Still, the size of the incentives is striking. The production support alone is expected to range from $8 billion to $13 billion over 10 years, depending on how much the plant produces and what happens with US policy. The contract is written so that Canada’s production subsidies will stay in place only as long as the Inflation Reduction Act is in force. If the US reduces its incentives for clean manufacturing, Canada’s will go down proportionally.
On top of that, Canada is offering about $700 million in capital expense grants to Volkswagen through its Strategic Innovation Fund. And there may be more money from Ontario’s provincial government, though Champagne declined to go into detail.
The Inflation Reduction Act, despite its name, enacts large-scale subsidies for low-carbon industries, particularly through production tax credits. Those incentives are generous and broadly available, meaning they could go beyond the official US$370 billion in estimated costs, depending on how widely they’re used.
AVOIDS ‘RACE TO THE BOTTOM’
The legislation has put massive pressure on Canada and other US trade partners to provide money or lose out on lucrative new investments in the green economy. In a speech in Washington last week, Canadian Finance Minister Chrystia Freeland warned that democracies need to avoid a “race to the bottom” in corporate subsidies that could erode their tax bases and social safety nets.
The Volkswagen deal in Canada also raises the question of how much financially to help other automakers and battery producers might be able to get. Last year, LG and Stellantis announced a $5-billion joint venture in nearby Windsor, Ontario, across the border from Detroit.
“We are negotiating,” Champagne said when asked if the LG-Stellantis plant would receive the same incentive package from Canada. He pointed out the government has promised to level the playing field with the US
Champagne added that the sheer size of the subsidies means Canada has to be selective. Asked how many vehicle battery plants the country can realistically support, the minister said it’s going to be “at best, a few of them.”
Trudeau’s Liberal government is likely to face some backlash over the deal. It has already taken some criticism for not giving more detail at a cost. “How much of Canadians’ money is he giving to this foreign corporation?” Conservative Leader Pierre Poilievre tweeted shortly after the factory was announced last month. “How much is the cost per job?”
Canadians will understand why the government put up so much funding to attract Volkswagen, Champagne said. He also noted the money won’t start flowing for many years, given it’s tied to production at a factory that still needs to be built.
The industry minister argued the economic impact of the plant in its first five years would equal the entirety of government funding for it. Over the next 30 years, the plant will generate more than C$200 billion in value for Canada, he said.
“You have to look at what others are doing, and particularly in our case, what the US is doing,” he said. “What’s the cost of inaction?”