Artificial intelligence (AI) has been touted as a gamechanger for economies, and Canada’s cleantech industry will be no different, a report by Export Development Canada (EDC) suggests.

The Crown corporation’s latest analysis of Canadian cleantech, On the cleantech frontier: How AI is impacting innovation, has identified potential for AI to enhance the performance of clean energy infrastructure, extract the most efficient use from every litre of water and accelerate innovation.

The potential for AI to transform the cleantech sector is “massive,” Prerna Sharma, a senior economist at EDC and the report author, told Sustainable Biz Canada in an interview.

“You have applications on the hardware side, you have applications on the software side. We see applications across various industries - the nuclear industry, emissions reductions industries.”

Money flowing to early-stage cleantech AI is rising despite a sluggish investment market, an analysis by the Cleantech Group cited in the report states. And Canada’s cleantech venture capital in 2023 stayed afloat despite the global investment slowdown, a sign of “pent-up demand”, Sharma explained.

AI could even help address a problem it creates: the high energy and water consumption to maintain its enormously complex computing needs.

AI boosting cleantech

Global investment into AI-enabled cleantech has reached $39.6 billion (US$28.5 billion) from 2018 to 2023, according to an EDC calculation, which accounts for 12 per cent of cleantech investment.

A range of applications exist:

• improving designs for electrolyzers, electricity grids and small modular reactors;
• reducing a building’s carbon emissions by automatically adjusting the heating, cooling and lighting based on data;
• discovering new materials;
• helping researchers bridge knowledge gaps by “conducting hyper-quick literature reviews of scientific papers and patent applications”; and
• forecasting climate risks and energy demand.

A 2023 report by Boston Consulting Group cited by EDC suggests AI can help reduce global greenhouse gas emissions by five to 10 per cent by 2030. A separate analysis by the consultancy argues trillions of dollars in value can be unlocked when AI is applied to corporate sustainability.

Sharma cited research from Cleantech Group that found Canada ranks third globally on risk capital deployed in AI-enabled cleantech innovation. Such a finding is not surprising to her, given Canada’s leadership in AI innovation and punching above its weight in cleantech.

Overcoming AI’s thirst for energy, carbon and water

A paradox that arises from the use of AI for the environment is the significant consumption of electricity and water. Data centres that host AI systems are responsible for around one per cent of global electricity demand. With demand for AI expected to escalate, it will require more power, resulting in a possible increase in carbon emissions.

EDC suggests mitigation efforts such as powering data centres with clean energy and balancing loads to control energy demand.

Sharma noted cleantech rarely employs generative AI, such as large language models (GPT-4 as an example), which is energy intensive.

“The AI tends to be very specific, it’s tailored to solving a particular issue” in cleantech she said. As a result, the carbon impact of AI may be smaller in cleantech compared to other industries.

The state of cleantech in Canada

Canadian cleantech venture capital activity in 2023 was $1.2 billion across 28 deals, according to data from the Canadian Venture Capital & Private Equity Association. Total investment was unchanged from the previous year but with the highest number of deals recorded in the past five years, EDC said.

Cleantech venture capital in Canada has stayed consistent partly due to investor patience being unleashed, Sharma said, and was helped by capitalization in the life sciences and AI spaces.

Already in Q1, $164 million in investments have been made across 11 deals, the report adds.

Cleantech is emerging as a notable force in Canada’s exports. The flow of goods and services such as manufactured goods and renewable electricity was $20.9 billion in 2022 - 2.2 per cent of Canada’s total exports - and increased by $3 billion from 2021. Over three-fourths went to the U.S. Also in 2022, environmental and clean technologies added $80 billion to Canada’s GDP, or 3.5 per cent.

Besides AI, EDC put the spotlight on three sectors in which Sharma said Canada has a competitive advantage: carbon capture, utilization and storage (CCUS), hydrogen and alternative fuels, and long-duration energy storage.

For example, there is strong policy support for CCUS such as investment tax credits and innovation in direct air capture and point source capture.

To grow cleantech exports, Sharma recommended assisting in the scaling up and commercialization of Canadian startups. Possible solutions include widening the pool of risk capital, improving AI infrastructure and further government support.