Prime Minister Justin Trudeau’s government agreed to subsidies that may top $13 billion (US$9.7 billion) over a decade to land an electric-vehicle battery plant by Volkswagen AG, the company’s first gigafactory outside Europe.
The money is provided through an unprecedented contract negotiated by Trudeau’s industry minister, François-Philippe Champagne. Canada will provide annual production subsidies as well as a grant toward the factory’s capital cost — effectively matching what the German automaker could have received via the Inflation Reduction Act if it had located the plant in the U.S., according to government officials.
“This is about us seizing generational opportunities,” Champagne told Bloomberg News in an interview. “This is about raising our level of ambition.” 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 U.S. reduces its incentives for clean manufacturing, Canada’s will go down proportionally.
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.
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.”
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