Respond with urgency to keep Canada competitive

Trevor Kennedy’s testimony to the House of Commons’ Standing Committee on International Trade’s study into the potential impacts of the United States Inflation Reduction Act on businesses and workers in Canada.

Madam Chair, committee members, thank you for inviting me to comment on the trade impacts of the Inflation Reduction Act (IRA).  

Inflation Reduction Act

Canada’s prosperity and living standards depend on trade, the bulk of which is with the United States. A previous version of the IRA, Build Back Better, would have discriminated against Canadian-assembled automobiles and severely undermined the integrity of our integrated manufacturing sectors.

We were therefore pleased to see that the IRA creates a clear carve-in for North American goods and content in the battery electric vehicle supply chain.

Unfortunately, in a number of other areas the IRA poses a clear challenge to Canadian competitiveness and by extension Canada’s ability to attract and retain investment.

Our economy is going through a once-a-century energy transition. If Canada does not take action soon to respond to the IRA’s generous support and incentives for the clean economy, we could see a significant shift in long-term trade flows across North America, combined with a loss of well-paying jobs.

Fall Economic Statement

In the Fall Economic Statement, the Deputy Prime Minister announced new investment tax credits for clean technology and clean hydrogen. She said the government is committed to making it more attractive for businesses to invest in Canada to produce the energy that will power a net-zero global economy.

Unfortunately, there is a significant lack of detail about those tax credits.

For example, imagine you are an investor looking to build a major wind-to-hydrogen project of the sort the Prime Minister spoke about this summer with the German Chancellor.

For a project like that, you need wind turbines. The Fall Economic Statement said there will be a 30% tax credit for the purchase of those turbines.

That’s a start, but investors will want to know:

• does the tax credit apply to the cost of the foundation on which the turbine will sit?
• Does it apply to the labour that will be required to erect the turbine?
• What about the road that must be built to the site of the turbine? … and so on.

Until those details are available, the project is unlikely to go ahead.

I should point out that these investment decisions are not just being made in the energy sector.

Across the economy, in sectors as diverse as agri-food, manufacturing and retail, Canadian companies have made ambitious commitments to achieve net zero.

If you are a company with operations in both Canada and the U.S., and you are looking for investments to reduce your carbon footprint, the incentives are better, and the rules are clearer in the United States.

Budget 2023

In the Fall Economic Statement, the government listed a number of areas in which it plans to bring forward significant measures or additional actions to level the playing field between the U.S. and Canada.

This includes:

• the launch of the Canada Growth Fund
• the specific labour conditions that will apply to companies receiving the 30 per cent Clean Technology Investment Tax Credit
• any additional technologies that will be eligible for that tax credit
• and further measures to incent clean tech manufacturing.

To repeat what I said earlier, the details surrounding these measures need to be defined as soon as possible. We can’t afford to delay.

That is why the Business Council of Canada has called on the government to bring forward its next budget during the first quarter of 2023 — and ideally before the end of February — consistent with the traditional budget cycle.

Also in Budget 2023, the government must follow through on its recent commitments to improve regulatory certainty and expedite approvals for natural resource projects such as LNG, critical minerals and clean electricity. The Deputy Prime Minister has spoken about the need to make progress in these areas so that Canada can help our international partners improve their economic security and achieve their climate change goals.

In closing, let me repeat that in the face of the IRA and a rapidly changing global environment, Canada must act with urgency to secure its fair share of investment and economic activity. Failure to do so would have a significant impact on future North American trade flows in the years ahead.

Watch highlights of the Q&A