Canada will boost investments in the green transition in this year's budget to compete with massive U.S. incentives, but the aim is to claim a portion of the growing clean-tech industry, not to go head-to-head with the world's biggest economy, a senior Canadian government source said.
Governments across the world are attempting to capitalize on the rapid transition to low-carbon energy, and the enactment of the Inflation Reduction Act (IRA) in the United States last year offers significant incentives for those who invest there.
After the IRA, Canadian Finance Minister Chrystia Freeland pledged in the 2023-2024 budget to try to level the playing field with the US, at least in some sectors.
"It's about growing the pie, not just dividing it up," said the source familiar with the file, who was not authorized to speak on the record. Canada has communicated clearly its plans to the Americans. "We don't want to get into a game of tit-for-tat," the source said.
The U.S. ambassador to Canada, David Cohen, echoed those comments ahead of President Joe Biden's visit to Ottawa later this month.
"Our efforts should be focused on growing the pie. I've identified critical minerals as the No. 1 issue that exists as we move forward for Canada and the United States to grow the pie," Cohen said. "There are significant opportunities there for us to work together."
Canada exports three-quarters of its commodities south of the border, and the two countries' automobile industries are intimately intertwined. Furthermore, Canada has an abundance of the essential minerals required for electric vehicles (EVs), making collaboration beneficial to both the US and Canada.
Canada has limited financial firepower in comparison to what the US proposed in the IRA, which many experts believe will result in more than $1 trillion in investment, so it will focus on increasing the capacity of the electricity grid, battery manufacturing, and mass timber construction, according to an anonymous source, who did not provide further details.
In the estimation of the Conference Board of Canada, the grid will require C$1.7 trillion in investment by 2050 to achieve emissions targets.
"We need to double the electricity system by 2050," said Francis Bradley, the chief executive of trade association Electricity Canada. "To be able to grow over the longer term, we need a commitment now."
Clean Prosperity, a Canadian climate policy advocate, examined the IRA and suggests that Canada prioritize investments in direct air capture, sustainable aviation fuel, and battery active materials. The source would not comment on whether these would be addressed in the budget.
According to Michael Bernstein, executive director of Clean Prosperity, Canada's endeavor to boost competition with the US "is a bit of a David and Goliath narrative.... We can compete if we're smart, if we don't just copy what our competitors do, but come up with our own strategy."