Budget 2022 Bets on Electric Cars and Tech Incentives to Decarbonize Economy
The Clean Air and a Strong Economy section of the federal government’s 2022 budget sinks over $12 billion on climate action measures spread out over four years, while illustrating in the same chapter that a gap of more than $100 billion in annual investment is required to reach net-zero emissions in Canada by 2050.
The government hopes to make up the gap through private investment, and most of the measures tabled in the budget are geared towards incentivizing just that. There is little in the way of investment in public ownership or support for workers.
There is no doubt that decarbonizing Canada’s transportation sector is necessary in the fight against climate change. Right next to the oil and gas industry, the transport sector is the second largest contributor of emissions in Canada and has seen emissions climb without abatement, releasing 185.8 Megatonnes of CO2 in 2019. There is also a major opportunity to induce a shift to decarbonize this sector as petroleum prices reach record highs due to geopolitical trends and major public investments in the infrastructure for electrification.
How do you solve a problem like ZEVs
The federal government has chosen to focus its decarbonization of the transport sector on incentivizing a switch from combustion engine cars to “zero-emission vehicles” (ZEVs). Supply-side and demand-side measures to incentivize this shift are touted at the top of Budget 2022’s climate action measures. Relying on incentives for private sector and consumer investment in ZEVs, however, come with costs and implications that are not always considered.
Large corporate subsidies are being offered to build charging station infrastructure, consumer subsidies are continued to encourage uptake of ZEVs that only wealthier families can afford, and an extensive “critical minerals strategy” is outlined in Budget 2022 to secure energy storage material supply chains. This strategy will have implications for the mining industry, the environment, Reconciliation, and Canada’s foreign policy. Focusing on electric cars as a way to decarbonize fails to take into account far-reaching economic externalities and ignores the higher proportional costs of making the switch for lower-income families.
In particular, the $1.7 billion investment in the Incentives for Zero-Emission Vehicles (iZEV) program demonstrates the short-sightedness of betting on electric cars for climate action. Under this program, only new ZEVs are eligible for the subsidy—it is difficult to re-sell used electric cars due to battery resilience. One of the cheapest new electric cars on the Canadian market, the 2022 Chevy Bolt, is priced at around $38,000 CAD without the $5000 iZEV program. Even when accounting for high prices at the pumps, it is challenging for lower income families to afford a new ZEV, even with the iZEV program, when the comparable 2022 Chevy Spark is priced at $12,000 CAD. Despite this program existing since 2019, only 3.5 percent of new vehicles registered in Canada were ZEVs as of Q3 2020.
A much more efficient use of public money would be to invest in public transit. However, the attention paid to ZEVs in Budget 2022 is gigantic in comparison to what’s available for mass public transit, which completely ignores the latter. Transit systems have been hard hit by the pandemic but have been largely ignored in pandemic recovery and climate action plans, though governments willing to invest in them can produce immediate economic and emissions impacts more affordably. Without building reliable public transit infrastructure, a behavioural switch to more economically and environmentally sustainable commutes cannot be expected.
In Budget 2022, the federal government is investing just $42.8 million over four years on VIA Rail maintenance centres and will withhold $750 million in transit system pandemic relief money unless cash-strapped provinces and municipalities build new housing. Instead of expanding VIA through public investment, the government has instead proposed private sector partnerships to build high-speed rail after decades of studying its economic benefits and feasibility. Budget 2021, curiously, did announce a “Permanent Public Transit Fund” of nearly $6 billion which was a great start towards a stable source of cash for publicly-owned transit. However, with a federal election between budget announcements, this measure was not included in Budget 2022’s Clean Air and a Strong Economy chapter’s key ongoing actions, despite the size and profile of the previously-announced funding.
A subsidy wolf in climate action clothing
In addition to incentives and subsidies for ZEVs, the federal budget’s climate actions also include big-ticket measures to induce investment in Carbon Capture, Utilization, and Storage (CCUS) and Small Modular Reactor (SMR) technology. Like ZEVs, the promise of these technologies are being prominently presented instead of “off-the-shelf” solutions or alternative technologies such as expanding public transit, ending fossil fuel subsidies, continuing to drop the cost of wind and solar energy, or advancing research on renewable electricity generation such as geothermal.
