President Joe Biden had noble goals with his EV expansion, but it added a new and costly subsidy battle for Canada to reckon with.
In a move that was somehow both shocking and unsurprising, United States President Joe Biden announced on Sunday that he was abandoning his bid for re-election. In just four years, his administration spearheaded an ambitious push towards a greener America, and indirectly, a greener Canada.
As Pierre Trudeau once remarked, living next to the United States is akin to sleeping by an elephant, and we will be affected by every twitch and grunt. Biden did more than twitch and grunt; he plunged the North American auto market into an intensive, and expensive, electric vehicle subsidy contest.
Biden’s time in the White House came with a renewed effort to combat climate change. The Democratic administration rejoined the Paris Climate Agreement, passed new regulations to cut emissions, and signed off on the Inflation Reduction Act (IRA) in 2022.
With the introduction of the IRA, there was an explosion of billions of dollars in American taxpayer money doled out in grants and tax subsidies to grow low-carbon energy projects, most notably the EV industry. With the goal of accelerating towards a full transition to EVs, the Biden administration announced an ambitious goal of making half of all vehicle sales emissions-free by 2030. Buoyed by the promise of essentially free money, investors spent vast sums on clean energy projects.
This had the effect of tipping the scales of the deeply synchronized North American energy market. Canada’s federal government in particular felt obligated to attempt to match the subsidies in order to keep the Canadian auto manufacturing sector competitive against its heavily subsidized American and Mexican counterparts.
Sandwiched between the hegemonic spending power of Washington and the cheaper cost of doing business in Mexico, Prime Minister Justin Trudeau has poured billions in subsidies to grow the Canadian EV market. Most notably, the Trudeau government offered Volkswagen a whopping $13 billion in 2023 to establish an EV battery plant in St. Thomas, Ontario.
Volkswagen’s competitors like Stellantis expected the same, and Stellantis threatened to pull out of their planned operation in Windsor if it did not receive a similar subsidy. Concerned by the prospect of job losses and further hits to Canada’s sluggish economic growth, the Ontario and federal governments handed over tax-breaks to Stellantis worth $15 billion.
By now, it is estimated that nearly $60 billion has been dumped into EV subsidies by the federal government. These costs will be borne by Canadian taxpayers for years to come, on top of the rest of the federal government’s big-spending program. Ottawa itself has mandated that 20 percent of new vehicles sold in 2026 be electric, and an astounding 100 percent by 2035. Auto manufacturers have been forced to radically alter their production lines.
If manufacturers struggle to keep up with Ottawa’s EV targets, they are almost certain to cut the number of gas-powered vehicles being produced. This will drive up the price of automobiles nearly across the board, which have already become more unaffordable before the introduction of the EV subsidies.
With rents and groceries still significantly more expensive since the pandemic, the rising cost of automobiles is another hit to be absorbed by Canadian citizens. From 2022 to 2023, the price of new cars surged 21.3 percent in Canada, reaching about $66,300 for a brand new automobile.
Biden’s goals were commendable and have certainly accelerated the green transition, but it has created huge economic hardship.
Pushing towards electrification without a parallel rise in affordable EV options, not to mention the infrastructure required to sustain an EV-dominated continent, has had significant consequences.
The subsidy race and its effects have displayed just how difficult it is to coordinate trans-national environmental policies without making life harder for consumers.
Geoff Russ is a writer and policy analyst in Vancouver. He is a jormer journalist.