EV Battery Plant Subsidies Better Spent Elsewhere

Big handouts to buy votes
Published on May 13, 2023

Federal officials have made a stunning announcement.  Canada‘s Liberal government (assisted by Ontario’s conservative government) will proudly give as much as $13.8 billion dollars (over an extended period – ten years) to Volkswagen of Germany to build and operate a battery plant in Ontario for electric vehicles, ‘EVs’.Outrageously, this is $4 million per direct job created.

The $13.8 billion would come over stages, starting with a massive contribution to plant construction. The ‘overall deal’ represents the largest Canadian government contribution to a corporation in Canada’s history. Funding a large factory, with a forecast workforce of 500 to 3,000, would, supposedly, encourage other companies to invest in Canada’s automotive ecosystem, thus matching our ‘spendthrift’ neighbour, the United States.

This is by far the biggest gift/subsidy for any company by Canada.  (Strange note: the ‘Conservative’ government of Ontario supports the deal.) This, for an industry already massively investing its own money in the burgeoning but artificially sustained worldwide EV sector.  Ottawa politicians have jumped in despite the risks. The governments’ extravagant claim is that without the plant the country would lose out in being a major player in the transformation of the transportation and energy industries, moving to a lower- carbon dioxide, ‘CO2’,- emission future.

It seems that both the federal and Ontario governments seek to avoid a terrifying (and dubious) Climate Apocalypse, one which always seems to be ‘rescheduled’ for yet another five, ten, or even more, years hence.  Climate Armageddon fixates the political, media and academic classes.  It is the central dogma and Black Hole: our society and economy plunge in a spiralling trajectory as it consumes everything it grasps, like the aforementioned astrophysical phenomenon.  The ‘deal’ will cause a misallocation of capital by governments, on a massive scale.

Several points illustrate how ill-advised and wasteful this mentality has become. The primary question is whether or not lowering CO2 emissions is desirable. The orthodoxy that CO2 is pollution, to say it politely, holds little or no water.  Ignoring that, $13.7 billion dollars could be put to much better use than subsidizing any sort of factory and single corporation.

Canada should speed up and assist the conduct of expensive and construction-delaying environmental evaluation assessments. Canada would thusly assist the mining of critical minerals in Canada, including lithium (a refined form now comes from China). Another use of funds, still suspect, could assist the development of refining of lithium, now China-dominated.  Incidentally Chinese automakers are now using cheap, common sodium.  Rare earth minerals, and other materials also require domestic refining.

Canada could fund more interconnection of provincial electric grids, allowing low-emission jurisdictions to sell more power to higher-emission ones.  One further action: better management of a previous Ottawa brainwave, planting two billion carbon-sequestering trees, which the independent environmental overseer says is far behind schedule.

Another better use of this enormous $13.7 billion would be: reduce taxes on businesses, while drastically cutting, then moving to smarter regulations.  Lastly: simplify permitting of industrial projects (a current and persistent impediment to stronger private sector capital investment).  This is crucial to enhancing Canada’s current disastrously low productivity growth. It is the key to raising Canadians’ standard of living, now projected to stagnate or even decline in the indefinite future.

Huge transfers of money to purposes which could soon be obsolete, while accompanying big handouts to buy votes, will lower the economy’s overall growth potential, making us all poorer.


Ian Madsen is the Senior Policy Analyst at the Frontier Centre for Public Policy

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