Ottawa wants provinces' help to combat U.S. Inflation Reduction Act's auto incentives

The federal government’s pleas for provincial help to counter U.S. tax incentives that threaten further investments in Canada’s battery supply chain have fallen on deaf ears in the country’s most populous province and elicited a wait-and-see response in neighbouring Quebec.

Ontario Premier Doug Ford said his government has “stepped up in every single aspect” to support corporate investments in the province’s electric vehicle sector, but it is Ottawa’s responsibility to respond to Washington’s Inflation Reduction Act (IRA).

“They should take care of the IRA. It’s federal to federal,” Ford told Automotive News Canada in an interview Feb. 17.

The Quebec government is less dismissive of Ottawa’s call for help, but non-committal about handing over provincial cash.

“We always work with the federal government to ensure the best support for our businesses,” said Claudia Loupret, spokeswoman for the Quebec Ministre des Finances, in an email. “Our approach to this situation is intended to be pragmatic as always: we analyze the relevance of the support requested in the light of the anticipated fallouts.”

The two provinces have seen a flood of EV-related investments since early 2022, amounting to about $20 billion. Economic development officials in both provinces have been touting their respective jurisdictions as investment destinations for automakers and battery companies, while those in Ottawa have been championing Canada as a whole.

But large tax incentives for battery companies establishing operations in the United States could damage Canada’s competitiveness for further investments.

U.S. OFFERS TENS OF BILLIONS

U.S. president Joe Biden signed the IRA into law last summer. The legislation establishes rebates worth tens of billions of dollars for battery supply chain investors, dwarfing anything Canada currently offers.

For a U.S. cell manufacturing plant the size of the NextStar Energy facility being built in Windsor, Ont., for instance, the IRA offers tax incentives of up to $2 billion per year through 2030. The incentives are tied to production levels, however, so the plant would need to run at its full 45 GWh capacity and produce both battery cells and modules to receive the full amount.

The Canadian and Ontario governments, in contrast, are suspected to have provided matching one-time contributions of $500 million to help attract the $5 billion plant to Windsor, though neither has officially confirmed the figure. Ongoing tax incentives based on battery production are non-existent north of the border.

Canadian Finance Minister Chrystia Freeland has vowed to respond to the IRA in the upcoming 2023 budget, but has laid out no specific plans for keeping Canada competitive with its neighbour to the south.

Following a meeting with provincial finance ministers Feb. 3, Freeland called on the provinces that will benefit the most from clean energy investments to “chip in and work with the federal government” to counter the IRA.

“Very specific investment decisions are being made about very specific projects,” she told reporters in Toronto.

“Those will be good for the whole country. They will be particularly good for the provinces where those investments are based.”

COUNTERING IRA 'A TEAM EFFORT'

Freeland did not expand on what level of investment the federal government is looking for from provinces that could land new projects, but said countering the IRA needs to be a “team effort.”

Ford, on the other hand, said Ontario is already playing its part.

“If they take care of the IRA, we’re taking care of other ends.”

Along with upfront financial assistance for automakers and battery cell makers retooling plants or setting up new manufacturing operations in the province, Ford said Ontario is helping investors with operational expenses such as energy costs that the federal government is not involved in.

At the same time, Ford acknowledged Ontario is seeing opportunities “right now, and that door doesn’t always stay open.”

“Hopefully they’re going to have a talk with President Biden when he comes up here,” Ford said, pointing to federal leadership in Ottawa.

The U.S. president is scheduled to visit Canada in March.

Freeland, however, has said there is no possibility of concessions from the United States.

“It’s not anything about Canada negotiating with Washington. This is the law; Congress has passed it, and it’s created a new situation for Canada.”

Freeland recommitted Feb 3. to responding to the industrial incentives in the IRA in the federal budget this spring. Finance Canada has not specified a date for when it will table its 2023 economic agenda.