Industry Committee on Oct. 5th, 2023

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Going back to my first point, based on the data you received, the $200 billion to $400 billion spinoff investment referenced by the minister at this committee would not be accurate—based on the data provided to you by the department.

[Yves Giroux]

It would be accurate if you take into account the fact that the subsidies for these two battery plants will lead to the creation of all these other nodes, which themselves, as stated in the Trillium report, will require additional subsidies.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

It's only under the assumption that future government subsidies are put forward for the nodes to be in Canada.

[Yves Giroux]

That is my understanding, but Chris is looking into the exactitude of that statement.

[Chris Matier]

In response to that information request, we posted the ISED response or the minister's response, which was copied, on our website. I would just refer you to that as it gives more detail related to the statement of the $200 billion in value.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

It was $200 billion to $400 billion.

[Chris Matier]

The quote we asked for, I think, only included the $200 billion.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Thank you all for your time.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

Mr. Sorbara, the floor is yours.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair.

Welcome to the team from the parliamentary budget office. As an economist myself, I want to just give a shout-out to the team. Whether it's on the digital services tax act or the alternative minimum tax, I will admit that I tend to read everything you've put out recently. I tend to—if I can use the term—“geek out” a little bit on the policy side and read it.

I just want to say thank you. I want to say thank you for the research that you do. When you are modelling things into the future, doing present-value calculations and putting inputs in there, sometimes it's not as easy, but you use the best data that you have available to you. I know you folks do a great job on a lot of the reports that you put out. I very much value this body, which is there for parliamentarians to use in their work.

First off, I want to comment on the CAMI plant. I know there was a comment made earlier. Actually, this is exciting because General Motors is moving the battery production from Ohio, where there have been some hiccups, to Ingersoll. In the second quarter, they're now creating 300 new jobs.

Where the actual assembly of the BrightDrop courier van is—they call it that—they're going to have the battery right beside it. Actually, it was even written in the National Post a few weeks ago—I think it was the National Post or the Globe, one of the two—how our plan, the government's plan to attract investments in assembly and battery production, has come together with the GM Ingersoll plant producing the BrightDrop. It's a great victory for Canadians. It's a great victory for the workers who work there, and we're going to create 300 new jobs.

One thing that's been very important to me, Mr. Giroux, is our response to the Inflation Reduction Act. I've argued that many times. We've seen it in budget 2023 with the investment tax credits. We hope to see the enabling legislation come with those, but also in response to being at the table and providing, as I call them, production incentives to Volkswagen, Stellantis and Northvolt.

If we hadn't responded to the Inflation Reduction Act, Mr. Giroux, as an economist and someone who looks at the numbers, would you say that our auto industry in Canada and the whole supplier continuum would be in decline?

[Yves Giroux]

Thank you for your kind words, Mr. Sorbara. I knew there would be a “but” somewhere, but it didn't happen. I'm pleasantly surprised by that.

To answer your question in a more serious manner, I think that without what you call “production incentives”, and given what the U.S. is doing with the Inflation Reduction Act, it's quite clear that the Canadian auto sector would be condemned to a slow decline—maybe not so slow a decline with the move to EVs.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I thank you for saying that because I have covered the auto sector in my private sector career. I saw in 2008 and 2009 what happened with the industry. I covered the sector both for a rating agency and on the bond desk before having the privilege to serve the wonderful residents of Vaughan—Woodbridge, and I understand the industry quite well. If we were not at the table, we would not have seen these three very strategic investments that have moved us up in the BloombergNEF ranking for electric vehicles to number two in the world behind China. That's what we're trying to do. We're trying to reshore the supply chain back to North America.

I think you would agree that this is one of the major impetuses for the IRA, and for our going to the table to make sure that we have a North American supply chain when it comes to this transformational process that's going on in this very important sector of the economy, the auto sector.

Is that really not what's going on here?

[Yves Giroux]

The impetus behind the Inflation Reduction Act is to ensure that the American auto sector is not dependent solely on one country, namely China, for the supply of its batteries and critical minerals. The Canadian response to the IRA is also aimed at ensuring that the Canadian sector doesn't lose out at the expense of the American auto sector, so that there is still a Canadian auto sector in the years and hopefully decades to come.

I have no disagreement there.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I would say that now the responsibility is on us.

As a fiscal hawk—if I can use that word, and I'll call myself a “hawk”—I am very cognizant that, when we provide foreign or domestic incentives for an investment here in Canada, those are taxpayer dollars, full stop. That is an opportunity cost. You could use those funds for X, or you could use them for Y. We are using them to ensure we have a robust electric vehicle sector along the continuum.

