Chris Bataille is an adjunct research fellow at the Columbia University Center on Global Energy Policy and the Canadian IPCC lead author of the WGIII Industry Chapter and Summary for Policymakers.
As the leaves turn to mark the changing of the seasons, we also mark the one-year anniversary of the U.S. Inflation Reduction Act. This gargantuan bill, which could see between US$380-billion and US$1.7-trillion put toward clean power and industry in the United States while reshoring manufacturing, contrasts sharply with the absence of similar incentives across the world, including in Canada.
The IRA’s huge investment tax credits and production subsidies for wind, solar, batteries, cleantech, hydrogen, and carbon capture and storage follow on the heels of two bipartisan laws – the Infrastructure Investment and Jobs Act, and the CHIPS and Science Act – designed to invest in American solutions and keep jobs and businesses in the U.S. The European Union has moved vigorously to counter the U.S. subsidies with their Green Deal, in order to not lose investment.
But what is Canada doing?
Although Canada can claim to have allocated a lot of financial and political capital to net-zero decarbonization of business and industry, its efforts simply have not been as effective as the programs and policies south of the border, or overseas.
We have a kaleidoscope of programs and funds: the $8-billion Net Zero Accelerator fund, the $15-billion Canada Growth Fund – a host of proposed investment tax credits for everything from clean electricity to carbon capture utilization and storage. Add to this the rumblings from 2022′s Fall Economic Statement around carbon contracts for difference – options contracts that pay out under certain conditions, such as when the carbon price is reduced or eliminated.
Looking at this range of programs, one could conclude that Canada is in the game when it comes to attracting net-zero investment.
But the truth is, we are failing the net-zero investment certainty test. The investment tax credits, while designed to match the IRA and substantial on paper, are still in development and have yet to be finalized, signed into law, and made operational. Industrial firms are caught in a quagmire of onerous, complicated, and unclear processes when trying to access our various transformative investment funds, with the disbursement of resources not keeping up with the pace of investment decisions.
Meanwhile, Ottawa said last week that because of mismanagement allegations, it has frozen the funding powers of Sustainable Development Technology Canada, the main federal body for financing early-stage cleantech. Industry executives have warned that this could have a disastrous effect on the timelines for various projects.
In times of increasing debt levels and rising interest rates, Canada must be prudent in spending taxpayer dollars. But we must also move ambitiously to secure a prosperous future in a global low-carbon economy for our children and, increasingly, ourselves.
We need to prioritize our efforts on reducing emissions from high-impact materials with assured long-term demand – such as metals, cement, and chemicals like fertilizer and jet fuel – by aiming for near-zero emissions intensity in their production. It takes years to plan, permit and finance clean steel, cement, or chemicals plants, which then last 20-plus years before their first refurbishments.
Decisions are being made in rapid succession now about where to build the clean industrial facilities of the future, which will still be in demand when we are all driving electric cars and living in largely electrified homes. We need to be permitting, financing and building the plants that will be producing for us in 2050 now in order to keep us anywhere near the Paris Agreement goals.
Achieving this goal comes with increased production costs, but it’s surprisingly little compared with the outcomes. Producing low-emissions metals may cost 10 to 40 per cent more, while making clinker for cement and keystone chemicals may double, but these increases would add less than 1 per cent to the overall price tag of vehicles, buildings, and infrastructure. If Canada is going to provide a welcome place for investment, and high-paying jobs for its citizens, then we need to help these industries to close the cost gap.
Fortunately, there are several concrete things the federal government can do. By the end of 2023, it must ensure its proposed tax credits have become law. It needs to align its industrial-carbon-pricing benchmarks with its goals by announcing an ambitious schedule to apply carbon pricing to all emissions.
At the same time this move must come with accompanying policies to protect investments in emissions reduction, similar to the EU border-carbon adjustment which started its first phase Oct. 1. It also needs to state that it will prefer and pay for cleaner materials for its own consumption, which is considerable.
Finally, it needs to provide certainty on the future of carbon pricing and its commitment to net zero by signing contracts for difference – or a policy with similar effect – with at least a couple of project proponents who have transformative, concrete net-zero projects that will help shift global standards.
Transformative, near-zero emissions projects need to happen in Canada – we need the investment, we need the emissions reductions. And once we have mastered this and shown it can be done, Canada will become a source of service exports to help the world to do the same.