Ottawa’s massive EV subsides part of misguided ‘electrification’ plan

My mother taught me that if one sees a person acting insanely, at risk of harming themselves, one has the obligation to point it out. The recent extortion of massive taxpayer subsidies by two multinational corporations (Volkswagen and Stellantis) trigger such an obligation.

In short, the Trudeau government gave $13 billion to Volkswagen (a foreign company) to make electric car batteries in Ontario, then got squeezed by another company, Stellantis, for a $15 billion subsidy to build more electric vehicle batteries in Ontario. (And that’s federal taxpayer money, from Albertans and Canadians across the country.)

And these two examples of corporate welfare are only the latest examples of Ottawa’s policy craziness. The Trudeau government is also dispensing millions in subsidies for the building of mines and refining facilities to support battery production, and subsidies to get consumers to buy electric vehicles they’ve historically failed to purchase in large enough numbers to serve government’s plans.

All of this in service of the “net-zero 2050” greenhouse gas control plan pitched by the United Nations, and to compete with the United States, which enacted its own massive industrial policy bill deceptively named the Inflation Reduction Act. So now have two neighbouring national governments competing to see who can most vigorously embrace foolish industrial policies, where government intervenes to “boost” the economy, that are likely to fail.

This is what critics of industrial policy have long warned about. Because governments do not possess superior knowledge of what people actually want to buy or sell in voluntary private markets, government efforts to pick winners and losers in the economy are doomed to fail.

But governments, particularly activist governments, are in eternal denial of this reality, and equally averse to admitting error and backing away. Instead, with an eye on remaining in power, governments prop-up their failures with still more likely failures. They double-down, and set a cat to catch a mouse, then set a dog to catch the cats, then need animal control to wrangle the dogs, then need people to supply tools for the wranglers. It never ends.

This is where Canada is today. In the doom loop of throwing good money after bad to prop up sequential failures of government’s most recent massive foray into industrial policy—that is, the electrification of Canada’s transportation economy in service to the decarbonization of Canada’s economy as a whole.

So what should be done?

The solution is simple. Governments, including the federal government, should unravel or claw-back the subsidies they’ve granted to rent-seeking corporations along the entire electric vehicle battery supply chain as quickly as possible. They should start with companies that played either the “subsidize me or lose me” game, or the “I have to get what you gave the other guy” game. Showing such games to be unreliable might deter other companies from playing them, or local governments and advocates from pushing for them.

In the bigger picture, the Trudeau government must look upstream from the electric vehicle battery market to also neutralize the industrial policies embedded in Canada’s “net-zero” crusade because that’s the wellspring of the current crop of subsidies for vehicle electrification and many other damaging market interventions.

But of course, that’s never going to happen—not with this government. However, some future government might want a place to start unravelling the doom loop, and will at least know where to start.