August 5, 2022

Adding ‘North’ to American energy strategy should be a diplomatic priority

Recently, the United States senate announced a surprise agreement on a package of climate and environmental actions as part of a massive spending bill. One huge reversal in this bill is that is does away with “made in America” requirements for electric vehicles to receive $7,500 in incentive tax credits, and instead switches that requirement to “assembled in North America.”  The is great news for Canada; it appears Joe Manchin did us a favour, and the advocacy of our officials and institutions worked. This positive will be particularly felt in Canada’s vehicle manufacturing communities in Ontario. Now it’s time to take this same thinking across the country to the most important areas of Canada-U.S. trade.

This is more significant than just a few words about electric vehicles. This is a potential watershed moment for what should be Canada’s overarching economic diplomatic goal with the United States — adding the word “North” everywhere we can.

By this I mean U.S. policymakers should be encouraged to widen their lens slightly from “America” to “North America.” North American can be applicable to energy strategy, critical minerals supply, food security, climate action — the list goes on and on. While this has implications for Mexico, and also the other countries of North America (there are 23), we’ll focus on the Canadian effects.

Every ounce of business done with Canada in these categories enhances American competitiveness and security. The trade makes America wealthier (yes, all trade, even imbalanced trade, makes both countries wealthier); it strengthens their closest ally; and, it often depowers potential bad actors.

Now that preferred treatment has been secured for Canadian electric vehicles, it’s time we set our sights on the bigger prize — North American energy and environment strategy. We need a long-term, continent-wide, co-ordinated policy approach to energy and the environment.

Moving Canada’s public policy and the U.S. in relative co-ordination also has multiplying benefits. As the overwhelming majority of Canadian exports go to the U.S., maintaining our relative competitiveness is key. This is most true for our No. 1 export to the U.S. — energy. Last year, Canada exported a net of more than $102 billon in energy to the United States. Not only was that our top netting export to the Americans, it is 3.5 times greater than the No. 2 item on the list — mining.

Co-ordinating policy with America also supports climate ambition. When we move Canada and U.S. climate policy in co-ordination, it maintains competitiveness of the industries in both countries and is less likely to cause distortions and leakage. It could even advance the “Climate Club” concept of Nobel Prize winning economist William Nordhaus.

This co-ordination doesn’t just matter for today; it will only be more important through our energy evolution. Take one example of lithium for batteries. The U.S. doesn’t have nearly enough lithium to make the batteries it will need to reach even its electric vehicle ambitions. Canada, and specifically Alberta, has one of the world’s largest lithium resources. Canada and the U.S. together can be an unmatched powerhouse in batteries and future energy technologies, without being beholden to other countries for critical supply.

To realize this, the diplomatic and policy objective should be to view Canada and America as a single strategic unit, to move public policy in a co-ordinated fashion between both countries, and to treat each other’s products preferentially.

There is significant historical precedent for this. In many areas of military procurement Canada and the United States “treat as domestic” each other’s exports. If Canada can be treated the same as the U.S. in the most sensitive possible case — war and peace — then surely, we can also do so in areas like bitumen and batteries.

The war in Ukraine has necessitated a rethink in our strategy on security, energy and climate to prioritize several strategic outcomes at the same time. This means that while a more integrated policy and trade relationship between the U.S. and Canada was a good idea before, it is a great idea, even a necessity, now.

As appeared in the Calgary Herald

Scott Crockatt is Vice President of Communications & External Relations of the Business Council of Alberta.

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