and, like the president, appointments were made by the Governor-in-Council. The Council’s membership also included three associated members who represent the other federal granting agencies and the (then) Department of National Health and Welfare. The Executive committee, of at least six other Council members besides the president and the vice-president, carried out executive powers and functions under delegation from the Council. Standing committees assisted in formulating policies and procedures for communications, ethics and experimentation, priorities and planning, and research and personnel funding.

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Thirty-seven committees of scientists reviewed applications for research projects and awards, evaluating their scientific merit. Some 350 researchers provide part-time unpaid input into the activities of the standing and review committees and related undertakings such as on-site visits.26 The mrc achieved its objectives by supporting investigators in medical, dental, nursing, pharmacy or veterinary schools and affiliated institutions. Its granting programs were varied and consisted of Research Grants for the direct costs of research; Collaboration Research Programs; and Other Grants.27 mrc and the National Health Research and Development Program (nhrdp) of the Department of National Health and Welfare offered a joint program designed to develop research in Schools of Nursing. The Council also funded Special Projects outside the regular programs as deemed appropriate. Through its Personnel Support Programs, mrc provided direct support for research personnel or research trainees. Its University-Industry Programs created opportunities for collaboration between Canadian companies and researchers conducting research in Canadian universities or affiliated institutions.28

the 1990s – a decade of change One of the striking features of advanced economies during the past three decades has been the strong growth in demand outside universities for university research and university graduates. This trend is seen as evidence of how advanced industrial nations, including Canada, are transitioning toward knowledge-based economies (kbe) where formal education, lifelong learning, and research are seen as central to economic and social progress.29 Corresponding to this, a prominent theme of the Liberal government after their 1993 election was the policy priority given to accelerating Canada’s transition to a knowledgebased economy and society through investments in research and development.30 The leadership of the mrc was encouraged by these broad policy signals. Initial progress toward realizing the 1993 commitments to r&d were stalled by the higher priority placed on achieving a balanced budget during the Liberal’s first mandate. Fiscal restraint led to major expenditure cuts in the 1995 federal budget. Many of these cuts included key programs in the mrc. Balancing reduced funding and increasing demand for (and on) health sciences research, continued to push the mrc toward partnered funding arrangements with the private sector and with the very powerful health research charities. At the same time the federal government encouraged all three granting councils and the nrc to pursue jointly funded, partnered science projects. The idea was that this would ensure that what resources were available for science was used effectively and efficiently, and that the priorities of the national research agenda would be aligned. Despite the difficult and changing conditions of the 1980s and 90s, the mrc retained an internationally respected reputation for research. Highlighting

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Canadian research excellence, in 1993, the University of British Columbia’s Dr Michael Smith, a long-term recipient of mrc funding, won a Noble Prize for his contributions to the developments of methods within dna-based chemistry. By the late 1990s, however, the official documentation of the mrc began to express concern.31 Exciting, emerging conditions in the realm of health sciences research were apparently rendering the bureaucratic arrangements and siloed sciences of the mrc obsolete. With the economy returning to a stronger fiscal position, in 1997 r&d programs were reinstated and new spending was committed. From 1997– 2002 the Canadian Foundation for Innovation (cfi), The Canadian Research Chairs, Genome Canada, and the Canadian Institutes of Health Research were created. Funds were increased for the research granting councils and the National Research Council, the Networks of Centres of Excellence (nce), and the Technology Partnerships Canada (tpc) and the Canadian Space Agency funding was stabilized.32 In various ways the mrc-cihr transition was a response to the changing nature and source of demands placed on the national health research agenda. These conditions powerfully embedded new meanings, purposes and values into Canada’s publicly funded national science programs and into the institutions tasked to implement these policies. In the case of bio-medical and health services research specifically, it was expected that investments in research and experimental development would both maintain and improve the performance and sustainability of Canada’s national public health and personal health services systems (through the creation and adoption of product and process innovations), and promote economic prosperity when, where possible, discovery is commercialized. Other sources of change relate to the health sciences themselves. These sciences are a rapidly expanding continuum of a nebulous group of diverse sciences directed at health. They include the traditional bio-medical sciences, which have been significantly impacted by advances in biotechnology, the newer sciences of health systems and services, in both the public and personal health services domains. They are also established social sciences and humanities that recently have become directed at broader ethical, social, political, and legal complexities of health, health practice and outcomes, and health policies. New sciences such as genetics and biotechnology have been revolutionizing our understanding of the biomedical and genetic determinants of health. These horizontal enabling sciences are also leading to breakthroughs in nanoscience and nanoengineering that open up new possibilities in, among other areas, regenerative and nano medicine. Downstream of these scientific pursuits is the health regulator who will be dealing with the approval of products and process based on technologies that barely existed 15 years ago.33 At the same time, a deeper appreciation of how social, cultural, economic and environmental conditions affect health has fundamentally changed our

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understanding of wellness. Health is no longer considered to be the absence of disease. Much more emphasize is being placed on the prevention of disease and injury rather than simply focusing on the cure. Health is being defined ever more broadly. Health and well-being include social and psychological factors that can affect individuals and groups. This relatively new understanding of health comes from research on the social, cultural, economic and environmental conditions that effect health and can make certain populations vulnerable. As the continuum of health related sciences expands, so too do the possibilities to use these sciences to pursue broader health, social and economic purposes. On another level of analysis, the emergence of what is referred to as the health research enterprise (hre) is also about the complex, interrelated and interdependent characteristics of the arrangements used to conduct and fund health sciences. The linkages and extensions of the hre cut across political jurisdictions, and organizational mandates within the public, not-for-profit and private sectors. There are many funders and performers of research within the hre. These are the science departments and agencies of the federal and provincial governments, universities, numerous private institutes and private foundations, the powerful Canadian health research charities such as the Canadian Cancer Society and Heart and Stroke Foundation of Canada (whose activities are largely supported by private donations), the national and international influential research projects of the American National Institutes of Health (nih) and the Howard Hughes Medical Institute (hhmi) (to name a few American examples). They are also the multinational public and private research consortia of the genome, and the many, many clinical research projects of the pharmaceutical, biopharmaceutical and diagnostic, and medical devices sectors. Supporting these projects is an amalgam of researchers, research partnerships and venture capitalists. Eventually these research and experimental development projects become clinical trails conducted in association with universities and teaching hospitals, and in accordance with the regulatory approval requirements.

t h e c r e at i o n o f t h e c i h r The mrc-cihr transformation was a response to address and negotiate these new conditions and demands. In 1998 a Task Force under the guidance of the mrc, put forward the concept for a new model for organizing and funding Canadian health research to the federal government. The conceptual model for the cihr proposed a unique “made in Canada” approach. It suggested the use of virtual institutes to move support for health research beyond the organizational limits of a traditional granting council. In the 1999 federal Budget, the Government of Canada announced that it would create the cihr and began to significantly increase funding for health research under this new model.34

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After the 1999 Budget, an Interim Governing Council (igc), made up of 34 researchers and experts, was tasked to consider how best to create key elements of the cihr as a modern framework for health research in Canada. The igc created several sub-committees to consider specific issues related to legislation for establishing cihr, Institutes design, Institute creation as well as knowledge management, ethics, peer review, partnerships and commercialization. The work of the igc and its Sub-committees resulted in an operational framework that laid out the cihr’s structural and functional instruments. Some of the elements of this framework are stated in the cihr Act. Others are set out in the igc working papers that were submitted to the Minters in June of 2000. What follows is a summary of the vision of the cihr as set out in the igc Working papers which largely reflects how the cihr is structured and how it operates today. The cihr has a full-time president and a Governing Council of unpaid members who exercise overall governance for cihr. The President is chief executive office and chair of the Governing Council and is aided in the day-to-day leadership and management of the cihr through a Secretariat. The Secretariat provides corporate services, such as human resources, finance and information technology to the Governing Council and its Institutes. The Secretariat also manages and operates the peer review process. The cihr has 13 virtual Institutes managed by scientific directors and the Institutes Advisory Board. As with the cihr Governing Council, the Advisory Boards draw on membership from across the health research community including lay members. This representation brings about opportunities for diverse input into the cihr and the Institutes strategic planning process which is opened to the views of researchers, institutes, government, and interested citizens. Governing Council Upon recommendations of the president, the Governing Council has responsibilities to establish the suite of programs that are available to the Institutes. The Governing Council’s Sub-committee structure focuses attention on corporate and strategic concerns such as governance, programs, strategic initiative development and evaluation, peer review, ethics, audit, and evaluation. This structure includes an executive committee and a committee to monitor the incorporation of the four crosscutting themes including bio-medical, clinical, health systems and services, and population health, as mandated by the cihr Act. The Governing Council approves the establishment of the peer review process used to determine funding for research under the cihr. It approves funding for research, the use of cihr corporate instruments and structures (e.g., offices and committees). It also approves the Strategic Initiative Fund which supports special activities designed to fill gaps that ordinary research funding and other programs cannot.

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The Governing Council sets the strategic directions, goals and policies for cihr. It oversees and evaluates each Institute from their creation to the articulation of their mandate as well as their budgets and plans. It appoints and establishes policies with respect to scientific directors, the Advisory Boards and their chairs. The President The president is responsible for day-to-day leadership of the cihr, articulates its vision and strategies, and coordinates activities to build a consensus among researchers and other stakeholders. The president establishes the cihr’s management structure and implements the programs and policies approved by the Governing Council. In addition, the president can establish dedicated staff functions to promote crosscutting research policies and activities, including monitoring the incorporation of key crosscutting themes in cihr work. This can involve establishing an Office to incubate underdeveloped and emerging areas of research or to address areas of immediate strategic concern that are so essential to all aspects of health research that they are fully embedded in all of the cihr’s Institutes. The president provides an essential coordination role by building cooperation and consistency with the strategic orientation of cihr and its Institutes, their scientific directors and Advisory Boards, and with other funders and performers of research. The Institutes Institutes are the core mechanism to achieve the cihr’s objectives. The expectation expressed by the igc, given the projected budgets of the cihr, was that each Institute, when fully developed, would support a research program in the order of $20 to 80 million per year, and would fund between 200 and 500 researchers. Each of the cihr’s 13 virtual Institutes is directed at a specific health area such as Aboriginal’s people’s health, aging, cancer research, genetics, health services and policy research etc. Each of these institutes is also expected to conduct research across the four pillars of health sciences inquiry (biomedical, clinical, health systems and services, and population health). This structure was intended to significantly impact on how these science groups are supported, how the sciences are conducted and how they are funded. Each Institute is led by a scientific director and an Institute Advisory Board. They are expected to be powerful networks of expertise, leadership, participation and partnership. They support knowledge creation at the highest standard of excellence as well as provide leadership in promoting research related to specific health priorities.

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The Institutes connect researchers from universities, government departments, hospital and other research centres. They are responsible to encourage research that crosses traditional boundaries integrating contribution from all sectors of health research, including ethics. They function in partnerships among researchers in Canada and internationally. The translation and exchange of knowledge is a high priority for the Institutes. The flexibility of the Institute’s structure is intended to allow them to respond to pressing health emergencies such as the emergence of infectious diseases in Canada like sars. Scientific directors and Institute Advisory Boards are expected to work closely with representatives from other Institutes and pursue opportunities for joint work. The advocacy of a consultation approach was intended to ensure that all Institutes move in directions that complement each other and minimizes duplication. Supporting Investigator-Driven and Strategic/Mission Oriented Research The Institutes concept provides researchers with an opportunity to align their research strengths to priority areas in the Institutes. Institutes improve the support for well-developed research communities and may be able to meet many of their goals through the structure of grants for basic and applied research under the cihr’s peer review system. In this way, the Institutes assist in shaping the research environment, while promoting investigatordriven research. Through the organization of the Institutes structure, Institutes with well-established, and well-organized research communities can also more easily identify and promote key strategic initiatives. The flexibility to support strategic initiatives allows the Institutes to address the priority needs of their researchers and stakeholder communities. Preferably, strategic initiatives should be supported by multidisciplinary research teams. Others may support efforts to build a research base in emerging fields. Other Institutes, simply given their focus area, have broad responsibility to encourage the development of accomplished and experienced investigators in research fields that are underdeveloped and have a small research base. Each Institute’s multi-year strategic plan details a proposed mixture of strategic grants. Once approved by the Governing Council, the Institutes are expected to receive a direct allocation to support its strategic initiatives. Institutes can also receive funding for Institutes development initiatives. The Institute’s budget will also indirectly accrue funding from the investigator-initiated researchers that are assigned to it. All Institutes will be able to count on a floor level for research funding, to support a base amount of research. Moreover, Institutes will have the budgetary flexibility to invest more money in research that is relevant to their approved strategic plan – above and beyond their allocations from the cihr pool.

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Peer Review The initial expectation was that Institutes would be the organizations through which researchers normally received their funding but that the peer review process for determining and allocating research grants is operated at the central level through the cihr, as follows: • cihr will hold periodic, peer reviewed competitions for research funds, including strategic programs presented by the Institutes; • The competitions will be open to all health research proposals, recognizing that those proposals submitted to strategic programs will be tailored to the program’s mandate; • The competition will identify the significance of the proposed research, the rigour and adequacy of the research approach and method (feasibility and efficiency), the degree of innovation, investigator qualification and experience. The quality of the relevance of strategic grant proposals will also be an important factor; • Each successful project will then be allocated to the specific Institute whose strategic vision and mandate suggest the best fit, or to the specific Institute that runs the relevant strategic grant program.35 The igc believed that a centralized peer review process would ensure consistency and equity across all Institutes. The process would continue to benefit from the highly skilled, experienced experts, not only in Canada but also around the world, who assess proposals. This way, all cihr-funded research would continue to meet the standard international tests of excellence as established under the mrc. What would be different is that: The Governing Council will organize peer review panels in a manner that ensures comprehensive coverage of the broad spectrum of research. There will be panels designed to encourage integrative and multidisciplinary research. Where appropriate, panels could draw on a wider pool of expertise. This could mean drawing on knowledgeable users of research to enable the full participation of broad health research community, including women and men, whose expertise is in the application of research to policy, programs and practice. This would create another way for cihr to encourage excellence and relevance in research. As part of its commitment to broad, effective participation, the igc believes that consideration should be given, where appropriate, to the joint operation of the peer review process with other federal and provincial granting councils, voluntary health organizations, and government research. To ensure that the highest standard of scientific excellence is achieved for the all tax payer supported health research, cihr should work with Health Canada to exercise leadership so that all government departments use peer review, to the extent possible, in their research decision-making practices.36

