Naimul Karim
Financial Post
Tue, August 15, 2023
0421 biz rt vwtrudeau
The United States a year ago passed a 730-page piece of legislation that almost single-handedly paved the way for some of the world’s biggest manufacturing companies to change their supply-chain systems.
Signed into law on Aug. 16 by President Joe Biden, the Inflation Reduction Act (IRA), contrary to its title, wasn’t just about bringing down inflation, which was at its peak a year ago. Instead, it promised more than US$300-billion worth of tax credits, grants and loans to fund clean-energy projects and address issues linked to energy security and health care.
With Canadian businesses, especially in the auto sector, linked to the U.S. market, the law was bound to make an impact north of the border. That’s why the Canadian government aggressively lobbied for months prior to the legislation’s passing to change certain conditions that could have otherwise hurt this country’s automotive, energy and mining industries.
One year on, the IRA has had both the desired effect on companies in the U.S. and some unforeseen consequences for others.
A boon for mining and battery sectors
A month after the law came into being, South Korean battery maker LG Energy Solution Ltd. inked deals to source materials required to make batteries for electric vehicles (EVs) from three Canadian junior miners.
Toronto-based Electra Battery Materials Corp., which agreed to supply the battery-making giant with cobalt, described the deal as its “first big commercial contract” last September. An Electra spokesman said the IRA helped close the deal.
LG also inked deals with Toronto’s Avalon Advanced Materials Inc. and Winnipeg-based Snow Lake Resources, miners who are in the process of developing lithium projects.
A key reason behind the investments in these early-stage projects that have yet to start production lies in the IRA provisions that provide a US$3,750 credit for vehicles whose batteries contain critical minerals extracted or processed in a country with which the U.S. has a free-trade agreement or were recycled from depleted batteries at a facility in North America. In addition, there’s a separate US$3,750 tax credit for vehicles whose battery components were either manufactured or assembled in North America. The bill mentions various thresholds for both conditions.
Referring to the provisions, both Avalon and Snow Lake last year said the IRA paved the way for Canadian miners exploring battery metals to start working with EV manufacturers.
These weren’t the only Canadian mining projects that benefited from the act. In November, General Motors Co. signed a deal with Brazil-based Vale SA to source 25,000 tonnes of battery-grade nickel annually from Vale’s proposed plant in Bécancour, Que. The nickel feed will be used in GM’s battery cathodes to power about 350,000 electric vehicles annually. A GM representative last year said the deal would help the company become eligible for the clean-energy tax credits mentioned in the IRA.
General Motors assembly workers connect a battery pack underneath a partially assembled 2018 Chevrolet Bolt EV vehicle on the assembly line at Orion Assembly in Lake Orion, Michigan.
Last year, Stellantis and LG also inked an agreement with Ottawa to invest more than $5 billion to build a Windsor battery factory that is expected to create 2,500 jobs.
The IRA played a role in enticing auto companies to build Canada’s first battery plants for EVs, although it could have robbed Canada of a crucial investment from Stellantis and LG.
The companies first announced in March 2022 their goal of building a lithium-ion battery plant in Windsor. However, construction of the plant was halted in May this year after Stellantis, the company behind brands such as Jeep, Fiat and Chrysler, said the federal government had not met its financial commitments.
The issue was linked to the IRA, according to industry minister François-Philippe Champagne, who on May 19 said that while Canada already had a deal with Stellantis, the parties had to renegotiate because of the IRA and the benefits the act provided.
The situation was eventually resolved in July after Canada confirmed it would provide the project with performance incentives worth up to $15 billion. The federal government inked a similar agreement with Volkswagen AG, which is looking to build a battery plant in St. Thomas, Ont. Volkswagen could receive at least $13 billion in performance incentives.
The government’s commitments to the “battery shops” were the most obvious impact of the IRA in Canada, said Bob Fay, a managing director at the Centre for International Governance Innovation, an Ontario-based think tank. But he also said it wasn’t enough to “truly position” Canada as a leader in the EV value chain.
“Canada needs to focus on developing and capturing intellectual property as opposed to simply becoming a battery branch plant operation,” he said. “Canada is well positioned to do so with our talent and resources, and governments’ efforts should be redirected to those goals.”
Canada’s counter ‘not as generous’
The IRA helped bring investments into Canada, but it also compelled some businesses to flow south of the border.
For example, Calgary-based fuel distributor Parkland Corp. in March said it decided against building a standalone renewable diesel complex at its Burnaby Refinery due to reasons that included rising costs and the IRA, which it said give U.S. producers an advantage.
