Ottawa gambling on electric with taxpayer money

The Trudeau government has made transport electrification into a shining star of industrial policy. Not only is Ottawa willing to pick and choose the technologies of the future, its ready to pick and choose the subsidiary activities needed to bring those electric dreams into reality.

Beside deciding that future transportation vehicles will be powered by electricity stored in batteries—and generated exclusively by falling water, blowing wind and glittering sunlight—the government is also deciding where, when and how the various metals, minerals and other physical materials required to accomplish all this electrification will be mined, refined, reformed and brought to market.

For example, the federal government recently approved a new mining operation in Quebec to produce Lithium needed for EV batteries. More recently, the prime minister flogged a new rare-earth element refinery complex in Saskatoon that will process ores mined in the Northwest Territories for sale to buyers in Norway. The government “invested” $5 million in this enterprise on behalf of the Canadian public.

With these “investments” and this technology-picking, Ottawa is gambling with taxpayer money, provincial economies and the broader Canadian economy. Because government has no secret knowledge of whether or not markets for these goods will appear. Yes, it appears that wind/solar power and electric vehicles are the wave of the future. They have been before, as recently as 2010—just before they flopped, and governments who had invested in them lost their taxpayer “investments.”

Government also has no secret knowledge of whether or not investing in these particular activities—mining and refining of materials for renewable energy and electrification—will actually produce equal or higher rates of return compared to alternate investments that private actors might make if government approvals were available. There’s no way of knowing. But governments also will bear no ill-consequence if they guess wrongly so they’re unlikely to be as diligent in reading the tea leaves of the future.

Finally, both of these efforts are long-term investments based on long-term predictions of the future of power generation, and mining is risky business. Metal and mineral commodities are just as prone to boom-bust cycles as fossil fuels, but because these resources are being developed to serve government priorities they’ll be subject to government’s inclination to cling to its “investments” regardless of market developments. And these investments will not be subject to the market discipline of investors choosing where and when to allocate their investments over time.

That makes it more important that markets—based on the perceived values of investors with skin in the game who will bear the consequences of failure or success—are setting the priorities and deciding what particular activities and technologies are the future.

When it comes to technology choosing, energy choosing, industry choosing, governments are lame. The history of such technology picking and choosing should not inspire confidence.

Government really ought to leave such choices to markets rather than try to steer a path they cannot predict and bear no responsibility upon failure. But of course, there’s no political power to be gained in such a course, so we’re unlikely to see governments choose it. Certainly not the current government, which is deeply enamored of the idea that more and more centralized state control is always better than less.