The chapter on green subsidies in the federal budget is a bit like a Stephen King novel. It starts out strong, but then goes on, and on, and the ending is scary.
There are two distinct types of subsidies in the Liberal’s grand clean-economy scheme. The first sort – a targeted and appropriate use of public dollars – is aimed at speeding up the expansion, modernization and decarbonization of Canada’s electricity grid.
That is a key challenge facing Canada, particularly with electricity demand inexorably rising as the economy shifts away from burning fossil fuels for power generation and transportation. An expanded, reliable electrical system will benefit all types of industry, not to mention Canadian households: these subsidies create a foundation for the rest of the economy, an appropriate role for government spending.
It won’t be cheap: the budget foresees costs of $25.7-billion over the next 11 years. But Ottawa’s subsidies, if designed and executed properly, would be a nation-building effort in keeping with the construction of the transcontinental railroad, the Trans-Canada Highway and the St. Lawrence Seaway.
Another positive: those subsidies are technology neutral. Wind, water, solar and nuclear power are all eligible. Even natural gas capacity, if it meets emissions-intensity benchmarks, can qualify. That flexibility is a signal that the Liberals are serious about the push for a clean electricity grid, and not (as this government so often does) simply substituting virtue-signalling for good policy.
That said, this government hasn’t gone cold turkey on virtue-signalling: to get the full credit, organizations will have to ensure wages are paid at “prevailing levels,” with labour unions helpfully helping to determine what that means. Given that many of the organizations involved are unionized (or even publicly owned), that requirement is likely to be little more than a gesture.
Still, it would be far better to focus on the central and critical task of building a 21st-century electrical grid rather than to impose a layer of bureaucracy and reporting on the effort.
If the subsidy story stopped there, we would not see much else to criticize. But it does not, and we do.
The Liberals are also proposing a welter of other subsidies for clean technology that end up making Ottawa the arbiter-in-chief of the green economy. The least problematic of these is an investment tax credit for clean technology manufacturing. To its credit, this measure is a tax credit, rather than an outright subsidy. And it avoids the obvious economic distortion inherent of the government picking individual recipients of its largesse; instead, there are standard rules for all comers for the mining of critical minerals, of nuclear fuels and of a wide range of green-economy goods.
However, the manufacturing tax credit has two built-in flaws. For a start, these subsidies short-circuit the economic change that carbon pricing is supposed to propel. According to economic theory (and this very government), carbon pricing should stimulate demand for green products, and encourage the flow of capital to firms making such products. Has the government lost faith in its carbon pricing policy?
There’s a broader problem: the $11.1-billion that will flow to manufacturing companies will be diverted from elsewhere in the economy. The individuals and companies relieved of those funds might very well make different, better investment choices. The Liberals are once again making government, not the free market, the guiding force of investment.
Yet, the manufacturing tax credit is far from the worst economic distortion contained in the Liberals’ green industrial strategy. That honour goes to battery-manufacturing subsidies – nothing more than naked corporate welfare once all the high-flying green rhetoric is stripped away.
It’s the same old story of touting the creation of jobs for a lucky few, while ignoring the much less visible economic damage created by sucking tax dollars out of the pockets of other companies. More often than not, the cost of each subsidized job is disproportionately expensive.
That may be the case with the latest lucky recipient of a battery-manufacturing subsidy, Volkswagen. Ottawa hasn’t yet deigned to tell taxpayers how much they have “invested” to lure the company into building a battery plant in Ontario.
We don’t yet know the next chapter in Ottawa’s tale of subsidies. But we do know how the story ends: wasted billions, bureaucratic bloat and the smothering of private-sector innovation.