Aware of the “major challenge” posed by the IRA, the federal government announced a number of steps in the most recent budget to counter the act, including investment tax credits and targeted programs to boost clean-energy projects and strategic financing pathways, and reaffirmed its support for the mining sector.
A few business leaders, though, described the government’s reaction as “limited” compared to the IRA.
“A lack of action on permitting reform and investment tax credits has put us on the back foot,” said Heather Exner-Pirot, a special adviser at the Business Council of Canada, a group of about 150 companies, including Microsoft Canada Inc. and Google Canada.
“In contrast to Canada’s approach, the IRA treats the private sector as a partner, not an obstacle, in achieving climate goals,” he added.
The Stellantis Canada Windsor Assembly Plant.
Matthew Holmes, a senior vice-president at the Canadian Chamber of Commerce said it wasn’t possible for Canada to go “head to head” with the United States and that the steps taken in the budget were “prudent and pragmatic.”
However, he said Canada needs to “stop dragging” its feet on reducing regulatory red tape and start working with provinces to get projects moving faster.
“We have already seen capital investment head south,” Holmes said. “Over the next year or two, we are concerned that Canadian talent, research and innovation will follow as the U.S. builds momentum.”
Dennis Darby, chief executive of the Canadian Manufacturers and Exporters, which represents 2,500 manufacturers, said Canada’s counter moves haven’t been “as generous” as the U.S. incentives and that the roll out has been “too slow.”
He said that despite the initial steps, Canada’s manufacturing sector runs the risk of being “left behind in the race for clean jobs and investment.”
Darby said there is a need to win more “major clean economy investment projects” such as the ones with Volkswagen and Stellantis to bridge the gap with the U.S. and attract more investment.
Electra lands first big contract with global battery maker LG
Vale inks deal to supply GM with nickel from Quebec plant
Ontario boosts Stellantis subsidy to keep Windsor battery plant
Some researchers such as Carlo Dade, a director at the Calgary-based think tank Canada West Foundation, believe Canada needs to provide a similarly comprehensive response such as the IRA instead of a “bunch of disparate” measures.
“I am still waiting for a Canadian response,” he said. “Maybe one reason that we’re so focused on the IRA is that we don’t have anything similar in Canada? Beyond the immediate hits to business there’s a larger issue here.”
Tue, August 15, 2023
0421 biz rt vwtrudeau
The United States a year ago passed a 730-page piece of legislation that almost single-handedly paved the way for some of the world’s biggest manufacturing companies to change their supply-chain systems.
Signed into law on Aug. 16 by President Joe Biden, the Inflation Reduction Act (IRA), contrary to its title, wasn’t just about bringing down inflation, which was at its peak a year ago. Instead, it promised more than US$300-billion worth of tax credits, grants and loans to fund clean-energy projects and address issues linked to energy security and health care.
With Canadian businesses, especially in the auto sector, linked to the U.S. market, the law was bound to make an impact north of the border. That’s why the Canadian government aggressively lobbied for months prior to the legislation’s passing to change certain conditions that could have otherwise hurt this country’s automotive, energy and mining industries.
One year on, the IRA has had both the desired effect on companies in the U.S. and some unforeseen consequences for others.
A boon for mining and battery sectors
A month after the law came into being, South Korean battery maker LG Energy Solution Ltd. inked deals to source materials required to make batteries for electric vehicles (EVs) from three Canadian junior miners.
Toronto-based Electra Battery Materials Corp., which agreed to supply the battery-making giant with cobalt, described the deal as its “first big commercial contract” last September. An Electra spokesman said the IRA helped close the deal.
LG also inked deals with Toronto’s Avalon Advanced Materials Inc. and Winnipeg-based Snow Lake Resources, miners who are in the process of developing lithium projects.
A key reason behind the investments in these early-stage projects that have yet to start production lies in the IRA provisions that provide a US$3,750 credit for vehicles whose batteries contain critical minerals extracted or processed in a country with which the U.S. has a free-trade agreement or were recycled from depleted batteries at a facility in North America. In addition, there’s a separate US$3,750 tax credit for vehicles whose battery components were either manufactured or assembled in North America. The bill mentions various thresholds for both conditions.
Referring to the provisions, both Avalon and Snow Lake last year said the IRA paved the way for Canadian miners exploring battery metals to start working with EV manufacturers.
