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Feds outline $83B in clean economy tax credits in bid to compete with U.S. incentive

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Prime Minister Justin Trudeau and Deputy Prime Minister and Minister of Finance Chrystia Freeland arrive to deliver the federal budget in the House of Commons on Parliament Hill in Ottawa, Tuesday, March 28, 2023. THE CANADIAN PRESS/Justin Tang

Serious money is heading for Canadian industries looking to reduce emissions after the federal government unveiled its answer to the U.S. Inflation Reduction Act.

The spending commitments announced in Tuesday’s federal budget include tax credits for investments in clean electricity, clean-tech manufacturing, and hydrogen that together are expected to cost some $55 billion through to the 2034-35 fiscal year.

Total tax incentives amount to almost $83 billion over that timeframe when the carbon capture and storage and clean-tech investments credits announced last year are factored in, both of which saw minor boosts this round.

The government says the funding is necessary to boost clean economy spending from some $15 billion a year to the $100 billion a year needed. The spending is also needed to not fall behind as other countries roll out subsidies, most notably with the US$369 billion contained in the landmark U.S. legislation passed last year.

“In what is the most significant economic transformation since the Industrial Revolution, our friends and partners around the world, chief among them the United States, are investing heavily to build clean economies,” said Deputy Prime Minister Chrystia Freeland as she introduced the budget.

Tax credits are the backbone of the effort because they are stable and efficient way to roll out government support, while leaving decision-making with the expertise of the private sector, said a senior government official in the budget lockup.

Clean electricity is the biggest focus of the credits, costing $6.3 billion over the first four years starting in 2024, and $25.7 billion through to the 2034-35 year. Notably, provincial utilities and Indigenous-owned corporations will be eligible for the credits.

The spending is meant to help spur both more generation, as well as a better-connected east-west grid to meet the expected doubling of electricity demand by 2050.

The clean electricity package is where the government has likely done enough to meet its goals, said Michael Bernstein, executive director of Clean Prosperity.

Other funding areas however, including the $11.1 billion in credits for manufacturing and $12.4 billion for carbon capture through to 2034, likely aren’t enough to close the gap with what the U.S. is offering, he said.

“It really is one of those situations where your competitor has stepped up and said we are going to be providing an almost unthinkable amount of money.”

Canada has opted for construction-focused project support, while the U.S. IRA covers operational costs with payments based on production volumes. It’s like Canada is offering a single large cup of soda, whereas the U.S. is offering endless kiddy-cup sized refills, meaning Canada needs to offer a pretty big cup to compete, said Bernstein.

Since it’s not covering operations, Canada needs to move quickly on offering the carbon pricing backstop that it’s promised to develop in the budget, he said.

The so-called contracts for difference would provide certainty to industry on future carbon pricing and credits, but so far they’re still in consultation, as are several other key policies.

“What surprised me was how many things are still left to be determined,” said Rachel Samson, vice-president of research at the Institute for Research on Public Policy.

Along with the contacts for difference, she noted that details are scarce about how the $15 billion Canada Growth Fund will be spent.

The government announced in the budget that the fund will be administered independently by the Public Sector Pension Investment Board, with money starting to flow in the first half of the year, but didn’t provide guidance on priority areas.

Samson said it was good the government isn’t trying to direct the money itself, but worried that pension fund managers are too cautious to put the money in the bold projects needed.

“We need projects that are more on the cutting-edge, that are riskier.”

The government also pushed down the road any commitments on biofuels such as sustainable jet fuels, which surprised Samson as Canada is currently exporting the raw wood pellet feedstock and knows companies have projects ready to go.

The budget was also notable for what wasn’t in it for the oil and gas industry. While it did tweak last year’s carbon capture incentives, it didn’t go as far as some were pushing for, while the emissions cut-off for hydrogen production will likely exclude most carbon-capture based hydrogen projects.

“Oil and gas did not get a lot of what I think it wanted in this,” said Samson.

The lack of funding comes as climate advocacy groups have pushed against support for both programs as wasteful projects that don’t achieve the emission cuts needed in the near term, while also pushing against support for an industry that has reported record profits.

The government has also framed the budget as one of fiscal restraint that it hopes will allow private capital to do much of the heavy lifting to keep Canada in the running.

“Canada must either meet this historic moment, this remarkable opportunity before us, or we will be left behind as the world’s democracies build the clean economy of the 21st century,” said Freeland.

This report by The Canadian Press was first published March 28, 2023.

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Automotive

Federal government should swiftly axe foolish EV mandate

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From the Fraser Institute

By Kenneth P. Green

Two recent events exemplify the fundamental irrationality that is Canada’s electric vehicle (EV) policy.

First, the Carney government re-committed to Justin Trudeau’s EV transition mandate that by 2035 all (that’s 100 per cent) of new car sales in Canada consist of “zero emission vehicles” including battery EVs, plug-in hybrid EVs and fuel-cell powered vehicles (which are virtually non-existent in today’s market). This policy has been a foolish idea since inception. The mass of car-buyers in Canada showed little desire to buy them in 2022, when the government announced the plan, and they still don’t want them.

