Feds outline $83B in clean economy tax credits in bid to compete with U.S. incentive
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.
Canada has highest household debt level in G7: CMHC deputy chief economist
Falling Canadian loonies are pictured in Vancouver on September 22, 2011. Canada’s housing agency says the country has the highest level of household debt in the G7, making its economy vulnerable to a global economic crisis. THE CANADIAN PRESS/Jonathan Hayward
Canada’s housing agency says the country has the highest level of household debt in the G7, making its economy vulnerable to a global economic crisis.
Canada Mortgage and Housing Corporation deputy chief economist Aled ab Iorwerth says in a new analysis that the country’s household debt has been rising “inexorably.”
Household debt made up 80 per cent of the size of the economy during the 2008 recession, before it rose to 95 per cent in 2010 and exceeded its size in 2021.
Over the same period of time, household debt dropped in the U.S., U.K. and Germany and was nearly unchanged in Italy.
Ab Iorwerth says high levels of debt do most damage when a significantly negative economic event happens and leads to widespread job losses because it becomes difficult, if not impossible, for many mortgage holders to service their debt.
He says widespread job losses in an economy where debt levels are high will make any recession more severe.
This report by The Canadian Press was first published May 23, 2023.
Will Biden’s hard-hat environmentalism bridge the divide on clean energy future?
Central Maine Power utility lines are seen on Oct. 6, 2021, in Pownal, Maine. It’s one of President Joe Biden’s thorniest challenges as he pursues ambitious reductions in greenhouse gas emissions. If he can’t streamline the permitting process for power plants, transmission lines and other projects, the country is unlikely to have the infrastructure needed for a future powered by carbon-free electricity. (AP Photo/Robert F. Bukaty, File)
By Chris Megerian in Washington
WASHINGTON (AP) — When John Podesta left his job as an adviser to President Barack Obama nearly a decade ago, he was confident that hundreds of miles of new power transmission lines were coming to the Southwest, expanding the reach of clean energy throughout the region.
So Podesta was shocked to learn last year, as he reentered the federal government to work on climate issues for President Joe Biden, that the lines had never been built. They still hadn’t even received final regulatory approval.
“These things get stuck and they don’t get unstuck,” Podesta said in an interview with The Associated Press.
Podesta is now the point person for untangling one of Biden’s most vexing challenges as he pursues ambitious reductions in greenhouse gas emissions. If the president cannot streamline the permitting process for power plants, transmission lines and other projects, the country is unlikely to have the infrastructure needed for a future powered by carbon-free electricity.
The issue has become an unlikely feature of high-stakes budget talks underway between the White House and House Republicans as they try to avoid a first-ever default on the country’s debt by the end of the month.
Whether a deal on permitting can be reached in time is unclear, with Republicans looking for ways to boost oil drilling and Democrats focused on clean energy. But its mere presence on the negotiating table is a sign of how political battle lines are shifting. Although American industry and labor unions have long chafed at these kinds of regulations, some environmentalists have now grown exasperated by red tape as well.
That represents a stark change for a movement that has been more dedicated to slowing development than championing it, and it has caused unease among longtime allies even as it creates the potential for new partnerships. Still, this transformation is core to Biden’s vision of hard-hat environmentalism, which promises that shifting away from fossil fuels will generate blue-collar jobs.
“We have to start building things again in America,” Podesta said. “We got too good at stopping things, and not good enough at building things.”
What gets built, of course, is the question that’s the central hurdle for any agreement.
The issue of permitting emerged last year during negotiations with Sen. Joe Manchin, a West Virginia Democrat who was a key vote for the Inflation Reduction Act, far-reaching legislation that includes financial incentives for clean energy.
Manchin pushed a separate proposal that would make it easier to build infrastructure for renewable energy and fossil fuels. His focus has been the Mountain Valley Pipeline, which would carry natural gas through his home state.
Republicans called the legislation a “political payoff.” Liberal Democrats described it as a “dirty side deal.” Manchin’s idea stalled.
