Canadian manufacturers urge Freeland to align EV incentives with those in the U.S.

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Canada’s automakers are urging Finance Minister Chrystia Freeland to use her upcoming federal budget to better align electric vehicle incentives with recently announced policies in the United States.

In a letter to Ms. Freeland obtained by The Globe and Mail, the Canadian Vehicle Manufacturers’ Association says the 2023 budget “is a watershed moment for Canada’s automotive industry and the hundreds of thousands of Canadians it employs.”

The industry group says the competitive landscape has changed dramatically since the approval of two major pieces of legislation in the U.S. – the Inflation Reduction Act and the Infrastructure Investment and Jobs Act – which include hundreds of billions in new spending and tax credits focused on battling climate change and creating green economy jobs.

The letter says the two laws dedicate a combined US$41-billion to electric vehicle (EV) purchase incentives and charging infrastructure and US$71-billion to advanced manufacturing, including EV and battery production. As a result, the Inflation Reduction Act “puts Canadian battery production at a significant disadvantage and corresponding action is required to level the playing field.”

The letter recommends that the budget include greater incentives to purchase EVs, a plan to streamline the approvals process for critical mineral mining projects and a more aggressive plan to expand EV charging infrastructure.

“The federal government must keep up and keep aligned with the United States if we are to be full participants in the transition to electric vehicles,” wrote CVMA president Brian Kingston.

Ms. Freeland, who is also Deputy Prime Minister, recently said that positioning the Canadian economy as a leader in clean energy and the green transition will be one of two spending priorities for the 2023 budget, along with health care. But she added that the budget’s overall spending plan will need to be cautious so as not to run counter to the Bank of Canada’s efforts to curb inflation.

Both she and Prime Minister Justin Trudeau have held a series of news conferences in recent weeks at industrial facilities with ties to the electric vehicle and clean energy sectors to signal the government’s focus ahead of the budget.

Industry Minister François-Philippe Champagne has also been working to convince Volkswagen Group to make a major EV manufacturing investment in Canada in the coming months.

The Globe reported this week that while Ottawa and the provinces – Ontario in particular – have prioritized attracting EV manufacturers, companies say a shortage of skilled labour is frequently cited as the biggest obstacle to attracting multinational commitments.

The CVMA letter also lists specific areas of concern that could hinder Ottawa’s efforts.

“The federal government’s plan to decouple Canada from the North American automotive market by establishing Canada-unique, regulated EV sales targets works directly against integration and your government’s efforts since 2017 to defend and grow the automotive industry,” Mr. Kingston wrote. “We urge you to reconsider this approach and instead work with the industry to help more Canadians make the switch to electric.”

The date of the budget has not been announced, but it is often released around late March. February is typically the time when key budget decisions are locked in behind the scenes and lobbying efforts are at a fever pitch.

In an interview, Mr. Kingston said his conversations with government officials suggest the needs of Canada’s auto sector are a clear priority.

“My sense is that there is a very, very good understanding of the implications of the [Inflation Reduction Act], and it is front and centre and in considerations around the budget,” he said. “We absolutely agree with Deputy Prime Minister Freeland on the fact that this is a very important moment for the green transition. And it’s an important moment for Canada to ensure that we keep up with the Americans and the Inflation Reduction Act.”

There is no shortage of advice when it comes to how Ottawa should spend on the green transition.

On Thursday, the Climate Action Network and the Canadian Centre for Policy Alternatives released a report called “Spending What it Takes.” It proposes dedicating $287-billion over five years to climate investments, including $25-billion for a clean electricity grid and $40-billion for zero-emission public transit. The report also recommends that further purchase incentives for electric vehicles be paid for by new fees on vehicles with internal-combustion engines, a proposal that is not part of the vehicle manufacturers’ recommendations.