The financial support Canada is offering for the clean energy transition is competitive with the Inflation Reduction Act (IRA) south of the border, a new report from TD Economics says.
The report Monday essentially refutes the arguments made in recent months by Canadian business leaders, who have held up the U.S. IRA as the gold standard in the global race for energy transition investment.
TD said it has crunched the numbers and the government of Canada has spent $139 billion since budget 2021, or five per cent of the country’s nominal GDP, on supports for clean energy development.
The bank said this compares favourably to the U.S. Inflation Reduction Act’s estimated US$393 billion in spending, or 1.5 per cent of that country’s nominal GDP.
“Despite criticism, Canada’s financial support for the clean energy transition is yielding positive results and has established a competitive position relative to the U.S,” the report’s author, TD managing director and senior economist Francis Fong, wrote.
The IRA, signed into law by President Joe Biden last year, is the United States’s most ambitious piece of climate legislation ever. It offers about US$375 billion in new and extended tax credits for everything from renewable electricity generation to hydrogen production to sustainable jet fuel usage to help the U.S. clean energy industry get off the ground.
Here in Canada, companies have said the U.S. incentives are so attractive that it’s impossible to compete.
In February, Calgary-based fuel producer Parkland Corp. announced it would not go ahead with its plan to build a stand-alone renewable diesel complex at its refinery in Burnaby, B.C., in part because the company believes the incentives offered by the IRA give an advantage to producers south of the border.
For its part, Ottawa has been clear all along that it knows it must do more to stay competitive with the U.S. on clean energy development.
In the federal budget last month, Finance Minister Chrystia Freeland announced commitments for investments in clean electricity, cleantech manufacturing, and hydrogen that together are expected to cost some $55 billion through to the 2034-35 fiscal year.
The TD report pointed out that regardless of total dollar figure, the per unit subsidies offered in Canada are in some cases significantly less than their U.S. counterparts.
“However, this has not stopped Canada from securing significant domestic and international investments,” Fong said, adding that TD estimates Canada has received $17.4 billion in electric vehicle and battery plant investment announcements since 2021.
Just last week, the federal government committed to up to $13 billion in subsidies over the next decade, in order to see Volkswagen build its first overseas battery manufacturing plant in southwestern Ontario.
“Canada’s position in this supply chain is not exclusively a function of subsidies and climate policies,” Fong said. “Importantly, proximity to critical minerals is one of the primary draws of investment initiatives.”
The TD report pointed out that Canada has a carbon pricing system and the U.S. does not, which in effect means U.S. subsidies have to be larger to make investing in clean energy make sense economically.
TD went on to say that it’s not a lack of government funding that poses the greatest risk to Canadian competitiveness, but a lack of skilled talent as well as the lengthy amount of time it takes to build major infrastructure projects in this country.
The report suggested Canada must focus on expediting project assessments, speeding up mine development times, and refocusing policy on labour force skills and training if it wants to attract clean energy investment.