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challenges and pressures In its first six years of operation, new challenges and pressures have been revealed through different studies and assessments of the cihr’s work and management processes and through other studies dealing with how to evaluate research when it broadens beyond normal peer-review research excellence criteria. Three are discussed briefly below. Auditor General Review of the Operating Grants Program In 2001–01 in order to determine whether the cihr had adequate control over its operating grants program for research, the auditor general conducted a review. It assessed this by examining the management of individual projects under the program and by assessing the design of the programs and the measurement of project and program performance. The following points outline the criteria used to carry out the detailed audit: • comply with authorities; • ensure that grant and contribution programs are designed to achieve expected results, manage risks, ensure due diligence in spending, and provide accountability for public funds spent; • exercise due diligence in approving individual grants and contributions; • have reasonable assurance that the funding is used for the purposes intended; • know whether programs are achieving expected results; • report clearly to Parliament on program performance; • reinforce public sector values and value for money attitudes among program staff; and • make reasonable efforts to harmonize and co-ordinate their activities with other organizations delivering similar programs.37 The audit was done six months after the launch of cihr. At the time the operating grants program totaled $190 million. The findings of the auditor general’s assessment was that the cihr’s evaluation of applications for operating grants were complete and that its peer review system rigorous in selecting projects for funding. However, the auditor expressed concern with how well the cihr monitored how quickly researchers were spending their grants and how it tracked the results of the research it was funding. Funds provided by cihr for approved projects are overseen by the business offices of the institutions at which the grant recipients are located – mainly universities, hospitals, and research institutes. Payments from the cihr to the research institution start two months after the project begins. Regardless of the pattern of expenditures on the research, the cihr makes regular monthly

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or bi-monthly payments to these accounts based on the amounts it has approved through the peer review system. cihr allows its researchers to use unspent balances that remain in their accounts for two years after funding ends so projects can wind down or other sources of funding can be found. The business offices of the recipient institutions provide the cihr with annual detailed summary financial status reports on all the cihr-funded research. These statements show the actual expenditures by grant recipient. At the time of the audit, there was no evidence that the cihr reviewed the account balances to determine if the pace of actual expenditures or to determine if the anticipated progress of the research corresponded to research award. As a result, large unspent balances were accumulating. On March 31 1999 the total unspent balance was $67 million. By March 31, 2000, was $95 million. On March 31 2001 the unspent balances totaled approximately $113 million involving roughly 3,871 projects in 66 research institutions. The cihr’s total budget for grants and scholarships that year was about $370 million. The overall result of the audit was that the cihr was encouraged to adopt more rigorous management and reporting practices. Many of these practices comply with ever increasing Treasury Board requirements for financial and management stewardship of grants and contribution programs. Under the revised Treasury Board Policy on Transfer Payments effective June 2000, the specific objectives and results planned for grant and contribution programs over $5 million must be clearly stated in the entity’s report on plans and priorities, together with milestones for achievement. Treasury Board evaluation guidelines require four aspects of these programs to be monitored: the program’s rationale, impact, achievement of objectives, and alternatives. cihr management committed to completing an evaluation of the operating grants program in fiscal year 2002–03. This review was published to the cihr website in 2004.38 Based on the auditor general’s audit the cihr was also encouraged to: • develop a formal risk assessment and management strategy; • establish an internal audit function for project monitoring and financial monitoring, and • improve how it tracked the results of research and assessed and reported on program performance. The cihr committed to developing an enterprise-wide risk assessment and risk management strategy to be completed in fiscal year 2001–02. The cihr requested additional resources for internal audit and program evaluation functions. The auditor’s review of performance reports for 1998–99 and 1999–2000 noted that the program’s impact on health and the economy was reported anecdotally, by specific case, rather than as measured by program-wide indicators.

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The ag recommended improving program performance reporting to Parliament by focusing performance measures on quantitative information on program outcomes and expected results rather than by activities and inputs such as – dollars spent, number of scientists trained, numbers of scientists and projects supported, and number of research publications produced. These are necessary indicators of program performance but alone are not sufficient.39 At the time of the audit, the cihr was developing a strategy for a ResultsBased Management and Accountability Framework to systematically collect timely and accurate information on the results of its investments in research. The Framework was expected to identify a best set of indicators for measuring ongoing performance achieved by research that it funds to “deepen and enrich the information base for program management and for cihr’s reporting to Parliament and Canadians”.40 However, refining the output measures of evaluation in this increasingly important area is both complex and likely to be contested. Work conducted by Chant and Gibson demonstrates the complexity.41 Analysis of Science Impact and Quality Chant and Gibson researched the level of performance of Canadian universities relative to universities in the United States. They used the numbers of papers published by a university (the quantity) as a measure of the level of research activity at an institution. Their paper measured the impact of research based on the recognition that the research gained from other scholars on a paper-by-paper basis (a widely agreed-on measure of the quality of research). There were limitations to their study. The paper’s impact measure treated all citations to a paper equally regardless of whether they occur in wellregarded or lesser journals, and whether they are positive or critically reviewed, all of which can be important indicators of the papers impact. Their research did not try to account for the relative size of Canadian universities or the resources available to them for research. To correct for size, they would need to know the number of researchers in each discipline at each institution. Such measures are complicated by the fact that many of the disciplines did not necessarily correspond closely to one or even several well-identified departments. For example, their research found that one institution that ranked in the top ten in physics did not have a department in that discipline.42 Despite the limits of the analysis, the findings suggested that the top Canadian universities perform reasonably well with respect to the volume of publications in the fields surveyed (this included bio-medical and clinical sciences). However, they lag substantially behind the top us universities in terms of recognition their research received from other scholars. They conclude based on these findings that the research quality at top Canadian universities is substantially below that of the top us institutions.

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They argue that a relevant factor in determining this result is due to the difference approach between the two countries in funding research. Canadian science policy stresses criteria other than the excellence of the research itself. In the United States, in contrast, the peer review process under which the National Science Foundation (nsf) allocates research funds based on two main criteria: the intellectual merit of the proposed activity and the broader impacts of the proposed research. The concern expressed by Chant and Gibson (and other scientists43) is that policy makers may be unaware that when values other then research excellence factor into funding decisions – interdisciplinary, inter-institutional relations, relevance, training and socio-economic impact – they may come at the cost of perusing excellence. The Complexity of Integrating the Continuum of Health Sciences Multi and even trans-disciplinary science raises other challenges for the cihr (and for other granting bodies as well). The analysis in the Report on the Health and Society Research Workshop “The Challenges of Change,” January, 2004, discuss several issues that relate to difficulties both perceived and real, in creating, using and integrating Behavioural, Social Sciences and Humanities Health Research (bsshhr) with the bio-medical and clinical research programs to improve health outcomes. These challenges were demonstrated in the initial difficulties the cihr has had in using the peer review system to support and fund the broader spectrum of health research. Other challenges relate to the nature of these groups of sciences themselves. The overall goal of the cihr is that all health sciences should be developed as a body of research with a focus on comprehensive and integrated evidence-based interventions to improve health. Behavioral and social sciences are not necessarily driven by the strategic or mission-oriented “science pillar” approach – e.g., integrating social, behavioural and cultural dimensions of health research as one of the cihr’s four pillars of cross-cutting sciences into the broader national agenda of bio-medical and clinical health research. A challenge within the bsshhr research “community” writ large is there are characteristics of different paradigms, methods, epistemologies, and ontologies guiding these sciences. This is nested within a larger integration / legitimacy issue where there is a perceived lack of recognition and credibility for bsshhr in the attitudes of the biomedical and clinical health research community. Within the bsshhr community too, bsshhr researchers may be just as inclined to be dismissive of beaker and test-tube traditional approaches to health research under the normal sciences. As the bsshhr report notes, there are multiple levels of issues and challenges to create, use and integrate bsshhr within itself let alone to then integrate bsshr within the broader health research enterprise.

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As for some of the structural difficulties noted in the report, they relate to accessing funding, attention and legitimacy for bsshhr – given that the dominant communities within health research enterprise are bio-medical and clinical. Two examples of structural issues sited in the document relate to peer review and the removal of part of Health Canada’s science capacity through the merger of the mrc and the National Health Research and Development Program (nhrdp) into the cihr. Regarding peer review, grants for research in cihr are pooled across the entire health research spectrum.44 As a result, bio-medical and clinical research, compete with research on health services and systems or with social sciences and humanities other for funding. This was recognized as a problem for two reasons. First the methodologies for bio-medical and clinical research are generally set. In social sciences the methodologies, although rigorous are often contested in terms of the research results they can net. A second and related point is that social scientists tend to be more critical of research proposals than their bio-medical and clinical science peers. This biases the peer review process toward biomedical and clinical research because their peer review committees tend to give higher points than did the bsshhr peer review committees. Since funding was based on research excellence, the lower scores given to social science projects meant that less of them were funded. There has been forward movement on reducing the bias towards bio-medical research in the peer review process45 but at the time of the Report on the Health and Society Research Workshop “The Challenges of Change,” it was referred to as preliminary. Another structural issue raised in the report on Health and Society Research from the workshop “The Challenges of Change,” results from the merger of Health Canada’s 9 million dollar research program, National Health Research and Development Program (nhrdp) with the cihr. The nhrdp was Health Canada’s extramural, investigator-driven health research program. Since 1975 it had not only provided research support for a wide range of applied health research issues, it was an important link between Health Canada and the Research Granting Councils. Through these linkages Health Canada drew the attention of the research community to the kinds of inquiries necessary to further the national health policy agenda. Disconnecting Health Canada from direct interaction with the health research community has been rather quickly identified as a likely contributor to a health policy capability and capacity problem. These are a few challenges but there certainly have been others. A 2006 International External Review Panel indicated several weaknesses in the cihr. Among others, some were in the areas of knowledge translation, transfer and commercialization.46 In fairness to the cihr, knowledge transfer and the translation of science into intended outcomes have themselves come under closer scrutiny.47 The processes that lead to knowledge transfer, translation

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and commercialization are now recognized as a much more complex puzzle than originally thought. Recently the federal government has released a report by an expert panel which suggests new approaches and possibly new funding mechanisms are required to specifically focus in this area.48

conclusions Since 2000, the task of the cihr and its Governing Council has been to transform health research in Canada and respond to new demands that relate to: • • • •

The expanding range of health sciences; changes in what advanced societies consider health to be; the increasing public and private uses these sciences can be put to; our contemporary belief that how health sciences are funded and supported is a critical element in encouraging discovery and the reducing the cycle time of translating innovation and knew knowledge into improved social and economic outcomes; and • the multifaceted and inherent complexity arrangements necessary to support what is often referred to as the health research enterprise (hre). Working under the overall strategic direction of the cihr, the thirteen virtual Health Research Institutes and their Institute Advisory Boards were anticipated to be key elements in making the cihr one of the most innovative health research institutions in the world. The Institutes would provide a focal point for research conducted in their various thematic areas of health research while shaping a multi-disciplinary, integrated national health research agenda that would pertained to all aspects of health including bio-medical and clinical research, research respecting health systems, health services and the health of populations, as well as research into the societal, cultural and environmental dimensions of health. The cihr and its Institutes would involve research partnerships across the public, private and voluntary sectors and within these sectors, with health practitioners, policy makers and consumers. This approach to scientific inquiry, it was argued, would allow the cihr to accelerate discovery, broaden our understanding of health, create new knowledge and through partnerships and go beyond the organizational limits of a traditional granting council. Now some six years into the cihr’s ambitiously expanded research agenda and policy objectives, the legend of the event of the mrc-cihr transformation, is being confronted with the realities of contemporary and somewhat impatient notions of evaluation of outcome measurement. This comes at a time when some of the very notions such as commercialization that the cihr was based on are themselves coming under scrutiny.

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Given the complexity of the cihr’s mandate and of its operating environment and, quite frankly, the difficulty of measuring health science outputs relative to their new economic and social objectives, the cihr is at risk of being judged a failure by the same inadequate yard sticks that prematurely declared it a success.

notes 1 Medical Research Council of Canada, A Legacy of Excellence 40 years 1960 – 2000 (Medical Research Council of Canada) 25. 2 The nhrdp was Health Canada’s 9 million dollar extramural, investigator-driven, health research program. Since 1975 it had not only provided research support for a wide range of applied health research issues, it was an important link between Health Canada and the research Granting Councils. Through these links Health Canada drew the attention of the research community to the kinds of inquiries necessary to further the national health policy agenda. 3 Auditor General of Canada, Voted Grants and Contributions – Program Management (Auditor General of Canada, 2001) (section 3), chapter 5. 4 Canadian Institutes of Health Research Act, 2000, c. 6. 5 Canadian Institutes of Health Research, Presentation to the Standing Committee on Finance Pre-Budget Hearings by Dr. Allan Bernstein, 2005 http://www.cihr-irsc.gc.ca/e/ 29565.html. 6 Stranchan-Tomlinson. Report on the Health and Society Research Workshop – “The Challenge of Change.” (January, 2004). 7 Medical Research Council, Legacy of Excellence. 8 Medical Research Council, Where Health Research Meets the Future. The Final Report of the Interim Governing Council of the Canadian Institutes of Health Research (Medical Research Council, 2000). 9 R. Plamondon, Transforming Health Research in Canada: The Making of the Canadian Institutes of Health Research – A Case Study (Public Policy Forum, 2001). 10 Peter C. Aucoin, Health Scientists and the Making of Health Science Policy in Canada. Phd Thesis, Queen’s University Kingston, Ontario, August 1972, 219. 11 Ibid., p. 21 and 28. Also see Robert P. Grant, “National Biomedical Research Agencies: A Comparative Study of Fifteen Counties,” Minerva 5, no. 4 (1966): 466–88, and Medical Research Council, mrc Newsletter, The Establishment of Medical Research In Canada. (Medical Research Council, 1985). 12 Peter C. Aucoin, Health Scientists, 50. 13 Medical Research Council, The Establishment of Medical Research in Canada (Medical Research Council, 2000). 14 The mrc became a completely autonomous agency reporting to parliament through the Minister of Health in 1969. 15 Medical Research Council, The Establishment of Medical Research In Canada, 3.

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16 Ibid. 17 David M. Cameron, “The Challenge of Change: Canadian Universities in the 21st Century, Canadian Public Administration 45, no. 2 (2002): 145–74, at 148. 18 Medical Research Council, mrc (1974/74) Report of the President (Medical Research Council, 1974), 18. 19 Peter C. Aucoin, Health Scientists, 11. 20 Robert F. Rushmer and Lee L. Huntsman, “Biomedical Engineering,” Science 167 (6 February 1970): 840. 21 By the 1990s these projects were funded under the mrc’s Collaboration Research Program’s mrc Group grant. 22 Canada started investing in biotechnology research in the 1980s and developed its first biotechnology strategy in 1983, the National Biotechnology Strategy (nsb). 23 By the 1990s these programs fell under the Collaboration Research Programs. 24 Medical Research Council, Report of the President (Medical Research Council, 1989– 1990). 25 Ibid. 26 Ibid. 27 Operating grants are made to support projects directed toward defined research objectives. Teams led by an investigator or several investigators conduct the projects. Grants can be active for six months to five years. 28 Medical Research Council, Report of the President (Medical Research Council 1989–1990). 29 Paul Davenport, “Universities and the Knowledge Economy,” in David Laidler, ed., Renovating the Ivory Tower (C.D. Howe Institute, 2002), 39–59. 30 Liberal Party of Canada, Red Book, Creating Opportunity: The Liberal Plan for Canada (Liberal Party of Canada, 1993). 31 Medical Research Council, Where Health Research Meets the Future. Also see the Interim Governing Council’s Working Papers Series – Proposed Institute Creation for the cihr; Health Research Institutes; Clinical Research Within the cihr; The Ethics Mandate of the cihr; Implementing a Tranformative Vision; Partnership and Commercialization; Peer Review in the cihr. 32 David Wolfe, “Innovation Policy for the Knowledge-Based Economy: From the Red Book to the White Paper,” in Bruce Doern, ed. How Ottawa Spends 2002–2003: The Security Aftermath and National Priorities (Oxford University Press, 2002), 137–50. 33 Joan Murphy, “Multi-Level Regulatory Governance in the Health Sector,” in Bruce Doern and Robert Johnston eds. Rules, Rules, Rules, Rules: Multilevel Regulatory Governance (University of Toronto Press, 2006), 305–24. 34 Medical Research Council, Where Health Research Meets the Future. 35 Ibid. 36 Ibid. 37 Auditor General of Canada, Voted Grants and Contributions. 38 Canadian Institutes of Health Research, Evaluation Study of the Operating Grants Program, Report by the Evaluation and Analysis Unit (Canadian Institutes of Health Research 2004).

