Canada warns of clean energy subsidy war

Is it possible to have too much of a good thing? Ask us after a trip to all-you-can-eat-sushi, and we’ll say yes. Get top federal officials talking about clean energy funding, and these days they just might agree.

What happened: Minister of Natural Resources Jonathan Wilkinson warned of a brewing “subsidy war” between the US and its allies in the clean energy space. 

  • The US Inflation Reduction Act’s (IRA) “very significant subsidies had created an unlevel playing field for the Europeans and for Canada,” Wilkinson told The Financial Times

Catch up: Last week’s federal budget included $18 billion of tax breaks and incentives for clean energy projects, a large investment aimed at helping Canada to compete with US efforts in the sector.

Yes, but: The US set aside US$400 billion of incentives for clean energy through the IRA, and while we were never strong in math, even we know that’s a heck of a lot more cash than Canada can throw at the space.

Why it matters: Canadian officials are concerned that cleantech companies will ditch Canada for the enormous subsidies on offer in the US, taking jobs and investment with them. 

  • While made-in-Canada goods are eligible for some of the benefits offered in the IRA, many incentives are more generous for US-based projects and businesses.

  • “If you look at a carbon capture storage project, here in Canada we have tax incentives that cover around 35% of capital costs—the same project south of the border will have costs covered up to 65%,” former MP and NAFTA Advisory Council member Rona Ambrose told CTV.

Zoom out: For years, Canadian and European governments complained that America was doing too little to decarbonize and promote clean energy. Now the tables have turned, and they’re playing catch up to US policy that’s racing ahead.