Evidence of meeting #88 for Industry, Science and Technology in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was analysis.
A recording is available from Parliament.
4:55 p.m.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Okay.
I'm going to talk about something that the Minister has raised ad nauseam: the break-even point.
I'm a businessman. When I invest $100, I expect to make money. My definition of the break-even point is the amount that will come back to me over and above my initial investment. Is your definition the same as mine?
4:55 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's my definition as well, even though I'm not as experienced of a businessman as you. In fact, I'm not a businessman at all.
4:55 p.m.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
All right.
You were pretty clear in your report: the government, Minister Champagne specifically, announced that the country would see a return on investment in five years. It's about not just the break-even point, but also the return on investment time frame. You, however, estimated the time frame to be 20 years.
Have you previously used estimates or reports provided by the Trillium Network for Advanced Manufacturing? I'm not familiar with the network. Are you? Have you produced reports using its data in the past?
4:55 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
As far as I know, this is the first time [Technical difficulty—Editor] used its reports and data. My two acolytes, as you called them, seem to be agreeing.
4:55 p.m.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
I missed the beginning of your answer. Did you say this was the first time?
4:55 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes, this is the first time since I've been on the job.
4:55 p.m.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Very well.
If I understand correctly, the government's position on the merits of this investment is entirely based on the Trillium Network's study. Of course, no one is against doing the right thing and helping the environment.
Contrary to what we might expect, the minister delighted in the fact that your report deals with only 8% or so of all the spending, so only the investment in the plants, not with production. Can you clear that up? Is the minister right to say that the return on investment applies only to the plant portion, or does it apply to the entire project and all the subsidies?
5 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It applies to the entire project, in other words, the construction of the plant as well as production for the next 20 years, assuming the plant continues to operate at full capacity once production gets rolling, even though the subsidies are slated to end at the end of 2032.
5 p.m.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Why, then, is the minister saying the opposite?
5 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's a question only the minister can answer.
5 p.m.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
I find that strange. This isn't an investment of a few million dollars. We are talking about tens of billions of dollars. As Mr. Lemire, the Bloc Québécois member, pointed out, the potential for a full supply chain is on the table.
Developing a mine in Quebec can take between 10 and 15 years, if you consider all the permit requirements and the process of bringing it into production. Most of the inputs needed to manufacture the batteries will be sourced outside Canada.
According to the government, this will create 30,000 indirect jobs, in addition to the 3,000 direct jobs in construction and, subsequently, production. If most of the inputs are sourced outside Canada, will we see as many jobs created? The mine production won't happen in Canada.
5 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That is why we didn't take into account all the clusters the Trillium Network included in its report, which assumes that the subsidies to build one or two battery plants will spur the creation of a wide range of clusters, from prospecting and mine production to vehicle assembly and recycling. As noted in the Trillium Network report, the subsidies necessary for that would have to cover 20% to 35% of costs.
For that reason, we didn't include all those other aspects. Nothing is guaranteed, to use a term I don't really want to use. I'll put it in terms of an analogy: you can't sell the bearskin before you kill the bear, but in this case, you can't sell the bearskin before the bear is born. We don't know whether those clusters will emerge in Canada. If they do, we don't know whether it would've happened even without the subsidies to support American plants, for instance. That's why we didn't include all those other elements.
Mr. Perkins talked about fairy dust. I wouldn't go that far, but that's more or less what it is. I'll leave it there.
5 p.m.
Liberal
The Chair Liberal Joël Lightbound
Thank you, Mr. Généreux. That's the end of your time.
Mr. Giroux, before we go to Ms. Lapointe, I want to take a moment to ask you a quick question further to what Mr. Généreux just asked.
Earlier, in response to one of Mr. Turnbull's questions, you said that you took the Trillium Network's assumptions with a grain of salt and that you weren't overly optimistic or overly pessimistic given
where they are coming from.
Where do you think the Trillium Network is coming from?
5 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
In my view, it's a group that has worked hard to promote the auto industry and boost its growth. Trillium worked with Clean Energy Canada and is already supportive of the EV industry. That is what I meant.
5 p.m.
Liberal
5 p.m.
Liberal
Viviane LaPointe Liberal Sudbury, ON
Thank you, Mr. Chair.
