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Are Canada’s green corporate subsidies a new race to the bottom or a path to the top?


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The Peace Tower is framed by tulips as they bloom on Parliament Hill in Ottawa on Tuesday, May 9, 2023. Canada’s path to a greener economy is paved with billions of dollars in corporate subsidies. THE CANADIAN PRESS/Sean Kilpatrick

By Nojoud Al Mallees in Ottawa

The federal Liberals have made it clear that Canada’s road to a greener economy will be paved with billions of dollars in corporate subsidies.

Proponents say these may be necessary for Canada to attract investment, especially in competition with the United States — but others are expressing doubts that the hefty handouts will be effective or efficient in the long run.

The 2023 federal budget put the green economy front and centre, investing more than $80 billion over the next decade in everything from clean electricity to critical minerals, delivering a much-expected response to the package of investments made in the U.S. Inflation Reduction Act.

Finance Minister Chrystia Freeland argued that Canada must either meet the moment or be left behind as the world races toward building the clean economy of the 21st century.

For the Liberal government, meeting the moment recently meant making some big promises to German auto giant Volkswagen, which aims to build an electric-vehicle battery plant in southwestern Ontario.

The exclusive contract with Canada will include an upfront capital investment of $700 million and production subsidies for every battery the company makes and sells, which could cost up to $13 billion over a decade.

Ottawa is clearly betting on offering substantial incentives for the corporate sector to get greener.

But will it work?

John Lester, an executive fellow at the University of Calgary’s School of Public Policy, said there are various reasons why governments choose to subsidize businesses. A classic example is research and development, an endeavour with benefits that spill over to others in society, he said.

But economists and experts warn that subsidies don’t always work the way they’re intended to, and can be inefficient when they incentivize companies to do something they were already planning to do.

Freeland has also appeared aware of some of the dangers that could come with that approach, sharing concerns last month during a speech in Washington, D.C.

“We all know that building a clean economy and creating good, middle-class jobs will require a lot of capital. So let us be aware of one danger: it will be all too easy for us to get drawn into a race to the bottom to attract it,” Freeland said.

The finance minister warned that past efforts to promote investment and jump-start economic growth ended up driving down corporate tax rates, undermining the domestic tax bases that are so essential to nurturing a thriving middle class.

“A corporate subsidy war might be good for some shareholders, but it would deplete our national treasuries and weaken the social safety nets that are the foundation of effective democracies,” Freeland said.

“It is in our collective interest as friends, as partners and as allies to work together to ensure that our incentives drive innovation and investment, rather than create a vicious spiral.”

But Lester said the subsidies offered in Canada are already excessive, and called on Ottawa to rethink its approach to business subsidies in a recent blog post on the University of Calgary website.

He argued that the recent budget measures layer on top of two other programs — the net-zero accelerator initiative and the strategic innovation fund — to provide more subsidies as a share of GDP than the U.S. is offering.

“Canada is clearly not lagging the U.S in the clean economy subsidy ‘race,'” Lester wrote.

The researcher also said a “broader assessment of business subsidies is needed.”

According to his calculations, spending on subsidies in the current fiscal year will be $8.7 billion, up almost 140 percent since 2019-20, and is projected to rise to $9.8 billion by 2025-26.

In the case of the Volkswagen deal, the federal government has argued that the incentive will pay for itself within five years because of the jobs the prospective plant would create and other spillover effects on the economy.

That claim has been met with skepticism by some economists who say the benefits of subsidies are difficult to calculate.

Hadrian Mertins-Kirkwood, a senior researcher at the Canadian Centre for Policy Alternatives, said the Volkswagen deal illustrates the loss in efficiency that comes from countries competing for the same investment.

“From a global perspective and certainly from a climate perspective, that’s a huge waste of money. So it’s only really justifiable (if) it makes us better off compared to our neighbours, perhaps. But it’s not very economically efficient in the grand scheme of things,” he said.

In 2021, a consortium of more than 130 countries signed on to a plan to implement a 15 per cent minimum corporate tax rate, in an apparent acknowledgment of the losses they were collectively incurring by slashing taxes to attract business.

Glen Hodgson, a fellow-in-residence at the C.D. Howe Institute, said establishing international common practices could help mitigate a new race to the bottom when it comes to the green economy transition.

