We’ve all heard it before: If I make an exception for you, I’ll have to make it for everyone.
That’s the industrial policy dilemma that faced the federal government this week, when Chrysler-maker Stellantis and battery maker LG paused construction on a $5-billion EV battery plant in Windsor, Ont., after the Canadian government reportedly failed to match key aspects of the U.S. green incentive packages. The problem: the government did match them for rival Volkswagen.
It’s a sign the global subsidy war may be turning hot. Last month, Finance Minister Chrystia Freeland warned that “competition to provide ever-richer corporate subsidies…would deplete our treasuries.” And she’s not the only one afraid the Inflation Reduction Act, the U.S. subsidy war chest, could cause what she called “a vicious, beggar-thy-neighbour spiral.”
Here’s how the fight over one Canadian battery plant encapsulates a debate happening across the world.
The subsidy war: With a rich subsidy package like the IRA on offer elsewhere, companies around the world, like Swedish battery maker Northvolt, are threatening to move their auto investments to take advantage of its largesse unless governments agree to offset the difference.
The newest battleground in Canada: Last month, when Volkswagen announced the $7-billion, 90 GWh Ontario battery plant it claimed would create 3,000 direct jobs, Canada made an exception: It offered U.S.-style, production-based tax credits, through which VW could accrue up to $13 billion in subsidies.
It was an about face. In the federal budget lockup earlier this spring, a senior government official (put forward by Finance Canada to explain the budget, but on condition reporters not name them) told a press conference Canada was “not convinced” of the merits of the production tax credit the U.S. offers as “there’s no incentive there for productivity improvement, or cost reduction over time, which seems to us to be a little problematic.”
In its 2023 budget, the official said, the government wanted to “avoid the uncertainty of the one-off decision-making” and protracted negotiations with companies—but that VW would receive a “bespoke” incentive package.
Unsurprisingly, Stellantis and LG reportedly asked Canada to “match the production incentives under the U.S. Inflation Reduction Act” for its plant, too, which it claims would support 2,500 jobs and produce more than 45 GWh in power.
The latest: Sources told the Windsor Star the companies are ready to pull the plug.
But Champagne is vying to meet with LG officials this week in South Korea, with whose government Canada just signed a memorandum of understanding on critical mineral supply chains, clean energy and energy security.
The stakes: Other investments depend on the Stellantis battery plant, from industrial real estate to critical minerals to the future of the company’s Canadian car factories.
“If a battery plant goes up, it secures additional assembly nearby,” said Sam Fiorani, vice president of global vehicle forecasting at U.S.-based AutoForecast Solutions. He said Stellantis is likely keen to negotiate so the battery plant can proceed.
The reaction: Matthew Fortier, CEO of EV industry group Accelerate, said it’s in all parties’ interests to get the deal back on track for “anchor” battery plant investments. He brushed off the idea of a “subsidy war,” but said Canada could prevent future disputes by creating a national battery strategy outlining investment priorities and timelines.
Nate Lowbeer-Lewis said that aside from the politics surrounding big economic investments, the IRA has been helpful for the global ecosystem.
“The IRA in the U.S. raised the bar around the world,” said the Montreal-based principal with Spring Lane Capital Partners. “Through our lens as an investor it makes everything better, allows us to invest in areas we wouldn’t otherwise be able to.”
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