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39 Auditor General of Canada, Voted Grants and Contributions, chapter 5, Section 5.101. 40 Ibid., Chapter 5, Section 5.103 Agencies Response. 41 J.Chant and W. Gibson, “Quality or Quality? Research at Canadian Universities,” in David Laidler, ed., Renovating the Ivory Tower (C.D. Howe, Institute, 2002), 125–67. Also see the oecd’s Frascati Manual(s). 42 The complexity of assessing multi-disciplinary science projects is even more complex. 43 J. Polanyi, “Review: The equation that rocked the planet,” Globe and Mail, November 4, 2000, D6. 44 For a thorough discussion of several issues with the cihr’s initially peer review process, see W. Thorngate, N. Faregh, and M. Young, Mining the Archives: Analysis of cihr Research Granting Adjudications (Canada Institutes of Health Research, 2002). 45 Canadian Institutes for Health Research. First Report on Peer Review Innovations (Canadian Institutes of Health Research, 2005)– http://www.cihr-irsc.gc.ca/dgi-bin/ primt-imprimer.pl. 46 Canadian Institutes for Health Research, Five Year International Panel Report (Canadian Institutes of Health Research, 2006). 47 This complex, stubborn issue has come under scrutiny from various theoretical perspectives and for some time. For examples, see Canadian Institute for Health Information – Canadian Population Health Initiative (2001) An Environmental Scan of Research Transfer Strategies (2000), Jonathan Lomas, “Connecting Research to Policy,” isuma 1, no. 1 (Spring 2000); Rejean Landry, Nabil Amara, and Moktar Laamary, Utilization of Social Science Research Knowledge in Canada, Group de recherche sur les interventions gouvernementales (grig, 1998); Rejean Landry, Nabil Amara, and Moktar Laamary, Climbing the Ladder of Research Utilization: Evidence from Social Science Research, Group de recherche sur les interventions gouvernementales (grig, 1999); Also see Canadian Institutes of Health Research, Presentation to the Standing Committee on Finance Pre-Budget Hearings by Dr. Allan Bernstein http://www.cihrirsc.gc.ca/e/29565.html. 48 Expert Advisory Committee on Commercialization, People and Excellence: The Heart of Successful Commercialization – Talent, Research and Capital. Final Report (Industry Canada, 2006).

13 Intellectual Property Rights and Competition Policy in the Knowledge-based Economy: Compatible or Colliding Policy Regimes? derek ireland

In the abstract, intellectual property rights (iprs) and competition policy and law are often viewed as complementary and compatible policy regimes for promoting static and dynamic efficiencies, greater consumer choice, rapid technological change, and the creation and adoption of product and process innovations that provide lower cost, higher quality products to industrial customers and final consumers. However, as we move from abstraction to reality, the interactions between the two become more numerous, complex and negative, particular as modern economies become more information and technology intensive and knowledge based. From a competition policy perspective, iprs can be used and misused to extend market power into markets and products that go well beyond the limited private monopoly right of fixed duration intended by intellectual property law. From an ip perspective, the regulation of competition through competition policy and law can be used and misused to limit and even eliminate this limited private monopoly right and therefore reduce the private incentives to invest in and share information on technological development and innovation. The purpose of this chapter is to explore the positive and negative interactions between (i) the intellectual property rights (iprs) of patents, trademarks, copyrights, industrial designs, and trade secrets, and (ii) the design and enforcement of competition policy and law, within the evolving current Canadian policy context. This chapter explores these debates with reference to developments in Canada over the past 20 years when first Canada’s competition law and, subsequently, most of Canada’s ipr statutes were significantly changed and, in the view of many, substantially reformed and strengthened. In

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particular, the theoretical and policy debates on the positive interactions as well as tensions and conflicts will be evaluated within the context of the prosperity, productivity, innovation and competitiveness agendas of Canadian governments, and in terms of the priorities of the Conservative federal government elected on January 23.

t h e t h e o r e t i c a l a n d p o l i c y d e b at e s Defining the two policy regimes provides a good starting point for exploring the debates on the interactions between competition policy and law and iprs. In most competition law jurisdictions, the main objectives of competition policy and in particular competition law are (i) to protect and regulate competition in domestic markets (rather than to protect and promote the interest of individual competitors/companies), (ii) to promote economic efficiency (usually but not always the static efficiencies of neoclassical micro-economics), and (iii) to prevent increases in consumer prices and reductions in product quantity and quality and consumer welfare that can result from monopolies, cartels, bid rigging, abuses of dominant position, anti-competitive mergers and vertical restraints, and other anti-competitive practices and conduct. In most countries (the major exception is the United States), there is a single competition agency – the Competition Bureau in Canada – that is the core institution for administering competition policy and law and that plays the key role in driving the competition policy and law agenda. Intellectual property rights’ policies, laws and agencies are best seen as one part of a broader innovation policy regime. Intellectual property rights and the laws that protect these rights provide incentives for the production of new advanced technologies, product and process innovations, computer software, and artistic, cultural, artistic, entertainment and other creative works. This is accomplished through extending a limited private monopoly right to innovators and creators in the form of the protection of patents, registered industrial designs, copyrights, trademarks, trade secrets, plant breeding rights (new crop varieties), and integrated circuit topographies (semi-conductor chips).1 The monopoly right is supposed to be limited in terms of duration, scope, and returns to the creator/innovator, which should be appropriate and adequate but not exorbitant and excessive. Compared with trade secrets, formal ipr laws promote knowledge and technology transfer through information disclosure and ip dissemination. This can facilitate legal “copying” or imitation, through approaches such as reverse engineering. iprs therefore essentially involve a tradeoff whereby the government provides protection and incentive in the form of a limited monopoly right to inventors of new products, processes, technologies and other “creations of the mind and inventions”2 in return for the dissemination to society at large of

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information on the ipr in order to promote even greater technology development, diffusion and innovation. In most countries, iprs are administered by one agency – the Canadian Intellectual Property Office in Canada – but a much wider range of government agencies, including industry and international trade departments, human resource development departments, research councils, and other agencies involved in the broader innovation policy regime – have an interest and involvement in ipr policies and regulations. The debate on the interactions between competition policy and law and iprs has been most intense in the United States,3 which may not be surprising since American governments are proponents of both stronger iprs as well as stronger competition law enforcement. This debate, which has now spread to virtually all oecd competition law jurisdictions as well as to many developing economies, is in response to the growing theoretical research and empirical evidence that many kinds of vertical arrangements and certain kinds of horizontal arrangements such as strategic alliances, research joint ventures and in certain circumstances production joint ventures, can promote dynamic efficiencies, competition and consumer sovereignty through generating new process and product innovations over the longer term. In many cases, intellectual property rights play an important role in establishing these vertical and horizontal arrangements and in making them profitable for the company participants and efficiency enhancing for the total economy. This debate focuses in particular on the many theoretical and practical frictions between competition policy and law and intellectual property rights.4 Some of these frictions are anchored in theoretical differences. Competition policy analysis – particularly for competition cases – remains largely anchored in neoclassical micro-economic theory and its extensions into industrial organization theory and law and economics. Competition policy therefore focuses for the most part on short-term (static) efficiency gains in the form of consumer and producer surplus. Competition agencies attempt to take longer-term dynamic efficiencies into account in assessing mergers, dominant positions and vertical restraints. However, competition agencies, tribunals and courts are skeptical of claims about new technologies, new production processes, and product innovations that may take place many years and even decades into the future. As a consequence, merger and other competition case analysis largely focuses on production efficiencies and cost reductions that are relatively easy to measure and can be realized in a relatively short time period. Many companies and industries also prefer the so-called regularities, bright lines and clear predictions offered by traditional micro-economic theory. In contrast, intellectual property rights and innovation policy more generally adopts a longer-term perspective of the competitive and innovation process, and stresses the incentives provided by iprs to individual creators and companies to generate dynamic efficiencies and new product and process

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innovations that are far from certain and may take place many years into the future. One consequence is that, with the same set of facts, competition policy and ipr and related innovation policy agencies can come to very different conclusions regarding the desirability of a specific business arrangement such as a merger in a higher technology industry, an innovation based joint venture, or a strategic alliance based on pooling the participating companies’ intellectual property assets. Frictions can also arise because of differences in geographic focus. These frictions can be particularly important in Canada where federal-provincial tensions are never far from the surface. Competition policy typically involves national law that is enforced on a national basis and assesses the benefits and costs of business transactions and conduct from the perspective of the national economy. While intellectual property rights are typically administered by national ip agencies, iprs are becoming increasingly important to the establishment and growth of regional and community innovation systems and technology clusters. This can lead to possible federal/provincial and federal/ municipal conflicts in federations like Canada. At the same time, ip now has an important international dimension, through the incorporation of the trade related aspects of intellectual property rights (trips) into the wto, nafta and other bilateral and multilateral international trade agreements. In contrast, while international competition issues are now being discussed and analyzed at the wto, oecd, under apec and nafta, and through informal international competition policy networks, few international competition rules are now in place. Therefore, competition policy is still mainly national law, and still stresses for the most part promoting competition in domestic markets. Therefore, export cartels and other “beggar-thy-neighbour” business arrangements that do not hurt domestic consumers, are allowed under national competition law. The most important frictions between competition policy and law and iprs result from the limited private monopoly right provided by intellectual property law. One of the major aspects of competition policy is to prevent, or at the very least regulate, monopolies and dominant market positions. iprs on the other hand provide a limited monopoly right in order to promote innovation and the dissemination of ip related information to other inventors and companies. Competition policy typically recognizes the need for the limited monopoly right under iprs. However, defining “limited” in terms of duration, scope and returns to innovators can be strongly contested between competition agencies, innovation agencies, and ipr rights holders and advocates. The degree of contestation is increasing given the increasing complexity of the knowledge-based economy with expanding externalities and network effects,5 which can provide returns and market power to rights holders that can appear excessive to competition advocates. Competition concerns particularly arise when IPRs have negative impacts on competition

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and can generate returns to rights holders in markets and on products that are far removed from the products and markets covered by the original ipr. A growing number of innovative companies base their corporate strategies around: (i) the protection and strategic use of their intellectual property, and (ii) successfully promoting their technology (often protected by their iprs) as the governing standard in an industry.6 In designing and implementing these corporate strategies, companies are often testing the limits of acceptable business conduct under competition law. Competition policy advocates are particularly concerned that, in network industries and other industries where network effects are important, intellectual property rights can be abused in a manner that impedes entry by potential competitors, reduces consumer choice and product quality, and impedes competition and innovation.7 The dominant positions of the winning company can become further entrenched through: overly broad patents and enforcement of ip rights; patent pools developed through licensing, cross-licensing, mergers and other business arrangements, which lead to a “killer patent portfolio”8; and, sham (and more legitimate) litigation that can further discourage entry and interfirm competitive rivalry. Competition in markets where intellectual property rights, standards and network effects are prominent is often not “within the market” between roughly equal company rivals, but rather “for the market”9 where the winner can enjoy a dominant position and near monopoly profits for an extended period. These well-entrenched dominant market positions – that are based on strong iprs, patent pools, inter-firm licensing and other arrangements, very costly court litigation, and effective lobbying of government for even stronger ipr protection, longer ip terms and broader ip definitions at the national and international scales – can be sustained for decades and even generations in network and similar industries that are becoming more economically important in the knowledge-based economy.10 In some of these industries, entry by new and better competitors cannot be depended upon to eliminate the dominant position and near monopoly profits. This danger has led some competition policy advocates to argue that dominant positions in network and other industries should have a limited term similar to the limited fixed duration of 20 years provided to the patents that are often the major reason for the market dominance in the first place.11 At the same time, there is some consensus among competition agencies and practitioners that, when enforcing competition law, business conduct and strategy that involve: (i) research and development combinations, (ii) intellectual property, and (iii) standards and networks, competition issues need to be evaluated very carefully to ensure that competition policy promotes rather than impedes dynamic efficiencies and innovation by incumbent firms as well as innovative company start-ups. Under these circumstances, competition law intervention should be limited to those cases where, based

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on a pragmatic rule of reason, benefit/cost approach, it is evident that the market power derived from iprs is being used to unreasonably constrain competition and impede entry in relevant competition markets. Efforts as well are being made in several competition law jurisdictions – including the eu, us, Japan, and Canada – to make the competition policy treatment of iprs as transparent and predictable as possible. This is being done through the publication of intellectual property guidelines, meetings with industry, and other communications initiatives. Despite these initiatives, innovation policy and ip advocates remain concerned that competition policy may be misused to prevent vertical arrangements and certain kinds of horizontal arrangements such as strategic alliances, research joint ventures and production joint ventures that (according to their proponents) can promote dynamic efficiencies, competition, and consumer sovereignty through e.g. new process and product innovations over the longer term.12 Summarizing the debate, on the one hand, innovation advocates argue that competition law should not take away from rights holders the rights (including inherent rights), incentives and financial benefits provided by patent and other ip laws. This would mean more permissive treatment of ip and innovation based horizontal arrangements than arrangements that do not involve intellectual property. On the other, competition advocates argue that iprs should not be abused to increase monopoly power in the market relevant to the ipr or to extend monopoly power into other markets, in a manner that goes beyond what was intended by the original intellectual property right. Striking the right balance between these two positions requires analytical skill and strong policy and legal judgment – that may tax the best “Solomons” among the competition policy, ip and innovation communities.

t r e at m e n t o f t h e s e i n t e r a c t i o n s i n c a n a d i a n c o m p e t i t i o n l aw In response to the theoretical debates discussed in the previous section and the vocal and expanding lobbies in favour of stronger intellectual property rights protection led by the pharmaceutical, chemicals, biotechnology, information technology, and cultural/entertainment industries, Canada adopted a relatively permissive approach to the treatment of iprs in the design and subsequent enforcement of the new Competition Act of 1986. It accepted stronger protection of intellectual property rights at the international level through signing the fta with the United States, the nafta with the United States and Mexico, and the trips agreement under the wto framework, and strengthened Canada’s own intellectual property laws on an ongoing basis over the past 20 years in order to meet Canada’s expanding international obligations. Strengthening Canada’s ip obligations at the international scale and the design and enforcement of Canada’s own intellectual property laws was not

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without controversy, particularly for patents and copyrights, but most of the controversy has ended with respect to patents. In contrast, the extent and implications of copyright protection for artists and creators of music continues in Canada and other countries, as discussed in a later section. The permissive approach to iprs and to innovation more generally in the design and enforcement of the Canadian competition law is associated with the total efficiency approach employed in applying competition law in Canada. A total efficiency approach simply means that the Competition Bureau, the Competition Tribunal and the Canadian courts are allowed to address both producer and consumer welfare gains and losses in assessing the impact of a business transaction or practice on the Canadian economy. There is a strong hint of the total efficiency approach in the purpose clause of the Canadian Competition Act where efficiency and competitiveness type issues come first and small business and consumer impacts come at the bottom of the purpose clause. However, evidence of the total efficiency approach is more easily found within the Act itself and in the merger, intellectual property, abuse of dominance and other guidelines produced by the Competition Bureau over the past 15 years. The 1986 Act contains a number of specific provisions, exceptions and exemptions that can be important to promoting innovation and providing intellectual property rights with significant scope to encourage innovation, economic efficiency, and the private interests of creators and companies. The tests of “unduly lessening” of competition under the criminal conspiracy provisions and “substantial lessening” of competition under the reviewable provisions mean that small businesses (the source of significant innovation in the Canadian and other advanced economies) and r&d and innovation promoting business arrangements that are often based on the licensing and cross-licensing of iprs and the pooling of patents, are less likely to raise competition issues. The conspiracy section includes a set of defenses designed to promote efficiency and innovation through allowing industry associations and other business combinations and company agreements to facilitate cooperation in research and development. The merger section as well includes an exemption for research and development joint ventures. The abuse of dominance section includes a provision that requires the Competition Tribunal to consider whether the practice in question is the result of superior competitive performance. This provision thus would allow a more efficient and innovative company to hold and retain a dominant market position that is based to an important degree on: its portfolio of iprs; and how the company employs those rights through e.g. agreements with other companies. The abuse of dominance section as well includes an exception for acts that are engaged in pursuant only to the protection of intellectual or industrial property rights.

