The massive subsidies offered to Northvolt, Volkswagen and Stellantis to convince them to build mega-battery factories in Quebec as well as Ontario could come with an unexpected bill of several billion dollars for taxpayers.
This warning appears in an analysis published Friday by the Parliamentary Budget Officer (PBO), which puts the total cost of help from levels of government to attract these multinationals at $43.6 billion. This is almost 6 billion more than government projections.
The taxpayer watchdog’s calculation, however, does not take into account the public debt charges incurred by governments to subsidize Northvolt, Volkswagen and Stellantis. The bill could thus rise by 6.6 billion by 2032-2033 if the subsidies widen government deficits.
This is the blind spot of this type of subsidy. It is clear that this will have an impact on the deficits and that all of this will need to be financed by additional borrowing. Perhaps less in Quebec with the horizon of returning to balance, but at the federal level, there is no target.
Yves Giroux, parliamentary budget director
The PBO report does not provide a breakdown between Quebec, Ontario and the federal government. Nevertheless, debt costs should be part of the equation when trying to calculate the recovery time, emphasizes Mr. Giroux.
“Including other costs (i.e. construction support, lost revenue and debt service) would further extend break-even points,” the PBO report notes.
A little longer
Mr. Giroux’s team also estimates that Quebec and Ottawa will have to wait two years longer than expected before recovering the total amount of production subsidies of 4.6 billion offered to Northvolt for its battery cell factory. By confirming the arrival of the Swedish company in Montérégie last September, the two levels of government dangled a horizon oscillating between five and nine years.
Why this gap between government calculations and PBO calculations? The director’s method takes into account the ramp-up in production which will have to take place when the Swedish start-up’s factory starts up, around 2026. For its part, the Federal Ministry of Innovation, Science and Economic Development tables on “full production” from the start of activities.
With Northvolt, governments have done their homework, believes Mr. Giroux.
“We were pleasantly surprised to see that our methodology was used for Northvolt,” he says. We do not consider this to be a major discrepancy [avec l’hypothèse gouvernementale]. This is certainly not in the same way as the federal government which announced that everything would be reimbursed in less than five years for Volkswagen and Stellantis while it is closer to 20 years. »
On the sidelines of a speech before the Council on International Relations of Montreal (CORIM), the Minister of Economy, Innovation and Energy did not take formal notice of the gap between his forecast and that of the DPB.
“Nine years or eleven years…I think nine is good,” Mr. Fitzgibbon said. The hypotheses are different. But it’s a project that will pay off in ten years. »
More than subsidies
In addition to subsidizing the production of the Northvolt complex – a decision to respond toInflation Reduction Act (IRA) of the Biden administration – the Legault and Trudeau governments are also jointly financing its construction to the tune of 2.74 billion through loans and equity investments.
Northvolt will be established on the former Canadian Industries Limited (CIL) explosives site, straddling the municipalities of McMasterville and Saint-Basile-le-Grand, in the southern suburbs of Montreal. The land covers an area of 170 hectares – approximately 130 football fields.
The first phase of the complex is expected to require nearly 200 megawatts of power, or about half that of an aluminum smelter. In principle, work should begin by the end of the year.
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- 62%
- Portion of public aid to Northvolt, Volkswagen and Stellantis assumed by Ottawa
Source: Parliamentary Budget Officer