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Will Trump End US Green Investments? And How Should Canada Respond?
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Page Title: | Will Trump End US Green Investments? And How Should Canada Respond? – C.D. Howe Institute |
Article Title: | Will Trump End US Green Investments? And How Should Canada Respond? |
URL: | https://cdhowe.org/publication/will-trump-end-us-green-investments-and-how-should-canada-respond/ |
Published Date: | January 14, 2025 |
Accessed Date: | February 6, 2025 |
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From: Glen Hodgson
To: Trump watchers
Date: January 14, 2025
Re: Will Trump End US Green Investments? And How Should Canada Respond?
Donald Trump will soon be the next US President. And his tariff and border threats dominate the Canadian policy agenda. Meanwhile, a host of other US economic policies have significant implications for Canada.
Energy transition policies are one big example. Will Mr. Trump and the Republican Congress repeal the massive green investment and other subsidies under the Inflation Reduction Act (IRA), as they promised during the election campaign?
As context, China is the clear market leader in many aspects of green technology, led by its dominance in battery and especially solar cell technology, where its market share reportedly exceeds 80 percent. China is also now the largest producer and exporter of personal vehicles, and half of the new vehicles sold in China today are EVs. It won’t be a surprise if China quickly dominates the global EV market. Many countries and firms are now scrambling, trying to adapt to the Chinese green competitive challenge. For example, traditional auto producers like VW and Nissan are restructuring or even reducing their vehicle production footprint.
In the US, the mis-named Inflation Reduction Act provided the Democrats’ policy response to China’s green tech market dominance. Numerous fiscal incentives were provided for clean energy production and use, notably investment in near-zero-emission electricity production and green tech manufacturing. The overall fiscal cost of the subsidies package is huge, with estimates ranging from $370 billion to over $1 trillion.
Is the IRA working? The evidence so far is largely anecdotal and incomplete. US Energy Secretary Jennifer Granholm has asserted the IRA has spurred a “tsunami of investment” worth $500 billion and is rebuilding a US manufacturing sector that would be capable of competing with China. In her view, Mr. Trump’s stated plan to scrap the IRA and its cleantech subsidies would threaten US production reshoring, undermine America’s potential for energy independence and limit America’s ability to reduce global reliance on Chinese green supply chains.
That seems like a logical geopolitical and economic argument – but logic is unlikely to win many arguments with the incoming administration.
So, let’s set logic aside and consider the politics of the IRA and its implications for Canada. Will Mr. Trump actually be able to deliver on his promise to scrap it?
Congress will be the inevitable battleground for the future of US green investment subsidies. Media reports suggest that about 70 percent of the planned green investments supported by the IRA are being directed to Republican districts. Ms Granholm indicated recently that up to 90 percent of announced and planned green investment would be in states that voted for Trump and Republican members of Congress. Many investment projects are apparently slated for communities with below-average wages and education levels, which was another goal of the IRA.
Based on these indicators and on local politics, some Republicans in Congress will be reluctant to cancel IRA budgetary support for the planned private green investment in their districts. In anticipation of the coming battle, 18 House Republicans signed a letter to Speaker Mike Johnson back in August, asking him not to work towards prematurely repealing IRA energy tax credits supporting new green tech investments.
What does this mean for Canadian climate investment policy? The last two federal budgets contained numerous subsidy and financing measures designed to ensure a level playing field in North America for Canadian green tech and green energy investment. While the US political process plays out, Canada should be developing options for how its own green investment policy framework might be modified.
Neither climate change nor the competitive pressure of Chinese green tech are going away. There is growing research evidence that destruction caused by climate change – forest fires, severe floods, extreme weather – is a key factor slowing productivity growth globally. (We will have more to say about this in the future.) This makes it all the more important for both Canada and the world to address GHG emissions if we are to have a vibrant economy, including the development of domestic and regional green tech capacity or by reducing the barriers to green tech imports from China.
The 2022 and 2023 federal budgets included measures to promote green investment, notably by creating a refundable tax credit for the capital cost of clean tech investments, creating investment incentives for carbon capture technology, and by creating the Canada Growth Fund to provide green financing. If we are to respond to the Chinese competition, promoting Canadian green investment and helping to mobilize green financing should remain top policy priorities, especially if the carbon tax on consumers is eliminated by the next government.
Scrapping the IRA would be a step in the wrong direction for the environment and the US economy. Canada would be foolish to follow. We should be looking for ways to strengthen our own green investment policies and even take advantage of a possible US policy misstep.
Glen Hodgson is a Fellow-in-Residence at the C.D. Howe Institute.
To send a comment or leave feedback, email us at blog@cdhowe.org.
The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.
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