“Creating sort of common practices is usually the best way to proceed internationally,” he said.

This report by The Canadian Press was first published May 11, 2023.

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Moneris confirms credit and debit card processing outage, but offers few details

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The Canadian payment processing firm Moneris confirmed Saturday that credit and debit card transactions were interrupted by a network outage earlier in the day.

The Toronto-based technology company issued a statement saying there was nothing to suggest the outage was related to a cyber attack.

Complaints about outages started rolling in to the website before noon eastern time, but Moneris did not say when the outage started.

About three hours later, Moneris posted a message on X — the  social media site formerly known as Twitter — saying it had resolved the network problem.

It remains unclear how many businesses and transactions were affected, but data provided by indicated complaints had come in from across the country.

In a statement provided to The Canadian Press, the company said the outage lasted about 90 minutes.

“We have resolved the network outage and returned transaction processing to normal,” the statement said. “We continue to investigate the root cause of the issue. There are no indications this appears to be cyber-attack related and all transaction systems are functioning normally again.”

The company, a joint venture between  Royal Bank and BMO Bank of Montreal, said transaction processing could be slow as its systems catch up with the backlog.

Moneris says it supports more than 325,000 merchant locations across Canada.

This report by The Canadian Press was first published Sept. 23, 2024.

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Smith says despite difficulty with Ottawa, Alberta has allies in Trudeau cabinet

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Alberta Premier Danielle Smith speaks to business leaders at the Global Business Forum in Banff, Alta., Friday, Sept. 22, 2023. Smith told the conference that despite her concerns with the federal Liberal government there was some cabinet ministers she can work with. THE CANADIAN PRESS/Jeff McIntosh

By Bill Graveland in Banff

Alberta Premier Danielle Smith told a business conference on Friday that despite her concerns with the federal Liberal government, there are some cabinet ministers she can work with.

Smith has been at odds with federal Environment Minister Steven Guilbeault and Natural Resources Minister Jonathan Wilkinson amid concerns over Ottawa’s climate-change policies and transition plan for a net-zero emissions economy.

Guilbeault intends to publish draft regulations this fall to cap emissions from oil and gas, then force them downward overtime. Ottawa has also set a target to have the electricity grid be net-zero by 2035, but Alberta says it’s unrealistic.

Smith says Alberta won’t implement the emissions cap, nor will it follow the 2035 target.

The premier told delegates at the Global Business Forum in Banff, Alta., that Wilkinson needs to answer for comments he made earlier this week at the World Petroleum Congress in Calgary.

Wilkinson’s call for the industry to work aggressively to get to net-zero was basically telling them to “pack it up, because the oil and gas industry is winding down,” said Smith.

“You could just feel the energy leave the room and you could just feel the investment dollars leave the room.”

Smith said energy producing provinces such as Alberta, Saskatchewan and Newfoundland and Labrador, can’t trust the Trudeau government to look out for their interests at international conferences.

“After hearing how the natural resources minister talks about our industry, after hearing how the federal environment minister talks about our industry, we can’t afford to let them carry our message,” Smith said.

“We can’t afford not to be there.”

Smith said she has been in discussions with Saskatchewan Premier Scott Moe and intends to talk to Newfoundland and Labrador Premier Andrew Furey about joint presentations at conferences in the future.

Despite her disappointment with Wilkinson and Guilbeault, Smith said it’s not all bad.

Finance Minister Chrystia Freeland among the top allies, she said.

“Let’s give her credit for shepherding through all of the constant need to give more debt financing to Trans Mountain pipeline to get that to the finish line. That has not been easy,” Smith said.

She also praised Innovation Minister Francois-Philippe Champagne, Public Safety Minister Dominic LeBlanc, Labour Minister Seamus O’Regan and Employment Minister Randy Boissonnault.

“I would say it’s not uniformly negative in the Liberal caucus. But for some reason they’re allowing Stephen Guilbeault to be a maverick and a renegade and quite offensive to those of who are trying to be reasonable and adult about this,” Smith said.

Smith said it’s time for the federal government to back away from setting “aggressive targets” in dealing with the provinces.

“Aggressive targets are not helpful. They’re not helpful to us. They’re not helpful to investors.”

This report by The Canadian Press was first published Sept. 22, 2023.

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