Subscribe
Share
Share
Embed
Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.
Welcome to episode 344 of the Energy Talks podcast. I'm energy journalist, Marcum Hislop. Yesterday, August 26th, the government of Canada followed the Americans and Europeans by imposing harsh tariffs on Chinese electric vehicles. The 100% surtax will begin on October 1st. A 25% surtax on Chinese steel and aluminum products takes effect on October 15th, but Ottawa isn't done.
Markham:A further 30 day consultation will occur about imports of Chinese batteries and battery parts, semiconductors, solar products, and critical minerals. Is this the right move by Canada? One thing that seems clear to me is that the primary story is not climate change versus protecting legacy automakers, which is how other media are framing it. Based on previous interviews, the primary driver of Western government moves against China's clean energy exports are geopolitics, national security, the prospect of future military conflict with China and its allies, and acceptance of much greater government involvement in the economy. But that still leaves the economic consequences of Canada's decision.
Markham:To discuss these, I'm joined by economist doctor Chris Battai. So welcome to Energy Talks, Chris. Good to have you back.
Chris:Good to chat with you, Markham. Nice to be here again.
Markham:Well, this is the last time we talked. US climate envoy John Podesta had made an announcement, I think this was back in April, that the US was going to was striking a task force, to look at, punishing those countries with high embedded carbon. And you were in the room, during the press conference because it was it took place at a conference and it was a bit unexpected. He was supposed to do a fireside chat and then he went to the podium and made the announcement and we talked about that. And the the world is becoming a whole lot more complex.
Markham:That was part of the lesson about the takeaway from our previous interview, and it seems like it got just a bit more complex with yesterday's announcement. So I'm wondering what's kind give me your take on the, on, prime minister Justin Trudeau's announcement yesterday.
Chris:I'm not surprised. Canada is very much part of the North American North American economy. A lot of our ties go north south from Ontario to the various Midwest states, Quebec to New York, the rest of Canada with, you know, BC and Alberta with Texas and BC with the West Coast states. We can't get too far out of line with the Americans on economic policy just because, you know, 80% of our economy is going up, you know, we export 80% of our economy and then import a whole lot more. How we go about this issue, though, those are fairly blunt instruments, just putting on a 100 a 100 percent EV tax on top of 6% that was there before, and 25% in steel and aluminum.
Chris:Now the 25% on steel and aluminum is a different issue than, like, they share the they share the characteristic that Chinese producers have become dominant. They're the low cost producers, but they're very different issues. Right? So with steel with steel and aluminum, you do have, you know, we do have an issue where they are much, much higher GHG producers per unit per ton than we are. Right?
Chris:And there is a whole climate imperative there that you could talk about North American producers are much more much more carbon and less less carbon intensive. And we don't we don't value carbon in trade and what have you. So, you know, I I think we need to move to something like a border carbon tariff or a minimums intensity standard, something along those lines so that we're building our bridges and what have you with, you know, steel that it's at least at a basic carbon intensity and not extremely highly intense. The whole EV thing is a bit it's a bit of a different story. Right?
Chris:So China is very carefully laid out industrial policy to become the dominant producer of batteries, solar panels, electric vehicles, what have you. They've used a whole system of, you know, demand and supply subsidies within China. In order to do this, it's it's it's, you know, it's industrial policy. It's just how they go about it. They've now created a dominant position in many of these industries where they're we just can't compete with them.
Chris:They're they've jumped forward technologically, and they're they cost less than than it costs less to do in North America. Now just slapping a 100% tax on those, is that the most appropriate way to deal with that lack of competitiveness? I don't know. Right? So the Europeans have done something different where each company that input that brings electric vehicles into Europe has a has a graduated scale of subsidies depending on how much subsidies they get.
Chris:And if you produce in Europe, you don't there's no tariff problem. So there's a big incentive to bring the production of those electric vehicles to Europe, you know, where it employs European workers, what have you, and then then you don't have to pay a tariff. And we haven't thought in that level of sophistication.
