Will the federal government’s vast subsidies for battery plants advance the energy transition?

Yogi Schulz
March 27, 2024

Yogi Schulz has more than 40 years of information technology experience in various industries, including the energy industry; his specialties include IT strategy, web strategy and systems project management. His new book, co-authored by Jocelyn Schulz Lapointe, is “A Project Sponsor’s Warp-Speed Guide: Improving Project Performance.”

The Liberal federal government’s enormous subsidies for electric vehicle battery manufacturing plants are more likely to generate debt for taxpayers to pay off than add to economic activity and advance the energy transition.

Let’s consider these related costs and risks.

In 2023, the Trudeau government, with contributions from Ontario and Quebec, signed three unprecedented battery plant contracts to match production subsidies offered to companies in the U.S. The amounts were astonishingly high:

More recently, Honda Motor Co. has engaged the federal government, seeking a similar subsidy.

The subsidies significantly reduce the risks of these huge battery plant developments for the owners. The benefits to Canadian taxpayers are less clear.

Parliamentary Budget Officer conclusions

Below are key quotes from the Parliamentary Budget Officer’s (PBO) report: Costing Support for EV Battery Manufacturing. It suggests the cost of the subsidies will be many billions of dollars higher than what the government announced.

  • “PBO estimates the total cost of government support for EV battery manufacturing by Northvolt, Volkswagen and Stellantis-LGES to be $43.6 billion over 2022-23 to 2032-33 – $5.8 billion higher than the announced costs of $37.7 billion.”
  • “Maintaining equivalency with the US Advanced Manufacturing Production Credit will result in foregone corporate income tax revenues of $5.8 billion.”
  • “Assuming that the support for EV battery manufacturing is deficit-financed, we estimate that public debt charges for federal and provincial governments would further increase the total cost by $6.6 billion over 2022-23 to 2032-33.”

The PBO’s report illustrates that the battery plant subsidies will burden Canadian taxpayers for decades.

Will the battery plants produce an economic boost?

The three new battery plants add an impressive estimated number of jobs to the economy. I hope all of them materialize.

CTV News reported that “approximately 1,600 workers will come from South Korea to the NextStar Energy battery factory in Windsor, Ontario, in 2024 to help build the plant. NextStar Energy chief executive Danies Lee said in a statement that the company is committed to hiring Canadians to fill more than 2,500 full-time jobs at the battery plant and engage with up to 2,300 more local tradespeople to help with construction and installation.”

The Canadian Press reported that the St. Thomas, Ontario, Volkswagen “battery plant will create up to 3,000 direct jobs and 30,000 indirect jobs in the region.”

Bloomberg News reported that the Montreal, Quebec, Northvolt AB battery plant will create up to 3,000 full-time jobs.

According to the PBO, these 8,500 full-time jobs will cost about $43.6 billion over 10 years. Therefore, the federal subsidies will pay an average of $5.1 million for each new job. This cost sounds horribly expensive. Can the new battery plants generate enough economic activity and indirect jobs to offset this cost materially?

Would Canada be better off if we randomly selected 8,500 Canadians and handed them a cheque for $1 million each? That would be much cheaper. Also, Canadians can still buy subsidized EVs and hybrids from China, Europe and the U.S. if there weren’t Canadian battery plants.

Can Canada produce enough critical minerals?

Canada produces some critical minerals such as aluminum, nickel, potash and uranium, and has major undeveloped reserves of other critical minerals. However, the country  isn’t a major global producer of any of the critical mineral resources required for the energy transition, according to a report by the School of Public Policy at the University of Calgary. The energy transition requires vast quantities of minerals for:

  • Renewable electricity generation facilities.
  • Nuclear reactors and geothermal electricity generation facilities.
  • Hydro-oriented electricity storage facilities.
  • Expansion of the electricity distribution grid.
  • Batteries in hybrids, EVs and battery-oriented electricity storage facilities.

For example, a typical lithium-ion EV battery contains roughly 65 per cent nickel and 20 percent cobalt. Copper is another essential metal used throughout an EV’s wiring and motors.

However, the federal government has implemented a costly, arduous and lengthy permitting process for resource development projects, including critical mineral mining, that is delaying the production of critical minerals.

A Canadian mining boom is highly unlikely for self-inflicted reasons. Canada has chosen to ignore this economic growth opportunity. I expect the Canadian battery plants to import some of their critical minerals.

Can Canada process enough critical minerals?

Even if the battery plants produce as planned, the Trudeau government has only supported one part of the EV supply chain. Canada is still missing other pieces of an integrated, coordinated domestic EV supply chain. The missing pieces include the upstream mines and the midstream processing plants. As a result, Canada’s battery plants likely will have to rely on Chinese suppliers for processed critical minerals. The Chinese have started to limit exports to control the market for batteries and EVs.

Will we need these batteries?

The demand forecast for batteries to achieve the energy transition is enormous. However, the production forecast may be more than sufficient.

The three battery plants subsidized by Ottawa are expected to produce enough batteries for about 1.5 million EVs annually. That’s almost as many as the total number of vehicles sold in Canada in 2023. However, EVs and hybrids are currently only about 10 per cent of vehicle sales in Canada.

For the Canadian battery plants to be profitable, a significant share of their production must be exported to the U.S. and elsewhere. But EV and battery manufacturers in other countries are also building plants there.

Another growing opportunity is batteries for battery energy storage systems (BESS). At the moment, lithium-ion batteries dominate this market, just like the market for EV batteries. However, this storage market does not require the high energy density needed for EVs; a low price is more important. Vanadium redox flow batteries are one promising technology. As this or another technology advances, the demand for lithium-ion batteries will slow.

Even though the subsidies have significantly reduced the risk to the foreign owners, the risk of too many battery plants being built remains. The overbuilding risk to Canada is that the owners will ask for more subsidies or abandon unprofitable plants.

Will these battery plants advance the adoption of EVs?

The pace of EV adoption is slowing in many parts of the world. The reasons include:

  • Only higher-priced models are available outside of China.
  • The cost increment of an EV compared to an internal combustion engine vehicle is still too high.
  • Long charging times are annoying on longer trips.
  • Consumer anxiety persists about EV range even though most drive less than 50 kilometres per day.
  • There are few or no convenient locations for EV charging overnight.

The presence of battery manufacturing plants alone does not accelerate the adoption of EVs and hybrids.

As the situation currently stands, the Liberal federal government’s vast battery plant subsidies are more likely to affect Canada negatively than to boost the economy and advance the energy transition.


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