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Perhaps most importantly for innovation and ipr advocates, the merger provisions include the efficiency exception – also called the efficiency defense. Under this article, a merger is not to be stopped or dissolved if the Tribunal finds that the merger or proposed merger generates gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition, and the efficiency gains would not likely be attained if the merger does not take place. The efficiency exception applies as well to specialization agreements. These provisions of the Competition Act clearly indicate the total efficiency approach which underlies the design and enforcement of Canadian competition law. These provisions as well are fully consistent with a rule of reason approach, which underlies the reviewable matters sections under the Competition Act and can be applied as well to the criminal provisions. This approach presumes that business conduct, not market structure, are critical to competition, and that market structures and business practices that can substantially lessen competition in one market context can be pro-efficiency in a second context. The efficiencies defense under the merger and specialization agreement provisions in recent years have been assessed in detail, debated and consulted on with the business and other communities. This is the result in large part of the recent decision on the Superior Propane case, which confirmed that the efficiencies defense could be used to allow an anti-competitive merger to proceed. Critics of this court decision, including many members of Parliament, believe that this outcome is contrary to the intent of the Competition Act. As well, by allowing an anti-competitive merger, Canada’s efficiencies defense goes much further than, and therefore is seen to be out of step with, us and eu merger laws where efficiencies are only a factor in the competition analysis.13 Despite the permissive approach to iprs in the Canadian competition law, intellectual property rights have played some role in merger, abuse of dominance and other cases under the competition act over the past two decades. As a consequence, the Canadian Competition Bureau drafted, consulted on, finalized and then published its” Intellectual Property Enforcement Guidelines” in 2000. These guidelines noted the complementary natures of the two policy regimes as instruments of government policy that promote an efficient economy, described the provisions that apply directly or indirectly to intellectual property rights, and provided hypothetical examples of the application of competition law to intellectual property. The section of the act that is most directly relevant to ip is section 32, which allows the Federal Court, on the request of the Attorney General of Canada, to make a remedial order based on a finding that a company has used the exclusive rights and privileges provided by a patent or other ipr to unduly restrain trade or lessen competition.

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The Guidelines then note that virtually all of the other competition sections of the 1986 act could be applied to anti-competitive business practices, transactions and arrangements that are related either directly or indirectly to the limited monopoly right provided by intellectual property. However, in fact, ipr issues have most often been investigated in the abuse of dominance and merger cases that have been investigated and adjudicated under Canadian competition law. These are summarized in the next section.

how the in terac t ion s ar e ad dre sse d a n d r e s o lv e d i n p r a c t i c e 14 Starting with section 32 which has been rarely used, the Competition Bureau in the past filed two complaints under this section against Union Carbide. The company settled the matter with the Bureau through (among other remedies) eliminating business practices: that placed restraints on patent challenges; and, that had the effect of extending the duration of the patent beyond its fixed term.15 The NutraSweet abuse of dominance case of 1990 essentially involved the use of intellectual property rights to reinforce an exclusive dealing arrangement and thereby block entry by a competitor. The Competition Tribunal prohibited these business practices by arguing that the company was not entitled to more protection from competition than the protection provided by the patent, which still gave the company a considerable first-mover advantage.16 The Tribunal as well rejected the NutraSweet defenses of superior competitive performance, the need to minimize free-riding (where other parties took advantage of NutraSweet’s investments in intellectual property and other assets), and the company’s efficiency and business justifications for their business practices.17 Another allegation of the Bureau, for which the Tribunal found insufficient evidence, was that NutraSweet provided a lower price to their purchasers in the United States, where its patent on aspartame had not yet ended, if these same American purchasers made their Canadian purchases of aspartame from NutraSweet, where the patent had expired. This essentially involved tying sales in the United States to sales in Canada in order to extend the monopoly right on the Canadian patent on aspartame past its fixed patent term.18 The Nielsen case of 1995, which involved scanner-based market tracking services, Interac in 1996, which addressed the services associated with the electronic banking network, and Tele-Direct of 1997 which addressed telephone directory advertising, were all abuse of dominance cases that were adjudicated by the Competition Tribunal. Each case involved to some degree a dominant market position within industries where network economies and technical standards are prominent and represent important barriers to entry. While intellectual property did

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not play a prominent role in the Tribunal’s decisions, the business conduct determined to be anti-competitive by the tribunal covered many practices that often are used to enhance the revenues, profits and other competitive advantages of ip rights holders in network and other industries.19 These Tribunal decisions and enforcement orders addressed the following business practices: the use of exclusive contracts to deny competitors with access to scanner data which could not be justified on business or efficiency grounds and/or to deter free-riding (Nielsen); tied selling and the refusal to license trademarks (Tel-Direct); and prohibition of new members, higher membership fees for competing financial service providers, and limitations on price competition and services (Interac). Some merger decisions have also addressed intellectual property and related questions. For example, in the Southam case of 1997, the Tribunal ordered the merging firms to divest themselves of certain assets, including ipr assets, when the Tribunal found that the proposed merger was likely to substantially lessen or prevent competition. In these cases therefore, the Tribunal concluded that the public interest in competitive markets and economic efficiency had priority over the rights of intellectual property owners to acquire or dispose of their private property.20 More generally, a number of the Bureau’s merger and abuse of dominance cases and Tribunal decisions under the Competition Act of 1986 has addressed sunk costs as a barrier to entry. These sunk costs, which can deter entry once a dominant position has been established in a market, can include the time, effort and expense of investing in, creating and seeking regulatory approval of patents and other iprs. ipr related sunk costs can be used to defend a dominant position. Defendants can argue that companies, even dominant firms, have a right to realize an appropriate return from ip related investments. Sunk costs can also be used by the Bureau and Tribunal to order changes in business practices, such as access to an ipr-protected essential technology or facility, to allow greater competition and consumer choice in a highly concentrated market.21 These Tribunal decisions therefore send a clear message that the use of iprs to enhance competitive advantage, market position and market power will raise competition issues for the Bureau and Tribunal, particularly in network and similar industries where the company has a very high market share and barriers to entry are significant. These and other Canadian competition law cases are important, through indicating how recent economic and legal research on the compatibility, tradeoffs, and frictions between competition policy and iprs are being addressed in a Canadian context. At the same time, these Canadian cases pale in comparison with the Microsoft (ms) case that has been investigated and adjudicated in the United States, the European Union and Japan, and that in many ways will frame future debates regarding how iprs and related innovation should be addressed

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under competition policy and law. At the risk of over-simplifying what was and is an enormously complicated case that was investigated somewhat differently in the three jurisdictions,22 the ms case in some ways clarified and expanded upon the competition issues discussed in the context of the Canadian case law and the Canadian ip guidelines. The following interpretations of the ms case could be particularly relevant to future ip-related cases in Canada and elsewhere. First, some of the more serious ip related competition cases in the future will likely emerge in network industries. Second, market dominance, based on a strong portfolio of iprs and other proprietary assets, is not necessarily and is not presumed to be anti-competitive and could well be pro-competitive. Third, market dominance in a network industry based on a strong portfolio of iprs and other proprietary assets will raise more competition issues than under the second situation, but is still not necessarily anti-competitive and can be procompetitive when the compatibility and other network benefits are on balance positive for consumers and the overall economy. Fourth, market dominance in a network industry can raise serious competition issues when entry barriers are already high and the company is conducting predatory, exclusionary and other anti-competitive practices to make them even higher and to further entrench their dominant position. Fifth, refusal to deal is typically seen as a lesser threat to competition than exclusionary conduct. However, in the knowledge-based economy, when refusal to deal becomes a refusal to supply information to allow another software developer to be compatible with the dominant firm’s software and operating system, the refusal to deal in information can become an essential business practice for the dominant firm and an important anti-competitive practice for competition authorities and would-be competitors. This is what happened in the Microsoft case. Finally, similar to the Canadian ip guidelines, the ms case clarified that, while intellectual property is seen as an important private property right under competition law, it is no more important than any other private property right. Treating intellectual property like any other property right is a serious source of friction between competition policy and ip advocates.

p l a c i n g t h e d e b at e w i t h i n t h e b r o a d e r ca nadian policy context In general, policy debates and decisions in Canada over the past two decades since the Competition Act was passed in 1986 have accepted the compatibility of stronger ip rights with promoting competition and the consumer interest, and with a few exceptions noted later, generally ignored the potential tensions and frictions between the two policy regimes. The following attempts to summarize the broader external and economic policy context in

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Canada over the past two decades, within which the interactions between competition policy and law and iprs have at times been explored, debated, to some degree resolved and more often ignored. The policy environment – established in some respects by an earlier Conservative government and then reinforced by eleven years of Liberal government rule – and the broader marketplace developments and trends that are important to this debate include of course many of the usual suspects. The first is the globalization of goods and services markets, lower trade barriers, more liberalized trade rules, and rapidly expanding imports into Canada not only from traditional trading partners but as well from emerging market economies in China and other countries. Reversing over 100 years of Canadian trade policy of high import protection, foreign investment restrictions, and grudging reduction of trade barriers through the gatt, Canadian governments, businesses, consumers and voters have generally accepted globalization, international market integration, and the elimination of import barriers in most Canadian sectors. Moreover, through the Free Trade Agreement with the United States and the establishment of the World Trade Organization, Canada played a leading role in promoting greater regional and global market integration. Second, the last two decades have seen stronger and more effective competition policies and laws not only in Canada, but also in our major trading partners and many of the more important emerging market economies. About 100 countries now have competition laws and the number is growing each year. Stronger competition law that is enforced effectively prevents the trade barriers eliminated by government from being replaced by trade restrictions established by companies and other private parties. A third major and even dominant factor is the rapid advances in technology and the efforts of Canadian governments to accelerate technology creation, adoption and commercialization in order to maximize the Canadian benefits from rapid technological change. Fourth, in response to technological change and pressures from major industrial interest groups, patent law and other iprs have been significantly strengthened both through the reform and modernization of Canadian and other national ip laws as well the incorporation of trade-related intellectual property provisions into the wto, the fta and nafta. The strengthening of private ip rights was seen as essential to accelerating technology creation, adoption and commercialization in Canada and for attracting and retaining high quality foreign direct investment into the country. Fifth, Canada was a few years behind and somewhat less enthusiastic about deregulation and privatization compared to the Reagan and Thatcher governments of the 1980s. Still, the country carried out significant and sustained regulatory reform which introduced greater competition, greater product choice, and, in some cases, lower prices into many previously highly regulated sectors

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such as financial services, passenger airlines and other transportation sectors, telecommunications, electricity and other energy sectors. Many of these trends and Canadian policy directions in response to or in support of these developments are found to varying degrees in all of the major economic policy statements of government and non-government groups over the past two decades. These include: (i) the study of Canada by Michael Porter of the early 1990s that led to the report “Canada at the Crossroads”;23 (ii) the prosperity initiative of the later years of the Mulroney government; (iii) the innovation, learning and competitiveness agenda of the 11-year Chrétien government which included the information highway, extending the Internet into schools and rural communities, establishment of the Canadian research chairs program and other innovation initiatives, and the Canadian biotechnology strategy that was revised in the late 1990s; and, (iv) the emphasis on innovation and competitiveness in metropolitan and urban areas of the short-lived Martin government. Many of these external developments and the supporting policy directions of Canadian governments were designed to strengthen competition and consumer choice in Canadian markets, and to strengthen ipr based innovation to promote dynamic efficiency and the availability of higher quality more technology intensive products in Canadian markets. Debate on the frictions between competition and iprs did arise from time to time as part of these broader developments. These included: (i) the implications of stronger patent protection for the price and availability of pharmaceuticals; (ii) the competition and consumer protection concerns – such as misleading or at least confusing advertising, misrepresentation, predatory pricing and negative option marketing – that emerged when regulatory reform initiatives to promote more competition and consumer choice (made possible in part by ip protected technologies) were being introduced into previously highly regulated sectors; and (iii) ethical, environmental and consumer concerns regarding genetic engineering, genetically modified foods and other biotechnology applications.24 However, for the most part, these frictions and debates lasted for only a short while, and were managed with some success by Canadian governments. Therefore, the basic compatibility between competition and intellectual property appears accepted by most Canadian elites, consumers and citizens at most points in time (to the extent that they even think about these issues at all). We now turn to some speculative thinking on what the past discussions and debates on competition policy and iprs may mean for a new Conservative government under a prime minister, Stephen Harper, who is the first trained economist to hold that position in Canadian history. These thoughts are speculative, or at best mildly informed guesses, because competition policy, iprs, innovation, and competitiveness are not obvious aspects of the five priorities of the current government.25

