Monday, June 5, 2023
Home Covid-19 Four FAQs to better understand the Canada-U.S. spat over electric vehicle subsidies

Four FAQs to better understand the Canada-U.S. spat over electric vehicle subsidies

It might be difficult to imagine Prime Minister Justin Trudeau arguing against a climate-friendly tax credit.

But that’s exactly what happened last week in Washington, D.C. during the so-called “Three Amigos” summit between Trudeau, U.S. President Joe Biden and Mexican President Andres Manuel Lopez Obrador.

Read more:
Trudeau says he raised concerns on EV tax credit, Line 5 pipeline with Biden

The summit got off to a charged start when Trudeau objected to a proposed $12,500 tax credit for American-made electric vehicles included in the Biden administration’s $1.5 trillion “Build Back Better” Act.

The bill was passed by the U.S. House of Representatives on Friday and is pending approval from the Senate before it’s sent to Biden for confirmation.

Trudeau’s concern is that the tax credit could devastate Canada’s auto sector just as manufacturers are converting plants to make zero-emission vehicles for sale across North America.

Story continues below advertisement

Read more:
Canada will respond to tax credits for U.S.-made EVs if approved: Champagne

These concerns were echoed by several prominent Canadian cabinet ministers, including Innovation Minister Francois-Philippe Champagne, who early in November warned the U.S. that Canada would respond “appropriately” if the tax credit becomes law.

So what does this disagreement between friends mean for Canada?

Here are four questions and answers that help explain the key issues.

What does Canada have to lose?

Canada has a lot to lose. Canadian-made auto exports were valued at about $43 billion in 2020, according to the Canadian Vehicle Manufacturers’ Association (CVMA). Roughly 93 per cent of these — or $40 billion worth — ended up in the U.S.

Auto manufacturers, including parts companies, directly employ 125,000 Canadians, according to recent government statistics. The industry also indirectly employs about 370,000 people in Canada, including in car sales and finance.

Story continues below advertisement

Auto-making is one of the largest sectors of the Canadian economy, accounting for at least $12.5 billion of the country’s GDP. It’s also the second-largest sector in terms of exports, behind only the oil and gas industry.

Manufacturing giants, such as General Motors, also plan to spend billions of dollars upgrading plants in Ontario to build new electric vehicles destined for the U.S. market.

Focus Ontario: Ontario looks to an EV future

Focus Ontario: Ontario looks to an EV future

But exactly how much of Canada’s auto industry could be at risk because of Biden’s proposed “Buy America” tax credit is unclear.

Some experts have suggested the issue may be resolved once U.S. lawmakers realize the tax credit could hurt jobs on both sides of the border, due to the “interdependent” nature of North American automaking. Others say there’s good reason to be concerned, especially if Biden remains steadfast in his commitment to put “America first.”

Story continues below advertisement

EV tax credits: good or bad?

Whether or not EV tax credits are good or bad depends on who you ask. Many environmentalists and climate change advocates support tax credits and rebates for zero-emission vehicles.

The subsidies help offset some of the higher production costs compared to cars and trucks with combustion engines. Tax credits and rebates also offer incentives to manufacturers keen on transitioning away from traditional vehicle production because they know there will be a market for the products they make.

But Ontario Premier Doug Ford scrapped a long-standing provincial rebate for electric vehicles in 2018 shortly after his election win.

Click to play video: 'Ontario government increasing focus on electric vehicles'

Ontario government increasing focus on electric vehicles

Ontario government increasing focus on electric vehicles

The rebate, which offered buyers up to $14,000, was criticized by Ford as elitist and as a subsidy for the rich who didn’t need government help to buy a new car.

Story continues below advertisement

As recently as last week, Ford said that before the last election he “didn’t believe in giving millionaires” rebates for $100,000 cars, according to a report from the Toronto Star.

But Ford’s position may have softened somewhat ahead of next year’s Ontario election. He said last week that the province is investing billions of dollars in electric vehicle manufacturing and that he’s looking at whatever the “market will bear” in terms of financing and possible subsidies.

Read more:
Electric vehicle sales plummet in Ontario after rebate cancellation

A report by Electric Mobility Canada released in December 2019 showed the number of electric vehicles sold in Ontario dropped by 55 per cent in the six months after Ford scrapped the provincial rebate program.