These weren’t the only Canadian mining projects that benefited from the act. In November, General Motors Co. signed a deal with Brazil-based Vale SA to source 25,000 tonnes of battery-grade nickel annually from Vale’s proposed plant in Bécancour, Que. The nickel feed will be used in GM’s battery cathodes to power about 350,000 electric vehicles annually. A GM representative last year said the deal would help the company become eligible for the clean-energy tax credits mentioned in the IRA.
General Motors assembly workers connect a battery pack underneath a partially assembled 2018 Chevrolet Bolt EV vehicle on the assembly line at Orion Assembly in Lake Orion, Michigan.
Last year, Stellantis and LG also inked an agreement with Ottawa to invest more than $5 billion to build a Windsor battery factory that is expected to create 2,500 jobs.
The IRA played a role in enticing auto companies to build Canada’s first battery plants for EVs, although it could have robbed Canada of a crucial investment from Stellantis and LG.
The companies first announced in March 2022 their goal of building a lithium-ion battery plant in Windsor. However, construction of the plant was halted in May this year after Stellantis, the company behind brands such as Jeep, Fiat and Chrysler, said the federal government had not met its financial commitments.
The issue was linked to the IRA, according to industry minister François-Philippe Champagne, who on May 19 said that while Canada already had a deal with Stellantis, the parties had to renegotiate because of the IRA and the benefits the act provided.
The situation was eventually resolved in July after Canada confirmed it would provide the project with performance incentives worth up to $15 billion. The federal government inked a similar agreement with Volkswagen AG, which is looking to build a battery plant in St. Thomas, Ont. Volkswagen could receive at least $13 billion in performance incentives.
The government’s commitments to the “battery shops” were the most obvious impact of the IRA in Canada, said Bob Fay, a managing director at the Centre for International Governance Innovation, an Ontario-based think tank. But he also said it wasn’t enough to “truly position” Canada as a leader in the EV value chain.
“Canada needs to focus on developing and capturing intellectual property as opposed to simply becoming a battery branch plant operation,” he said. “Canada is well positioned to do so with our talent and resources, and governments’ efforts should be redirected to those goals.”
Canada’s counter ‘not as generous’
The IRA helped bring investments into Canada, but it also compelled some businesses to flow south of the border.
For example, Calgary-based fuel distributor Parkland Corp. in March said it decided against building a standalone renewable diesel complex at its Burnaby Refinery due to reasons that included rising costs and the IRA, which it said give U.S. producers an advantage.
Aware of the “major challenge” posed by the IRA, the federal government announced a number of steps in the most recent budget to counter the act, including investment tax credits and targeted programs to boost clean-energy projects and strategic financing pathways, and reaffirmed its support for the mining sector.
A few business leaders, though, described the government’s reaction as “limited” compared to the IRA.
“A lack of action on permitting reform and investment tax credits has put us on the back foot,” said Heather Exner-Pirot, a special adviser at the Business Council of Canada, a group of about 150 companies, including Microsoft Canada Inc. and Google Canada.
“In contrast to Canada’s approach, the IRA treats the private sector as a partner, not an obstacle, in achieving climate goals,” he added.
The Stellantis Canada Windsor Assembly Plant.
Matthew Holmes, a senior vice-president at the Canadian Chamber of Commerce said it wasn’t possible for Canada to go “head to head” with the United States and that the steps taken in the budget were “prudent and pragmatic.”
However, he said Canada needs to “stop dragging” its feet on reducing regulatory red tape and start working with provinces to get projects moving faster.
“We have already seen capital investment head south,” Holmes said. “Over the next year or two, we are concerned that Canadian talent, research and innovation will follow as the U.S. builds momentum.”
Dennis Darby, chief executive of the Canadian Manufacturers and Exporters, which represents 2,500 manufacturers, said Canada’s counter moves haven’t been “as generous” as the U.S. incentives and that the roll out has been “too slow.”
He said that despite the initial steps, Canada’s manufacturing sector runs the risk of being “left behind in the race for clean jobs and investment.”
Darby said there is a need to win more “major clean economy investment projects” such as the ones with Volkswagen and Stellantis to bridge the gap with the U.S. and attract more investment.
Electra lands first big contract with global battery maker LG
Vale inks deal to supply GM with nickel from Quebec plant
Ontario boosts Stellantis subsidy to keep Windsor battery plant
Some researchers such as Carlo Dade, a director at the Calgary-based think tank Canada West Foundation, believe Canada needs to provide a similarly comprehensive response such as the IRA instead of a “bunch of disparate” measures.
“I am still waiting for a Canadian response,” he said. “Maybe one reason that we’re so focused on the IRA is that we don’t have anything similar in Canada? Beyond the immediate hits to business there’s a larger issue here.”
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