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There is speculation among some economic policy circles in the Government of Canada that the new clerk of the Privy Council, Kevin Lynch, who previously was deputy minister of Finance Canada and Industry Canada, will play a significant role in preparing a competitiveness and productivity agenda when and if the Conservative government achieves a majority. This speculation is based in part on an article prepared by him just before he became the new clerk.26 This may simply be wishful thinking by economic policy wonks in Ottawa, who are not accustomed to so little attention from a new federal government. However, there are a few issues that remain speculative but are based on some evidence from government policy statements. First, as economic and fiscal conservatives, the new Conservative government will likely want to diminish the role of government and expand the role of markets in allocating resources and providing incentives to businesses, consumers, and other economic agents. Tax relief is consistent with this more conservative economic philosophy. This philosophy was as well clearly signaled in the June 13 announcement of the Industry minister that directed the Canadian Radio-television and Telecommunications Commission to rely on market forces whenever possible and to regulate only when absolutely necessary.27 This new approach to telecom regulation is fully consistent with the competition policy advocacy of the Canadian Competition Bureau over the past two decades. Second, at the same time, there is a strand of thinking in the economic conservative literature,28 which argues that competition law is simply another form of government regulation in the economy, is at best a necessary evil, and can do more harm than good to markets, economic efficiency and competitiveness when poorly designed and administered.29 This strand of thinking as well has some links to the ip and innovation literatures discussed earlier, which is associated with the dynamic market competition of Schumpeter and fears that competition law will retard innovation and technological change. It is possible that some members of the new government could be open to arguments that competition law focuses too much on static efficiencies and too little on the dynamic efficiencies generated by ipr protected innovations. Third, the new government has stressed that the best way for Canada to address its climate change treaty obligations and other environmental goals is through the accelerated creation, adoption and commercialization of new technologies designed to reduce energy and other raw material use, make industry more efficient, and reduce waste and industrial pollution. In a similar vein, the new government may expect more advanced technology to play a significant role in improving health care delivery in Canada. This emphasis on technology (supported in part by strong intellectual property rights) to address environmental, health care, security, and other government priorities could be the basis for a broader science, technology, innovation and competitiveness agenda of a potential majority Conservative

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government after the next election. Such an agenda may place particular emphasis on the innovation opportunities available in the oil, gas and other energy sectors, forestry, agriculture, and the other resource sectors that are important to the Western Canadian economy. Competition policy advocacy and competition law cases that could be perceived to retard the achievement of these and other priority objectives in order to maximize the static efficiencies provided by greater competition, may not be viewed with favor by some circles in the new federal government. Fourth, the priority given to fiscal balance with the provinces reflects a broader federal government interest in allowing the provinces to have greater freedom and resources to pursue their own economic and other objectives in their areas of constitutional responsibility, with no interference from the central government. The Canadian competition law, which is administered by a national agency essentially as a monopoly, may encounter some frictions from the current government and its provincial government supporters if the Bureau were to pursue competition policy advocacy and competition law cases directed at ip supported business arrangements that are deemed important to (e.g.) the establishment of community innovation systems and technology clusters at the sub-national level. Finally, this federal government appears to be more inclined to support the economic, commercial, and geo-political interests of the United States government compared to the previous Liberal governments. This inclination may include the intellectual property rights interests of American multinationals (and their Canadian operations), that continue to be strongly supported by the United States government in multilateral trade negotiations and other venues. This may tend to strengthen the hand of ipr advocates in any policy debates on the merits of innovation compared with competition policy. However, based on media articles, there is one policy issue where the federal government may not support stronger ip rights and American commercial interests, but rather will favor more competitive market outcomes, the consumer interest, and maximizing the Canadian consumer benefits from technological change. This is the issue of outlawing p2p (“peer-to-peer”) filesharing of music and movies over the Internet, which was included in the amendments to the Copyright Act that died on the order paper because of the federal election in January 2006. An academic who reportedly was a mentor of the new prime minister argued in a March 2006 article that the Conservative government should think twice about re-introducing these amendments to the new Parliament. Quoting from Nobel-prize winning economist Friedrich Hayek, the article questions whether the “forced scarcity” that results from stronger intellectual property rights actually increases creativity and technological advancement, and argues that the so-called industry losses from p2p sharing are either exaggerated or nonexistent.30 From the article’s perspective, outlawing p2p is a government

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intervention and misuse of copyright law designed to favor narrow producer interests and to prevent consumers from benefiting from new technology. Interviews with government officials indicated that the federal bureaucracy is now wrestling with this issue, and exploring its implications for Canada’s treaty obligations as well as our relations with the United States government, which strongly supports the American copyright community (especially the film and recording industries) on this issue and introduced provisions into its copyright law to prevent p2p sharing in 1998.

c o n c lu s i o n s The interactions and frictions between competition policy and the consumer interest on the one side, and intellectual property rights and innovation on the other, is one of those below-the-surface tensions that can be quiet for an extended period, suddenly erupt for a short period, only to become quiet again. Attempting to forecast the time and intensity of the next eruption is nearly impossible. This chapter suggests that these tensions between competition policy and intellectual property rights could arise more frequently in the future, and that some of these tensions hold the potential to touch on the priorities of the current government. The most obvious at this time appears to be the conflict between copyright holders on one side and competition and the consumer interest on the other, in the p2p sharing debate, but other conflicts discussed earlier could arise with little warning in the future. The growing importance of network industries in the knowledge-based economy, and of network effects in more traditional economic activities, will continue to place strains on the abstract view that competition policy and intellectual property rights are compatible and complementary policy regimes.

notes 1 See Stanley M. Besen and Leo J. Raskind “An Introduction to the Law and Economics of Intellectual Property,” Journal of Economic Perspectives 5, no. 1 (Winter 1991): 3–27. 2 See Doern, G. Bruce and Markus Sharaput, Canadian Intellectual Property: The Politics of Innovating Institutions and Interests (University of Toronto Press, 2000), 1. 3 See e.g. Jorde, Thomas M., and David J. Teece, “Rule of Reason Analysis of Horizontal Arrangements: Agreements Designed To Advance Innovation and Commercialize Technology,” Antitrust Law Journal 61, no. 2 (1992): 579–620. 4 A good Canadian review of the current debate, mainly from the perspective of the Canadian defense bar for competition law cases, is provided in Calvin Goldman Q.C., Richard F.D. Corley, and Michael E. Piaskoski of Blake, Cassels and Graydon llp, “Proceed with Caution: The Application of Antitrust to Innovation-Intensive Markets,” Journal of Information, Law and Technology, 30 (April 2004). An earlier set of

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articles that covers both Canadian and international (especially American) experience is Robert D. Anderson and Nancy T. Gallini, eds., Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy, (Industry Canada, 1998). Network effects are associated with demand side scale economies, where one firm, after exceeding some decisive market share threshold, can rapidly attain and maintain market dominance. See Toshiaki Takigawa “A Comparative Analysis of us eu, and Japanese Microsoft Cases: How to Regulate Exclusionary Conduct by a Dominant Firm in a Network Industry,” The Antitrust Bulletin 50, no. 2 (Summer 2005): 245. Canada’s ip Guidelines defines a network industry as follows. “A network industry is an industry that exhibits network effects. These effects exist when the value or benefit derived from using a product increases with the number of other users.” See: Competition Bureau of Canada, Intellectual Property Enforcement Guidelines, (Competition Bureau, 2000), 9. Ilkka Rahnasto, Intellectual Property Rights, External Effects, and Anti-Trust Law: Leveraging iprs in the Communications Industry, (Oxford University Press, 2003). Church Jeffrey and Roger Ware “Network Industries, Intellectual Property Rights and Competition Policy” in Robert D. Anderson and Nancy T. Gallini, eds., Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy (Industry Canada, 1998), 227–85. Competition as well as innovation issues can be particularly serious when the portfolio pools the patents of actual and potential competitors and includes patents that companies have no intention of using. See oecd, Competition Policy and Intellectual Property Rights: Executive Summary (oecd Committee of Competition Law and Policy, Sept. 21, 1998), 9–10. See Calvin Goldman Q.C., et al., “Proceed with Caution: The Application of Antitrust to Innovation-Intensive Markets,” Journal of Information, Law and Technology 30 (April 2004), especially Section E. Church Jeffrey and Roger Ware, “Network Industries, Intellectual Property Rights and Competition Policy,” in Robert D. Anderson and Nancy T. Gallini, eds., Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy (Industry Canada, 1998), 227–85. One of the first competition policy experts to argue for a limited duration for market dominance was Oliver Williamson in Markets and Hierarchies: Analysis and Antitrust Implications (The Free Press, 1975). These arguments are particularly associated with Jorde and Teece in their 1992 article, and are further explored in Suzanne Scotchmer “r&d Joint Ventures and Other Cooperative Arrangements,” in Robert D. Anderson and Nancy T. Gallini, eds., Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy, 203–21. See Sheridan Scott, “Bill C-249 An Act to Amend the Competition Act: Speaking Notes for Sheridan Scott, Commissioner of Competition, Standing Senate Committee on Banking, Trade and Commerce,” May 12, 2004. Limited space means that this section focuses on ip-related competition cases. The recent Blackberry patent infringement case in the United States indicates that ip cases

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can as well effect competition, through e.g. generating market uncertainty that provides rivals with opportunities for entry and market share increases. See Andrew Hickey “rim Settles with ntp, Spares Blackberry Partners,” SearchMobileComputing.com, March 6, 2006. Gallini, Nancy T., and Michael Trebilcock “Intellectual Property Rights and Competition Policy: A Framework for the Analysis of Economic and Legal Issues,” in Robert D. Anderson and Nancy T. Gallini eds., Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy (Industry Canada, 1998), 29. Ibid., 31. Competition Bureau of Canada, Enforcement Guidelines on the Abuse of Dominance Provisions (Competition Bureau, 2001), 37. See Gallini, Nancy T., and Michael Trebilcock “Intellectual Property Rights and Competition Policy: A Framework for the Analysis of Economic and Legal Issues,” in Robert D. Anderson and Nancy T. Gallini, eds., Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy, 28–9. Ibid., 38–40. Competition Bureau of Canada Intellectual Property Enforcement Guidelines (Competition Bureau, 2000), 4. Sunk costs are defined in the industrial organization literature as “costs that a firm cannot avoid by withdrawing from the market.” See Thomas W. Ross “Sunk Costs as a Barrier to Entry in Merger Cases,” University of British Columbia Law Review 75 (1993): 77. The Microsoft analysis in these paragraphs is the author’s interpretation of a much more detailed analysis on the Microsoft case in the three different jurisdictions. See Toshiaki Takigawa “A Comparative Analysis of us eu, and Japanese Microsoft cases: How to Regulate Exclusionary Conduct by a Dominant Firm in a Network Industry,” The Antitrust Bulletin 50, no. 2 (Summer 2005): 237–66. Michael E, Porter and Monitor Company, Canada at the Crossroads, (Business Council on National Issues, 1991) and Roger L. Martin and Michael E. Porter, Canadian Competitiveness: A Decade After the Crossroads (Rotman School of Management, University of Toronto, 2001). See e.g. Bertha Knoppers and Alan Mathios, eds., Biotechnology and the Consumer, (Kluwer Academic Publishers, 1998); and, Ireland Derek “Competition Policy, Intellectual Property and the Consumer” in Robert D. Anderson and Nancy T. Gallini, eds.,Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy, 293–339. Based on the 2006 budget, these five are (i) improving the accountability and transparency of government operations to Canadians, (ii) tax relief for Canadians, (iii) support to families and communities through in particular the Canada Universal Child Care Plan, (iv) enhancing community, family and individual security, and (v) restoring fiscal balance within Canada, with emphasis on addressing fiscal imbalances in order to strengthen the Canadian health care system and achieve a patient wait times guarantee for medically necessary services. See Department of Finance,

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The Budget in Brief; Focusing on Priorities: Canada’s New Government; Turning a New Leaf (Department of Finance, 2006). See Kevin Lynch, “Canada’s Success Is No Accident, and It Isn’t a Given” Policy Options (April-May 2006): 12–17. See the Globe and Mail, “Bernier Trumpets New Telecom Approach,” Globe and Mail, June 14, 2006, B1 and B7. This strand of thinking is often associated with the Chicago School in the United States which has links to the “Calgary School” in Canada, which reportedly has influenced the economic thinking of the current federal government and Prime Minister. See for example McChesney Fred S., Antitrust, The Concise Encyclopedia of Economics (Liberty Fund Inc., 2002). This negative view of competition policy and antitrust law is often associated with American followers of the Austrian school of economics led by Schumpeter and in particular Hayek. Tom Flanagan and Gemma Collins, “Creators vs. Consumers,” The Windsor Star, March 27, 2006.

14 Harmful Distraction: the Commercialization of Knowledge at Canada’s Public Universities malcolm g. bird One of the chief ways in which intelligence presses forward is through innovation, which is now recognized as one of the most important contributors to economic growth. Innovation, in turn, depends on the creative individuals who dream up new ideas and turn them into reality.1

Ours is an era of information. Western society has evolved through the agricultural epoch and, according to some, is currently passing through the late stages of industrialization, a phenomenon which started with the industrial revolution in the mid-19th century, to an economy and ultimately to a society dependent not on steel and coal production (remnants of the industrial era), but rather on the supremacy of information and knowledge. We have, some claim, entered a new stage in human development: the informational age.2 Not surprisingly, universities, as repositories of knowledge and information, are expected to play a pivotal role in this New Economy.3 Ours is also an era of markets. The Keynesian welfare state model of the post-war economy is in decline, and there is an increased emphasis on the supremacy of markets, as opposed to bureaucratic mechanisms, to solve collective action problems. Markets, supporters claim, are more efficient and effective methods for distributing goods and services in the economy and for running society generally.4 Not surprisingly, this shift towards an informational age, combined with wider ideological changes that tout the supremacy of the marketplace, means than an increased emphasis is being placed on entrepreneurship and the commercial viability of ideas. This chapter examines the current pressure being placed by political institutions, those in influential positions at universities themselves, and other societal institutions/actors on universities to promote and produce innovations that are commercially viable. To understand the current emphasis on the role of universities in creating marketable (commercially viable) ideas, one must examine two sets of institutions in our society: firms and universities. The former, firms, are typically advertised as the most important wealth generating institutions in society. Their function is pretty straightforward. Firms are profit

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maximizing institutions that produce goods and services for consumption. What function or functions universities should play is, however, at present, a far more contentious question: what is the primary role of universities in modern-day Canadian society? This question, in conjunction with the current weight being given to the commercial viability of knowledge that universities generate, forms the bases of this chapter. Unfortunately for the writers at The Economist and proponents who highlight the increasing amount of commercially viable knowledge generated by universities, the conclusions reached in this chapter will be somewhat disappointing. In theory, firms and universities should have many compatible synergies. Firms need quality research and development that market mechanisms often fail to provide, and universities have lots of human capital to dedicate to such problems. But getting the two sets of institutions to work together effectively is highly problematic. This is not to say that universities should not connect with the external world (or with firms for that matter). It is only to suggest that knowledge transfer to the marketplace directly from universities (via their faculty and graduate students) might not be the best way to maximize returns from government expenditures on universities, or to close the so-called productivity gap in the Canadian economy. The argument in this chapter is critical of the efficacy of commercializing university research and it is based on one fundamental premise: expanding the role of the universities beyond their three principal functions of teaching, conducting basic research and serving the wider community to include commercialization will, almost by definition, limit the resources available to fulfill their three traditional functions. Like all other institutions, universities suffer from resource and energy constraints. Requiring universities to perform an additional role, and emphasizing the importance of the new role they are expected to perform, commercializing the research they produce, will automatically reduce resources previously available for the performance of other key functions. Faculty and staff have, after all, only a limited amount of time and energy to dedicate to each particular task. This is, in some respects, a zero-sum game. The chapter is organized as follows. The first section highlights and explains the increased emphasis on the commercialization of university knowledge by summarizing the findings of a government appointed advisory council. This section of the chapter will serve to outline the position of those who argue for increasing the commercial applicability of university knowledge. The second section summarizes some findings of two academics who have examined the University of Waterloo and its success at becoming an ‘entrepreneurial’ university, offering some criticisms of this university’s function, but, most importantly, suggesting that it may not be possible or advisable to replicate the University of Waterloo’s successes at other Canadian universities. The third section then draws on secondary and primary

