The exclusion of the aluminum industry from the tax holiday for major projects was one of the surprises of the budget. However, I learned that ministers Eric Girard and Pierre Fitzgibbon had differences of opinion on this question, which was finally decided by the Minister of Finance.
In his budget, Eric Girard remodeled the tax holiday offered to companies that have investment projects of at least 100 million. The Minister of Finance, however, excluded the aluminum industry, something that Pierre Fitzgibbon would not have done, according to two sources not authorized to speak publicly.
According to my information, Eric Girard argued that the aluminum sector benefited from a very significant level of state aid, if we add to the tax measures the low electricity rates paid by these companies. The price of electricity from aluminum smelters, it should be remembered, varies according to the price of aluminum, and not Hydro-Québec’s costs.
In its new version, the tax holiday allows a company to save the equivalent of 15% to 25% of its investment in taxes and payroll taxes over a period of 10 years.
The government hopes that this measure will give rise to 100 projects by 2032. The tax holiday will cost the public treasury $373 million within five years, according to the budget.
In recent years, the rebate on electricity for aluminum smelters has been higher than the $373 million that the government plans to spend on dozens of other projects over the next five years.
Since 2015, the 5 aluminum smelters that have a contract with Hydro-Québec have saved $1.4 billion, or some $178 million per year1.
In addition, three other aluminum smelters, from the producer Rio Tinto, are powered by energy produced by the company itself, thanks to very cheap hydraulic rights it obtained from the government for the Saguenay and Péribonka rivers. These rights allow it to produce electricity for barely 2 cents per kilowatt hour, it is estimated.
According to Rio Tinto, the cost of producing aluminum here ranks in the lowest 10% of its aluminum smelters worldwide.
In the budget, the Minister of Finance says he is continuing his reflection on whether or not to include aluminum companies in the tax holiday. “The government is continuing its analyzes of this sector of activity. The status of the latter might be reassessed at the end of these analyses”, it is written.
Discounts only for green aluminum
According to my information, Quebec wants a frank and factual discussion with the industry, in the context of energy scarcity, the energy transition and the decarbonization of our economy. These issues will be discussed during the energy summit, expected in the coming months.
Aluminum smelters are among the largest emitters of greenhouse gases (GHGs) in Quebec. The CAQ government still considers the industry as a sector of the future, but it would like to offer its best electricity rates to projects without GHGs – with the famous Elysis technology – and not to others. It will be necessary to see, during the negotiations, whether or not to combine a tax holiday, taking into account the overall picture of state assistance.
Ultimately, Quebec estimates that the industry may not need more energy than currently, given the planned end of the Arvida contract, in 2025, in particular.
In the fall, the head of Rio Tinto’s aluminum division, Ivan Vella, clarified that it would be difficult to make Elysis technology profitable in old aluminum smelters, that he was rather considering this technology to increase production in new installations. .
In recent years, Rio Tinto has benefited six times from the Quebec tax holiday for major projects, according to the company’s “Taxes Paid Report”. In addition, the multinational has benefited from the accelerated depreciation offered by Quebec and Ottawa to companies that invest.
All things considered, Rio Tinto has paid virtually no taxes in Quebec in recent years, in addition to benefiting from favorable electricity rates2.
Apart from Rio Tinto, the other main owner of aluminum smelters in Quebec is Alcoa, which owns, among other things, the old aluminum smelter in Baie-Comeau.
These two multinationals formed a joint venture with the Quebec government and Apple in 2018 to develop Elysis technology, which promises to completely eliminate GHGs from the aluminum manufacturing process. Quebec and Ottawa are funding 53% of the $228 million project.
The aluminum industry is not alone in seeing restrictions imposed on Quebec’s new tax holiday. Computer or multimedia companies, which already benefit from a tax credit (on salaries), such as those which make biofuel, will not be able to combine the two tax advantages, it is indicated in the budget.
Pierre Fitzgibbon’s spokesperson, Mathieu St-Amand, writes to me in an e-mail that the Ministry of the Economy is constantly seeking to develop assistance adapted to the complex reality of the aluminum market, such as the pricing of electricity depending on the price of aluminum.
“Exchanges between ministers and departments on complex issues are common and are not necessarily indicative of differences of opinion,” he wrote to me.
In response, the Aluminum Association of Canada, which defends companies in the sector, said it was disappointed with the exclusion of its industry from the tax holiday. Its spokesperson, Jean Simard, maintains in a press release that the Middle East and Asia are also working on low-carbon aluminum production, as is currently done in Quebec with hydroelectricity (other than Elysis ). His association intends to continue to put pressure on the government so that its members benefit from the tax holiday.
1. Between 2015 and the end of September 2022, the five aluminum smelters that have a contract with Hydro-Québec paid an average of 3.87 cents per kilowatt hour for their energy, significantly below the Rate L offered to large industries, by 4. 6 cents, Hydro-Quebec had confirmed to me. The 5 smelters thus saved $1.4 billion, or some $178 million per year. Given the current price of aluminum, however, some aluminum smelters now pay an electricity rate close to Hydro-Québec’s L rate, which the government corporation deems profitable.
