This week, U.S. President Joe Biden travelled to Pittsburgh, Penn., a rust belt steel town with an emerging tech sector, to unveil ‘The American Jobs Plan,’ which he characterized as the greatest opportunity to transform the economy in at least a generation.
With US$2 trillion in proposed spending over eight years, the plan lays out a roadmap to address climate change through emission reduction and investment in aging infrastructure, and it has delighted many in Canada who believe a large stimulus in the U.S. will carry spillover benefits for this country’s economy.
Biden’s proposal includes roughly US$1 trillion in spending over the next eight years just in areas related to a low-carbon economy — including charging stations for electric vehicles, new public rail and transit projects, grid modernization, clean energy manufacturing and research and development.
In announcing his plan, Biden set up a debate that is likely to dominate discussions about the economy over the next few years. He framed investment in a low-carbon economy as a strategy for growth rather than a cost that will be a drag on competitiveness. It’s a debate that many in Canada, especially cleantech entrepreneurs and climate change activists, but also the automotive industry, are keen to start.
“The goal of reducing emissions, it’s not just an environmental imperative,” said Sarah Petrevan, a senior policy advisor at Clean Energy Canada, a think tank at Simon Fraser University. “That’s important, but it’s actually also an economic imperative.”
Petrevan explained that as countries and corporations around the world agree to reduce emissions, markets will face various shifts. Demand for fossil fuels such as coal and oil will shrink, but the impact will have cascading effects, and transportation, heavy industry, housing and all parts of the economy will face pressure to decarbonize, and green energy will grow.
“The world has by and large generally agreed to reduce emissions,” she said, ”and so if we are all going to do that, whoever gets there first, and transitions their various industries to succeed in that future, is going to be the one who gains the biggest economic advantage and the most economic success.”
Interestingly, Biden announced his plan on the same day that a parliamentary budget officer in Ottawa released a report that projects a $363 billion budget deficit this fiscal year. The report called the Liberal government’s proposed $70 billion to $100 billion three-year stimulus plan “miscalibrated,” given that the labour market may recover by 2021-22.
Still, if Biden’s plan passes, it may well affect the politics of Canada’s stimulus plan and what’s considered an appropriate timeline for investment in the low-carbon transition.
Richard Florizone, chief executive of the International Institute for Sustainable Development in Winnipeg, said Biden’s plan would mean that the size of the U.S. stimulus, even adjusted on a per capita basis, “dwarfs” what Canada has spent, and will create an onus for Canada to keep up.
He said investors have already been withdrawing from carbon-intensive sectors in an effort to meet emissions targets, and the stimulus packages being unveiled by countries around the world has only accelerated the transition to a low-carbon economy.
“The question for Canada is how do we position ourselves in this future?” said Florizone. “The most important thing to say is however you’re going to address (climate change), you have to make sure you have enough fuel in the tank, and the Biden proposal really sets the bar high, it sets it three to four times higher than what the Canadian government has already done.”
The Biden proposal really sets the bar high, it sets it three to four times higher than what the Canadian government has already doneRichard Florizone, chief executive, International Institute for Sustainable Development
It’s an argument that’s already playing out, especially in Canada’s auto sector, where an expected surge of growth in electric vehicles is spurring investments.
In recent months, plans to retool former conventional combustion engine plants into electric vehicle-focused production facilities has drawn $5.7 billion in investment from Ford Motor Co., General Motors and Stellantis as well as hundreds of millions of dollars from the Ontario and federal governments.
“The fact is the industry right now is going through a major technological transformation like nothing we’ve ever seen before,” said Brian Kingston, chief executive of the Canadian Vehicle Manufacturers Association.
Of course, the expected returns on those investments are tied to projections about future demand for electric vehicles.
In 2020, even as new vehicle sales in Canada plummeted 19.7 per cent — a worse hit than during the global financial crisis of 2007-08 — sales of zero-emission vehicles, which includes electric battery, and plug-in hybrids, as a proportion of total all vehicles rose from 2.59 per cent in 2019 to 3.59 per cent.
Kingston said automotives account for nine per cent of Canada’s exports, worth $54 billion in 2019. Roughly 80 per cent are exported to the U.S., so consumers and government policies there shape Canada’s industry, he said.
“We don’t build vehicles in Canada just for Canada,” said Kingston, “so if you’re seeing policies that are going to boost demand for vehicles in the U.S., this is good news.”
Of course, there are those that are skeptical that Biden’s proposed investment in a green economy will work.
Peter Feaver, a professor of political science at Duke University, expressed skepticism, especially the notion that the plan could pass Congress without significant revisions.
Long term planning is a weak spot in U.S. governance, he said, in part because control of Congress often switches parties every few years, which would jeopardize Biden’s eight-year vision.
Feaver also questioned whether the government’s investments in green technology would backfire, citing Solyndra, a California-based solar panel manufacturer that received a US$535-million loan from the Department of Energy in 2009 and then filed for bankruptcy within two years.
On the other hand, investments in technology have succeeded in the past. During the Cold War with the Soviet Union, the U.S. invested in space and nuclear arms with great success.
Now, Feaver said, the U.S. is engaged in “a technological race” with China, where the government is “playing both sides of the table” — investing in coal, and also investing heavily in green technology such as supply chains for electric vehicles and solar power.
“China as an economic competitor is more formidable, so the urgency of the challenge is great, and the urgency of climate change is great,” he said. “In both cases, you might understand why Biden has a shot at succeeding, but politically it’s going to be a lift.”
Eric Miller, a fellow at the Canadian Global Affairs Institute, based in Washington, D.C., took the opposing view that Biden stands a decent chance of passing his plan.
He noted Biden has proposed to pay for the investments by raising the U.S. corporate tax rate from 21 per cent to 28 per cent.
“Biden is aiming for a holistic reinvestment in U.S. competitiveness,” said Miller. “Were this to come to fruition, the U.S. is positioning itself to massively increase its strength as a competitor in a whole swath of areas, and that creates opportunities for Canadians.”
He said Biden’s ‘Buy American’ policy, which creates minimum requirements that services and raw materials purchased with the stimulus money come from the U.S., may create hurdles, but the Canadian government will likely look to negotiate for exemptions and treatment as a partner given close integration of our economies.
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Many people noted the spillover benefits from such a large stimulus would reach far and wide: For example, with US$115 billion set aside for road repair, even the Alberta oilpatch may benefit from increased demand for asphalt which is made with the heaviest materials in a barrel of crude oil.
But Miller also said the plan, if passed, would reinvigorate the U.S. in a radical way, and could work against Canada by making the U.S. a more attractive place to invest.
“Some of the classic disadvantages the U.S. has had, such as congested roads or crumbling infrastructure, will be significantly reduced,” he said. “That means Canada will need to run faster to keep its advantage on many fronts.”
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