While CCUS and SMRs are touted by some as necessary for climate action, they are by no means off-the-shelf solutions and could in fact harm climate action efforts. CCUS development has been used as cover for continued fossil fuel subsidies, without substantial change in the number of operating CCUS projects globally, despite decades of investment in the technology. SMR technology has yet to be fully tested and developed, with high upfront capital costs and major concerns regarding the nuclear waste material produced and the proximity of Indigenous communities near proposed projects. Despite these concerns, new investment in these untested technologies has displaced any new or accelerated investments in established renewable energy systems, or in building out electrical grid systems to replace fossil fuel generation with established hydroelectricity.
The focus on technology as an accelerator of economic growth is not unreasonable, however, private investment spurred by new tech that promises higher profit margins, like ZEVs, CCUS, and SMRs, appear to overshadow reliable tech with lower profit margins but higher overall economic and emissions benefits, like public transit and renewable energy. Private-sector incentives to decarbonize the economy could work, but it can feel like gambling on a net-zero scenario with untested tech using public money while the stakes are so high. If Canada is truly to meet its net-zero goals, it needs to depend on more than fledgling technologies and the private sector to make it happen, especially when there are other public policy levers available to be pulled.
Budget 2022 Falls Short of the Policy Shifts Many Called For
In the run-up to the 2022 federal budget, the sound from Bay Street was positively biblical ... wailing and gnashing of teeth, rending of garments, and cries of despair.
Corporate Liberalism was apparently dead and the socialist hordes were at the gates, imposing “big government” and onerous taxes on the “wealth creators.”
In the end, we got a very Liberal budget with a scattering of progressive concessions to secure the support of the NDP.
As with all budgets, a great deal is made of small items, like baubles on a Christmas tree.
Take over-blown claims of investing in affordable housing.
While Canada desperately needs more supply, we get a promise to build just 6,000 new co-op units, and a Tax-Free Home Savings Account which is more likely to further inflate prices than to help those who cannot afford to buy.
The same is true of clean energy and green jobs. There is, to be sure, a serious investment in zero-emissions vehicles. But support for building retrofits to increase efficiency and use of cleaner energy like heat pumps is minimal, and certainly far short of the massive changes that are needed to meet our ambitious but necessary emissions targets.
The Liberal plan to deal with the climate crisis relies heavily on carbon taxes and public subsidies to corporate investment via the new Canada Growth Fund and the Canada Infrastructure Bank, plus the new tax credit to promote carbon capture and storage in the tar sands.
Their plan is weak on regulation (still no cap on oil and gas industry emissions) and on the major public investments needed to decarbonize the economy. Indeed, the Liberals cannot even bring themselves to halt new pollution enabling mega projects like the expansion of offshore oil production.
As the United Nations Secretary-General said on the eve of the budget, “investing in new fossil fuels infrastructure is moral and economic madness.”
The budget did respond to NDP demands to decisively expand public health care over time, but much more work is needed to create a national system including dental care, pharmacare, mental health and care for the elderly.
There is weak Liberal ambition when it comes to social spending and public services flows from their commitment to low taxes, especially on corporations and the rich. In line with NDP demands, the budget does impose higher taxes on the huge profits of the financial sector which resulted from government action to deal with the pandemic.
But there will be no wealth tax on large fortunes, and no end to the special tax treatment of capital gains income and other fair tax measures that could raise billions of dollars of new revenues.
While much of the mainstream media deem the Liberals to be “big spenders” the fact of the matter is the Liberals have only very limited progressive ambitions and only move under political pressure.
Federal program spending will be just above 15% of GDP after the special pandemic programs have expired and recovery takes hold. That compares to about 14% in the last year of the Harper government. Federal revenues have increased by just 0.5% of GDP over the same period.
Finance Minister Freeland has promised to further reduce the federal deficit and debt as a share of the economy. This implies no major increases in public investments unless they are financed by tax increases, and spending cuts in the event of a new recession.
