Forget “energy transition” and “just transition” to describe the transformation of our energy systems. Call it the “boondoggle transition” because that’s what it is turning into.

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The $30 billion to be paid by the federal and Ontario governments to just two electric-vehicle battery companies — Volkswagen and Stellantis-LG Energy Solution — is just the tip of the iceberg. It’s expected that together the two projects will “create” 5,500 jobs (though most of the workers likely will come from other jobs) at an eye-popping ten-year cost of $5.5 million per worker. Even if you spread the earnings over 10 years, that’s $550,000 a year, nine times the average Canadian’s annual earnings of $61,000.

Other companies are lining up to build EV battery operations, including Toyota, Ford and Sweden’s Northvolt Ab. Federal Industry Minister François-Philippe Champagne, chequebook in hand, is still excited about building the auto sector of the future even after its poor performance over the past decade despite a heavy dose of subsidies and NAFTA trade protection.

The opportunity cost to this boondoggle is beyond the pale. The two governments could instead have hired 10,000 physicians over the same decade to help our ailing health care system. Or they could have reduced taxes by $3,000 per year for each Canadian family of four.

The irony is that the main effect of our subsidizing electric battery manufacturing will be to lower costs for Volkswagen and Stellantis auto production in the U.S. This raises an obvious question: why should we do that? Why not have auto producers here buy cheap subsidized batteries from the United States? We seem to be fine with importing subsidized Chinese solar panels to keep solar power prices low. Why not take the same approach to EV batteries?

The auto industry is not the only part of this boondoggle transition. Subsidies are also to be doled out for wind and solar production; nuclear energy; hydrogen; carbon capture utilization and storage (CCUS); low-carbon fuel; battery storage; and critical-minerals mining. In the U.S., the Biden administration forecasts its “Inflation Reduction Act” subsidies will cost close to US$400 billion a decade. But Goldman Sachs pegs the cost at a whopping US$1.2 trillion.

Canadian politicians are being pressured hard by clean-energy companies to match the Inflation Reduction Act handouts. Canada’s economy is now just eight per cent the size of the U.S. economy. A boondoggle equivalent to the Inflation Reduction Act would cost us roughly C$130 billion over a decade. Given the recent promises to VW and Stellantis, it now looks like we’ll be doing more than that.

Industrial policy sounds like a great idea to the well-heeled investors and labour unions who will benefit from higher profits and wages in favoured industries. But it won’t be a boon to those who pick up the tab.

Picking individual firms is, literally, a loser’s game. Yes, over time, an electric vehicle industry likely will emerge. But economic history suggests few firms will succeed while many others fail. Reviewing six U.S. industrial subsidies to targeted firms from 1970 to 2020, Gary Haufblauer and Eujing Jung found that only one-third improved competitiveness and innovation at a reasonable cost per worker. Four others, including the infamous Solyndra, failed miserably with a high cost for each new job.

Volkswagen and Stellantis may do well in the coming years, but we don’t know that for sure. Stellantis, formerly known as Chrysler and Fiat Chrysler, has a spotty record with several bail-outs since 1980 in both the U.S. and Canada. In 2018, the Liberal government wrote off the $2.6-billion loan it furnished Chrysler with during the financial crisis. The International Monetary Fund, which is critical of Champagne’s approach, argues that subsidies should be directed at industries, not firms, since no government is smart enough to pick winners.

But subsidies for targeted industries can fail, too, and for many reasons. Handouts often go to profitable companies for projects they would have undertaken anyway. With governments everywhere mandating EV sales and subsidizing consumer purchases, production subsidies for critical minerals and charging stations are just icing on the cake. And if subsidies are funded with taxes on high-income Canadians and corporations, the economic cost in discouraged work and investment will be almost as much as the revenues being raised.

Nor should we forget that giving subsidies to one industry draws resources away from other ventures that might have better economic prospects. The most productive sectors in Ontario in terms of GDP per working hour do not include autos. They are, rather, crop production, mining, utilities, chemical and steel manufacturing and the (excessively taxed) finance sector.

Finally, as may actually be the case with autos, subsidies are often directed at declining sectors to avoid layoffs in depressed regions. Many past boondoggles have involved companies already headed to bankruptcy.

The industrial policy road, though paved with good intentions and gaudy rhetoric, always ends up deeply potholed.