Markham:Yeah. I think that's a really good point. And, I I think in Canada, there there's a a lack of understanding of what the Chinese are actually up to. I mean, it's very clear if you re there's a a a news agency called Xinhua, x and I for for any Chinese speakers, I apologize for my my terrible pronunciation. X I n h u a.
Markham:You can Google it. It's essentially it's state owned, and when it speaks, it speaks for the government. And it and it writes these long articles all the time of explaining EV policy or power sector policy or whatever. It's a really interesting insight. And on this particular issue around EVs and overcapacity because what the Chinese have done is they've said, okay.
Markham:We're going to stimulate our our electric, our new energy vehicle industry. That's what we call them. And it includes both battery electric, plug in hybrids, hybrids, all of that sort of stuff. And we're going to become dominant. We're going to we're going to be the the world's auto manufacturer just like we were of cheap plastic junk 20, 30 years ago.
Markham:And they've achieved that. They they've got all enough almost enough capacity now to do that. They do on batteries, and they do in other areas. And America woke up 4 years ago and said, holy crap. If we're that dependent on China for industry, we can't respond in the event of a military conflict.
Markham:We can't our we're very vulnerable. And so we see now EVs as a strategic national security industry. We have to protect it, And I'm okay with that. I I think that's actually smart, and I've had Flavio Volpe from the Canadian, Auto Parts Manufacturers Association on here making that argument. But like you said, it's a very blunt instrument in a very sophisticated conflict with now the 2nd world's biggest economy.
Markham:And that you know, are we just not very good at this in Canada?
Chris:No. I think it's not that we're not good at it. It's just that we took our eye off the ball for about 20 years. The the Americans invented a lot of the basic technology here in terms of bit of solar batteries and what have you. And you know, and they were very far advanced by the 1970s.
Chris:They're way ahead of everybody else. And then they just let it go. They, you know, they let it they built up a lot of the companies, but they didn't build up the demand for them. So a lot of the companies collapsed, or they were bought up by Chinese manufacturers or what have you. And they kind of just let let their edge slip.
Chris:And now Canada, China has built up, and they've gone beyond that technology. Now the whole technology frontier has gone out. You know, CATL is now the GM of the 19 forties fifties. Like, it's far out ahead of everybody else. And it but it's it's so large, it can't be contained in China anymore.
Chris:It can't be the world's leading battery manufacturer just meeting Chinese demand. It needs to become global. It needs to move branch plants everywhere and serve demand everywhere. And I I we have to reverse our thinking a little bit, I think, here and think, you know, these Chinese companies have now become global super technology superstars and production superstars. And we need we need to bring them to us, but we need to be conscious of the security concerns.
Chris:It's like you wanna operate and build an EV manufacturing plant in North America, you have to open the source code. We need to be able to inspect it. We need to be able to go and batteries really don't have a lot of code. Right? Like, you know, the cars do, but the batteries don't.
Chris:You should be able to build a batter you know, safe battery in North America with CATL technology, and then the technology transfers. Right? Suddenly, the partner in North America then is at CATL's technology frontier and moving forward. And stop seeing this as a threat and more of an opportunity.
Markham:But what you just said is, especially for North Americans of a certain age, a radical departure for in our thinking. We're doing we usually think of China trying to steal our technology, not that China is now the technology leader, and we have to bring China in and under strict conditions, we need to import their technology because we're inferior. That's a big leap for a lot of people.
Chris:It's it's do that or or or fall into obsolescence. Become Australia. Don't make any cars. Just import the cheapest boss the best cheapest and best cars you can and ship it and do something else.
Markham:But but aren't we already Australia? I mean, you know, what does Australia do? It ships out minerals and it ships out coal and it ships out gas.
Chris:That's that's where I might disagree with a lot of folks. There's this conception of Canada is this sort of pure water, you know, pure of of wood and drawer of water. And that's how we do most of our most of our economy is not that. It's mainly services IT. It is still manufacturing and what have you.