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research to argue that there are some structural problems with commercializing the knowledge created within universities. The needs of firms and the direct commercialization of university- generated knowledge (through the creation of spin-off companies, for example) are wholly incompatible with the current organization, composition and, indeed, the contemporary functions of Canadian universities. In this part of the chapter, some of the problems inherent in putting this growing emphasis on commercializing university knowledge into practice are outlined, such as the limited role arts and social sciences faculties will and do play in this new model and the precarious position in which it places them, the lack of emphasis the push for ‘commercialization’ places on the current teaching and basic research functions of universities, and the difficulties inherent in attempting to emulate the success of commercialization endeavors in other places (mainly in the United States). Finally, the chapter suggests that the importance being placed by political, societal and even some university actors on innovation, in a general sense, and commercialization, more specifically, at universities might, despite its various drawbacks and complications, be used by universities to increase university funding. Leaders of universities, if politically astute, will be, and indeed, may have already been able to use this emphasis on commercialization to garner much needed public resources. The Association of Universities and Colleges of Canada (aucc), for example, has published a report, entitled Momentum, that ardently supports the efforts (and increased funding) from the federal government that has led to a remarkable improvement in the research capacities at Canadian universities.5 Over and above the increased directed research funding from the federal government, Canadian universities, unlike some other state agencies, have managed to garner public resources in these times of multiple demands on limited taxpayer resources. The current governmental emphasis on commercialization at universities, and the need for universities to produce commercially viable knowledge, appeals to the needs of their political masters; it could be a part of a coherent strategy by the universities to increase public resources for their institutions.

universities and the “reaping the benfit ” argument There is growing emphasis on improving the productivity of Canada’s economy. Both politicians and interested citizens are focusing on the fact that Canada’s standard of living is falling relative to its southern neighbor, and that its financial commitment to research and development (r&d) is behind that of other developed nations. According to a recently published government appointed panel, “Canada has had the lowest rate of productivity growth among g-7 countries” and “r&d investments by the industrial sector in Canada

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amounted to 1% of gross domestic product, and were second lowest among the g-7 countries.”6 Not surprisingly, this has caused great concern among Canada’s political elite and, under the reign of Chrétien’s Liberal government (1992–2003), the federal government significantly increased the amount of funding for University-based research.7 One key component of the government’s strategy (and a component often used as a basis of assessing the success of r&d expenditure) is the number of commercially viable products that the universities have created or could potentially create. Licenses, patents and, of course, the most tangible consequence of successful research, spin-off companies, are extolled as critical milestones in assessing how skilled Canada’s professors and graduate students are at producing valued knowledge. The Canadian government’s Advisory Council on Science and Technology commissioned a report on this issue and its title, Public Investments in University Research: Reaping the Benefits, gives the reader some preliminary insight into the principal view expounded in the report: that one effective way to improve Canada’s productivity gap is to increase the amount of commercially viable research produced at our universities. The Council’s recommendations are numerous; but, very briefly, it calls for a reorientation of our universities so that they become centers of commercially viable research. The Council’s first recommendation sums up its position succinctly: “The federal government should require an explicit commitment from all recipients of federal research funding that they will obtain the greatest possible benefit to Canada, wherever the results of their federally funded research are used for commercial gain.”8 The report then goes on to explain that “innovation” (with a particular focus on market-oriented commercialization) ought to be one component of universities’ mission statements (and, by definition, their function), equal in importance to their other commitments to teaching, research generally, and community service.9 Further, it asserts that researchers should disclose the existence of all intellectual property (ip) with commercial potential to their universities. Should they fail to do so, the report proposes that “Researchers who do not comply ... be denied access to future federal research funding.”10 The report then outlines how universities should promote commercialization. The Council recommends that researchers be required to “make reasonable efforts” to commercialize ip, that universities provide incentives to researchers to create commercially viable ip and that “These incentives ... include appropriate recognition of innovative researchers in tenure and promotion policies.”11 In addition to encouraging spin-off companies and ensuring that research is developed by Canadian companies, the report calls for the establishment of formal internal organizations at universities to deal with innovation produced by their respective researchers. The Council also calls for a general increase in government funding for universities and, perhaps a little disturbingly, calls for the universities to “…use their educational resources to develop the people with the necessary entrepreneurial,

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business and technical skills required to increase the number of successful innovations created from the results of university research.”12 The university, according to the Council, will be a central institution through which the overall level of productivity of our economy may be improved. The Council further argues that one of the universities’ key functions should be to maximize taxpayer-derived revenue by increasing commercially viable knowledge. This emphasis on increasing the quantifiable nature of public expenditures fits well with a general push in many public policy circles to measure the output of public institutions.13

t h e u n i v e r s i t y o f wat e r l o o as the norm? One academic institution that has been praised frequently in Canada for its success in producing commercially viable research and forming links with the wider community, particularly private enterprise, is the University of Waterloo (uw). It cannot be denied that uw has had considerable success in these arenas. It is important to note, however, that the process of promoting innovation in a general sense and commercialization more specifically is not a linear one, but is instead more of an iterative and interactive process conducted between universities and firms. Allison Bramwell and David A. Wolfe’s analysis of Canada’s most famous ‘entrepreneurial’ university,’14 articulates this process well. According to Bramwell and Wolfe, the most effective means of transferring knowledge from a university to firms is through personal connections between both sets of institutions. In addition to developing human capital and conducting primary research, the uw facilitates commercialization by being a strong community player that attracts and retains highly skilled talent. These talented individuals are, in turn, plugged into international information pipelines. Once they have joined various departments at uw, these individuals are able to use their connections and information sources to build networks between individuals in particular fields. In addition, through co-operative arrangements, where students are engaged by firms for ‘work-study’ terms (these co-op work terms often lead to after graduation employment with these firms for these students), the uw has become an embedded actor in the Waterloo business community. This helps technology to flow from universities to firms and vice versa. “Universities emerge as multi-faceted economic actors that are embedded in regions, and not only produce codified and commodified knowledge and human capital, but also actively participate as important institutional actors in both.” Bramwell and Wolfe certainly assert that uw is a key catalyst in the process of regional development, but they also state that the university’s eminent position in the development of the local economy follows and facilitates such development, rather than being a direct cause of such development. They

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further argue that straightforward (linear) commercialization is “not only a misconception of the commercialization process itself, but also of what universities can and should be expected to do.”15 In addition, while recognizing and lauding uw for its successes, they point out that much of the interaction between firms and uw is focused on product development (“faster, smaller, cheaper”) rather than on research.16 Finally, they recognize that firms’ biggest incentive to connect with uw (and to participate in co-op programs) is the fact that such connections give them access to and ability to seek out the best and brightest technical minds for future employment purposes.17 There are additional problems or caveats to be expressed with respect to the type of institutional arrangement uw has with firms in the Waterloo area. In a sense, uw is functioning as a direct conduit, developing the knowledge and talents of individuals in order to serve the interests of the particular firms in the immediate area. This is in fact, an important function played by the university, and may suit particular disciplines and the geographic and economic context of the Waterloo area, but it may not be a model which can be superimposed directly on other universities. In addition, shifting the function of universities to suit such a model seems an awkward and somewhat risky proposition, because, as noted earlier, universities are complex institutions that serve a wide variety of public purposes, only one of which is or might be developing commercial applications for research. Universities may therefore stand to lose more than they gain by adopting the uw model, particularly if they do so in a wholesale fashion. Bramwell and Wolfe are, however, correct in their assertions about the nature of the interaction between firms and universities and in their contention that universities (like many public institutions) are under increased pressure to turn research into tangible, measurable economic returns.18 The emphasis placed in the Council’s report on the need for universities to commercially develop the research of their faculties and students, and the trend, in Canada, on the part of various political, governmental and social actors, to hold uw’s success in innovation up as a model that every university in Canada should follow is extremely problematic. This is not to say that universities do not (or should not) play a pivotal part in successful development, but rather to assert that the most important role universities do (and should) play is to provide a highly educated population from which capable workers and innovators will develop (the best form of knowledge transfer between universities and firms is a pair of shoes!).19 Nor is this to say that universities should not attempt to improve communication links between themselves and other societal actors (including firms). On the contrary, research partnerships between firms and universities, and the establishment of institutes and other organizations within universities that help to bridge the communication gap between society and academia, should be explicitly encouraged. There is, after

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all, a significant amount of valuable knowledge at our universities; knowledge that can be very useful both to market actors and other organizations that seek to solve collective action problems. It is the emphasis placed in the Council’s report (and starting to be placed by governments) on the specific commercialization of knowledge, and on the use of market-based results to judge the ‘success’ level of such endeavors, that is most troubling. This direct ‘marketization’ of knowledge might not only be a poor use of resources, but might also harm the ability of universities to fulfill their most important mandate in society: conducting research and creating society’s educated elite. We ought to proceed with utmost caution when considering changing the role of our universities in contemporary Canadian society.

s t r u c t u r a l a n d c u lt u r a l d i f f e r e n c e s There are fundamental differences between the cultural and social characteristics of those that work and study in an academic environment and those that work in the marketplace. Most people who chose to work in an academic setting do so because they are attracted to the characteristics of academia. Many enjoy doing research and helping to stimulate the minds of the next generation (i.e. they enjoy teaching students). These people tend to be of a high intellectual caliber and, given these endowments, could easily excel at any number of professions (including business). They have instead, however, opted to work in the intellectually stimulating environment of a publicly funded university. Many, also, have strong beliefs in the importance of the public sector and do not wish to work or be associated with the more competitive and short-term profit oriented private sector. This pre-selection of individuals, furthermore, means that although those working at universities are highly intelligent and capable people, they may have inherent difficulty in (or even feel an outright hostility about) conforming to the needs of the marketplace, where the commercialization of knowledge, must, by definition, occur. Academics are also usually in a poor position to appreciate what types of research will produce products that the market will value.20 Academic cloistering through long periods of study, and intensive research conducted with respect to one very specific topic within a particular field, are both necessary if one is to earn a graduate degree (particularly at the doctoral level). Earning tenure, given the current criterion, also requires very specialized research and writing, in addition to teaching courses, supervising students, and the (often onerous) performance of administrative duties. These professional requirements and the intellectual isolation that they create will naturally limit the time one can dedicate to discovering what types of products/ideas are marketable. While for some types of university generated knowledge, it will be obvious that such a breakthrough could yield a potentially viable commercial

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product,21 for the vast majority of university generated knowledge, what will or could be commercially marketable is not as clear. This is partly due to the isolated nature of universities and their faculty (whose ‘ivory tower’ position in society has become a cliché); however, it is also brought about by a lack of knowledge of and information about what types of problems firms face22 and, more generally, by a lack of information about market conditions and whether or not (or even if) certain ideas or products of ideas are economically feasible. This problem is, however, one that is likely solvable if firms and universities are willing to create relationships, such as research partnerships. Such partnerships can help to solve informational asymmetries between these two sets of institutions. An additional problem facing advocates who seek to increase the market viability of university generated knowledge by turning that knowledge into saleable commodities is the lack of business, financing and marketing skills within the university community. To illustrate, imagine a scale from 1 to 100 with 1 being the initial idea, 100 being the finished product ready for purchase on the open market, and 10 being a working prototype. Getting from 1 to 10, from an idea to a prototype, is theoretically possible within the university environment, provided the prototype in question is not one that requires significant amounts of capital or very specific technology to develop. But even if it were possible to create a prototype, 90% of the product’s development remains wholly outside of the capabilities of most university personnel.23 The opportunity to produce a marketable idea (leaving aside for a moment the equally important need and ability to make one’s marketable idea a ‘success,’ something which relies, to a certain extent, on timing and luck, as all business endeavours do) is dependent on a number of variables. Capital must be raised; a solid business and marketing plan must be created and executed; experienced managers must be hired to steer the project through its development and manufacturing phases; regulatory hurdles must be overcome; and administrators must be found to run this new organization. These necessary steps to producing a marketable idea are not steps that graduate school generally provides one with the skills to undertake. To simply argue that such skills need to be created and nurtured in the university (and graduate school) environment, again negates the fact that graduate school is not designed to teach such skills and fails to recognize that there is a limited amount of energy/time students can devote to this matter while examining subjects in the in-depth manner required to earn a graduate degree. The problem is compounded for faculty members, who, as stated previously, often have weighty teaching, supervisory and administrative responsibilities to contend with on top of their research responsibilities. In addition, because academics generally do not learn marketing skills in graduate school, they tend to underestimate the efforts required to bring an idea or invention to

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the marketplace. They tend to “throw it over the wall”24 and assume that their good idea or product will sell itself; downplaying the inherent difficulties and challenges that inventors face when trying to bring a finished product to the marketplace. Even with the well-capitalized, experienced business managers running a spin-off operation (i.e. guiding it through the 90% of the process); there is a solid chance that a research-based product will not meet with success in the marketplace. To use a classic example, Sony’s Beta video cassette recorder was a far superior product than vhs, but due to a number of reasons (and some serendipity); it never caught on as a viable product. Marketing one’s creations or ‘brainchildren’ involves much more than coming up with new (even viable) ideas and products; it also requires business skills and luck. Perhaps the most problematic thing about the current emphasis on bringing university generated ideas and knowledge to the marketplace, however, is the fact that such emphasis implies that the marketplace is the best means of deciding what is and is not a valuable idea. Under this model, the marketplace operates as the final arbiter of what constitutes valued and valuable research. Over and above the flaws that are inherent in using markets to solve collective action problems (those in favor of market based solutions to such problems tend to argue that markets are perfectly rational (and logical) means of allocating goods and services, and of choosing winners and losers, when this is not the case), the notion that the value of ideas should be determined by markets (and the amount of profits they earn for companies), and that they alone should be the arbiters of what constitutes good research, is a difficult one to swallow. Markets, while superb at solving some collective action problems, are also prone to failure; market failure is, after all, why we have government funded universities in the first place.

di strac ti ng from the cor e rol es of universities An overt emphasis on converting university generated knowledge to useful products in the marketplace will also mean that less resources will be dedicated to addressing important, yet not necessarily commercially viable, problems. Again, this argument is derived from the fact that there is a limited amount of time and resources within any institution that can be dedicated to pursuing its specific goals. Add an additional function, such as commercialization, and you will, perforce, have to take resources from the other stated functions of the institution in question. Interactions with the wider community (except for private firms) are, for example, one area of university involvement that could suffer due to an increased emphasis on commercialization, as universities would likely have less and less time to devote to activities such as community outreach.

