Biden’s Inflation Reduction Act spurs green manufacturing incentives race
Canada's relentless focus on protecting its auto sector may have blinded it to the potential impact of the law's multibillion-dollar plan to kick-start green energy projects and energize domestic supply chains.
President Joe Biden rattled off an impressive list of economic wins on Aug. 16 to mark one full year of “transformative” climate spending that’s better known among critics in Canada and overseas than it is by voters in the United States.
It was August 2022 when Biden signed the $1.2-trillion Inflation Reduction Act — a misnomer, he has acknowledged, that says more about the American mood throughout much of last year than it does about the law itself.
And Biden’s own mood on Aug. 16 seemed to betray one of the White House’s most enduring frustrations: that his economic and political victories are being drowned out in a country wracked by partisan division.
“We’re still a country that believes in hard work. We’re still a country that believes each and every one of us is created equal,” Biden told his East Room guests, his tone rising, his face stern.
“We’ve never fully lived up to it, (but) we never walked away from it. And I guarantee we’re still the beacon for the world.”
The bill suddenly emerged last summer, phoenix-like, from the ashes of Biden’s dashed Build Back Better agenda, thanks to the efforts of Senate Majority Leader Sen. Chuck Schumer and West Virginia swing vote Sen. Joe Manchin.
It included a surprising pivot: Biden’s original plan to encourage the production and sale of U.S.-built electric vehicles had been expanded — thanks to months of aggressive Canadian lobbying — to cover North American-made cars and trucks.
But Canada’s relentless focus on protecting its auto sector may have blinded it to the potential impact of the law’s multibillion-dollar plan to kick-start green energy projects and energize domestic supply chains.
“The bigger impact from the legislation was arguably the advent of a green manufacturing incentives race,” said Louise Blais, a former diplomat who now serves as a senior adviser to the Business Council of Canada.
“Capital follows certainty. That is what they now get in the U.S. Canada needs its own IRA, adapted to our strengths. And we need it now. Every month that goes by solidifies the American position.”
At every opportunity, Biden makes no apologies for his relentless focus on luring jobs and investment back to the U.S., even if it comes at the expense of allies.
The U.S. Treasury Department, in an all-out administrative push to sing the law’s praises, distributed a memo on Aug. 16 promoting all the ways in which the Inflation Reduction Act is attracting foreign investment.
One of their examples was Canadian: Heliene Inc., a solar panel manufacturer in Sault Ste. Marie, Ont., that’s spending $145 million to build a new plant in Minnesota in order to take advantage of the law’s tax incentives.
And when David Cohen, the U.S. ambassador to Canada, tried in May to snuff out claims of U.S. protectionism, he cited Li-Cycle, a Toronto-based battery recycler building a new U.S. plant with more than US$370 million worth of help from the U.S. Department of Energy.
Meanwhile, the federal government in Ottawa has gone out of its way to alienate U.S. tech companies with a new digital services tax, said Scotty Greenwood, CEO of the Canadian American Business Council.
“Companies are not going to shoot themselves in the kneecap for the privilege of doing business in Canada if it doesn’t make any sense,” Greenwood said.
“If your goal is to attract investments into Canada from all kinds of companies, then you’re not advancing the ball towards that goal. You’re doing the opposite.”
The federal government has tried to keep up with U.S. investment, promising C$70 billion worth of incentives in its last budget to bolster competitiveness and ease the clean-energy transition.
Ottawa also ponied up billions in subsidies to lock down new battery manufacturing facilities being built north of the border by auto giants Volkswagen and Stellantis.
Those plants were big wins for Canada, but they were bespoke, custom-made measures, “one-offs done in reaction mode,” Blais said.
Until Ottawa makes good on its promise to streamline a regulatory framework for energy projects that already represents a head start over the U.S., what few advantages it has will be squandered, she added.