Chris:It's like we've we've let this whole issue of oil, gas and minerals dominate the discussion in Canada to the point we're ignoring the other things that were just as good as everybody else at. Like, if you look at the productivity issues in Canada, they're in the oil and gas sector. They're not they're not in the manufacturing and services.
Markham:Okay. So our and now look. I'm the I'm one who has made the argument about the heroes of wood drawers of water, and the reason is is because we dig up oil, gas, wood, grain, other kinds of, you know, commodities, and we ship them out basically raw, unprocessed. And that's where that argument comes from. Now there's some you know, it's not a 100% true because we have the 2nd largest petrochemicals cluster in in in North of Edmonton.
Markham:The only one that's bigger is the one down in Louisiana, Texas, and the Gulf Coast. So fair enough. But, you know, most of our oil goes unprocessed. We don't even partially upgrade. Bitumen for crying out loud.
Markham:We send it off to the US. We're now shipping. We used to have, a lot of in BC, we used to process a lot of wood, in in one way or form or another. Now we're sending raw logs to China. So there's I think there's still you know, Harold Adam Innis's, staples thesis still holds in some respects, but you would argue that layered on top of that is this very sophisticated modern economy that is into IT and technology and and so on.
Markham:Is that what is that a reasonable
Chris:If you look at Canada's g p g GDP, natural resources, all of it is less than 10% of GDP. All of it. Right? Most of it is other stuff, and it's not it's not multipliers of the natural resources. It's actually, you know, technology.
Chris:It's it's IT. It's also it's banking. It's global banking. It's global finance. It's you know, it we've become fixated on this oil, gas, and minerals thing, but it's a very small part of who we are as an economy.
Markham:Okay. Well, that is grist for another conversation because I'm one of the guys involved in that conversation, around oil and gas. And, so we'll leave that for now. But let's take, let's assume that you're correct, and I have no of course, you are. You're correct.
Markham:You know the data. What am I saying? The point I wanna make here is that because you're correct, that leads us to certain new questions, I think, about the the tariffs. So if we're into more sophisticated electronic products, into IT, into all of these other areas, then ought we not to have more sophisticated industrial policies?
Chris:Yes. No. Absolutely. Like, if I were Ontario and Quebec, I would be ignoring this whole ridiculous national conversation we're having about natural resources, And I would be getting into direct con conversation with BYD and CATL, you know, and forcing, you know, Ford and GM and what have you to get into partnerships and, you know, providing all the tax breaks you need, what have you to bring for the very cutting edge of EV technology to Ontario and Quebec, you know, and maintaining that industrial base that we've built up over a century and a half.
Markham:Now I actually have a little contribution to make here because I had an interview with an expert, who will go unnamed because they, this was off off camera. But I'll tell you the gist of it, which is this individual was contracted to provide, services to help develop Canadian industrial clean energy industrial policy because, essentially, the department of finance had forgotten how to do it in 40 years. And here's the context. When I was a kid growing up in the sixties seventies, it was the government's role a fairly extensive role, in the economy was taken for granted. You know, it takes I think it's kind of the legacy of the 2nd World War and the buildup of, industrial power.
Markham:And, you know, the industrial policy at that time was about building national champions like Nortel in Canada. And then along came Milton Friedman and and Ronald Reagan and Maggie Thatcher and, eventually, Brian Mulroney in in, Canada. And all of that went away, and we we started, you know, worrying about government intervention being government in the was a bad thing, was all about letting you know, regulating markets, making markets work better. And the one of the big shifts in from the beginning of COVID is this recognition now that industrial policy is needed in the west. I I think the Americans have made it very clear that they're they're all over industrial policy now, and that means government is now back in the business of of economics.
