It’s hard to say why the federal and Ontario governments are haggling over who should pay what to keep automaker Stellantis NV STLA-N from moving its partly-constructed battery plant elsewhere. Neither government has spent too much time thinking about how much money such plants are really worth to their constituents. Why start now?
But Premier Doug Ford is, as he told us on Wednesday, disappointed.
He’s not disappointed because Stellantis and its South Korean partner, LG Energy Solution – which were gifted $1-billion in subsidies last year from Ontario and Ottawa to build a plant in Windsor – are now demanding billions more. He’s not disappointed because Stellantis has stopped construction and threatened to move elsewhere.
He’s disappointed because the feds have not stepped up to pay all of the extra money. Mr. Ford argues that when you get into massive subsidy competition with the United States, Ottawa should pay.
The math justifying the massive sums that governments are paying for electric-vehicle battery plants is already so vague as to be imaginary. And now Mr. Ford is applying an imaginary constitutional principle to assert that fighting gargantuan subsidy wars is federal jurisdiction. Who knew?
The feds have retorted that Ontario should be paying its “fair share,” which makes one wonder if someone in a corner of the Finance Department is working up a fairness formula using the imaginary numbers of the economic benefits to come.
No one could argue with such a formula. Neither government can put a figure on an appropriate amount of subsidy because neither has ever really tried to put a value on the alleged benefits. Let’s just say a fair share is anywhere from zero to a gazillion dollars.
The good news is that when these two governments fight over which should pay the gargantuan subsidy sums, that actually means that both are arguing that some government should pay them – and that, in the end, one or both will pony up.
That’s not good news for you, the taxpayer, but it’s happy times for Stellantis. The company can count on truckloads of public cash that will probably be substantially more than the $5-billion cost of the plant it is supposed to be building in Windsor.
The company is also putting the squeeze on the British government to change Brexit trade rules or risk plants closing, all while it tells that country that EV-plant investments might be sucked away by the bigger subsidies in the U.S. and Canada.
All this was started by the U.S. with last year’s Inflation Reduction Act, which offered massive government incentives into green industry and launched a subsidy war. Ottawa’s calculation has been that it has to compete, and therefore will pay what it takes.
In the case of the Volkswagen EV-battery plan planned for St. Thomas, Ont., that calculation added up to $13-billion. But Ottawa never bothered to calculate what Canada is getting for the money. If it is the roughly 3,000 jobs at the plant, that’s a pretty pricey $4.3-million per job. If it is all of the claimed economic spinoffs, that’s not a credible calculation.
Aside from the tendency for governments to inflate such estimates, University of Calgary economist Kent Fellows notes that they don’t account for opportunity costs, and just tally up economic activity. Ottawa might just spend $13-billion to hire people to do other jobs and reap the same or greater benefits.
To be fair, the federal government argues this about more than battery jobs. Liberals argue attracting EV-battery plants helps attract EV-assembly plants, which fuels Canada’s auto-parts industries. Or that they help anchor a supply chain, from critical-minerals mines and processing to auto manufacturing. But how much is that worth?
”The fact that we haven’t seen any technical modelling on this is troubling,” Mr. Fellows said.
Maybe it’s hard to build a model when the potential outcomes are so varied, and vague, because the goals and expectations of the subsidy haven’t been precisely defined. What we have instead is broad gamble that these subsidies will build some part of Canada’s industrial economy of the future.
So how much should Ottawa and Ontario pay to keep the Stellantis plant now? Neither has a figure. There is no principle for dividing it up. The company is setting its ransom, and both governments seem to agree someone will have to pay.