Federal budget 2023: Canada’s clean economy tax credit plan

Ottawa –

After the federal government announced its response to the U.S. Inflation Reduction Act, a lot of money is going to Canadian industries looking to cut emissions.

Spending commitments announced in the federal budget on Tuesday include tax credits for investments in clean power, clean technology manufacturing and hydrogen, which together will amount to about $55 billion by fiscal 2034-35. is expected to cost

Taking into account the carbon capture and storage and clean technology investment exemptions announced last year, the total tax incentives amount to about $83 billion.

The government says it needs funds to increase spending on the clean economy from about $15 billion a year to $100 billion a year. We also need to keep up with spending as other countries roll out subsidies, including US$369 billion in a landmark US law passed last year.

Deputy Prime Minister Chrystia Freeland said: “In the most significant economic transformation since the industrial revolution, our friends and partners in the United States and around the world are investing heavily to build a clean economy.” said.

Tax credits are the backbone of the effort because they are a stable and efficient way to deploy government support, leaving decision-making to the expertise of the private sector, senior government officials said at Budget Lockup. rice field.

Clean power is the credit’s biggest focus, costing $6.3 billion over the first four years starting in 2024 and $25.7 billion from 2034-2035. Specifically, state utilities and Indigenous-owned businesses are eligible for the credit.

The spending aims to spur both more generation and a better connected east-west grid to meet the expected doubling of electricity demand by 2050.

Clean Prosperity executive director Michael Bernstein said the clean power package likely did enough to help the government reach its goals.

But other funding areas, such as $11.1 billion in credits for manufacturing and $12.4 billion for carbon capture by 2034, are not enough to close the gap with what the US is offering. he said it would.

“This is one of those situations where our competitors are stepping up and saying we’re offering an amount that’s almost unthinkable.”

Canada has opted for construction-focused project support, while the US IRA covers operating costs with volume-based payments. Canada offers one large cup of soda, while the U.S. offers an endless supply of children’s cup-sized refills, much larger than Canada can compete with. Bernstein said it means you have to.

Since it does not cover operations, Canada needs to move quickly to provide a carbon pricing backstop that it has promised to develop within budget, he said.

So-called differential contracts provide industry certainty about future carbon pricing and credits, but so far, like several other major policies, are still under discussion.

Rachel Samson, vice president of research at the Public Policy Institute, said: “What surprised me is that a lot has yet to be decided.

With contact information for the difference, she said details about how the $15 billion Canadian Growth Fund will be spent are lacking.

In its draft budget, the government announced that the fund would be managed independently by the Public Pension Investment Board, with funds beginning to flow in the first half of this year, but did not provide guidance on priority areas.

Mr Samson said it was good that the government was reluctant to direct the money itself, but worried that pension fund managers would be too cautious to fund the bold projects needed. are doing.

“We need more cutting-edge, higher-risk projects.”

The government has also backed all efforts on biofuels such as sustainable jet fuel. This surprised Samson because he knows Canada is now exporting raw wood pellet feedstock and the company is ready for the project.

The budget is also notable for not including the oil and gas industry. We fine-tuned carbon capture incentives last year, but they didn’t go as far as some were pushing, but emissions reductions in hydrogen production could rule out most carbon capture-based hydrogen projects. I have.

“We didn’t get as much oil and gas as I thought we wanted from this,” Samson said.

The funding shortfall comes as climate advocacy groups voted against supporting both programs as futile projects that would not achieve the needed emissions reductions in the short term, as well as an industry that reported record profits. .

The government is also framing the budget as one of fiscal restraint, hoping to allow private capital to do much of the heavy lifting to keep Canada running.

“Canada must rise to this historic moment, this incredible opportunity, or it will be left behind as the world’s democracies build a clean economy for the 21st century. ‘ said Freeland.

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

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