The Volkswagen deal will ultimately hinder the economy’s overall growth potential, making all of us poorer
In a stunning announcement, federal officials recently revealed that the Trudeau government will provide up to $13.8 billion to Germany’s Volkswagen for the construction and operation of an electric vehicle (EV) battery plant in Ontario. The funding will be disbursed over 10 years and equates to approximately $4 million per direct job created.
The financial support – which represents by far the largest government contribution to a corporation in Canada’s history – will be provided in stages, beginning with a significant contribution towards the plant’s construction. The aim is to encourage other companies to invest in Canada’s automotive ecosystem, in line with the spending patterns of the neighbouring United States.
Surprisingly, even the “Conservative” government of Ontario endorses the deal. The automotive industry is already investing heavily in the global EV sector, which is artificially sustained.
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Both governments’ rationale is that without the plant, Canada would lose its standing as a major player in the transformation of the transportation and energy industries towards a lower-carbon dioxide (CO2) emission future.
The levels of government seem intent on averting a feared Climate Apocalypse, a dubious notion that has captivated the political, media, and academic spheres. It has become the central dogma and Black Hole, exerting a spiralling impact on our society and economy.
Unfortunately, this deal will lead to a massive misallocation of government capital.
Several points highlight the misguided and wasteful nature of this approach. The primary question is whether or not lowering CO2 emissions is even desirable. The prevailing belief that CO2 is pollution holds little water when examined closely. Instead of subsidizing a factory and a single corporation, the $13.7 billion could be better allocated for other purposes.
Canada could expedite current environmental evaluation assessments by addressing expensive and time-consuming construction delays to facilitate the mining of critical minerals within Canada, including lithium (currently predominantly sourced from China). Another use of funds could aid the development of domestic lithium refining capabilities currently dominated by China. Additionally, the funds could be utilized to interconnect provincial electricity grids, enabling low-emission jurisdictions to sell more power to higher-emission areas. Lastly, better management of the two billion carbon-sequestering tree planting initiative, which is falling behind schedule, could be prioritized.
Other more effective uses of the substantial $13.7 billion would involve reducing business taxes, implementing smarter regulations, and streamlining the permitting process for industrial projects. These actions are vital if Canada is to improve its dismal productivity growth and enhance the standard of living for Canadians, both of which are projected to stagnate or even decline in the foreseeable future.
Large transfers of corporate welfare to potentially obsolete initiatives, coupled with generous handouts to secure votes, will ultimately hinder the economy’s overall growth potential, making all of us poorer.
Ian Madsen is the Senior Policy Analyst at the Frontier Centre for Public Policy.
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