Nonetheless, Elizabeth Gore, senior vice president for political affairs at the Environmental Defense Fund, said the senator “gets a lot of credit for really elevating this.”
“It was his effort that really put this issue on the map,” she said.
Since then, the Capitol has been awash in proposals to alleviate permitting bottlenecks. House Republicans passed their own as part of budget legislation last month, aiming to increase production of oil, natural gas and coal. Sen. Tom Carper, D-Del., recently introduced another proposal geared toward clean energy.
“I think there is a path forward,” Gore said, describing all the ideas “as stepping stones.”
Neil Bradley, executive vice president of the U.S. Chamber of Commerce, was also optimistic.
“The hurdle isn’t whether people think it’s a good idea or not,” he said. “The hurdle is getting the details worked out.”
Despite broad interest in permitting changes, reaching a deal will likely involve trade-offs that are difficult for Democrats and environmentalists to stomach.
Republicans want to see more fossil fuels and, now that they control the House, no proposal will advance without their consent. But too many concessions to Republicans in the House could jeopardize support in the Democratic-controlled Senate.
Biden has frustrated environmentalists by approving Willow, an oil drilling project in an untouched swath of Alaskan wilderness. After Podesta finished a speech on permitting at a Washington think tank this month, activists rushed to block his vehicle with a white banner that said “end fossil fuels” in bold black letters.
Podesta argues that it’s impossible to immediately phase out oil and gas, and he said the status quo won’t suffice when it comes to building clean energy infrastructure. He points to federal data analyzed by the Brookings Institution that found permitting transmission lines can take seven years, while natural gas pipelines take less than half that time.
He was circumspect when asked about where the negotiations may lead.
“There is bipartisan interest in the topic,” Podesta said. “Where any of that ends, I can’t predict.”
A deal could bolster Biden’s political coalition by easing tension between between environmentalists and labor unions, which have often been frustrated by objections to projects that would lead to jobs.
“They’ve unnecessarily taken food off the table of my members,” said Sean McGarvey, president of the North America’s Building Trades Unions.
The relationship with environmentalists “could turn into an alliance depending on how this process ends,” he said, but “we’ve got to do some good business to see if we’re inviting each other for barbecues and crab picks.”
Other factions of the green movement have already expressed frustration.
Brett Hartl, government affairs director for the Center for Biological Diversity, said the administration made a mistake by allowing Manchin’s proposal to be a starting point. The White House, he said, “negotiated away the game at the beginning and put the football on the 2-yard line.”
He also criticized Podesta’s approach to permitting.
“He’s dogmatically saying that environmentalists are the problem here,” he said. “It’s easy to caricature environmental legislation as the boogeyman.”
Historians trace the American regulatory system to a backlash against massive infrastructure initiatives in the middle of the 20th century, such as the interstate highway system and a series of dams. The projects raised concerns about environmental impacts and left local communities feeling steamrolled. More fears about ecological damage were sparked by an oil spill off the coast of Santa Barbara, California, and fires on the polluted Cuyahoga River in Ohio.
The result was the National Environmental Policy Act, signed by President Richard Nixon in 1970 to require federal agencies to consider the environmental ramifications of their decisions. State-level laws, such as the California Environmental Quality Act, proliferated at the same time.
“We have a system that works for what it was designed to do,” said Christy Goldfuss, chief policy impact officer at the Natural Resource Defense Council. “What we’re looking at doing is optimizing that system for the future we need. And that’s a fundamentally different conversation than anything we’ve had before.”
“It’s an incredibly difficult shift to make for the environmental movement,” she added. “And I don’t think everybody is going to make it. Some organizations are going to continue to stand in the way of development.”
And what about that transmission lines in the Southwest that Podesta was counting on?
The goal is to span about 520 miles, carrying electricity from a series of turbines in New Mexico that’s being billed as the largest wind project in the hemisphere. The lines were rerouted to satisfy the Department of Defense, which tests weapons in the area, but local conservationists still say that natural habitats will be threatened by construction.
On Thursday, nearly two decades after the initial proposal, the federal government announced it had approved the project.
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