Biden’s big, bold green spend sends shockwaves around the world, including Canada

US President Joe Biden’s climate bill is only six months old, but its impact on the energy industry around the world continues to grow as pressure mounts on countries to provide similar subsidies for green energy or risk losing valuable investment dollars.

The Inflation Reduction Act (IRA) is a multi-billion dollar program that pledges government dollars to develop low-carbon energy. The policy is aimed at improving the country’s manufacturing sector and aiming for China’s dominant position in the clean energy technology supply chain.

The legislation is considered the most ambitious climate bill ever passed in the US.

This is a big wake-up call for world leaders, said Marcel van Poecke, head of Carlyle International Energy Partners, a global investment firm based in Washington, DC.

“It’s going to be very powerful, and in Europe, people are surprised, but I think it’s necessary,” he said while on stage at CERAWeek, an energy conference in Houston.

There are many aspects of the IRA, such as tax incentives aimed at increasing the production of wind turbines, solar panels, and electric vehicle batteries. There are also subsidies to promote the development of hydrogen, biofuels and carbon capture and storage facilities. Financial support is estimated at nearly $60 billion US ($82.5 billion Cdn) over the next 10 years.

“The IRA will have the effect of attracting capital back to the US for the reasons and results that are needed,” Tengku Muhammad Taufik, CEO of Petronas, told the CERAWeek audience.

The IRA is a policy that is easy to understand and provides clear incentives for industry, compared to the more complex system in Europe, said Sanjiv Lamba, chief executive of Linde, the European industrial gas company.

“There’s no denying that suddenly people have woken up with the IRA and said ‘Hey, we can do more,'” said Lamba, who doesn’t think the EU will be able to match the level of subsidies.

Carrot vs

Canada has subsidized the promotion of low-carbon energy sources, although the main policy to promote decarbonisation of the energy sector is the carbon tax. Putting a price on pollution is described by some experts as using a stick to motivate industry, while the IRA is like dangling a carrot.

“You can really feel that the rest of the world is looking at the Inflation Reduction Act and saying, ‘How are we going to get involved?’ and will help change the pace and accelerate the transition,” said Lance Uggla, chief executive of BeyondNetZero, a climate-focused private equity fund. Uggla is a former bank executive with TD and CIBC.

In Canada, oilsands companies are pushing the federal government to increase the level of financial support for building and operating carbon capture and storage facilities. Ottawa has introduced tax credits, although the government admits the policy is not as strong as the IRA.

Oilsands executives have formed a group called Pathways to Net Zero to work together to reduce emissions. It also calls for provincial government subsidies in Alberta.

Cenovus Energy CEO Alex Pourbaix spoke with CBC News in Houston about the subsidy for the proposed carbon capture project in northern Alberta, saying it will require support from both levels of government to move ahead.

“People just need to think about what failure means,” he said. “Do we need a little help in the order of what we see in the US with the IRA, and I will be very, very surprised if people do not see the value.”

WATCH | Why oilsands companies want more federal dollars to decarbonize:

Canadian response

The next federal budget may include committing more cash to reducing greenhouse gas emissions and promoting low-carbon energy sources.

In October, the government signaled further action to increase subsidies as part of its fall economic statement, which said, “Canada must do more to secure its competitive advantage and continue to create opportunities for Canadian workers. This challenge has become even more pressing.” press with the new United States passage of the Inflation Reduction Act.”

Oilpatch hits record profits in 2022 as commodity prices rise after Russia’s invasion of Ukraine. The industry has faced criticism for not using these profits to respond quickly to climate change.

Some industry executives in the US have questioned the effectiveness of the IRA because of the permit process in the country, which they say takes too long. Climate legislation has a lot of potential, but it could stumble without improvements to streamline the permitting system for energy projects.

It is “procedurally impossible” for the country to transition to a cleaner and more sustainable form of energy, said the chief executive of ConocoPhillips Ryan Lance, although the IRA makes this type of project more economical.