Canada’s natural resources minister has warned the US against waging a “carbon subsidy war” with its allies, saying the Biden administration’s $369bn clean energy package creates an “unlevel playing field” in global trade.
Jonathan Wilkinson, a senior member of Justin Trudeau’s Liberal government, said Canada and Europe were seeking to “match” the US Inflation Reduction Act and its colossal handouts for clean energy developers, but acknowledged that they would struggle to compete.
The IRA’s “very significant subsidies had created an unlevel playing field for the Europeans and for Canada”, Wilkinson said in interview with the Financial Times.
“We don’t want to get into a subsidy war with the Americans and neither do the Europeans and Japanese.
“The Americans are the reserve currency of the world — they have the fiscal latitude to do things that I think almost no other country in the world can do,” Wilkinson added.
The comments from a senior figure in the Trudeau government echo criticism in Europe, where the scale of the IRA’s handouts has triggered fears of capital flight across the Atlantic. French president Emmanuel Macron has warned that the IRA could “fragment the west”.
In response to the IRA, Brussels has unveiled a host of new tax breaks and funding for clean energy developers, although like Canada the EU has made pricing carbon a cornerstone of its climate policy.
On Tuesday, Trudeau’s federal government unveiled a new budget that included C$18bn ($13bn) worth of tax breaks for green electricity and other cleantech — on top of billions more committed in recent years — with finance minister Chrystia Freeland saying Canada must not be “left behind as the world’s democracies build the clean economy of the 21st century”.
Wilkinson spoke with the FT just days after President Joe Biden visited Ottawa and talked up Canada’s “large quantities of critical minerals that are essential for our clean energy future”. The president also noted that the IRA “explicitly includes tax credits for electric vehicles assembled in Canada”.
The US has sought to soothe allies’ concerns about the IRA in recent weeks, with energy secretary Jennifer Granholm telling the FT in a recent interview that the Biden administration “[doesn’t] want to see any trade rivalry” over the IRA and was working to resolve disputes “in a way that lifts all”.
On Friday, the Biden administration also widened the scope of eligibility for IRA tax credits for EV batteries, a move designed to ease anxiety among US allies.
During Biden’s visit to Ottawa, the US and Canada had discussed the “need for us to be working together . . . and not turning this into some kind of carbon subsidy war”, Wilkinson said.
But Washington’s effort to use the IRA to reindustrialise the US must not damage allies, Wilkinson suggested. “It needs to be friend-shoring, not just one country winning.”
Canada, already the largest foreign supplier of oil to the US from the world’s third-largest oil deposit, also has abundant reserves of critical minerals — such as lithium, nickel, cobalt, copper and rare earth elements — that it believes will support a lucrative battery supply chain in the country.
Oil “is not the growth opportunity for this country on a go-forward basis in the way that critical minerals are going to be”, Wilkinson said.
Wilkinson indicated that Canada would continue to take a more conciliatory approach to China than that of the Biden administration, which is seeking to end US dependence on cheap Chinese cleantech materials such as solar modules.
“You don’t want to be dependent on countries that don’t share your values,” Wilkinson said, saying Russia’s invasion of Ukraine had shown the “destabilising effect” of relying on energy supplies from authoritarian regimes.
Canada had already denied Chinese state-controlled entities access to its critical minerals mining sector, he said.
“But that doesn’t mean we’re not going to buy solar panels from China. It doesn’t mean we’re not going to buy wind turbines from China.”