Industry Committee on Oct. 5th, 2023

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

Thank you to the entire committee.

Mr. Giroux, I think it is entirely appropriate to have invited you today to talk about your report—which I welcome, by the way—on production subsidies announced for Stellantis and Volkswagen.

In our view, these subsidies are clearly a response by the federal government to U.S. investment, and I think they've been working backwards. Instead of building the supply chain out of the mine and creating value added at every step of the way, it has played the game of U.S. bidding at a high price, at a cost of billions, if not tens of billions of dollars, with a huge risk.

Do we have the resources to supply those plants? Do we currently have the lithium to be able to do that? If we aren't ready and the chain isn't prepared, we'll ultimately buy lithium from China instead of producing it in Quebec or elsewhere in Canada, particularly at one of the only active lithium mines, the Sayona mine in Abitibi-Témiscamingue.

I think it would have been much more advisable for the federal government to invest in every stage of the transformation. As we know, there are many stages of processing strategic critical minerals to make a battery. We should focus on the mine, but that is not what was done.

So your report highlights something that I think is obvious. If we don't create the supply chain and if we don't allow small- and medium-sized businesses to supply components to each of the plants that will be built, we'll miss the boat.

I really liked your report. Obviously, the 20-year time frame it mentions is very long. This time frame could be considerably reduced if the entire chain—from the mine to the battery, to oxides, anodes, cathodes, cells and so on—were developed. From what I understand from your report, developing the industry upstream would increase the spinoffs from battery plants. I hope that's what's going to be highlighted in this report, and that the government will make a change by making these investments close to the mine. The payback period could then be much faster, in the order of 10 to 15 years rather than 20 years, if all the elements are taken into account. The ideal would be five years, of course.

Is that the case? Did I understand correctly?

Last week, the Quebec and federal governments announced a major joint battery project, the Northvolt project in Montérégie. Have you assessed the impact of the Quebec projects that were recently announced? How are you going to factor in the investment in the Northvolt project and other future investments?

[Yves Giroux]

Since the Northvolt project in Quebec was recently announced, we have not yet studied its impact. However, we have taken steps to begin this study by requesting information from the Department of Industry and the Department of Finance.

However, when the project was announced, we were pleasantly surprised to see that the Government of Quebec had adopted our methodology for estimating the fiscal impact of its investment. The fact that they used our methodology reassures us of the soundness of the approach advocated in our report. The Department of Industry also used this approach for the Northvolt project.

The Government of Quebec therefore used our approach to estimate that the payback period for this project would be between 9 and 13 years, depending on the start date considered. We'll probably look at that when we get the data from the Department of Industry.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

In my opinion, to have true added value, we have to develop our own chain, as I was saying earlier. So we have to start from the mine and green the process. It's important for the government to invest in innovation and modernization and carbon recovery for each stage of processing, and to ensure that travel and transportation are limited in all of this.

There are also investments that can mitigate the risk of dependence on external supply chains. We know that lithium and production activities at the various stages of the battery chain that will be produced here will probably have a better carbon footprint and a better environmental footprint, and that they will enable us to get a quicker return on our investments.

Do you think the current policy incentives or investments are sufficient to accelerate the creation of small- and medium-sized businesses or companies that would like to develop stages in the supply chain? Do you feel that the federal government is a reliable partner at this time?

[Yves Giroux]

It's difficult for me to comment on this aspect, as we've focused on one particular aspect of the electric vehicle battery industry. We haven't considered the fiscal, financial, monetary and regulatory incentives for the entire electric vehicle production chain.

However, as a Canadian taxpayer, I too sincerely hope that the developments your colleague Mr. Turnbull referred to will all come to fruition in Canada. However, we have no guarantee of this, and it wasn't part of our study. We haven't looked into it because we don't know the extent of all the supports that are available or all the projects in development or that could be in development in the value chain.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Take, for example, lithium that goes into the cell at the last stage. Do you think it would cost less to produce what is needed at each stage and buy it here, rather than relying on lithium from China, which controls 80% of the lithium market and is currently selling it at a high price?

[Yves Giroux]

I don't know if it would necessarily cost less, but I can tell you that it would certainly reduce geopolitical risks. This can be a very important consideration in government decisions to invest or spend in this area to reduce the risk of undue dependence on a part of the world that may be a little more risky or unstable.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Well said.

Thank you, Mr. Chair. I'm sorry for the delay.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Lemire.

Mr. Masse, the floor is yours.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for being here.

I'm just going to start with a review. The government bought the Trans Mountain pipeline for $4.5 billion. Then it went up to $12.6 billion, and then $21.4 billion. Now I think it's up to $30.9 billion. I think your department noted it was $14 billion to get rid of the asset if it closed it down. I'm just wondering if you have an update on that particular cost because I do want to compare something here if we could.

[Yves Giroux]

We don't have an update. The last time we looked at that issue the construction costs were around $20 billion, and at that point we had estimated that it was very likely to be a losing proposition financially speaking for the federal government. Now with the construction costs having further increased, it's unlikely to have improved. If anything it has probably deteriorated.

[Brian Masse, NDP, Windsor West, ON]

Right.

I want to be public and say how much I appreciate the report that you did on the auto sector here. I've been calling for a national auto strategy for years that includes transparency about the investments we give to it. Obviously, coming from Windsor, the automotive capital of Canada, we've witnessed lots of job losses over the years, and with the Inflation Reduction Act, I've been warning the government for years that both Democrats and Republicans were moving forward with this because it's highly popular in the U.S.

