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Quebec Premier Francois Legault attends an announcement that Northvolt Batteries North America will build a new electric vehicle battery manufacturing plant near Montreal, on Sept. 28, 2023.Christinne Muschi/The Canadian Press

When it comes to the green transition, let no one say the Trudeau government is unwilling to put other people’s money where its mouth is. Why, in just one sector, a sector of a sector really – making batteries for electric vehicles – the government has put $44-billion at risk: one of the “big bets” on Canada’s industrial future of which it likes to boast.

In fact, that $44-billion (I’m using the Parliamentary Budget Officer’s figures here, rather than the official estimate of $38-billion) is for just three factories: $14.4-billion to persuade Volkswagen to make batteries in St. Thomas, Ont., $16-billion to induce Stellantis (the former Fiat Chrysler and Peugeot SA) to open a plant in Windsor, and $7.3-billion to lure Swedish battery maker Northvolt into suburban Montreal. (The remainder, on the PBO’s calculations, is the revenue cost of exempting these subsidies from the usual tax.)

Given total projected employment at the plants of 8,500, that works out to more than $5-million a job. Granted, that’s over 10 years – governments are ponying up “only” $5-billion in construction support, with the rest going to production subsidies – and “only” $27-billion of that is federal money (the other third is from the Ontario and Quebec governments). Still, that’s quite the bet.

From Dec. 2023: Canada’s long, difficult road to becoming an electric vehicle ‘superpower’

Even that figure understates matters significantly. Since all of that money will be borrowed, interest costs should also be included. The PBO estimates these at $6.6-billion. All told, that’s $50-billion of other people’s money. For three factories.

But then, how can you count the cost, at a time of such generational opportunity? As everyone knows, the entire global auto industry is in the process of shifting from internal combustion engines to battery electric vehicles.

By putting such unprecedented amounts of money on the table, the government is seizing “first mover advantage” for Canada, leveraging our abundant supplies of “critical minerals” to transform us into an EV battery “superpower.” And not only that: With EV batteries anchoring the supply chain, Canada’s future as an electric-vehicle assembly powerhouse is assured.

It all sounds terribly exciting and innovative, if you don’t stop to think about it too much.

First: is the transition to electric vehicles quite as certain as all that? To be sure, the federal government, on top of plying the sector with tens of billions in subsidies, has mandated that EVs must make up 60 per cent of new vehicle sales by 2030, and 100 per cent by 2035. But is that actually where the market is headed?

EVs, as of third-quarter 2023, made up just 13 per cent of the Canadian market – higher in B.C. and Quebec, lower everywhere else – and that’s if you include hybrids. Are we really going to quintuple that in six years? Octuple it in 16? Sales of EVs have been growing rapidly until lately – though final sales numbers for 2023 aren’t yet available for Canada, sales were up 50 per cent in the United States – but they show every sign of slowing.

Certainly they are not growing as fast as the automakers had expected. Tesla, still the dominant EV maker in North America, has lately seen its stock plunge. GM and Ford have both announced production cuts on their electric truck lines. Polestar, the Swedish EV manufacturer, will slash its work force by 15 per cent. Renault cancelled plans to sell shares in its EV subsidiary, Alterre. Hertz, the rental car giant, just announced it was selling off a third of its fleet of EVs, and replacing them with gas-powered vehicles.

Meanwhile, Toyota chairman Akio Toyoda is sticking by his prediction that battery EVs will top out at 30 per cent of the market. The rest, he argues, will continue to be made up of a mix of different technologies: hybrids, hydrogen and old-fashioned internal combustion.

So perhaps the EV revolution is not quite as sure a thing as all that. The early adopters – environmentalists, tech geeks, the wealthy – have bought in. But getting the other 80-plus per cent of consumers to follow may not be quite so straightforward.

What explains consumers’ reluctance? Cost is certainly part of it: The sticker price of the average EV, at $73,500, remains $6,000 above that of its gas-powered rivals. Federal and provincial consumer “incentives” (more subsidies) can offset that. But then you have to factor in other expenses. They’re costlier to fix, costlier to insure and depreciate in value at a quite-alarming rate. Against all this, the roughly $3,000 in annual savings on gas starts to look insufficient.

The conventional wisdom is that EV prices will fall as sales grow and scale economies are achieved. But that, again, is no sure thing. There is no template for this kind of forced-march of one of the world’s largest industries – there are nearly 1.5 billion cars worldwide – from one technology to another. But the arithmetic is daunting. Roughly 40 per cent of the cost of an EV is the battery; roughly 50 per cent of the cost of the battery is for basic materials, notably copper.

To supply the copper required to ramp up EV production on the scale envisaged would mean more than doubling world copper production. Adding new supplies will take time; meanwhile the likelihood is soaring prices for copper (and other minerals) and rising, not falling, EV prices. Or certainly EV costs: the subsidy-induced glut in production may simultaneously put pressure on prices, leading to deeper losses for manufacturers and further production cuts.

