The Real Economy

How the Canadian middle market can benefit from the U.S. Inflation Reduction Act

Oct 03, 2022

Key takeaways

This legislative and financial commitment by Canada's closest trading partner provides Canadian companies with some certainty as to where they can hang their hats from an economic development perspective.

Canada’s mining and manufacturing sectors will be well-positioned to benefit as they provide the products and minerals necessary to facilitate the clean energy transition, particularly when it comes to electric vehicle development.​

Though Canada’s climate change strategy has been fairly robust, the IRA and the resulting opportunities will help provide a clearer picture of how to economically build and scale clean energy industries.

Economics The Real Economy

The Inflation Reduction Act, or IRA, recently enacted in the United States includes significant incentives to foster the growth of renewable energy. Canadian businesses, including those in the middle market, stand to benefit greatly from the legislation. RSM’s Alex Kotsopoulos, a partner in RSM Canada’s environmental, social and governance advisory practice, discussed what Canadian businesses can expect.

How will the IRA affect the Canadian economy?

The IRA as a whole, and in particular those provisions that relate to climate change, is very beneficial to Canada’s economy. That benefit is not only because of the degree of integration between the Canadian and U.S. economies but also because of the specific provisions in the act. One example is the electric vehicle tax credit. That’s going to apply to vehicles built in America and that have more than half their mineral content in the batteries sourced from a U.S. trading partner like Canada. Given Canada’s mineral resources and the importance of the mining sector, this provision will give a big boost to the Canadian economy.

More broadly, though, the act provides some certainty on where companies can hang their hats from an economic development perspective. It’s a clear signal to the market. Of course, Canada has long sought to develop industries that can service the clean energy transition. But the act says more clearly than ever that clean energy is where we need to be.

What other sectors stand to benefit?

The mining sector and manufacturing sectors within the Canadian economy will benefit. Those sectors provide the products and the equipment necessary to facilitate the clean energy transition. Think of industries like solar panel manufacturing, or the companies that make the instrumentation for smart grids. Canadian industry is fundamental to the green energy transition in the United States.

How does the act change Canada’s economic policy?

Canada has had a pretty robust climate change strategy for some time. But what has been less developed is the economic plank of that strategy—the opportunities that can come from servicing and developing clean energy industries. How can we use this legislation to scale up? That’s the message being sent to businesses.

How can middle market companies take part in this transition?

Middle market companies are a vital part of the Canadian economy. A lot of the companies that are going to be servicing the demand in the United States and Canada are middle market companies. So it’s important for them to invest accordingly, to add capacity so that they can serve the demand that is to come. The IRA was a big moment. This is the first time that the United States is committing such a substantial amount of money to meet some of its climate change objectives. We’re talking hundreds of billions of dollars over the next 10 years, and that’s just the government. So middle market companies have a significant opportunity. Those Canadian companies that have the capability, the technology, the products and the services are going to be well-positioned.

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