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In addition, an increased emphasis on commercialization at universities would likely create time and internal monetary constraints which could serve to impede the ability or will of graduate students and faculty members to dedicate energy to solving problems or developing ideas that are unique, and could not or would not be solved by any other institutional arrangement. After all, how likely is it that these individuals would devote time and energy to such endeavors while their colleagues, who are busily solving problems that might have commercial applications, receive the lion’s share of funding and recognition? Were this to happen, Canada and Canadians would lose some of the benefits they are currently gaining from unique research or research products created by universities that are not commercially viable. A significant amount of research conducted at Canadian universities does not have any commercializing potential at all. This does not, however, mean that it is not valuable. Geophysicists who examine the earth’s structure and physical dynamics that may help us to better understand the effects of global warming, is one tangible example,25 but there is a plethora of other important research being conducted at our universities today. Few could argue that exploring childhood intellectual development, examining urban renewal programs or understanding the problems associated with caring for aged family members, to name but a few examples, are not important subjects worthy of study.26 triumf, a nuclear particle accelerator located at the University of British Columbia, provides very specialized radiation services to eye cancer patients who suffer from ocular melanomas (eye cancer) for a nominal cost (this treatment often allows patients to keep their eyes rather than having them removed). The main motivation behind such activity is to provide tangible public services to the community.27 Faculty and graduate students also dedicate their time and energy to helping non-governmental organizations solve collective action problems. While, in many instances, they could ‘sell’ their services to these organizations (by consulting, for example) many are committed to making their communities better places, and would resent any evaluation using monetary measures. The emphasis on commercialization of university knowledge will also place the social sciences and the humanities in a precarious position relative to other faculties, as much of the research conducted by these faculties has little (if any) direct value in the marketplace. In such a climate, these faculties will have a more difficult time attracting resources and will ultimately be limited in their ability to make credible arguments in order to justify their own existence within universities.28 Sociology, political science, history and English literature, as examples, serve a very important function not only by teaching their students to think independently and write clearly, but also by conducting research that helps to explain how and why our world is configured in the manner that it is. Providing insights into the political nature of world, in the case of political science, or exploring absolutely critical questions surrounding the meaning of

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our human existence, may not have any direct commercial value, but certainly must have value to a civilized society. Universities, like all public institutions, are under increasing fiscal constraints. This means that that there is intense competition between their various faculties and departments for access to the limited funds. If the commercialization of output is used as a significant criterion in determining how resources are allocated (which is essentially what is happening) then arts and social science faculties will be at a distinctively disadvantage vis-à-vis the other faculties in the universities. Perhaps more fundamentally, the increased emphasis on the commercialization of knowledge might alter the types and forms of research conducted at our universities generally. It is their capacity to conduct research, unhindered by short-term market-orientated considerations, which allows universities to help facilitate real, substantive structural changes in how our society operates. Research that has the potential to ‘revolutionalize’ how our society (and economy) operates is simply not valued by the marketplace, which prefers research that will produce goods and services that ‘fit into,’ if you will, preexisting market structures. Ideas that are directly marketable tend to be incremental rather than ‘revolutionary.’ By ‘revolutionary’ types of research, we are referring to those that have the potential to alter the fundamental makeup (or structure) of how the economy and society function. Again, this argument harks back to this chapter’s central premise; that pushing the commercialization of university knowledge will, due the universities’ finite resources, limit universities’ abilities to fulfill their other societal functions. The best example of a revolutionary-type development that grew out of research at universities is the internet and the digital/informational revolution that it helped spawn. Two myths surrounding the development of the internet, which pertain to this chapter’s argument, are well articulated by Godfrey Hodgson. The first is “that the Net and the Web were invented by graduate students: by youthful, informal, and irreverent hackers in chinos, in epic “night marches” sustained by Diet Coke and pizza, and that these innocents effortlessly changed the world as a by-product, an unintended consequence, of carving out prodigious fortunes for themselves.”29 The second is “that the internet and its promise were quintessentially the creation of, and therefore the ultimate justification of, entrepreneurial capitalism, operating in the free market, unaided and unaffected by the government.”30 This popularized anti-statist and pro-market ethos on the development the internet, one of the key pieces of machinery necessary for the informational age, not only supports the view that society increasingly values and reveres the marketplace; it also negates the role that government played in the internet’s development. The internet was created through collective effort, by a whole host of individuals conducting research in government labs, university labs (on government contracts) and corporate labs, such as Bell Laboratories (the private companies involved were often companies operating in protected markets).

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Many of the vital discoveries respecting the internet were made, not by individuals who were hoping to earn profits, but rather individuals who “were inspired by intellectual curiosity, by ingenuity for the sake of it, by the need to solve professional problems, even sometimes by boredom, rather than by an entrepreneurial desire for financial gain.”31 Without getting into the details of the history of the development of the internet, it is important to recognize that it was not created in the first instance as a result of a desire to commercialize university knowledge, but rather as a result of a commitment made by universities and other, to conduct research, research that had no particular or acute market applicability at the time it was conducted. Of course, other factors had a role to play. The development of the internet was also largely a product of the postwar mixed economy where universities and corporations, funded by the American government, were motivated to dedicate research resources to specific problems of the American military during the Cold War.32 The principal point for the purposes of this chapter, is, however, that a key factor in the development of the internet was a desire, on the part of universities and government institutions, to conduct research, unhindered by short-term, market-driven concerns. This example demonstrates that if we place too much emphasis on short-term considerations, we may be compromising other forms of research that, over the long-term and in conjunction with other developments, might yield more important and fundamental innovations benefiting society as a whole. This is not to say that universities should not interact with the external world (whether it be through government research contracts or through other mechanisms) or attempt to minimize such interactions. In fact, such interactions should be encouraged (many university “grew rich on such contracts”33). However, it should be recognized that the emphasis on the immediate marketing of university knowledge might lead to the stifling of, or slower progress with respect to, other, more novel research contributions. The internet is only one example, but basic research into other areas such as energy consumption and transportation are definitely at risk of being stifled by such emphasis, absent an ability to demonstrate marketability in the short-term. This could compromise real, long-term ‘revolutionary’ type developments in the energy and transportation fields. We might want to consider the value inherent in having our universities insulated from market pressures and encouraging them to think in ‘revolutionary’ rather than ‘evolutionary’ terms before changing the current system too drastically; there are, after all, only a few places in our society relatively untouched by the tentacles of the market’s values. It is also important to note that many examples of the efficacy of commercializing knowledge come from the United States and draw on the Stanford University (Silicon Valley) experience and Massachusetts Institute of Technology and surrounding universities (Boston area) experience.34 The problem, however, with drawing on these American case-studies is that there are a

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number of characteristics unique to the United States and to these universities in particular that might not be reproducible in other university towns, particularly those located in other countries like Canada. As a result, replicating these success stories might be impossible. Canada, for example, does not have as large an advanced high technology industry as the us does. This means there might not be the corporate infrastructure in Canada necessary to successfully develop university based knowledge. It also means that Canada may lack the necessary pools of venture capital to invest in new products. In addition, cultural differences may also end up playing an adverse role. Canadians, as far as investments go, tend to be more risk-adverse than their American counterparts. Such risk aversion inhibits speculation in risky startup ventures.35 The number of venture capital investors in a place like northern California, for example, far exceeds the number in its northern Canadian counterpart, the Greater Vancouver area.36 Competing and comparing ourselves with Americans in this arena also negates other inherent, structural competitive disadvantages that Canadian universities face. America’s large population, for example, means that it has greater concentrations of both specialized firms and, in particular, specialized individuals, in large ‘critical mass’ formations. This means that the right mix of factors needed to develop universities’ knowledge commercially is easier to come by in the us By contrast, with the exception of central Canada, our industrial-base is primarily limited to resource extraction. This places limits on the viability of commercializing university knowledge in Canada. Emphasizing the commercialization of university knowledge might also compromise the university’s most basic function: to produce well rounded individuals, who are capable of thinking critically.37 While this feature of universities is sometimes glossed over and/or neglected, it is, I feel, the most important function that universities perform today. Fostering students’ abilities to read and digest complex arguments and reorganize large amounts of information in an oral or in written form (the latter being more challenging for the vast majority of students) is at the heart of the universities’ most basic function. My own personal experience indicates that these skills, and, in particular, writing skills, are often lacking in our student population. My thirdyear, honours history class where I am employed as a teaching assistant is full of bright, curious students who do not have a competent grasp of the most basic writing skills. The great majority of them (80%) can not formulate a cogent, well-written, well-structured argument. This is not because they do not possess the capacity to do so, but rather because they have not been taught, somewhere along the educational line, how to write proper essays. This problem is one for which educational institutions at both the high school and post-secondary levels must both accept at least partial responsibility. This problem becomes even more serious when you consider that we live in an age where more and more people are admitted to universities,

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seeking a university degree that is held forth as necessary in the new economy. A university of education, once a possibility for a select and wealthy few, is increasingly becoming something that an ordinary member of the general public can aspire to and obtain.38 This is, of course, a good thing. However, the connection between clear thinking and clear writing is essential for developing potential in our younger generation, and as more and more people are admitted to universities, the lack of these skills has become increasingly apparent due to sheer weight of numbers admitted. An increased emphasis on commercializing knowledge will only further stretch the limited resources needed for development of thinking and writing skills – in an era where university resources are increasingly under financial strain.

gaining more funding through c o m m e r c i a l i z at i o n ? In the preceding sections of this chapter, many of the problems inherent with the commercialization of knowledge at universities have been highlighted and discussed. It is nevertheless important to recognize that while the commercialization of university knowledge may be problematic, the movement towards commercialization at universities might actually serve to help the universities obtain public resources. Over the course of the last ten to twelve years in Canada, all public agencies have come under intense financial pressure from their political masters. For example, the implementation of the Chrétien Liberals’ Program Review of the mid-1990s, put into practice by the Minister of Finance, Paul Martin, sought to dramatically cut federal government expenditures,39 in particular, cutting transfer payments to the provinces for health and education by 40%.40 Provincial governments, too, have been under increasing pressure to lower expenditures, either because the provinces they govern have found themselves in financial difficulty or because the provinces have been governed by neo-conservative oriented governments that believe in reducing the size of public institutions, or both. These calls for financial austerity mean that all public agencies have to fight for an increasingly limited pool of public financial resources. Some, however, have done better than others. Public transit, social welfare and the Canadian military, for example, have had difficulty attracting increased (or even sustained) funding, while other institutions, notably police and fire departments and our public healthcare system, have done better. Over the last eight years, however, the federal government has invested over $11 billion in new research funds to university-based research initiatives.41 The universities are eager to not only justify this spending, but also to ensure that it continues; ensuring that Canada is at the leading edge of research and development in the developed world. The tangible benefits of such investments are highlighted in the aucc’s publication Momentum

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whose objective “has been to publicly recognize federal and other investments in university research and knowledge transfer in recent year and report on the benefits of these investments for Canadians.”42 Universities, after an initial cut and a residual increase in fees, have actually fared reasonably well, since they are supported by the middle-class and are (rightly) viewed as being key institutions in developing and sustaining an educated population so important to a knowledge-based economy. The political, governmental and social pressure placed on universities to engage in commercially viable research could be (and one might argue) already has been used by universities to justify demands for increased government funding. Only through such funding, the argument might run, will universities be able to accommodate the calls from the political sphere for more marketable products. Leaders of our universities are highly politically astute and understand the importance of pleasing their political masters. Accordingly, it is extremely likely they will use the current emphasis on commercialization to help them to garner resources from the public purse. Public institutions, contrary to popular opinion, are able to influence their political fate (and the amount of resources they can obtain) if they are lead by people who have a firm understanding of the needs of those who allocate the money. These institutions do, in short, have agency and are able to effectively influence their political destiny. The real-world ‘practicality’ of our universities (however one wishes to define that) is, after all, what politicians are increasingly calling for from these institutions. The effect of such calls is demonstrable. These calls are why, for example, even in arts faculties; we are increasingly seeing the development of disciplines that teach tangible skills clearly ‘transferable’ to the ‘real world’. The enlargement and increase in the number of various kinds of public policy departments in Canada is another example of this phenomenon.

c o n c lu s i o n s The informational age, in contrast to the industrial age of yesteryear, will require a new and highly educated workforce. Canada’s universities will have to adapt to this structural economic shift. They will also have to adapt to the increased reverence for the marketplace, as opposed to governments, as the claimed most effective means by which to solve our society’s collective action problems. Despite the problems outlined here, in the case of university-based research, the marketplace will increasingly be the final arbiter of what constitutes valued research. The universities will thus be charged with finding a careful balance between the objectives of creating commercialized research, on one hand, and research and educating students, on the other. These two mandates will be in conflict since both will require more energy and resources from a finite pool. Universities will also need to remember that commercialized

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knowledge is a tangible measurement of their ‘improvement’ and that such a measure is highly regarded among their political masters. Creating intelligent, capable students is still a seminal reason for their existence, yet it is an outcome that is much more ephemeral and much more difficult to quantify. This salient difference in the quantifiable nature of the variables will, in the end, make striking the balance even more difficult. More generally, before we consider reconfiguring the role of our universities in our society and economy, or, for that matter, before reconfiguring any set of institutions, we ought to remember the reasons why past configurations of these institutions (and their successful functioning) have served Canadian society well. Our country is rich, peaceful and pluralistic. Its citizens are the envy of the world. At least part of the reason for this is the effective role that our government and public institutions have played in our country’s development. This includes the pivotal role our universities have played in contributing to our society’s prosperity. This is not to say that universities should not adapt and change to our ever fluid societal and economic needs. It is only to argue that before we reconfigure our universities to respond in a larger way to the marketplace and its needs, we ought to very carefully consider all of the possible repercussions.

notes 1 The Economist, “And the Winners Are …,” The Economist, December 10, 2005, 15. 2 M. Castells, The Rise of the Network Society (Blackwell Publisher, 1996). 3 See Expert Panel on Comercialization, People and Excellence: The Heart of Successful Commercialization. Report of the Expert Panel on Commercialization, (Industry Canada, 2006); Michael Crow and C. Tucker, “The American Research University as America’s Defacto Technology Policy,” Science and Public Policy 28, no. 1 (2001): 2–10; David Laidler, ed. Canadian Universities and the Knowledge Economy, (C.D. Howe Institute, 2002); and Robert Crocker and Alex Usher, Innovation and Differentiation in Canada’s Post-secondary Institutions (Canadian Policy Research Network, June 2006). 4 Friedman, Milton, Capitalism and Freedom (University of Chicago Press, 1962). 5 Association of Universities and Colleges of Canada. Momentum: The 2005 Report on University Research and Knowledge Transfer (Association of Universities and Colleges of Canada, 2005) .http://www.aucc.ca/momentum/en/_pdf/momentum_report.pdf. 6 Advisory Council on Science and Technology. Public Investments in University Research: Reaping the Benefits (Advisory Council on Science and Technology, 2000), chapter 1 at: http://acst-ccst.gc.ca/comm/rpaper_html/report_1_e.html. 7 Simpson, Jeffrey, “Chrétien’s Legacy: Don’t Think Gomery, Think r&d,” The Globe and Mail, 4 November 2005, A17. 8 Advisory Council on Science and Technology, Public Investments, Executive Summary, 4. 9 Ibid., 5. 10 Ibid.

