Canada’s debate around how much to spend on climate transition has got a jolt from south of the border less than three weeks before a federal budget that will chart the path for postpandemic economic recovery.
On Wednesday, President Joe Biden announced a US$2-trillion infrastructure plan that, while also including more familiar measures such as bridge and road upgrades, would represent an unprecedented U.S. investment in emissions-reduction and clean-technology competitiveness.
With hundreds of billions of dollars pledged for electric-vehicle adoption and manufacturing, decarbonizing the electricity grid, energy-efficient buildings and other green-economy goals, it’s an effort to put the United States at the forefront of the climate-change fight. And coming in a year when countries will set new emissions-reduction targets to replace those in the Paris Agreement, governments around the world could feel pressure to raise their ambitions.
That pressure stands to be particularly acute for Justin Trudeau’s Liberals. After being the default continental climate leader while Donald Trump held office, Ottawa now needs to worry about keeping pace with Washington’s green agenda – both as a matter of environmental responsibility, and to prevent domestic industries from suffering competitively.
By comparison to what Mr. Biden will try to get through Congress – as well as commitments already made by European countries - Canada’s government has been relatively conservative in using COVID-19 stimulus spending to accelerate the shift to a cleaner economy. Its climate-related spending announcements over the past year have totalled about $35-billion, if about $15-billion in public transit funding is included.
More is expected in Finance Minister Chrystia Freeland’s April 19 budget, but just how much has been a subject of considerable wrangling.
Early in the pandemic, the government raised hopes that it would invest massively in green stimulus. But since then, with deficits soaring, the Finance Department has been trying to rein in expectations.
Ms. Freeland has indicated that the budget will still include $70-billion to $100-billion in total (not just climate-related) recovery spending, but that could include some expenditures that have already been announced.
With much of the new spending likely to be for other recovery priorities – especially addressing the pandemic’s disproportionate economic impact on women, including through child-care policies – the amount for green infrastructure and industry may continue to look like a drop in the bucket next to Mr. Biden’s proposed spree.
There are good reasons for that, and for Mr. Trudeau and Ms. Freeland to resist being drawn into a spending competition.
Unlike the U.S., Canada has a national carbon price. If it steadily increases to $170 a tonne by 2030, as planned, it will reduce the need for spending and regulation to meet emissions-reduction targets.
The Liberals could also note that they have invested fairly steadily if not extravagantly in climate policy since they took office in 2015, whereas Mr. Biden is making up for time lost during the Trump presidency.
And on at least one key component of Mr. Biden’s plan – ending reliance on coal and other fossil fuels for electricity – the need is less immediate, because many Canadian provinces’ power grids are already decarbonized.
But electricity-grid modernization is also an example of the broader danger that the U.S. could leapfrog Canada in ways that matter environmentally and in terms of economic competitiveness.
Canada’s low-emissions electricity now gives it a potential advantage in attracting industries committed to operating sustainably. But little has been done on a national strategy to cleanly meet increases in demand caused by electrification of transportation and buildings. Starting with $100-billion for the grid in his infrastructure plan, plus tax incentives for renewables, and other potential spending measures, Mr. Biden is moving to meet power needs in decades to come.
A more obvious example is Mr. Biden’s $174-billion to “win the EV market,” as the White House put it. Promises such as a national network of 500,000 charging stations, and new tax incentives and purchase rebates, could put the U.S. ahead in reducing transportation emissions. But an explicit aim is also to provide funding and strategic support to help U.S. manufacturers take a dominant role in EV production, through the supply chain.
Given the continentally integrated nature of the auto sector, Canada could well benefit from that investment. But given that Mr. Biden is not being shy about aggressively promoting U.S. industry, including through Buy American procurement policies that factor heavily into the infrastructure plan, Canada could as easily be left behind – not only on EVs, but all manner of clean tech.
Just this week, an RBC report called for Canada to respond to the challenge and opportunity of Mr. Biden’s climate plans by formulating comprehensive industrial strategy involving review and enhancement of “trade, tax, regulatory and skills policies,” plus direct investment where needed.
It reflected a growing consensus that interventionist economic policies banished from the mainstream for several decades are now needed.
That shift here is not going to happen overnight. But the federal budget will be watched closely for the signals it sends – about how much Ottawa wants to keep pace with the U.S., about where the clean economy really ranks among its priorities, about whether climate-related funds are being sprinkled lightly across an array of sectors or targeted toward areas of potential strategic advantage and good bang-for-buck in emissions reduction.
Just three days after Ms. Freeland delivers that document, Mr. Biden will host a virtual climate summit with up to 40 world leaders, including Mr. Trudeau.
It can’t be entirely lost on the Liberals that they will need to be able to speak as ambitiously as their host. The peer pressure being felt this week is only going to get stronger.
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