Suddenly, Canada is no longer the undisputed leader among North American countries in confronting climate change.
That changed with this week’s passage of the Inflation Reduction Act through the United States Congress, providing US$370-billion in spending measures to convert to a cleaner economy – and resurrecting President Joe Biden’s climate agenda after it seemed dead just weeks earlier.
It’s great news for the planet, as the world’s second-biggest polluter (after China) has gone a long way toward shedding its environmental laggard status.
Whether it’s also great news for Canada, in terms of this country’s ability to compete economically in a decarbonizing world, will hinge significantly on whether Ottawa proves able to match Washington’s newfound urgency.
That doesn’t mean responding with a wave of similarly large new spending announcements, because the context is different. Canada has a national carbon-pricing system that somewhat reduces the need for public expenditures, and its federal government has been more steadily rolling out green investments.
What the breakthrough south of the border does demand is swift movement on policies that Prime Minister Justin Trudeau has promised but not yet acted on, especially to use public dollars to attract private capital for clean technology. It also requires a sharpening of existing programs with that aim. And it underscores the need to plug major gaps in Canada’s current climate strategy – especially when it comes to the cleanliness and reliability of the electricity grid, which is by far the biggest focus of the U.S. package.
In some cases, Canada’s response should be mostly about maximizing opportunities arising from its neighbour’s spending, as opposed to confronting new competitive risk. That applies, it turns out, to new U.S. electric-vehicle supports, which caused the most consternation here during the package’s path to passage.
Mr. Biden’s previous plans for buy-American provisions in EV purchase rebates, which would have hurt Canada’s auto sector, have now been changed after a successful lobbying campaign by Ottawa and other concerned interests. Now the incentives (up to US$7,500 per vehicle) will reward North American manufacturing and sourcing of component minerals from U.S. free-trade partners.
There are ways that governments in Canada (both federal and provincial) should step up their EV strategies, including fleshing out plans to develop critical-mineral reserves. But efforts to land EV manufacturing, which have recently found success with commitments by giants such as Stellantis NV and Ford Motor Company, will probably only be helped by being brought under the U.S. protectionist umbrella.
It’s a different story, though, with the U.S. bill’s array of generous tax credits tailored to attract investment in corners of the economy that Canada wans to compete in – including advanced manufacturing of non-emitting energy components, hydrogen production and sustainable aviation fuel. The same with American grants for improving environmental performance in energy-intensive industries such as steel and chemicals, or sustainable agriculture. That’s atop a bolstering of the Department of Energy’s loans program, which has already been intervening to provide financing for new technologies that private lenders haven’t made available.
How could Mr. Trudeau’s government respond to all that, short of mimicking Washington’s tax-credit fetish?
For starters, it could bring focus to its biggest clean-industry program to date: the $8-billion Net Zero Accelerator. After giving that fund an extremely broad purpose of both subsidizing emissions reduction from existing industry and helping attract makers of low-emissions products, Ottawa recently put out a call for any companies to submit applications into an ambiguous selection process. Better to get a little closer to what the Americans are now doing, by reorienting the NZA to prioritize key sectors that need better access to capital.
It could also expedite the biggest new industrial-strategy lever proposed in this year’s federal budget: the Canada Growth Fund, a $15-billion arms-length public-investment vehicle that would use loans and other financing tools to help reduce emissions, boost low-carbon-industry growth and strengthen supply chains. The government was vague on its structure at the time and hasn’t elaborated much since. But it promised more details in this year’s Fall Economic Statement, and now has extra incentive to make good on that timeline.
More recently, Ottawa launched an effort to work separately with each province through new regional tables to establish and jointly pursue a few localized clean-energy sectoral priorities. There have been challenges out of the gate, with a couple of provinces with the greatest need to diversify their resource sectors (Alberta and Saskatchewan) balking at the effort being too much on Ottawa’s terms. But, again, heated-up competition should light a fire under all concerned.
And better federal-provincial cooperation may emerge as an even greater imperative when it comes to perhaps the biggest concern caused by the U.S. leap forward: the sudden precariousness of our longstanding clean-electricity advantage.
Mostly because of some provinces’ abundance of hydroelectricity, plus Ontario’s ahead-of-the-curve elimination of coal power, Canada has been aided in its pitch to producers (including the car companies) that increasingly want to draw off low-emissions power to boost their sustainability cred. But comfort has given way to complacency; there has been little planning to meet coming demand increases for electrification of transportation and other energy needs.
Now, there is a risk of being surpassed by the Americans, to this point much more reliant on coal and other fossil fuels.
Roughly half their new climate spending relates to cleaning up power supply. They have new or strengthened tax credits for wind and solar, energy storage and nuclear; bolstered loan programs and grants for the same; and regulatory changes and supportive funding to expedite permitting for projects such as transmission lines. Mr. Biden’s goal of a non-emitting grid by 2035 no longer seems so far-fetched.
Mr. Trudeau’s government has a similar target, and is working on a regulation to enforce it. But there has been inadequate funding and other tools to make it achievable and build longer-term capacity.
It’s not an easy thing for Ottawa to tackle, because electricity is mostly provincial jurisdiction; premiers, as much as anyone, need to wake up.
But a new pan-Canadian grid council, which the Liberals began to (modestly) fund but haven’t yet done much with, could help get everyone to the table. And this is somewhere Mr. Trudeau’s Liberals need to get bolder about wielding federal spending power – to incentivize or invest directly in new generation and transmission, energy storage, conservation – rather than tinkering around the edges as they’ve mostly done to date.
Economic interests, not just environmental ones, warranted these sorts of efforts even before the U.S. upped its game.
But compared with Mr. Biden, who needed to push through his climate agenda before mid-term elections in which his party may lose congressional control, Mr. Trudeau may have felt a little less pressure to move fast.
That luxury is no longer there, if it ever was. The race is on.
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