But cost may not even be the most significant deterrent to consumers. “Range anxiety” remains a concern, especially in rural areas. (Battery life becomes of peculiar importance, as many have lately discovered, when the temperatures plunge.) Even in city centres, finding a charging station is still an issue: Suburbanites with garages might be able to install their own chargers, but where street parking is the norm, that’s easier said than done.

None of this is to bad-mouth EVs themselves. They’re a remarkable technology, superior in many ways to gas-powered vehicles. I may buy one myself. The question is whether it makes sense to subsidize them, especially at such scale. Bear in mind, the $50-billion is just the start. There’s also the cost of those consumer “incentives.” Then there will be the inevitable cost of subsidizing the installation of charger stations. And the cost of expanding the electricity grid, to handle the increased load. And more besides.

Certainly it makes no sense in industrial policy terms. The issue here is not so much whether EVs turn out to be winners or losers. The issue is opportunity cost. The $50-billion we have just plunged into jump-starting the EV-battery industry is $50-billion that might have been spent on other things, or used to reduce the debt, or left in taxpayers’ hands.

The capital and labour being steered into making batteries is capital and labour that might have been put to other productive uses, making things that do not require subsidy: or in other words, that offer more value to society, measured by what consumers are willing to pay for them at the margin, than what they cost society, measured by the resources it took to produce them. Rather than, as with EVs, the opposite.

First mover advantage? I get the argument: We become dominant in the global EV-battery market and make huge monopoly profits, enough to offset the usual zero-sum argument against industrial subsidies. But we aren’t going to corner the world battery market, not even with $50-billion in folding money. We’re not even first movers: China has been at this game for 20 years or more. And if we were, the profits would go overseas: The companies we are throwing so much dough at are all foreign-based.

So at best, the subsidies are enough to offset other countries’ subsidies: enough, as they say, to stay in the game. But what game? The game of subsidizing battery production – a game where nobody wins, and everybody ties. We’re not even big enough players to stop the game: to use our subsidies to force the other players to end theirs.

All that our initial $50-billion in subsidies wins us, then, is the right to go on subsidizing, in perpetuity – for what politician is going to cut off the industry from its lifeline once it has been hooked up? Not with so many jobs at stake. Not after so much money has been spent.

But never mind. Maybe this isn’t an industrial policy play. Maybe this is an environmental play: get cars off of fossil fuels, and onto electricity, and we make massive reductions in greenhouse gas emissions. Again, this assumes consumers actually go along, but fine: does this make sense as environmental policy?

No. First, it’s an enormously costly, roundabout way of cutting emissions. Pound for pound, EV subsidies are reckoned to be among the most expensive of all emissions-reduction measures. The cost of the $5,000-per-car federal consumer subsidy has been estimated at $355 per tonne of emissions reduced; the figure rises to between $512 and $857 when provincial subsidies are included. Production subsidies, given the uncertain links between producing an EV and persuading consumers to buy one, must be many times more costly still. Compare the cost of the federal carbon tax, at $65 a tonne, rising to $170 by 2030.

Why are subsidies so much less efficient? Partly because you are often subsidizing people to do things they were going to do anyway. Partly because, even if you are subsidizing a less wasteful or harmful form of resource consumption, you are still subsidizing resource consumption. In the case of EVs, that includes the environmental costs associated with mining and refining all those critical minerals, at scales hitherto undreamed of. At the back end, it includes the costs of recycling all those batteries. To say nothing of all the external costs associated with cars, in terms of traffic congestion, sprawl and so on.

Even the purported emissions reductions from EVs are at best a guess. It depends, in part, on how the electricity that powers them is produced: if from nuclear or hydro, then yes, a net reduction in emissions; if from oil or coal, not so much.

Again, none of this is to say that EVs will not be part of the solution. But we simply do not know enough to make such big bets on one technology, in one industry, in one country. We don’t know enough about the present, let alone the future. We don’t know whether lithium-ion batteries, the kind the three plants will be subsidized to produce, are the battery technology of the future, versus some other kind.

We don’t know whether batteries, as a zero-emission technology, will prevail in the long term over other forms, like hydrogen. So why pretend that we do? Similarly, why subsidize electric cars in preference to other electric vehicles, like e-bikes? Why privilege private modes of transport, over public transit?

There’s a reason to intervene in the transportation market, to be sure: Climate change is a classic case of market failure. But the revolution should be led by consumers first, and manufacturers second – not by government edict or government subsidy.

A simple carbon tax, at sufficient levels, offers consumers all the incentive they need to switch to less carbon-intensive modes of transport, while leaving the decisions on precisely how and when to their discretion, based on knowledge that either only they possess – what they prefer, at what price points – or that they are best placed to collect.

Some bets, in short, are better not made.

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