Question Period Note: SPECIAL CONTRIBUTION AGREEMENTS WITH BATTERY MANUFACTURERS

Why is the Government of Canada providing significant production incentives to battery manufacturers through Special Contribution Agreements?

• The Government of Canada is committed to the automotive industry’s transition to electrification, while creating and maintaining jobs, promoting economic growth and enabling a shift towards a net-zero economy.

• To ensure the success of its automotive industry and attract investments, Canada has stepped up to support the companies being courted on the global stage.

• This includes support through Special Contribution Agreements that match what companies would have received under the U.S. Inflation Reduction Act, and will depend on production at, and sales from, the plants located in Canada.

• As production increases, so will both the support and the economic benefits to Canada. These investments are expected to generate thousands of jobs and long-term growth in the automotive industry.

In light of the global transition to ZEVs, Canada has stepped up to compete for key investments to produce EVs, as well as batteries and battery components. The Government of Canada has attracted EV and battery manufacturing investments through a number of initiatives, including the Strategic Innovation Fund, Special Contribution Agreements tied to production, and the Clean Technology Manufacturing and EV Supply Chain investment tax credits.

Jurisdictions across North America are competing for ZEV and automotive supply chain investments. The passage of the U.S. IRA and the use of its Advanced Manufacturing Tax Credit to support U.S.-based battery projects posed a challenge to Canada’s ability to compete for North American battery manufacturing investments, until Canada responded with support via Special Contribution Agreements. Since 2022, Canada has committed to providing production support to three battery manufacturing firms with Special Contribution Agreements:

NextStar Energy (Stellantis/LGES) in Windsor, Ontario;
PowerCo (Volkswagen) in St. Thomas, Ontario;
Northvolt in Saint-Basile-le-Grand and McMasterville, Quebec.

The automotive industry is facing challenges due to several factors including the high cost and significant time needed to invest in the transition to produce EVs, compounded by a slowdown in the growth of EV demand, which has resulted in companies globally revisiting their investments in EV and battery production, including some announced investments in Canada.

The government recognizes that any major industrial transformation takes time, and is committed to ensuring the economy stays strong and current. The green transformation of a vibrant industry - automotive, transportation, mining, and energy - is top of mind for the government.

• Canada has everything it needs to lead in the global zero-emission vehicle (ZEV) ecosystem: strength in automotive manufacturing, access to markets, talent, green energy, and critical minerals.

• Recognizing Canada’s efforts to develop an end-to-end battery ecosystem, in 2024 BloombergNEF reported that Canada has the strongest electric vehicle (EV) battery supply chain potential in the world.

• Announced support to be provided through Special Contribution Agreements will match what companies would have received under the U.S. Inflation Reduction Act (IRA) Advanced Manufacturing Production Credit, and will depend on production at, and sales from, the plants located in Canada. As production increases, so will both the support and the economic benefits to Canada.

• As these agreements are in response to the IRA, the Special Contribution Agreement support will be adjusted if any changes occur to the relevant IRA Advanced Manufacturing Production Credit.

• Plans relating to announced projects may be subject to change, which could include production delays.