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11 Ibid. 12 Ibid. 13 Pal, L.A. Beyond Policy Anaysis: Public Issue Management in Turbulent Times, 2nd Edition, (Nelson, 2001), chapter 5. 14 Allison Bramwell and David A. Wolfe, “Universities and Regional Economic Development: The Entrepreneurial University of Waterloo.” Paper presented at Canadian Political Science Association, Annual Conference, The University of Western Ontario, London, Ontario, June 2 – 4, 2005. 15 Ibid., 2. 16 Ibid., 19. 17 Ibid., 20. 18 Ibid., 6. 19 Ibid., 21. 20 Douglas Oldenburg, Professor, Geo-physics, University of British Columbia, phone interview, August 2, 2005. 21 Researchers at Universite de Sherbrooke, for example, developed a method of compressing audio voice tones into the electronic impulses necessary for cellular telephone networks. Not surprisingly, this development has earned the university much recognition and money, but this type of development is the exception, rather than the rule for the development of university-based knowledge. Philip Gardner, Technology Transfer Division Head, triumf, phone interview, October 3, 2005. 22 Douglas Oldenburg, phone interview, August 2, 2005. 23 Lorne Gettel, developmental consultant, phone interview, August 15, 2005. 24 Ibid. 25 Douglas Oldenburg, phone interview, August 2, 2005. 26 Association of Universities and Colleges of Canada, Momentum, 39–83. This chapter provides a plethora of information on the very diverse types of research being conducted at Canadian universities. 27 Philip Gardner, phone interview, October 3, 2005. 28 However, it is worth noting that a number of recent developments in the social sciences and humanities over the last twenty years have served to disconnect these disciplines from the society they examine. Most notably, the adoption of post-modern theoretical frameworks which, among other things, reject enlightenment principles respecting the validity of searching for ‘truths’ and place emphasis on the relativity of knowledge has limited the ability of these disciplines to engage with the wider world. See Pauline Marie Rosenau, Post-Modernism and the Social Sciences: Insights, Inroads, and Intrusions (Princeton University Press, 1992). 29 Godfrey Hodgson, More Equal Than Others: America from Nixon to the New Century (Princeton University Press, 2004), 64. 30 Ibid. 31 Ibid., 65. 32 Ibid. 33 Ibid., 66.

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34 On occasion, the University of Waterloo (Tri-city area of Ontario) is also referred to as an example of success in this area, as mentioned earlier in this paper. 35 Suymour Lipset, Continental Divide: The Values and Institutions of the United States and Canada (Routledge, Chapman and Hall Inc., 1990), 123, 124. 36 Philip Gardner, phone interview, October 2, 2005. 37 By the use of the word ‘critical’, the author is not referring to a Marxist-orientated “critical theory” ethos, but rather students (and citizens) who can think independently and can solve real-world problems – this applies to all students regardless of their particular faculty of study. 38 Adrian Wooldridge, “The Brains Business,” The Economist, 10 September 2005, 3. 39 Gene Swimmer, ed. How Ottawa Spends 1996–97: Life Under the Knife (Carleton University Press, 1996), chapter 1. 40 Janice McKinnon, Minding the Public Purse: The Fiscal Crisis, Political Trade-offs and Canada’s Future (McGill-Queens University Press, 2003), 221. 41 Association of Universities and Colleges of Canada, Momentum, 85. 42 Ibid.

appendices

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appendix one Canadian and Comparative Science and Technology Data

gerd=Gross domestic expenditures on research and development; berd=Business enterprise expenditure on research and development; herd=higher education expenditure on research and development. Triadic patent families means that the patent has been registered at the three main national patent offices (the uspto, epo and jpo)

Figure 1 gerd as a Percentage of gdp, Top oecd and Selected Non-oecd Countries, 2002

Sweden (2003) Finland Iceland Japan United States Switzerland (2000) Denmark Korea Germany oecd France Austria Canada Belgium United Kingdom Netherlands

4.8 8.4 14.3 2.1 3.5 --7.6 4.6 Average Annual 3.9 Growth Rate of gerd 3.6 1997--2002 or Nearest 3.2 7.2 Available Years 7.2 3.1 3.7 0.2

Israel Singapore China

12.4 11.2 21.1 0

1

2

3 % of gdp

Source: oecd, Main Science and Technology Indicators 2005/2, November 2005.

4

5

6

302

Appendix I

Figure 2 Canada’s gerd by Major Source of Funds, 1994 to 2004

$ Billions

gerd/gdp (%)

14

2.4 Foreign

Higher Education

Federal Government

Industry

gerd/gdp

12

2.2

10

2

8

1.8

6

1.6

4

1.4

2

1.2

0

1 1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source: Statistics Canada, Science Statistics, Vol. 29, No. 08, December 2005.

Figure 3 Estimate of Canada’s r&d Expenditures by Source of Funds and Performing Sector, 2003 Source of Funds Performer

Federal Provincial Business Percent by Higher Total Government Government Enterprises Education PNPs Foreign Performer ($ millions)

Total Federal Government Provincial Governments PROs Business Enterprises Higher Education PNPs Percent by Source

22 450

4 368

1 256

9 952

3 603

641

2 630

100

2 174

2 114

6

54

0

0

0

10

305 26

0 1

305 14

0 10

0 0

0 0

0 1

1 0

12 060

330

53

9 150

0

0

2527

54

7 831 54

1 919 4

861 17

730 8

3 603 0

616 25

102 0

35 0

100

19

6

44

16

3

12

Source: Statistics Canada, Estimates of Canadian Research and Development Expenditures (gerd), Canada, 1992, to 2003p, and by Province 1992 to 2001, Cat. No. 88F0006xie No. 3, January 2004.

303 s&t and Innovation Data and Trends Figure 4 berd as a Percentage of gdp, Top oecd Countries and Selected Non-oecd Countries, 2002 Sweden (2003) Finland Japan Korea Switzerland (2000) United States Iceland Denmark Germany Luxembourg (2000) oecd Austria France Belgium United Kingdom Canada Netherlands

Average Annual Growth Rate of berd 1997--2002 or Nearest Available Years

16.1 10.8 28.1

Israel Singapore China

0.00

4.7 9.7 2.8 5.3 --2.7 22.4 10.1 4.4 --3.5 8.3 3.5 3.1 4.0 5.6 1.0

1.00

2.00 % of gdp

3.00

4.00

Source: oecd, Main Science and Technology Indicators 2005/2, November 2005.

Figure 5 herd as a Percentage of gerd, Selected oecd Countries, 2001

% of GERD 35 30 25 20 15 10 5 Ca Ne nad a th er lan d Sw itz No s er r lan wa d( y Un 20 ite d K 00) in gd om Sw ed e Be n lgi um Fr an ce Ice lan d De nm ar k Fi nl an To d tal OE C Ge D rm Un an ite y dS tat es Jap an Ko rea

0

Source: oecd, Main Science and Technology Indicators 2004/1, July 2004.

a p pe n d i x t wo Selected Environmental Indicators

(Source: Adapted from Environment Canada (2003) Environmental Signals: Headline Indicators www.ec.gc.ca/soer-ree/)

Environmental indicators provide a broad snapshot of the Canadian environment over the last several decades, covering nine broad areas: water use, wastewater treatment, air quality, acid rain, stratospheric ozone layer depletion, wildlife & wilderness, toxic substances, and non-hazardous solid waste. Deteriorating

Mixed signals

Improving

Greenhouse gas emissions

Per capita municipal water use Protected Areas

Non-hazardous solid waste

Air quality

Population covered by wastewater treatment

Stratospheric ozone layer

Reduction in acid rain

Water use has continued to rise over the last twenty years, primarily as a result of population growth. Municipal per capita water usage, however, has slightly decreased over this period. The treatment of wastewater has steadily improved since the mid-1980s, with major investments in the infrastructure of municipal wastewater treatment leading to a greater of the population covered. Nevertheless, it remains a core source of pollution to natural water areas and sources in Canada.

305

Environmental Indicators

Air quality has remained relatively stable over the past fifteen years. The emission of precursor gases, a major source of airborne pollutants, has not seen an increase over this period. There are regional differences, however, with eastern provinces having significantly higher levels of air pollution than western provinces. As a signatory to the Kyoto Protocol, Canada is committed to reducing its greenhouse emissions (ghg) to 6% below 1990 levels by 2012. On a per capita basis, Canada is one of the largest contributors to global ghg levels. ghg emissions have increased by 20% as a result of increased automobile travel and energy use. Levels of acid rain have been steadily decreasing since the late 1980s, and have been below the national cap of 3.2 million tonnes since 1994. This progress is particularly evident in eastern Canada; however, further reductions in acid rain are necessary to prevent continuing damage to the environment in eastern parts. The “thickness” of the stratospheric ozone layer above Canada has seen a steady decline since the late 1970s, in line with developments of the ozone layer. The Canadian ozone level was 6% below that of pre-1980. Biodiversity has improved marginally in recent years with the designation of more areas as protected (6%) or strictly protected (10%). This still falls short of the United Nations’ target of 12% of a country’s total land area designated for the protection of habitat. Currently, 402 species are at risk in Canada. Of those species at risk that have been reassessed, the status of about 20 species has improved or no longer at risk while the status of just over 50 species has declined. The release of toxic substances into the environment shows a mixed picture for the trend data available for 16 toxic substances from 1995 to 2000. While the levels of half of these decreased (such as a 35% decrease in mercury emissions), the levels of the other half either did not improve or worsened. Levels of non-hazardous solid waste increased 10% between 1998 and 2000, reaching a level of almost 1000kg a person in 2000. Of this, however, almost 25% is recovered through waste diversion (recycling, reuse, composting). (For Further details see Environment Canada (2003) Environmental Signals: Headline Indicators www.ec.gc.ca/soer-ree/)

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Contributors

b a s m a a b d e l g a f a r holds a PhD in public policy from Carleton University. She has done extensive research on biopharmaceutical innovation systems in a development context and recently published a book assessing the implications of stronger intellectual property protection for the pharmaceutical sectors of developing economies. She works as a policy analyst for Human Resources and Social Development Canada. b a r b a r a a l l e n is a research fellow and lecturer at the School of Public Policy, University of Birmingham, and a research associate in the Carleton Research Unit on Innovation, Science and Environment (cruise) at the School of Public Policy and Administration at Carleton University. s c o t t b e n n e t t teaches in the Department of Political Science at Carleton University. He is primarily involved in research on public policy and public opinion. Recently, much of his work has dealt with cross-border influences on several policy areas. m a l c o l m b i r d is a doctoral student in the School of Public Policy and Administration, Carleton University. p e t e r c a l a m a i is the national science reporter for the Toronto Star, based in Ottawa, and an adjunct research professor in the School of Journalism and Communication at Carleton University. He first reported on climate change concerns at the 1972 un Stockholm Environment Conference.

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Contributors

g . b r u c e d o e r n is Chancellor’s Professor in the School of Public Policy and Administration at Carleton University and holds a joint research chair in Public Policy in the Politics Department at the University of Exeter. He is also the director of the Carleton Research Unit on Innovation, Science and Environment (cruise). He is the author of several books on Canadian and comparative developments regarding science and technology, innovation, intellectual property, industrial, environmental and regulatory policy, and governance. r o b e r t h i lt o n is a graduate student in the School of Canadian Studies at Carleton University. He has nearly 34 years experience in the Public Service of Canada in central agencies and line departments and is currently on special assignment with the Public Service Human Resources Management Agency. He is completing his MA thesis, entitled “An Assessment of the Federal Government’s Municipal Infrastructure Programs,” which builds on one of his key research interests: the role of infrastructure in the pursuit of sustainable development.” d e r e k i r e l a n d is a student in the PhD program in Public Policy at Carleton University. Before returning to university, he worked as an economist, policy analyst, and manager in the Canadian public and private sectors for over thee decades. u m a k u m a r is professor of Management Science and Technology Management and director of the Research Centre for Technology Management at Carleton University. She has published over 90 articles in journals and refereed proceedings. vi n o d k u m a r is a professor of Technology and Operations Management of the Sprott School of Business at Carleton University and was formally director of the school. He has published over 150 articles in refereed journals and proceedings. j u d i t h l i p p is PhD student in an interdisciplinary PhD program at Dalhousie University whose research is supported through the Social Sciences and Humanities Research Council of Canada and the Killam Foundation. Her research examines the role of policy for renewable energy development in the Canadian context, using lessons from the European experience. j o a n m u r p h y is a PhD candidate in public policy in the School of Public Policy and Administration at Carleton University. Her research interests are in the areas of health research and development policy, the new economy, management in the public sector, and innovation policy. Her dissertation

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Contributors

focuses on the institutional evolution of the Medical Research Council of Canada (mrc) into the Canadian Institutes of Health Research (cihr). s t e p h e n m u r p h y is an assistant professor in the Sprott School of Business, where his research includes the role of emotions in employee well-being and productivity. He has been involved in testing the Nature Relatedness (nr) scale in organizations, where preliminary results show a significant link with well-being and productivity. The implications of individual differences for organizational practices and government policy round out his research and writing. e l i z a b e t h n i s b e t is a doctoral student in psychology at Carleton University. Her research examines how people’s relationships with the natural world influence environmental attitudes and behaviour, as well as health and well-being. a . j a i p e r s au d is a senior policy advisor in the Strategic Policy Branch, Natural Resources Canada, and has held other senior positions with the federal government. He is a PhD candidate in the Sprott School of Business, Carleton University. h a l l a t h o r s t e i n s d o t t i r is an assistant professor in the Department of Public Health Sciences, University of Toronto, and a member of the Canadian Program on Genomics and Global Health. She completed her doctoral studies in Science and Technology Policy in 1999 at spru (Science and Technology Policy Research), University of Sussex. Her research focuses on examining health biotechnology innovation in developing countries. j a c va n b e e k is director, planning and performance management, at the National Research Council of Canada where he recently completed the development of the organization’s inaugural corporate strategic plan. He is also an adjunct professor of business at the University of Ottawa with 25 years experience in international consulting. j o h n z e l e n s k i is an assistant professor in the Department of Psychology at Carleton University. He studies individual differences in happiness and how personality manifests itself ‘in the moment’ as emotional and cognitive processes.

the school of public policy and administration at Carleton University is a national center for the study of public policy and public management. The School’s Centre for Policy and Program Assessment provides research services and courses to interest groups, businesses, unions, and governments in the evaluation of public policies, programs and activities. The Carleton Research Unit on Innovation, Science and Environment (cruise) is a research unit in the School devoted to research on Canadian and comparative policies and institutions dealing with innovation, science, and environment.