Canada promises industry it will respond to U.S. inflation act

A construction worker passes a condominium site with a roll of cable in Toronto

By Ismail Shakil

OTTAWA (Reuters) -Canada must strengthen its incentives meant to help industry scale up clean technologies after the United States passed massive investments in August to accelerate the green transition there, the finance minister said on Wednesday.

The Inflation Reduction Act (IRA) was signed into law by U.S. President Joe Biden and contains incentives for consumers and businesses as the United States seeks to drastically cut its carbon emissions.

"This is a far-reaching piece of legislation with a lot of different consequences for Canada," Finance Minister Chrystia Freeland told reporters in Windsor, Ontario, where she spoke to automotive parts manufacturers earlier.

There are "elements" of the IRA that Canada needs to "respond to," she said. "We are working on it. You will see some of that in the fall economic statement, and you'll see further action in the budget in the spring."

Freeland said she would soon announce a date for the annual fall economic statement (FES), which is when the government updates its economic projections and sometimes tweaks its spending plans. Canada should avoid new stimulus in the FES, analysts told Reuters last week.

Canadian companies seeking to build carbon capture facilities and manufacturers hoping to attract new electric vehicle (EV) or battery plants have expressed concern that the IRA will give the United States an unfair advantage.

Governments in Europe and Asia have raised complaints about parts of the act impacting their industries.

On Wednesday, the Biden administration announced another big boost for its green transition, saying it was awarding $2.8 billion in grants to encourage U.S. production of EVs or the minerals that go in their batteries.

Freeland has repeatedly welcomed the introduction of the IRA because it puts the United States on a path toward the green transition without penalizing Canada with new EV consumer tax credits only for American carmakers as had initially been announced. Instead the tax credits are allowed for "North American" carmakers.

The sweeping IRA also boosts the requirements to source critical minerals used to make batteries with free-trade agreement allies like Canada, which has an abundance of the minerals but still needs to scale up production and processing.

(Reporting by Ismail Shakil in Ottawa; Editing by Steve Scherer and Matthew Lewis)