Proponents of electric vehicles said this was evidence that subsidies work and are an important part of transitioning to a climate-friendly transportation economy.

Doesn’t Canada have EV tax credits?

Electric-vehicle tax credits have been featured in political platforms in Canada, too.

Story continues below advertisement

During the most recent federal election, the Liberals proposed extending a $5,000 federal rebate for electric and zero-emission vehicles. The NDP, meanwhile, proposed a $15,000 subsidy for “made-in-Canada” electric and zero-emission cars. The Green Party proposed exempting electric vehicles from federal sales tax.

Read more:
EV tax credit ‘not good news’ for Canada, ambassador to U.S. says

Many provinces also offer subsidies, including British Columbia, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

Quebec offers buyers up to $8,000 in rebates for electric and hybrid vehicles. Combined with the federal rebate, these subsidies bring many zero-emission cars much closer to the retail price of combustion engine equivalents.

Does ‘Buy America’ break trade deals?

Trudeau and his ministers have clearly stated their belief that the proposed “Buy America’ tax credit would violate the United States-Mexico-Canada Agreement (USMCA) and World Trade Organization (WTO) rules.

Story continues below advertisement

Trade Minister Mary Ng wrote a letter to U.S. congressional leaders in late October that said the proposed credit could cause “serious and irreparable harm” to the Canadian auto sector.

Read more:
Trudeau ‘a little bit concerned’ about Biden’s buy-American electric vehicle tax credit

Canada sent the U.S. another letter, signed by foreign ambassadors from 25 different countries, that said limiting eligibility for the credit to vehicles made in America is “inconsistent with U.S. commitments.”

Foreign Affairs Minister Melanie Joly criticized the proposed credit during a visit to Washington. She added that Canada has vast supplies of the minerals needed to build electric cars — a possible hint at one of the steps Canada might be willing to take if the tax credit passes.

“We have lots to gain by working together,” Joly said on Nov. 12. “Canadians know that we have to defend our interests, and we can never take anything for granted.”

Click to play video: 'Trudeau says he discussed pandemic, CUSMA, more with Biden amid Washington, D.C. visit'

Trudeau says he discussed pandemic, CUSMA, more with Biden amid Washington, D.C. visit

Trudeau says he discussed pandemic, CUSMA, more with Biden amid Washington, D.C. visit

Deputy Prime Minister Chrystia Freeland has offered what is perhaps Canada’s strongest objection to the tax credit.

Story continues below advertisement

During a Nov. 17 press conference in Washington, she said the proposal has the potential to become the “dominant issue” in the Canada-U.S. relationship.

She also said Trudeau told top U.S. lawmakers from the House and Senate that Canada is “certain” the incentives would violate the USMCA, according to a report from Politico.

“Do you really want to violate it in such a significant way so soon after its passage?” Freeland said. “That was one of the points we made. I think they heard us.”

Read more:
Melanie Joly, Canada’s new foreign minister, takes up EV tax credits with U.S.

But the Americans were quick to disagree with Trudeau’s arguments, Politico wrote.

“In our view, the EV tax credits are an opportunity to help consumers in this country,” White House press secretary Jen Psaki said on Nov. 18.

“It’s not the first time there have been incentives and tax credits for consumers, to lower prices for consumers [and] help incentivize a move toward a clean energy industry.”

© 2021 Global News, a division of Corus Entertainment Inc.

Most Popular

Mary Turner Pattiz, Rock D.J. During FM’s Heyday, Dies at 76

She was known as “the Burner” for her seductive delivery, but off the air she was anything but a wild rock ’n’ roller. She...

Quebec dental hygienists give back to community with free dental care

Diane Marcin couldn’t believe it when she saw a flyer advertising a free dental cleaning Saturday – she said she had to check it...

Burglar takes the cake: Vancouver thief snatches goodies, and cleans store

A Vancouver cafe burglary was caught on video early Friday but it was not a typical break-in. The only thing stolen from the store? A...

Vancouver fundraisers held to support theatre and security for youth drag camps

The Carousel Theatre for Young People on Vancouver’s Granville Island is holding two fundraising events on Saturday. The two events will feature performances by the...