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Trudeau and Freeland up the ante on a clean economy

Justin Trudeau’s basic argument is that Canada and the world face both historic challenges and unique opportunities — and the Liberals are better suited than the Conservatives to overcoming those challenges and seizing those opportunities.

Mind you, the two parties don’t entirely agree on which issues are most deserving of attention right now. But there is no bigger challenge than climate change and the transition to a low-carbon future it requires. And Tuesday’s federal budget — described by the Canadian Climate Institute as “the most consequential budget in recent history for accelerating clean growth in Canada” — could be a pivotal piece of the Liberal response.

The actual consequences of this budget will take years to measure. But in response to political and economic pressure, Trudeau’s Liberals have at least significantly upped the ante.

“In our minds, there is probably no more pressing issue of economic policy than accelerating Canada’s transition to a low carbon economy,” a senior finance official told reporters during a briefing on Tuesday. “We cannot, as a country, afford to be left behind.”

Keeping up with the neighbours

The obvious impetus for all of this is the Inflation Reduction Act recently passed in the United States. Though it was couched in terms of affordability, the American legislation was actually a massive package of subsidies for clean energy and technology.

Comparisons with President Joe Biden’s signature legislation are somewhat unfair — the United States has to lean heavily on subsidies because there is no chance of Congress passing any kind of carbon-pricing policy. But the Trudeau government could not afford to ignore it.

U.S. President Joe Biden is shown a Chevrolet Silverado EV by General Motors CEO Mary Barra during a visit to the Detroit auto show to highlight electric vehicle manufacturing in America, in Detroit, Michigan, U.S., Sept. 14, 2022.
U.S. President Joe Biden is shown a Chevrolet Silverado EV by General Motors CEO Mary Barra during a visit to the Detroit auto show to highlight electric vehicle manufacturing in Detroit, Michigan on Sept. 14, 2022. (Kevin Lamarque/Reuters)

“In what is the most significant economic transformation since the Industrial Revolution, our friends and partners around the world — chief among them the United States — are investing heavily to build clean economies and the net-zero industries of tomorrow,” Finance Minister Chrystia Freeland said Tuesday.

“Today, and in the years to come, Canada must either meet this historic moment — this remarkable opportunity before us — or we will be left behind as the world’s democracies build the clean economy of the 21st century.”

Freeland’s third budget as finance minister offers $16.4 billion in tax credits for clean tech manufacturing, clean electricity and hydrogen over the next five years, adding to the $6.7 billion in supports for clean tech investment announced last fall. Freeland also has agreed to add $500 million to the $4.1 billion in support announced last year for carbon capture, utilization and storage.

Beyond those subsidies, the government has committed billions toward a handful of potentially lucrative funds, including $15 billion for the Canada Growth Fund, $8 billion for a “net zero accelerator” and $20 billion through the Canada Infrastructure Bank.

WATCH: Provinces need to be at the table as Canada competes with U.S., Freeland says

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Provinces need to be at the table as Canada competes with U.S. Inflation Reduction Act: Freeland

18 hours ago

Duration 9:13

“Message to provinces – you guys have a strong fiscal position right now,” said Finance Minister Chrystia Freeland. “When it comes to supporting investments in the clean economy, provinces are going to need to be at the table too.”

The Liberals also are moving to shore up the federal carbon price. Under a mechanism called “contracts for difference,” companies that receive funding through the Canada Growth Fund would be eligible for compensation if the industrial carbon price fails to rise as scheduled.

In other words, if some future government pauses or outright repeals the price, it would come at a direct cost to the government.

The “backbone” of the plan, the senior official said, is funding for clean electricity — billions of dollars that will go toward cleaning and expanding Canada’s grid.

“If there’s one single input that is essential to the transition to a low-carbon economy in Canada, it is the availability of low cost, clean electricity,” the official said.

Ideally, these actions would boost Canada’s economic growth. But they also give the Liberal government a positive and forward-looking economic narrative.

The clean economy ‘pyramid’

The enthusiastic technocrats in the Liberal government envision their approach as a four-level pyramid. Carbon pricing and regulation form the foundation. Atop that sit investment tax credits and “strategic finance,” with “targeted programming” at the apex.

Voters probably aren’t going to commit the graphic to memory but “it feels like a coherent package,” said Dale Beugin, executive vice president at the Canadian Climate Institute.

“To me, that’s the right way to think about this. Don’t try to do the [Inflation Reduction Act] from scratch because you don’t have to — you don’t have to spend all that money. [But] do some things. Make sure it’s as targeted as you can and aim that support at the places of comparative advantage, or where the market’s not going to [act].”

Some pieces of the pyramid may prove sturdier than others. Contracts for difference will have to be carefully designed, Beugin said. Tax credits always run the risk of “free ridership” — of rewarding actions that would have happened anyway. Electrification requires working with provinces and, as Beugin notes, “federalism is always a tricky game.”

Hydro power lines are shown just outside Winnipeg, Monday, May 1, 2018. Newly released documents say the federal agency created to finance new infrastructure - and alleviate the burden off the public purse - was not supposed to get involved in projects to expand or enhance existing public electricity grids.
Greening the grid will require federal and provincial governments to work with each other. (John Woods/The Canadian Press)

The Climate Action Network also pointed out on Tuesday that one piece of the government’s promised climate agenda — eliminating subsidies for fossil fuel industries this year — was conspicuously missing from the budget.

But neither the Conservatives nor the New Democrats were eager to condemn the promised new spending for clean energy and technology. Conservative Leader Pierre Poilievre repeated his condemnation of the federal carbon price, cast aspersions on the notion of contracts for difference and repeated his belief that the Trudeau government is spending altogether too much money — but he did not single out any of the government’s clean economy measures for criticism.

WATCH: Poilievre says Conservatives reject the budget

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Conservative leader threatens to vote against federal budget

1 day ago

Duration 1:17

Speaking ahead of the tabling of the federal budget, Pierre Poilievre urged the prime minister to cancel tax hikes and inflationary deficit spending.

Maybe that means Poilievre has found some climate policy he can support.

Both Poilievre and NDP Leader Jagmeet Singh did criticize the budget’s lack of emphasis on housing. Liberals might counter they are already taking action to make housing more affordable, but it’s not obvious that what they’re doing is enough. If that’s still the case when the next election comes, the Liberal government’s chances of retaining power might be severely diminished.

The same could be said of crime or inflation, or any of the other issues that can grind away at a government’s standing and leave more voters craving change.

The measures announced on Tuesday may be relatively unchallenged — and this budget may prove to be truly consequential in building the economy of Canada’s future. But if the Liberals want to see this plan to fruition, there are other challenges to overcome and opportunities to seize.

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