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A new tariff on “imports of certain solar products and critical minerals from China”, buried deep in this week’s Fall Economic Statement, could undo the benefits of the federal government’s clean electricity tax credit, The Energy Mix has learned.
On a day dominated by the bombshell resignation of Finance Minister Chrystia Freeland and news of a C$61.9-billion federal deficit, news of the renewable energy tariff was mostly lost in more immediate headlines. But in a section devoted to “protecting economic security in a changing world”, the Fall Economic Statement (FES) talks about “friendshoring” Canadian supply chains and introducing new tariffs to “combat unfair Chinese trade practices.”
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The government “is protecting Canadian jobs and industry against countries that do not play by the rules they have agreed to,” the FES declares.
The statement reiterates Ottawa’s moves earlier this fall to impose a 100% tariff on all Chinese electric vehicles and a 25% surcharge on imports of Chinese steel and aluminum products. Now, Canada will move early in the new year to “impose tariffs on semiconductors, permanent magnets, and natural graphite from China beginning in 2026,” the FES says. “These measures will prevent Chinese non-market trade practices from causing unfair and harmful market distortions in Canada and throughout the North American continent.”
Undercutting Canada’s Economic Goals
Fernando Melo, federal director of policy and government affairs at the Canadian Renewable Energy Association (CanREA), said that provision could counterbalance the expected benefits of the Clean Electricity Investment Tax Credit that Freeland first introduced in her 2023 budget, and will now be legislated via the FES.
“It is going to be very interested in terms of how it will impact us,” Melo said in an interview Monday evening. Full information on the new tariff won’t be published until the new year. But pending those details, the additional cost attached to goods that have no domestic production in Canada or the United States could “offset any of those positive impacts” from the tax credits.
The resulting economic damage to renewable electricity, Melo warned, could undercut the country’s economic goals and climate commitments. “There’s a lot of momentum” in the Canadian industry, and with provinces looking for more than 10,000 megawatts of new supply, “we’re going to need more electricity regardless,” he said.
“Wind and solar and battery storage can be deployed and running in five years,” making them “the only technology suite that can be built in the time frame we need,” he added. But some of the provincial power procurements under way or planned as of October, 2024 could fail if a new tariff drives up the cost of renewable energy projects.
The federal finance department had not yet commented as this story went to virtual press. We’ll update when we hear back from them.
New Provisions Help Drive Investment
CanREA’s published response to the economic statement praised the government for moving forward with both the clean electricity and clean energy tax credits, opening the door for pension funds to invest more in clean energy companies and projects, and enabling renewable energy companies to work more closely with municipalities.
“Canadian pension funds have already been active players in Canada’s renewable energy and energy storage sector for decades, but the FES, when passed, will allow them to invest more in these affordable, reliable, clean, flexible, and scalable solutions for Canada’s growing energy needs,” the release states.
As well, “CanREA members have a long history of partnering with municipalities to deliver on renewable energy and energy storage projects,” it continues. Provisions in the FES “will allow these partnerships to deepen and for more capital to flow into municipally-owned projects and electricity distribution systems.”
Whether or not the new tariff puts those opportunities out of reach will depend on how it’s designed, Melo said. “We do not oppose any tariffs,” he stressed. But “solar cells and the solar industry in itself are very dependent upon China at this time.”
A Phased Approach
The solution CanREA is pitching is a phased approach that postpones any new tariffs to 2028 at the earliest, allowing demand for renewable energy and storage to build while domestic manufacturing ramps up. In a letter to the House Committee on International Trade in November, the association warned that Canadian tax credits are already dwarfed by subsidies in other countries, prompting Canadian solar companies like Heliene and Canadian Solar to open new manufacturing plants in the U.S.
Over the medium and long term, the letter said, delivering on the country’s climate commitments will depend on “significantly more emissions-free electricity”, and “clean power and electricity availability are core reasons why investors look to deploy large industrial energy consumers such as vehicle manufacturing plants and data centres in Canada.”
The CanREA letter proposed a series of tariffs that would begin at 25% in 2028, or when domestic production of a given clean technology product begins at a commercial level, then shift to:
• 35% when domestic output hits 35% of “nameplate” production capacity and meets at least 15% of domestic demand;
• 50% when output reaches 50% of capacity and 25% of demand;
• 100% when domestic manufacturing is operating at full capacity and meets 50% of domestic demand.
But based on Finance Canada proposals to date, “the tariffs or surcharges proposed by FIN will put Canada’s broader net-zero goals, particularly the accelerated deployment of renewable energy generation, storage, and transmission, in jeopardy,” Melo wrote last month. “Without access to mature supply chains with quantity and quality of components from proven manufacturers, Canada’s electricity sector cannot expand quickly enough to meet the needs of Canada’s growing economy and the climate crisis. Hobbling our ability to rise to this challenge with tariffs would be a mistake.”
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