The CEO of the company says, “We’re going to grow in the U.S. because that’s where it makes sense.
Last year, Kanin Energy, which is based in Calgary, could not have picked a better time to open an office in Texas. It was right around the time that the U.S. government unveiled its huge climate bill, which included tens of billions of dollars in new subsidies and other incentives for clean energy.
Kanin Energy builds places that use waste heat from factories with high temperatures to make electricity. With the new subsidies from the U.S., up to half of the cost of these projects is now covered.
The company’s CEO, Janice Tran, said from her office in Houston, “Not only are we getting a lot of traction in Houston, Texas, and the United States as a whole, but now there are all these incentives that have really boosted the economics of our projects.””It made even more sense to double down and grow here,” she said.
The Inflation Reduction Act (IRA) signed by U.S. President Joe Biden is causing many Canadian clean energy startups to move their focus and resources south of the border to take advantage of the subsidies and increase in business.
Experts say that this could lead to less investment in Canada, which could slow the development of clean energy and emission reduction projects north of the border and make it harder to reach national climate goals. There is also the risk of “brain drain,” which is the loss of smart people.
The Canadian government is starting to offer its own grants, but some business leaders say Ottawa’s help is too limited or not strong enough to compete with what the U.S. offers.
Tran’s company doesn’t qualify for the Canadian Investment Tax Credit, which can cover up to 30% of the cost of many green energy and clean tech projects, such as solar power, battery storage, and making hydrogen.
Kanin Energy is now hiring in the U.S., and if its plans for Canada don’t go anywhere, it will start moving staff to the south.
“We’re going to grow in the United States because that’s where it makes sense,” Tran said. “The economics just aren’t as good in Canada. So, we don’t have any projects that are nearing completion right now. Everything in Canada is in the early stages.”
WATCH | Investment tax credit in Canada vs. IRA in the U.S.:
Heading sout
Kevin Krausert, CEO of Avatar Innovations, an energy innovation and investment firm, said that since the IRA was passed last year, dozens of multi-billion dollar energy transition projects have been approved.
Krausert said that companies are leaving Canada right now. “I can’t think of a cool energy technology startup with net-zero goals that isn’t setting up shop in the U.S. right now,” he said.
He said that the federal government needs to offer incentives like the IRA to stop investment dollars from leaving Canada so quickly.
“If you’re an investor and you want to put a dollar into technologies that reduce emissions, are you going to put that dollar in Canada or in the U.S., where you can get a much better return right now?” he asked.
This month, the government started talking to people about its plan for an investment tax credit. Officials say that the tax credit is just one part of the government’s plan to get people to invest in clean energy. A spokesperson for Ottawa said that since 2015, the government has spent a total of $120 billion on building a clean energy economy.
In an emailed statement, a finance department spokesperson said, “We will keep working hard to build Canada’s clean economy for the 21st century and make sure that Canadians have more good-paying middle-class jobs, more vibrant communities, and more prosperity for generations to come.”
Even though it has been criticized, TD Economics said in an April report that the federal government’s financial support for the transition to clean energy is “yielding positive results and has put the U.S. in a competitive position.”
The report did warn that the country’s competitiveness in the years to come will depend on continued investment and other factors like improving skills development and speeding up project assessments.
Last week, Canada’s Finance Minister Chrystia Freeland used the deal with Volkswagen to build a new battery plant in Ontario as an example of how Canada can compete with U.S. subsidies.
“We just couldn’t and won’t live in a world where investment leaves Canada and goes south of the border.So, when the IRA was created, we knew we had to level the playing field and make sure Canada could compete,” she told reporters.
Even with the U.S. subsidies, some analysts south of the border and here in Canada say that governments shouldn’t pick winners and losers in business or engage in a financial arms race to attract investment with tax dollars.
Historic climate spendin
The IRA will give subsidies worth $370 billion US dollars, but its real value will come from how much investment it can bring in.
Goldman Sachs Research says that the bill creates the most helpful regulatory environment in the history of clean technology. They say that the impact of the IRA could lead to $11 trillion US being spent on infrastructure by 2050.
Because of the subsidies, Kanata Clean Power is paying less attention to Canada and more attention to the U.S. The company wants to build a plant in Wyoming that will use natural gas to make ammonia for the fertilizer business.
The building would be a part of a much bigger system that would take emissions from factories and store them underground. Kanata is part of a group of companies working on the project, which is being backed by the U.S. government with money.
The U.S. climate bill is a “incredible financial incentive,” said company president Robert Delamar from his office in Vancouver.
“We’re talking about hundreds of millions of dollars each year for a dozen years, which is how long the subsidy will last. So, about two-thirds of the cost of building an ammonia plant comes from that,” he said.
The company wants to build a similar ammonia plant in Alberta, but Delamar said that Canada’s investment tax credit is more complicated because different pieces of equipment would get different levels of subsidies.
“Because of the IRA,” he said, “it’s just cheaper to build these facilities in the United States.”
The Frog Lake First Nation, which is about 200 km east of Edmonton, has the most shares in Kanata.
Canada isn’t the only country feeling pressure to compete with the IRA. Many government leaders in Europe and other parts of the world were caught off guard by the climate bill and now have to decide if they want to offer strong subsidies of their own.