The big “but” on my side is that it's our responsibility to ensure that we get those other pieces put in place, whether it's the mine in Quebec or Ontario; the recycling of the batteries and the nodes, whether in Quebec or Ontario; or the other parts of the continuum. It's ensuring we're there. That's where the full benefit comes into play.

Obviously, you can't measure that today because we don't know, but the onus is on us to make sure that we continue to create the conditions in which those investments are made. That's really why, in the PBO report, you've analyzed it in such a manner.

[Yves Giroux]

That's one good reason we analyzed it the way we did.

The other reason is that, as I mentioned, the auto sector is highly integrated in North America. It's quite possible that battery plants located in the U.S., as opposed to those located in Canada, would also lead to important economic spinoffs and the creation of an ecosystem for the other nodes. However, there is no way of knowing that for sure, because there is no alternative world in which we could see what happens in that other scenario.

However, using our best professional judgment we can assume that the auto sector, being integrated now, will continue to be integrated between Canada, the U.S. and Mexico in the future.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I just want to say thanks to you and your team for all the great work you do. You used the words “best professional judgment”. I look at these reports, and you've used your best professional judgment.

I have explained where I am coming from—my angle—and I thank you for the research you folks put out. It's a great read, and it helps parliamentarians do their jobs better. It makes us think, challenges us and obviously gives us an opportunity to challenge you folks on occasion as well. Thank you very much.

I'll turn it back to you, Chair.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Sorbara.

I'll now turn to Mr. Perkins.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Mr. Chair, I'll be splitting my time with MP Williams.

There are three contracts right now for production subsidies with three companies, totalling about $35 billion, on lithium battery assembly—not production but assembly. My view is that it's a $35-billion bet on the VHS of batteries, since Toyota and others are now producing a hydrogen internal combustion engine with no emissions, which can be fuelled in 15 seconds, so it's a big bet on old technology.

That aside, people have been very curious, I think, about what that subsidy actually is. The IRA sets out the battery subsidy, and that's a public document. It's my understanding that these three contracts mirror that year-over-year subsidy amount that's in the IRA. Is that correct?

[Yves Giroux]

That's also my understanding, based on the two contracts we have seen.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Okay.

On the IRA, it says clearly that between now and 2029, 100% of the cost of every EV battery produced—which, in this case, would be by Volkswagen and Stellantis—is subsidized by taxpayers. That's 100%. After 2029, that drops to 75%, and then in 2030 it drops to 50%. I think in 2032 it drops to 25%, and then to zero.

In essence, for five or six years, or between now and 2032, a large amount of battery assembly in Canada, based on the IRA public numbers, is being nationalized and paid for by the taxpayer, 100% up until 2029. Using your math and the U.S. IRA numbers, that looks like about a million batteries a year alone at Volkswagen, which is 40% of the cost of the vehicle. Those batteries are then shipped down to Tennessee for assembly.

Is that the way the math comes out on the 20-year payout?

[Yves Giroux]

First, I don't know for sure whether the subsidy will cover 100% of the production costs. The subsidy in the contracts is a “per unit of power” subsidy. The exact amount is in U.S. dollars. I don't know whether that covers the totality of the production costs, or whether the production costs will be higher. I presume the production costs will be higher than the subsidy. Hence, I'm not convinced that, as you say, taxpayers will be subsidizing 100% of the cost of the batteries.

Based on what we have seen in the contracts, and in the Trillium Network study, we estimate that the payback for these battery plants—their direct, indirect and induced benefits—should be recovered by increased taxes paid to the feds and the Ontario government over a 20-year period.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

The IRA says it's 100% of the production of the battery for those years—until 2029—in that declining scale. It says 100%. It's pretty clear.

I'll turn the rest of my time over to Mr. Williams.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you very much, Mr. Giroux and colleagues. It's an interesting discussion.

I want to focus on the value chain on each side. We've talked several times, and our colleagues have talked, about value chains.

Why did your report exclude the battery value chain, in terms of discussing potential benefits? I guess the real question is this: Is there just not, presently, a value chain for critical minerals in Canada?

[Yves Giroux]

We didn't look at these other “nodes”, as they call them in the Trillium Network report, because, first, the Trillium Network report itself states that, for these other nodes to be created or expanded, it would require additional subsidies—they usually quote between 20% and 30%—plus additional infrastructure investment by governments. That's one reason.

The other main reason is that, even if the battery plants are established and operate in Canada, there is no guarantee in the contract that they will source their inputs from these other Canadian nodes being expanded or created. That's why we did not....

[Ryan Williams, Conservative, Bay of Quinte, ON]

It's not a secret. A lot of the mined critical minerals in the world come from China.

Is that correct?