To me it's less about whether you're in the game or not. With your report, when you compare the two estimates, do you think there's a potential for the Trans Mountain pipeline project, which is spiralling out of control if you ask me? Is there a similar vulnerability with this auto investment, or is it contained because it is related to production?

[Yves Giroux]

The two are quite different. In the case of Trans Mountain, as you alluded to, construction costs are difficult to predict until they're completed, whereas in the case of the contracts for Stellantis and Volkswagen the government has committed to.... Even for Northvolt, from what I heard, the government is providing some support for the construction, but the difference is that if there are costs overruns they are on the private sector to bear. The vast majority of the subsidies are production-linked. They're an amount per kilowatt of battery power, so it's limited to the capacity of the production.

[Brian Masse, NDP, Windsor West, ON]

You're right. That's where I think there's a big distinction and that's where I'm looking. You're right. There could be some elements in construction, but also if you don't produce it you lose it. That's going to be the big thing, and if we don't produce things it will be awful. Can you tell me in your studies did you look at...?

Often in Windsor we say one auto job equates to roughly to seven other jobs from spinoffs and stuff. That's the historical connection. It might change though. Did you look at wages and those earnings and how much in taxes will come in from the workers? Is that something you measured in your study?

[Yves Giroux]

No, it's not something that we directly measured. We took the economic and government revenue impacts from the Trillium Network study. If my memory serves me well, they have a 1:6 ratio at some point depending on the nodes, but I would not want to be firm on that. It's the Trillium Network's numbers.

[Brian Masse, NDP, Windsor West, ON]

Yes, and I'll be honest. I didn't read it all—the Trillium Network report—and that's why I'm asking. Do they take into account the benefits that workers get?

My first public meeting to get a new border crossing was in 1998 at Marlborough Public School, and we're finally getting the Gordie Howe bridge built. Does it take into account the truck traffic that goes back and forth? We've had to pay for that, as Canada, so the more traffic on that the better for this, especially with the auto investments that are taking place from Quebec all the way through. In Windsor, we often say the minivan is built by crossing the bridge seven times back and forth, so to speak.

Was that any part of the Trillium...? Has that been calculated?

[Yves Giroux]

I don't have that level of detail. I think that's a question that would be better answered by the authors of the Trillium Network report, unless Chris and Jill know the answer. They're not kicking me under the table though, so that's probably a sign that they don't have that information either.

[Brian Masse, NDP, Windsor West, ON]

This is why I really like your report. It's really a snapshot on something that we've been trying to measure for a long time. I'm down the rabbit hole on this stuff, being an advocate for the investment in auto.

For example, in 1987, when the government of the day rescued Chrysler, we actually made millions of dollars off that. When GM was assisted most recently, and Stellantis, if we'd kept our shares in GM, we would have made a lot more money, but the government sold them. It was not your government; the Conservatives sold them. We would have made more money on the shares there too, so there was investment capacity there by saving them.

I'd like to know, specific to this study, if there are things that, when you look back, you would do differently. Now that you've heard some criticism out there and you've heard about some strengths, are there things you would maybe do differently to measure it in the future?

[Yves Giroux]

I think we would probably communicate the conclusions of the reports slightly differently, but the analysis, I think, is as good as it gets, considering that we had some questions for the authors of the report, but they unfortunately did not have the time or the resources to answer our questions.

[Brian Masse, NDP, Windsor West, ON]

Really quickly, will there be an update on this report? Will there be time to look at what their report is? Maybe they will get back to you in October or something like that. Can we look forward to that?

At the end of the day, what I'm looking at through all of this is perhaps a more standardized way to measure these investments, and I'd also like to see employment hours written into them, so when we have these contracts.... What's important to me at the end of the day is people working hours: paying taxes, paying union dues, paying money to the United Way, and all the different things that come out of it.

I'm just wondering whether we'll get a more robust process to measure the auto investments we have as opposed to basically doing Hail Mary passes at the last minute with no policy.

[Yves Giroux]

Based on what we know, the government itself seems to have based its decision to invest in these two plants on the Trillium Network. Maybe there is additional information and additional analysis that was performed.

We plan on continuing to look at this issue, but I can't promise that we'll do an exhaustive, deep-down analysis such as the one you alluded to. That would require significantly more resources, information and data than what we have.

[Brian Masse, NDP, Windsor West, ON]

That's fair enough.

I thank you, Mr. Chair, for the time.

I think that we're in this or not. With the industry the way it is and auto moving the way it is, the cost is far more substantial not only from a climate perspective but also from an industrial manufacturing perspective. I've seen first-hand how assertive the Americans are on this. I appreciate that we're actually addressing it, but it would be good for taxpayers to know their value. I appreciate the work that you and your team have done.

Thank you, Mr. Chair.

[Yves Giroux]

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Masse.

Mr. Généreux, you have the floor.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chair.

Thank you very much for being here today, Mr. Giroux, and your acolytes. I'd also like to thank you for your report.

I'm going to take the question asked by Mr. Masse a step further. Why do you say you would have tabled the report a little differently? Did you get any unpleasant feedback, or were there people who disagreed with you?

[Yves Giroux]

That's an interesting question, which I didn't expect to be asked.

As soon as we publish a report that dispels certain myths or sets the record straight, we're often accused of having misunderstood certain things and of having a grudge against a particular sector, which is not at all the case.

As I mentioned to Mr. Masse, if we had to do it over again, we would probably have a slightly different communications strategy. We would say that we aren't criticizing the merits of the policy itself or quantifying it. So we'd make that part clearer. Instead, we'd address the analysis of government's claim that government investments would be repaid in less than five years. That was the primary purpose of the report, not to comment on the policy itself.