Second, President Trump’s “Big Beautiful” budget bill has slashed taxpayer subsidies for buying new and used EVs, ended federal support for EV charging stations, and limited the ability of states to use fuel standards to force EVs onto the sales lot. Of course, Canada should not craft policy to simply match U.S. policy, but in light of policy changes south of the border Canadian policymakers would be wise to give their own EV policies a rethink.

And in this case, a rethink—that is, scrapping Ottawa’s mandate—would only benefit most Canadians. Indeed, most Canadians disapprove of the mandate; most do not want to buy EVs; most can’t afford to buy EVs (which are more expensive than traditional internal combustion vehicles and more expensive to insure and repair); and if they do manage to swing the cost of an EV, most will likely find it difficult to find public charging stations.

Also, consider this. Globally, the mining sector likely lacks the ability to keep up with the supply of metals needed to produce EVs and satisfy government mandates like we have in Canada, potentially further driving up production costs and ultimately sticker prices.

Finally, if you’re worried about losing the climate and environmental benefits of an EV transition, you should, well, not worry that much. The benefits of vehicle electrification for climate/environmental risk reduction have been oversold. In some circumstances EVs can help reduce GHG emissions—in others, they can make them worse. It depends on the fuel used to generate electricity used to charge them. And EVs have environmental negatives of their own—their fancy tires cause a lot of fine particulate pollution, one of the more harmful types of air pollution that can affect our health. And when they burst into flames (which they do with disturbing regularity) they spew toxic metals and plastics into the air with abandon.

So, to sum up in point form. Prime Minister Carney’s government has re-upped its commitment to the Trudeau-era 2035 EV mandate even while Canadians have shown for years that most don’t want to buy them. EVs don’t provide meaningful environmental benefits. They represent the worst of public policy (picking winning or losing technologies in mass markets). They are unjust (tax-robbing people who can’t afford them to subsidize those who can). And taxpayer-funded “investments” in EVs and EV-battery technology will likely be wasted in light of the diminishing U.S. market for Canadian EV tech.

If ever there was a policy so justifiably axed on its failed merits, it’s Ottawa’s EV mandate. Hopefully, the pragmatists we’ve heard much about since Carney’s election victory will acknowledge EV reality.

Kenneth P. Green

Senior Fellow, Fraser Institute
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Economy

The stars are aligning for a new pipeline to the West Coast

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From Resource Works

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Mark Carney says another pipeline is “highly likely”, and that welcome news.

While attending this year’s Calgary Stampede, Prime Minister Mark Carney made it official that a new pipeline to Canada’s West Coast is “highly likely.”

While far from a guarantee, it is still great news for Canada and our energy industry. After years of projects being put on hold or cancelled, things are coming together at the perfect time for truly nation-building enterprises.

Carney’s comments at Stampede have been preceded by a number of other promising signs.

At a June meeting between Carney and the premiers in Saskatoon, Alberta Premier Danielle Smith proposed a “grand bargain” that would include a privately funded pipeline capable of moving a million barrels of oil a day, along with significant green investments.

Carney agreed with Smith’s plan, saying that Canada needed to balance economic growth with environmental responsibility.

Business and political leaders have been mostly united in calling for the federal government to speed up the building of pipelines, for economic and strategic reasons. As we know, it is very difficult to find consensus in Canada, with British Columbia Premier David Eby still reluctant to commit to another pipeline on the coast of the province.

Alberta has been actively encouraging support from the private sector to fund a new pipeline that would fulfil the goals of the Northern Gateway project, a pipeline proposed in 2008 but snuffed out by a hail of regulations under former Prime Minister Justin Trudeau.

We are in a new era, however, and we at Resource Works remarked that last month’s G7 meeting in Kananaskis could prove to be a pivotal moment in the history of Canadian energy. An Ipsos poll found that Canada was the most favoured nation for supplying oil in the G7, and our potential as an energy superpower has never been more important for the democratic world, given the instability caused by Russia and other autocratic energy powers.

Because of this shifting, uncertain global climate, Canadian oil and gas are more attractive than ever, and diversifying our exports beyond the United States has become a necessity in the wake of Donald Trump’s regime of tariffs on Canada and other friendly countries.

It has jolted Canadian political leaders into action, and the premiers are all on board with strengthening our economic independence and trade diversification, even if not all agree on what that should look like.

Two premiers who have found common ground are Danielle Smith and Ontario Premier Doug Ford. After meeting at Stampede, the pair signed two memorandums of understanding to collaborate on studying an energy corridor and other infrastructure to boost interprovincial trade. This included the possibility of an eastward-bound pipeline to Ontario ports for shipping abroad.

Ford explicitly said that “the days of relying on the United States 100 percent, those days are over.” That’s in line with Alberta’s push for new pipeline routes, especially to northwestern B.C., which are supported by Smith’s government.

On June 10, Resource Works founder and CEO Stewart Muir wrote that Canadian energy projects are a daunting endeavour, akin to a complicated jigsaw puzzle, but that getting discouraged by the complexity causes us to lose sight of the picture itself. He asserted that Canadians have to accept that messiness, not avoid it.

Prime Minister Carney has suggested he will make adjustments to existing regulations and controversial legislation like Bill C-69 and the emissions cap, all of which have slowed the development of new energy infrastructure.

This moment of alignment between Ottawa, the provinces, and other stakeholders cannot be wasted. The stars are aligning, and it will be a tragedy if we cannot take a great step into the future of our country.

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