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.
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
At the present time, a good chunk comes from China, depending on the specific types of minerals.
5:45 p.m.
Conservative
Ryan Williams Conservative Bay of Quinte, ON
We're looking at value to the taxpayer. It was mentioned before that it's excluding 91% of the value chain. We're talking about an automotive industry that we want to be strong in Canada.
Where would these vehicles be produced? Would it be in the U.S.?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It will depend on the battery plants themselves. If it's Stellantis, they are probably going to be included in some vehicles produced in Canada. As for Volkswagen, to my knowledge, there's currently no EV assembly plant in Canada, and I am not aware of any plans to establish such a plant domestically.
5:45 p.m.
Conservative
Ryan Williams Conservative Bay of Quinte, ON
Volkswagen or otherwise, in terms of headlights—I have a headlight company in my riding, Decoma Autosystems—tires, brakes and the steering wheel, did you look at that value chain? Are any of those going to be produced in Canada?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Some are being produced in Canada. Again, this is a highly integrated sector. As Mr. Masse alluded to, the same car can cross the border seven times before being fully operational or finished. That's an integrated value chain.
5:45 p.m.
Conservative
Ryan Williams Conservative Bay of Quinte, ON
That's right.
It seems that, with Volkswagen, it is 100% in the U.S., whereas the battery is 100% in Canada. The value chain for that specific investment seems to be that Canada is only producing the battery for Volkswagen. Is that correct?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It could be only the battery. It could also be other components. I'm not aware of the intricacies. It depends on the specific models.
5:45 p.m.
Conservative
Ryan Williams Conservative Bay of Quinte, ON
I guess we're looking for value back to the taxpayer—this is a large amount of money—as well as to industry, because we want the industry to do well. It seems as if the supply chain is just not developed.
I have another question.
It seems that, last week, Volkswagen cut production on two EV models. It seems as if demand is going down. In terms of your valuation of the value back from ISED and other officials...was that based on certain production estimates? If so, was that based on strong sales over a certain time? Were those estimates increasing every year?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's based on the assumption that EV sales targets will be met in both Canada and the U.S. The 20-year payback period assumes both plants will continue to produce at full capacity even after the subsidies are no longer provided.
5:45 p.m.
Conservative
Ryan Williams Conservative Bay of Quinte, ON
Given the fact that there is already news that plants are cutting production or not developing and selling the vehicles they thought they would, how does that reflect your opinion on this report?
5:45 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That suggests that our 20-year payback timeline is probably still optimistic, given the risks of technological changes and the fact that there could be down periods for these plants, where they have to cease production for a period of time to retool or for maintenance, etc.
5:50 p.m.
Conservative
Ryan Williams Conservative Bay of Quinte, ON
If these plants were finding that electric vehicles, for whatever reason, were not selling.... Did you include any possibility to retool for other technologies, such as hydrogen or regular hybrid vehicles?
5:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
No, we did not include anything like that for the period that the subsidies will be in force or after.
5:50 p.m.
Conservative
Greg McLean Conservative Calgary Centre, AB
Thank you, Mr. Chair.
I have just one question. It follows up from a meeting I've had with your staff, Mr. Giroux.
Your numbers talk about a 20-year payback. I've tried to do the bottom-up. I know you're referring to the Trillium Network's numbers, but on a strict bottom-up analysis here, we're talking about, let's say, 2,500 jobs at an Ontario tax rate. That means about $40,000 max of taxes per year, which means $100 million per year in taxes. To pay back $15 billion in subsidies, $100 million per year in taxes means a 150-year payback, because I don't think there will be any corporate taxes paid by the likes of Volkswagen.
One hundred and fifty years is a far cry from the 20 years you've arrived at. Have you thought about splitting that difference and allocating some space to where the actual gap exists and how you actually come to a conclusion on that?
5:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's based on not only the direct impact, as you alluded to, which is the taxes paid by the employees of that plant, but also the indirect impacts from those who will be providing them with services and inputs into these plants, and the induced economic and fiscal impacts.
That's how we arrived at a 20-year time period.
5:50 p.m.
Conservative
Greg McLean Conservative Calgary Centre, AB
I have just a quick follow-up there.
Number one, these jobs don't come out of nowhere. They come out of the people who already live there. The induced benefits you're talking about are the inflation caused in the land and the businesses that happen in that area. We're talking about an inflation-causing event happening in the area.
The induced...how do you call it? With the supply chain here, every step of the supply chain is being subsidized by this government through a different program, so there are no real benefits down the supply chain whatsoever. As a matter of fact, there are costs. You can't include those in this analysis. They should be completely excluded from anything you're doing here as far as the benefits that are received back to the government go, because every one of those steps needs to pay back the government as well. We need that in the “induced” studies.
I know that wasn't a question. Have you considered that as part of your analysis?
5:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I think you should have an interesting conversation with your colleague, Mr. Turnbull.
Yes, we have considered these things in good part. That was mentioned in my opening remarks. There are some issues we've taken with the statements that have been made over the payback period for this investment.
5:50 p.m.
Liberal
5:50 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Quickly, I'll just clarify again that almost 92% of the value chain was excluded from that modelling. I think that's where the key difference comes from. That's just to clarify that for Mr. McLean, because he wasn't here when we heard that testimony.
I just wanted to ask a question and clarify.
The Trillium Network report was written in September 2022, if I'm not mistaken.
5:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes, that's what I understand.
5:50 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
You based a lot of your work on the IO model from that report. Obviously, you narrowed it to some degree and focused only on the node you decided to focus on, which I disagree with, but we've already had that conversation.
What has changed since September 2022? In my view, considerable things have changed since then. Could you just comment on any of those that might impact the model today, if you were to redo it?
5:50 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The Trillium Network report was based on scenarios where there is one plant with a certain level of capacity. They had various scenarios including adoption of electric vehicles in Canada and in the U.S., and the establishment or the starting of operations of additional battery plants.
It was apparently a good enough report for the government to base its own estimates on with respect to the payback period. That's why we decided to look at that report and to try to analyze what was behind the government's statements that the payback would be in less than five years for the government.
I don't think that many things have changed fundamentally, and the government seems to think so too, because it based its decision to invest, apparently, on that report when it did decide in March and April, and again in July.
5:55 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Government policy might have impacted the demand for EVs or the sales of EVs. I would just like to clarify that September 2022 is when Trillium Network did its report, but that was prior to the Government of Canada releasing its zero-emission vehicle sales targets and its regulations. It was also prior to the U.S. government announcing its GHG emission reduction targets and its regulations.
Is that not true?