I will be sharing my time today with my colleague MP Turnbull.
I am a member of the natural resources committee, and we are currently studying the U.S. Inflation Reduction Act. What has become clear as we hear testimony from expert witnesses is that companies will not invest in Canada without subsidies. The other thing that witnesses are telling us is that Canadian IP and companies are leaving Canada for better opportunities in the U.S.A.
My question to you is this: Have you considered what the economic losses would look like for Canada without these investments?
5:05 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's a good question. It probably speaks to one of the main motivations for the government to have made these decisions, because they want to be competitive with the U.S. We have not looked at what would happen in the absence of these subsidies, but the Trillium Network mentions in their report that these subsidies will help Canada to sustain rather than grow its vehicle assembly industry.
According to the Trillium Network report, without subsidies for battery plants, it's likely that the auto sector, which is mostly concentrated in southern Ontario, would continue to decline. We have not looked at the impact in the absence of these subsidies, but the Trillium Network seems to suggest that it would mean a decline of the Canadian auto sector.
5:05 p.m.
Liberal
Viviane LaPointe Liberal Sudbury, ON
I would like to stay on the IRA study that we're doing.
Again, the witnesses have told us that we need to invest more and that we also need to move more quickly in order to compete with the IRA. The investments that we've seen Canada make, which are very necessary investments, are leading our country as an EV supply chain leader.
What weight did you give to the IRA landscape and Canada's need to respond in your assessment?
5:05 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
In our assessment, we looked at the statement that ministers have made to the effect that the subsidies to Volkswagen and Stellantis would be paid back in less than five years. That's what we did. We did not try to assess whether it was a good or a bad response to the U.S. IRA, or whether it was a good industrial policy or a bad one, recognizing that there could very well be many different reasons for governments to make these decisions, including trying to counter the dominance of China, for example. That's why we didn't pronounce on the policy. We looked at the potential payback period for these government investments.
5:05 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Thanks.
Following on my other line of questioning, Mr. Giroux, if you had included the 91.4% of the supply chain, i.e., the other nodes, what would your break-even analysis have looked like? What would it have looked like if you had included that 91.4%?
5:05 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Had we included all these other nodes, we would also have needed to include the subsidies that will be required to create these other nodes, which are alluded to in the Trillium Network report, but these additional subsidies are not quantified yet. It would affect the payback period, but it would depend on the magnitude of these other subsidies.
5:05 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Would it have shortened the time frame for the break-even analysis?
I think the key here is that you made a set of assumptions that were quite a bit narrower than what the government's analysis was. I think it's pretty clear to me that our assumption is that, if you make anchor investments in one node, it's going to attract investments in other nodes of the supply chain, which I think is quite reasonable, whereas you've essentially excluded all of the other investments and production-related revenues that would come in from those other nodes.
If you then opened your analysis up and did a model that included that 91.4% of the value chain, would it not have shortened the time frame for the break-even...?
5:05 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I'm not sure about that.
I'd like to point out one example of why we think our approach is reasonable, much more so than the government's. For example, when the subsidies to Volkswagen were announced, we saw what happened to the Stellantis plant. They downed tools and stopped construction until they were given similar treatment.
That's why we did not want to include or suppose or assume that all these other nodes that don't exist yet or are nascent would be created without subsidies. The Trillium Network is clear that they will very likely need subsidies to the tune of 20% to 30%. We saw with Stellantis that they wanted similar treatment to what Volkswagen had.
It would be very difficult for us to include the potential impacts of plants and subsidies that are not known by anybody yet.
5:10 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Yes, but you know as well as we all do that the government has been very public about its intentions to build back a stronger auto sector, create jobs and essentially meet the challenges of today and tomorrow with a strong automobile industry here in Canada.
The intentions are there to build out that supply chain. That's why I find your assumptions very narrow, because you're not looking at the broader vision that the government has been very public about and understanding that those investments are going to come in across the value chain, because that's what we're intentionally building here, a stronger auto sector.
That's what concerns me about your analysis. With all due respect, that's what we're here to do, to question your analysis.
What would have happened if the government hadn't created the tax breaks—you call them production subsidies. They're actually tax breaks, in my view, that are tied to production. If we hadn't competed with the Inflation Reduction Act, what would have happened to our auto sector?