Canada warns US against waging ‘carbon subsidy war’

Minister for natural resources says Inflation Reduction Act created an ‘unlevel playing ground’ in tradeCanada’s natural resources minister has warned the US against waging a “carbon subsidy war” with its allies, saying the Biden administration’s $369bn clean energy package creates an “unlevel playing field” in global trade.

Jonathan Wilkinson, a senior member Justin Trudeau’s Liberal government, stated that Canada and Europe wanted to “match” the US Inflation Relief Act and its massive handouts to clean energy developers. However, he acknowledged that they would be unable to compete.

Wilkinson stated in an interview that the IRA’s “very substantial subsidies had created an uneven playing field for Canada and Europe”.

“We don’t want to enter a subsidy war against the Americans, and neither do we want to be in one with the Europeans or the Japanese.”

Wilkinson said, “The Americans are our reserve currency — they have the fiscal flexibility to do things that almost no other country can do.”

These comments were made by a senior Trudeau government official, echoing criticisms in Europe where fears of capital flight have been sparked by the IRA’s massive handouts. French President Emmanuel Macron warned that the IRA could “fragmentation the west”.

Brussels responded to the IRA by revealing a variety of tax breaks and funding for clean-energy developers. However, the EU, like Canada, has made pricing carbon a key part of its climate policy.

Trudeau’s federal budget included C$18bn ($13bn), worth of tax breaks to green electricity — in addition to billions more committed in the recent years. Chrystia Freeland, Canada’s finance minister, stated that Canada should not be “left behind” as other democracies around the world build the clean economy for the 21st Century.

Wilkinson spoke days after President Joe Biden visited Ottawa. He talked up Canada’s large quantities of crucial minerals, which are vital for clean energy future. He also pointed out that the IRA explicitly includes tax credits for electric cars built in Canada.

In recent weeks, the US sought to calm allies’ concerns over the IRA. Energy secretary Jennifer Granholm stated in a recent interview “[doesn’t] want any trade rivalry” over IRA and that they were working to settle disputes “in a manner that lifts everyone”.

Friday’s action by the Biden administration widened eligibility for IRA tax credit for EV batteries. This was done to alleviate anxiety among US allies.

Biden visited Ottawa to discuss the “need to us to work together”. . . Wilkinson stated that this should not be turned into a carbon subsidy war.

Wilkinson said that Washington’s attempt to use the IRA for reindustrialisation must not harm allies. It must be friend-shoring and not one country winning.

Canada is already the third largest oil supplier to the US and has large reserves of crucial minerals, including lithium, nickel, cobalt and copper. This country believes it will be able to support a lucrative battery supply system in the country.