Markham:It it's now is is its role is growing once again. The pendulum has swung away from the so called, quote, unquote, neoliberalism into this more interventionist mode. And so this fellow I interviewed said, we've forgotten how to do it. The federal government in it has literally forgotten how to do industrial policy. All those folks who would use to do it in the sixties seventies are gone.
Markham:They're retired. And we and nobody came along. We don't have anybody. Now here's his point. In the US, there are scholars, there are academics and consultants and others who have were at the leading edge of the new industrial policy.
Markham:There are very few of those in Canada. You're an economic modeler. You're an economist. What how would you agree with that?
Chris:I think we have the latent capacity to do it. We have a very well trained federal federal, you know, bureaucratic service. Right? We just don't let them kind of do their jobs to a certain extent. We get a lot of policy direction that then takes all these well trained people and kind of makes them run-in circles a little bit.
Chris:I think we have the capacity to do it. I think we have the capacity to learn how to do it relearn how to do it very rapidly. I would add to your narrative there that Canada industrialized in 3 big phases. The first big phase was, you know, this this protectionist era where we forced Western Canada to buy products from Ontario and Quebec. And we built up, you know, farming mechanization and what have you.
Chris:But the big bursts in Canadian industrialization were World War World War 1 and 2 and the aftermath of that. And that's when we went right to the front of the global pack in terms of making vehicles, aircraft, electronics, the works because we were safe place to build all this stuff for the British and part and partly for the Americans. We have the capacity to do this, like we have the capacity to get back on the front edge of, you know, electric vehicles, renewables, nuclear, you know, nuclear is something we could reactivate crap relatively rapidly. It's a willingness to do so and a willingness not to kind of it's to chart our own course and not just let firms decide it for us. And there is always this temptation to lean back on natural resource rents, right?
Chris:Because you you you use something out of the ground, you send me process it, and you sell it. But the problem is that's drawing down a bank of something. And it's highly typically highly polluting. It's got all. And I'm not saying it doesn't have a role in Canada's economy, it very much has a role.
Chris:But you we have to put it in context of everything else we're trying to do, maintaining our long term employment and productivity, and getting back up on that sort of income per capita trajectory that the Americans are on. We can do that. But we've just lost our way a little bit.
Markham:I I would argue, I would agree with that a lot. And, one of the, themes, one of the narratives, that I've been pound talking about for for years now is the need to have a different conversation around energy and industry and around the energy transition. Because if this is a technology led energy transition, then we were very well positioned, in the, the 20th century energy, which is coal, oil, and and natural gas. Canada is the 4th largest oil producer in the world and the 5th largest producer of natural gas. We are an energy superpower from that point of view.
Markham:But if this energy transition is the first one that's led by technology manufactured in a factory, then we are not well prepared. And we have to think about all of on the demand on the supply side, where we have to think about how we generate electricity because that's, you know, how I think I did the first interview with you about the modeling around electricity demand in the energy transition, 2 to 3 times more by 2050 for developed economies, 3 to 5 times for for emerging economies. That's what, you know, you were talking about 4 or 5 years ago. And now we're beginning to grapple with those issues. How do we expand all of our power grids?
Markham:How do we expand our supply? We don't make any of that stuff. It's not like we're building hydro dams here. We don't make solar panels. We don't make wind turbines.
Chris:Mhmm.
Markham:But we could, or we could make parts of them, or we could I mean, there's we could we could be a big part of, battery supply chains, not just the critical minerals, but the refining. Those aren't the conversations we're having. The conversations we're having is are are all about, you know, oh my god. You know, modern industrial policies and attack on Alberta, an attack on oil and gas, an attack on Saskatchewan, and we have to fend them off. And we're having a 20th century conversation in in a 21st century environment.
Markham:And I I I think that's we literally have to go back to the basics and have the right conversation.
Chris:Yeah. And we have to realize we're doing it within a federation. Right? The the different provinces have different powers, and they have different priorities. Right?
