US Industrial Policy has Sped Up the Need for Clean Energy Investment in Alberta and Canada

Canada has talked a good energy transition game for years, and has even established some supportive policies and programs. But, the transformation of the global energy system accelerated dramatically three years ago and now Canada is playing catch up thanks to the strongest US industrial policies since WWII. The 2023 budget boosted federal clean economy commitments to $120 billion (CAD). The Alberta government has thus far resisted many of the federal clean industry initiatives.

The COVID-19 pandemic was the first economic shock that sped up the energy transition. That was followed in 2022 by Russia’s invasion of Ukraine, which forced all countries to rethink energy security. Then came historic American legislation: the $500 billion (USD) US Inflation Reduction Act of 2022 (IRA), the $280 billion (USD) CHIPS and Science Act, and the $1.2 trillion (USD) Infrastructure Investment and Jobs Act (IIJA), some of which is allocated for energy system upgrades, like modernizing an aging power grid.

The US moves were in response to China’s “outsized presence” in clean energy technology manufacturing. Twenty years ago, China decided that wind, solar, batteries, electric vehicles, and other “new energy” tech would be the future. The bet paid off. The “world’s factory” now manufactures 80% of all solar panels, over half of the world’s wind turbines, controls 77% of battery supply chains, and its electric vehicle (EV) manufacturing sector is expanding at an exponential rate that includes aggressively exporting to Europe and developing economies.

The US views industrial policy through the lenses of the geopolitical conflict with China, economic security, and the battle against climate change. In a 2022 speech, the Biden Administration’s National Economic Council Director Brian Deese explained that shortages created by the COVID-19 pandemic exposed the hollowing out of the country’s industrial base, making the US economically vulnerable to its biggest competitor, China.

“This was the wake-up call,” Deese said.

Intense political opposition prevented the US from employing carbon pricing and regulations. Instead, the American response was based upon five pillars: supply chain resilience, targeted public investment, public procurement, climate resilience, and equity. The strategy is to de-risk investment in the clean energy industry (electric vehicle plants, battery manufacturing, hydrogen, and much more) and then heavily subsidize business and consumer adoption of that technology.

The US is deploying a number of tactics to achieve its goals. This includes positioning government as a leader and risk-taker; “friend-shoring” with free trade partners like Canada to ensure that new supply chains are built in countries that are allies, not rivals; encouraging stakeholders like unions, universities, business groups, and industry to form technology and innovation “hubs” that facilitate regional and local energy transition planning; and training workers for the hundreds of thousands of “green energy” jobs that are already being created.

Thanks to the enthusiastic uptake by the private sector, in its first year the policy has already generated $86 billion (USD) of private investment, 51 new or expanded plants for producing solar panels, ten new battery factories, and over 100,000 clean-energy jobs, according to Bloomberg. Goldman Sachs thinks the IRA could generate as much as $3.3 trillion (USD) of private investment in renewable technologies and other clean industries. Most of that investment is expected later in this decade.

US industrial policy has provided another significant boost to the global energy transition. The pressure is now on Canada to match the US industrial policy efforts. A few months after the IRA was announced, Deputy Prime Minister Chrystia Freeland introduced the idea of “muscular industrial policy” during a press conference with the Alberta Federation of Labour (AFL).

The IRA’s effects are already being felt in Canada. For example, automaker Stellantis threatened to move a $5 billion (CAD) battery plant already under construction, forcing Ottawa to significantly sweeten the deal to keep the project north of the border.

The federal government has a “toolkit” to advance its clean energy industrial policy, including: “a set of clear and predictable investment tax credits, low-cost strategic financing, and targeted investments and programming, where necessary, to respond to the unique needs of sectors or projects of national economic significance.” The government claims that total financial support for clean industrial policy amounts to $120 billion (CAD), which compares favourably to US support, taking into account the relative sizes of the two countries’ populations.

Some of these programs are important to Alberta. For example, most Canada carbon capture storage and utilization projects are located in Alberta. The federal carbon capture, utilization, and storage (CCUS) tax credit combined with the provincial Technology Innovation and Emissions Reduction (TIER) funding will total $135 (CAD) per tonne in 2030, $20 (CAD) more per tonne than the IRA’s much lauded 45Q credit, according to a Canadian Climate Institute study. The value of the CCUS tax credit is estimated to be $7.1 billion (CAD) just for the Alberta oil sands.

Alberta is also a national leader in the clean tech sector and the emerging hydrogen industry. Both will benefit from federal funding.

But the UCP government, especially under Premier Danielle Smith, has resisted many federal clean energy industrial policies, sometimes even taking Ottawa to court (e.g. the national carbon tax). Ottawa is adopting national regulations that send stronger signals for change, such as the Clean Electricity Regulation, that Smith is boisterously opposing. This includes funding an expensive advertising campaign in other parts of the country and imposing a seven-month moratorium on $25 billion (CAD) of wind and solar projects.

Instead of taking advantage of the abundance of new opportunities to create good paying jobs for Albertans, Smith is focused on protecting the oil and gas industry’s status quo. The AFL’s 2022 “Skate to Where the Puck is Going” report described seven new energy “missions” that could be led by the Alberta government and supported financially by Ottawa. An independent economist estimated that the AFL’s plan could create as many as 200,000 new direct jobs by 2050.

The window to take advantage of opportunities created by the energy transition will not be open for long. Other countries, like Vietnam and Indonesia, are aggressively pursuing the same investments and jobs as Canada and the US. If the UCP government continues to feud with the federal government, instead of cooperating, Alberta will miss out on a once-in-a-century opportunity to diversify the provincial economy while creating the kind of good-paying jobs described in the AFL report.