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The so-called Inflation Reduction Act is a historic climate bill just passed by the U.S. Congress. This new climate bill represents the country’s largest single investment to combat climate change.
The legislation covers a wide range of topics, from energy security and climate change to health care, such as home energy rebate programs and tax credit to buy new electric vehicles.
U.S. the new leader in confronting climate change in North America
Both U.S. and Canada have a target to cut greenhouse gas emissions by 40% below 2005 levels by 2030. This legislation serves as a wake-up call for Canada. With Canada no longer being the North American leader in confronting climate change, U.S. has taken the lead showing a new path by attempting to clean up emissions through enormous investments in green technologies and not by imposing a federal carbon pricing system.
Canada’s current plan
Canada’s federal carbon pricing system will rise steeply from its current level of $50 per tonne of emissions to $170 by 2030, in order to push consumers toward cleaner energy sources. Even though the government has announced some $9.1 billion in new investments that will make Canada’s electricity grid cleaner, carbon pricing still remains the cornerstone of the federal climate plan.
What does the Inflation Reduction Act mean for Canada?
U.S. climate-related investments are now about three times larger per capita than the climate investments in the 2022 Canadian federal budget. However, the climate bill could generate new economic opportunities for Canada’s automotive, energy and mining industries.
According to the new U.S. legislation, a $7,500 tax credit is included to buy electric vehicles made in North America. The car’s battery will increasingly need North American components, from 50 percent of the battery in 2024, to 100 percent in 2028. The Canadian government has also recently budgeted $4 billion to develop the country’s critical minerals sector, which means that local businesses could have access to funds if they begin mining for the right materials.
Canadian nickel projects, run by miners Vale SA and Glencore Plc., are very likely to see an increase in value, while Sigma Lithium Corp., that aims to become one of the world’s largest suppliers of lithium, has recognized this legislation as a positive impact on the EV supply chain.
Last but not least, Canada being a trusted trading partner of the United States is an important message to investors and will likely spur their interest in the Canadian mining and auto sectors from foreign mining companies.
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