Huge battery plant subsidies are price Canada pays for lagging in clean energy industry

China dominates clean energy industry, US and Europe race to catch up

Government subsidies totalling $28.2 billion for two Ontario battery plants require 20-year pay back, according to Parliamentary Budget Officer (PBO) Yves Giroux. Clean Energy Canada, the think tank whose original modeling of five years was the basis for Ottawa’s funding decision, says the PBO’s methodology is faulty. As the subsidy debate plays out in the news media and social media, there is a missing bigger issue: China has a 20-year head start on the clean energy industrial revolution and the rest of the world – including Canada – is desperately trying to catch up. Subsidies are part of the price we pay for being slow to enter the race.

Battery supply chain. Source: Trillium Network for Advanced Manufacturing Technical Report for Clean Energy Canada.

Canadians need to understand that as a laggard in that race, since we didn’t build it, we have to buy it. The alternative is to not compete and remain stuck in our 150-year old role of hewers of wood, drawers of water.

The current dispute starts with Tuesday’s release of the PBO’s report. As it turns out, building new industrial clusters and supply chains is very expensive, but generating new tax revenue eventually pays for the subsidies. How long that takes is the question.

“We estimate that federal and provincial government tax revenues generated from the Stellantis-LGES and Volkswagen EV battery manufacturing plants over the period 2024 to 2043 will be equal to the total amount of production subsidies,” Giroux said in a press release. Twenty years is “significantly longer than the Government’s estimate of a payback within five years for Volkswagen.”

Joanna Kyriazis, director of public affairs at Clean Energy Canada, argued that Giroux’s view of Canada’s subsidies was too narrow, that he considered only direct impacts of the battery plants. An important aspect of the federal government’s industrial policy for clean energy is to build new supply chains – indirect impacts. These might be forward-linked benefits, such as EV manufacturing where the batteries are an input, or backward-linked benefits like critical minerals mining or lithium extraction.

“…the PBO considered only the revenues expected to be generated by the battery cell and module manufacturing facilities themselves,” Kyriazis said in a release. “This narrow interpretation provides an incomplete picture of the economic benefits Canada could see as a result of these clean energy investments. It’s not just about a single cell manufacturing plant—it’s about a lot more. 

She pointed out that building a “domestic EV battery supply chain that [can] support up to 250,000 direct and indirect jobs by 2030 and add $48 billion to the Canadian economy annually.”

Source: Rocky Mountain Institute.

Kyriazis echoed the Canadian government when she noted that Canada has to keep up to the United States, which is deeply committed to competing with China for leadership of the global clean energy economy. Over the past two years, the US government has committed over $1 trillion to clean energy and climate initiatives, led by the $500 billion Inflation Reduction Act. The policies have already led to $86 billion of private investment, 51 new or expanded plants for producing solar panels, 10 new battery factories, and over 100,000 clean-energy jobs, according to Bloomberg. 

Canada lags far behind the United States when it comes to clean energy investment, but China is still miles ahead of North America. Take electric vehicles, for example.

Twenty years ago, China faced a dilemma. Its domestic auto industry (including supply chains) was robust, but technologically far behind American, Japanese, and European brands, with little hope of catching up. “They realized … that they would never overtake the US, German, and Japanese legacy automakers on internal-combustion engine innovation,” says Tu Le, managing director of Sino Auto Insights.

China decided, instead, to leap ahead of its competitors and invest heavily in the nascent electric vehicle sector. The bet was risky, but promised big rewards if successful. The Chinese government threw enormous resources into EV development, supporting the emerging manufacturers like BYD, the sector’s biggest player that is now pushing into export markets, and domestic demand. The government also pushed automakers to focus on affordable EVs, which has become a clear advantage over competitors who have focused on premium, longer-range electric vehicles like SUVs. 

Source: BloombergNEF.

China utterly dominates EV battery manufacturing, with well over 70 per cent of global manufacturing capacity for most battery metals and components. But China is also vulnerable. According to BloombergNEF, Canada’s battery supply chain is now number two in the world, thanks to plentiful supplies of critical minerals, abundant hydroelectric power, and strong ESG policies. 

This competitive advantage positions Canada to benefit enormously as the United States races to build the EV manufacturing capacity to go head-to-head with China and Europe. Exploiting that opportunity requires more than platitudes. The Canadian government and those provincial governments (at this point Ontario, Quebec, BC, and Alberta have the advantage) that hope to attract significant investment for clean energy industry have to pony up. They can’t afford to sit on the sidelines hoping that federal money and the mystical powers of “the market” will somehow build industrial clusters and supply chains in their provinces.

Canadians must support these efforts. Armchair quarterbacking every grant to support new clean energy industry will only hobble Canada’s efforts to take full advantage of the latest industrial revolution. 

Facebook Comments

Be the first to comment

Leave a Reply

Your email address will not be published.