Federal government continues its energy policy follies

In case you haven’t heard, the Trudeau government is heaving tax credits and other supports toward every “clean energy” project on the horizon including clean electricity, hydrogen, vehicles, manufacturing, battery production, grid “modernization,” and the list goes on.

According to the Globe and Mail, the Trudeau government is simply trying to keep up with the Joneses (or rather, the Bidens). “The clean energy incentives are aimed at responding to the U.S. Inflation Reduction Act, which was approved last year and is estimated to be worth hundreds of billions of dollars over the next 10 years.” This is confirmed in the latest federal budget, which says “the recent passage of United States' Inflation Reduction Act (IRA) poses a major challenge to our ability to compete in the industries that will drive Canada's clean economy.”

But consider this. According to the budget, the government’s spending spree includes “investment tax credits to provide foundational support for clean technology manufacturing, clean hydrogen, zero-emission technologies, and carbon capture and storage”—specifically, the “proposed Clean Hydrogen Investment Tax Credit is expected to cost $5.6 billion over five years, beginning in 2023-24. Between 2028-29 and 2034-35, the Clean Hydrogen Investment Tax Credit is expected to cost an additional $12.1 billion.”

Yet “clean hydrogen” and “carbon capture and storage” are more theoretical than practical at this point, and are of questionable environmental benefit.

The federal budget also says Ottawa “will engage with the biofuels industry to explore opportunities to promote its growth in Canada.” This despite the fact that previous investments in biofuels by governments around the world have turned out to be ragingly destructive of the environment. As a recent study in the prestigious Proceedings of the National Academies of Sciences observes, U.S. support of ethanol in its renewable fuel standards led to a) significantly higher prices for corn, wheat, soybeans and other food crops, b) expansion of croplands and increased fertilizer use and environmental leakage (which Ottawa is trying to reduce), c) greenhouse gas (GHG) emissions from ethanol that were 24 per cent higher than gasoline and d) a 4.7 per cent increase in soil erosion.

And a review published in the Proceedings of the Royal Society suggests that if biofuel use/production result in land use changes, modest GHG emission reductions are possible, but insufficient for the EU’s GHG-reduction efforts. Furthermore, “several studies show that reductions in GHG emissions from biofuels are achieved at the expense of other impacts, such as acidification, eutrophication, water footprint and biodiversity loss.”

Clearly, the devil is in the details, and the means that the Trudeau government is choosing to keep pace with Washington are environmentally dubious in many ways.

So what to do? At the very least, all governments should refrain from picking winning and losing technologies in market economies, to avoid engendering perverse outcomes that make the problems they claim to address even worse. This would be better. However, if the past is any predictor of the near future, it’s highly unlikely.