Canada’s efforts to compete with Biden’s onslaught of energy-transition funding seem misdirected

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A year after it was passed, the U.S. Inflation Reduction Act, President Joe Biden’s effort to expedite the green revolution, is reshaping economies everywhere, none more so than Canada’s. And not necessarily for the better.

The act made hundreds of billions of dollars available for energy security and to address climate change. The effects were virtually immediate.

Attracted by the American gusher of tax credits and other freebies, foreign companies are racing to set up energy-transition projects in the U.S. Norwegian battery maker Freyr is building a US$1.7-billion gigafactory in Georgia; Italian utility Enel is rolling out a pan-American network of fast chargers for electric vehicles. The European Union, fearing that Mr. Biden’s signature economic policy will tilt transatlantic trade and investment flows in America’s favour, has committed to an “ambitious European industrial policy” to ensure it is not a bystander to the green and digital transformation.

And Canada? Ottawa feared bystander status, too, and overhauled its industrial incentives programs. Last fall, the federal government announced the Clean Technology Investment Tax Credit. The provinces are getting into the game as well. For instance, Alberta has launched the Renewable Electricity Program, which offers long-term contracts to green-energy producers.

These programs recognize that market forces alone cannot ensure a speedy transition to clean, or cleaner, technologies as the planet heats up. But Canada has embraced madness in its lunge to compete with the United States.

Exhibits A and B are the vast subsidies that will be poured into battery plants to be built in Ontario by the French-Italian-American auto giant Stellantis (Peugeot, Fiat, Jeep), in partnership with South Korea’s LG Energy Solution, and by Germany’s Volkswagen. VW is getting some $13-billion in subsidies from Ottawa, plus a smaller amount from Ontario, to build its factory.

Indignant that VW nailed such a fortune, Stellantis recently stopped construction at its battery plant while it holds out for more loot from the federal and provincial governments. Since governments everywhere are in love with batteries, Stellantis will no doubt succeed in shaking down the taxpayer once again.

The massive investments in batteries will do little or nothing to slow global warming, given their exceedingly dirty supply chains, which include cobalt mines in the Democratic Republic of Congo, nickel mines in Indonesia, copper mines in Chile, a variety of grubby refineries and smelters around the world and the oceangoing ships that deliver all these commodities.

Equally baffling about the investment is that Canada and Ontario are placing hideously expensive bets on a technology – heavy lithium-ion batteries – that may be on its way out in 10 years or so. No one knows whether zero- or low-emission cars then will be powered by completely different kinds of batteries or by hydrogen, ammonia, biofuels or a technology that does not exist even as a concept today. Will these factories have to be retooled, again at taxpayers’ expense? Will they be shuttered or moved to a more financially attractive region? Their obsolescence seems inevitable; it’s just a matter of time.

While potentially outmoded lithium-ion batteries are soaking up billions in subsidies, smaller amounts are going to more sensible energy-transition projects. Last week, Mytilineos, a Greek industrial company, announced it will build Canada’s biggest solar-energy farm in Southern Alberta. The $1.7-billion project qualifies for five years of deferred taxes or a subsidy that will cover 30 per cent of the capital expenditures. Let’s assume the freebies come to about $500-million.

What will Canada get for that? A lot, with virtually no tech risk. We can assume that in a decade, or three, or forever, the sun will shine in Southern Alberta, allowing the solar panels to generate electricity. We know the wind will still blow, allowing the province’s wind farms to operate. We know that wind and solar are no longer the new kids on the innovation block – they work. Above all, we know that their output is good for the planet. The Mytilineos solar panels will potentially produce enough juice to run 200,000 homes.

All of which raises the question: Why are Canada’s federal and provincial governments obsessed with flinging fortunes at batteries and not renewable power?

The question is all the more pressing today, with big pieces of the country burning in what could be the worst-ever wildfire season. Wildfires are not caused by climate change – half or more are started by humans – but the conditions that make the fires more intense, such as drought and high temperatures, are linked to rising carbon emissions.

As temperatures rise, producing drier conditions in some parts of the world, snow and ice packs will melt, reducing the water flow to river systems and lakes. Over the long term, this could put the dams used to generate hydroelectric power at risk. Note that Lake Mead, the reservoir formed by the Hoover Dam on the Colorado River, is at 30 per cent of its normal capacity, largely because of a lack of snowmelt, though that is up from its low.

Could Canadian watersheds suffer the same problem as Northern Canada heats up? That scenario is no longer unthinkable. A lack of hydropower would inflict serious damage on the economy. Yet Canada and the provinces are throwing billions at a technology – car batteries – that may be obsolete in a few years and will do next to nothing to fix climate change. Spending the money on renewable energy as an electricity system insurance policy and to reduce carbon emissions makes far more sense.