Biden's big, bold green spend sends shockwaves around the world, including Canada

U.S. President Joe Biden's climate bill is only six months old, but its impact on the energy industry around the world continues to grow as pressure mounts on countries to offer similar subsidies toward green energy or risk losing out on valuable investment dollars.

The Inflation Reduction Act (IRA) is a multi-billion-dollar program that pledges government dollars toward developing low-carbon energy. The policy is aimed at boosting the country's manufacturing sector and takes aim at China's dominant position in the clean energy technology supply chain.

The legislation is regarded as the most ambitious climate bill ever passed in the U.S.  Still, the IRA could force governments around the world, including Canada, to introduce their own sweeping series of subsidies and have a much larger impact on climate change.

It's a big wake-up call for world leaders, said Marcel van Poecke, head of Carlyle International Energy Partners, a global investment firm based in Washington, D.C.

"That is going to be very, very powerful, and in Europe, people are shocked, but I think it's exactly what we need," he said while on stage at CERAWeek, an energy conference in Houston.

There are many facets of the IRA, such as tax incentives aimed at increasing the manufacturing of wind turbines, solar panels, and electric vehicle batteries. There are also subsidies to promote the development of hydrogen, biofuels and carbon capture and storage facilities. The financial supports are estimated to total nearly $60 billion US ($82.5 billion Cdn) over the next 10 years.

"The IRA will have the effect of really attracting capital back to the U.S. for the reasons and the results that it sort of needs," Tengku Muhammad Taufik, CEO of Petronas, told the CERAWeek audience.

The IRA is a policy that is easy to understand and offers clear incentives for industry, compared to a more complex system in Europe, said Sanjiv Lamba, the chief executive of Linde, a European industrial gas company.

"There's no denying the fact that suddenly people have woken up with the IRA and said 'Hey, we can do a lot more,'" said Lamba, who doesn't think the European Union will be able to match the level of subsidies.

Carrot vs. stick

Canada has offered subsidies to promote low-carbon sources of energy, although its main policy to promote the decarbonization of the energy sector is the carbon tax. Putting a price on pollution is described by some experts as using a stick to motivate industry, while the IRA is like dangling a carrot.

"You can really feel that the rest of the world is looking at the Inflation Reduction Act and saying, 'How are we going to participate?' and that will help change the pace and accelerate transition," said Lance Uggla, the chief executive of BeyondNetZero, a climate-focused private equity fund. Uggla is a former bank executive with TD and CIBC.

In Canada, oilsands companies are pressuring the federal government to increase the level of financial support for building and operating carbon capture and storage facilities. Ottawa has already introduced a tax credit, although the government has admitted the policy is not as robust as the IRA.

Oilsands executives have formed a group called Pathways to Net Zero to work together cutting emissions. It's also seeking provincial government subsidies in Alberta.

Cenovus Energy chief executive Alex Pourbaix spoke with CBC News in Houston  about subsidies for a proposed carbon capture project in northern Alberta, saying it will need support from both levels of government to move ahead.

"People just need to be very thoughtful about what failure would mean," he said. "What we need is a little bit of help on the order of what we're seeing in the U.S. with the IRA, and I would be very, very surprised if people didn't see the value."

WATCH | Why oilsands companies want more federal dollars to decarbonize:

Canadian response

The next federal budget could include a commitment of more cash aimed at cutting greenhouse gas emissions and promoting low-carbon sources of energy.

In October, the government hinted at further action to boost subsidies as part of its fall economic statement, which said, "Canada will need to do even more to secure our competitive advantage and continue creating opportunities for Canadian workers. This challenge has become even more pressing with the United States' recent passage of the Inflation Reduction Act."

The oilpatch earned record profits in 2022 as commodity prices spiked following Russia's invasion of Ukraine. The industry has faced criticism for not using those profits to move quickly enough to respond to climate change.

Some industry executives in the U.S. have questioned the effectiveness of the IRA because of the permitting process in the country, which they say takes much too long. The climate law has plenty of potential, but it could stumble without improvements to speed up the permit system for energy projects.

It is "procedurally impossible" for the country to transition to cleaner and more sustainable forms of energy, said ConocoPhillips chief executive Ryan Lance, even if the IRA makes those types of projects more economical.