This budget certainly has some progressive elements. But it falls well short of the major policy shift that many had sought in response to the compelling lessons of the pandemic.
Andrew Jackson is senior policy adviser at the Broadbent Institute.
Despite Fiscal Capacity Budget 2022 Spending Does Not Match Housing Priority
Front and centre of the federal government’s Budget 2022 is housing affordability, acknowledging the crisis and raising it as a priority in Chapter 1 with new and renewed programming focused on building housing stock across Canada. And rightfully so—housing markets have set record prices, rents are raised increasingly out of reach across the country, and the Bank of Canada hints at aggressive interest rate hikes to cool inflation across the economy making consumer financing less accessible. However, the new budget’s commitments ($10 billion commitment on housing over four years and $4 billion investing in housing for Indigenous communities over seven years) fall short of what Canadians need to afford a roof over their heads.
It's difficult to see how housing advocates can celebrate the latest budget. The National Housing Council recommended, at minimum, a budget of $6.3 billion over two years in new housing investment. The Assembly of First Nations identified a need for a $44 billion investment to address housing needs created by decades of federal neglect and underfunding. While Canadian-owned Real Estate Investment Trusts (REITs) reaped profits through the pandemic when many renters were out of work and relied on programs like the Canada Emergency Response Benefit (CERB) to pay their rents, there are no new initiatives for publicly-owned housing, and a paltry $191 million is committed over four years to support co-operative housing.
While some affordable housing proposals are encouraging, such as expected legislation on a vacant housing tax and home efficiency retrofit funding (especially if it is made accessible to low-income households), other budgetary measures on housing are either insufficient or are curious pieces of public policy.
The “leveraging transit funding to build more homes” measure withholds $750 million previously committed in support of transit systems that have experienced fare box shortfalls due to a drop in ridership during the pandemic. This funding is now “conditional on provincial and territorial governments committing to match the federal contribution and to accelerate their work with their municipalities to build more homes for Canadians.” Holding committed transit funding hostage until cash-strapped cities build housing does not sound like a great incentive for affordability. Furthermore, a new “Rent-to-Own” scheme receives $121 million in funding, harkening back to Margaret Thatcher’s “Right-to-Buy” program that saw a dramatic reduction in affordable rental housing in the UK through the 1980s.
Despite the housing priority of Budget 2022, it remains to be seen whether the federal government considers housing to be a human right as outlined in the 2019 National Housing Strategy Act. The government’s latest measures do not make much of an effort to decommodify housing, and through it’s big ticket measures to increase housing supply (namely the $4 billion Housing Accelerator Fund, $1.7 billion Rapid Housing Initiative, and $2.9 billion National Housing Co-Investment Fund) it remains unclear whether new housing will be affordable or bring down prices for existing housing stock. According to the latest OECD data, 8% of dwellings across Canada remain vacant, defying the economic laws of supply and demand. If the new housing being accelerated remains unaffordable, expect this proportion of empty dwellings to grow.
If the federal government wanted to make an impact on housing affordability, the government itself could have afforded to spend more on these initiatives. Despite the episodic shock of pandemic relief spending during the last fiscal cycle, Budget 2022 puts the federal government on track for near budgetary balance by 2026. The government’s debt servicing forecast is also much better than its previous 2021 projection. Housing price inflation has already demonstrated its independence from other inflationary pressures—there is certainly “fiscal room” for higher spending on housing affordability relief including a large-scale program to enable provinces and municipalities to buy or build housing stock for social, publicly-owned housing.
If housing affordability was truly a priority for the federal government, Budget 2022 failed to demonstrate the urgency of the crisis. Compared to the burgeoning $21 billion price tag for construction of the Transmountain Expansion pipeline in the midst of the climate crisis and little opportunity for a return on profit, $10 billion in new spending on housing spread out over four years seems small. The federal government had an opportunity to begin to decommodify housing but chose instead to continue its financialization. As housing prices continue to rise on top of wider inflation and slower wage growth, a harder landing could be expected when the long-anticipated bubble bursts without ensuring that Canadians have a right to a roof over their heads.