Chris:So, you know, BC's got its own interest. Alberta's got Alberta and Saskatchewan have their own interest. Ontario have different interests in Quebec. And the Maritimes have different interests. And we have to kind of realize, we all have relatively different demands that we're trying to put on the system or thrusts we want to put forward, we have to realize, like, there's this whole question of getting oil out of ink out of the West Coast, right, or oil and gas and other and other products.
Chris:Right? Are you are we doing the right like, the TMX was full instantly, and they're and they've jacked up product production yet again, which means that you're now seeing a hard SD discount emerge yet again. Right? Because they keep jacking up production faster than they can than we can increase production out. This is that a is that a maybe that's just the model.
Chris:Right? But it does mean if we're gonna do that, we're making those choices and not building up our transmission system or where we do both, or, you know, building a battery production and minerals and what have you and all the and all the IT services, the secure IT cert. Now what we've never what no one has tackled is all this stuff runs on computers. Right? We're very good at at elect computing systems and robust computing systems.
Chris:We've been known for that since since the 19 fifties. But no, no one's activating that idea. Like, this is what Nortel was made out of. It was probably was one of the best telecoms companies and comp companies in the world. And we haven't built on built on that reputation for secure, you know, electronic engineering or what have you.
Chris:So
Markham:So, essentially, we're leaving money on the table? Yes. And and we're hanging on to, I mean, I talk about this in in my energy transition presentation, which is that, you know, we have a lot of incumbents in Canada. We're a small economy, and so we have big oil companies. We have big public you big electric utilities, most of which are owned, by government.
Markham:And in the midst of disruptive change, they have three choices. They can either build a new, business model, reengineer their existing business model, or they can double down on the status quo. And to a large extent, in Canada, we have doubled down on the status quo. That's the conversation we're having is how do we protect what we have, not about how do we build for the future. And so if if all of that is true, Chris, then does that in part explain why we're using such blunt instruments, policy instruments, like, you know, 100% tariffs instead of something more sophisticated is we just can't we can't do the politics around policy anymore.
Markham:We can't get the players on side. We haven't got the we're not letting the the intellectual horsepower that we do have on policy industrial policy. We're not letting those folks loose to do good work. Is is that the problem we're having here?
Chris:This is gonna have to be my last comment. But the by copying the Americans' approach, we're implicitly adopting their strategy. Right? And by implicitly doing that, we're giving up some of our agencies, like, to the extent our needs are different and our priorities are different from the Americans. We're giving up on on making up decisions for ourselves to meet those needs by simply adopting.
Chris:Now there there there is a value in copying what the Americans do, because the Americans see us as working in concert with them is when then we'd be seen as friends and not as something else. Right? And that allows and that allows more reciprocal trade with the tariffs and what have you, depending on what administration we get. But we have to be very conscious that's what we're doing. We're adopting their policy and their priorities.
Markham:Okay. I appreciate that, and I don't think I I think that we have done that. I mean, the the the announcement Monday came on the heels of national security adviser Jake Sullivan's visit to, the you know, with the prime minister and the cabinet. Next day, we get tariffs just like the Americans. What a what a surprise.
Markham:It's not it doesn't it didn't look like it was crafted in Canada policy. It was like, okay. We'll give in. We we have to get we have to be on team America, for this one, so here you go. You you get what you want.
Markham:And, you know, they've there's also 30 day consultations on a whole range of other, solar panels and battery materials and so on. So you can expect the tariffs are coming on those as well. We'll probably follow the American example again. Chris, always a pleasure to talk to you, man. And we will have you back soon because this is a fast moving story, and I I think we need to bring other perspectives than simply the old, okay, is this good for climate change or, you know, are we protected from the port of GEA?
Markham:And so we need to have a different
Chris:We're we're in a different world now. It's not just free markets and climate policy. It's something else.
Markham:Yes. And and we need we need to start if we're gonna have a new conversation, we're gonna start it on energy talks. Thank you very much, sir.
Chris:Excellent. Pleasure. Looking forward to next time.