Ottawa is banking on Canada’s transition to a low-carbon economy as a key driver of economic growth, considering a series of tax credits and a new $15 billion investment fund to mobilize private capital to help the country meet its emission reduction targets.
Finance Minister Chrystia Freeland has described a focus on the green economy as the hallmark of her budget. A series of new policies in Thursday’s federal budget aim to further deter fossil fuel investment while making clean energy projects such as battery storage solutions, clean hydrogen and capture cheaper to launch. , carbon use and storage (CCUS). The development of these sectors is essential to reducing Canada’s greenhouse gas emissions.
The spending plan comes after the United Nations’ Intergovernmental Panel on Climate Change released a landmark report calling for a faster shift away from burning coal, oil and gas. Last week, the government released its $9.1 billion plan to cut greenhouse gas emissions by 40% below 2005 levels by the end of the decade. Achieving this target requires sweeping changes, given that Canada has the worst emissions record in the G7 since the Paris climate accord was struck in 2015.
The green transition is “essential” and costly, Ms Freeland told reporters on Thursday. She said the policies set by her government “will help Canada make this major change”, which she called the biggest change since the industrial revolution.
Chrystia Freeland’s 2022 federal budget is as much a political instrument as an economic ledger
The main one of the government’s proposals is the creation of the Canada Growth Fund, an independent investment vehicle capitalized at $15 billion over five years. It’s not new money; rather, it is reallocated from other unspent federal funds.
How the fund will be structured will be explained in detail in the fall economic update, officials said. But the budget document predicts that for every dollar of government money, it will attract at least $3 of private money.
In addition to the new fund, the Canada Infrastructure Bank will take on an expanded role that will allow it to invest in technology that is an essential part of the government’s emissions reduction plan. Small modular reactors, clean fuel and hydrogen production, transmission and distribution, and CCUS will all fall into the expanded infrastructure bank wheelhouse. The bank has been criticized for being slow to get started since its inception in 2017 and has struggled to attract private capital.
The budget is “clearly focused on transition,” said Robert Asselin, senior vice-president of policy at the Business Council of Canada. It contains some good ideas, he said, but the question is whether they will actually be implemented – something he says the government has struggled with before.
One of the costliest new climate programs is the long-awaited refundable CCUS tax credit, which is critical to the oil and gas sector’s ability to reduce emissions while continuing to produce fossil fuels. Ottawa expects the new program to cost $2.6 billion over five years starting in 2022-23.
The new tax credit will use a sliding scale to cover 37.5% to 60% of eligible expenses, retroactive to January 1. Tax credits will halve from 2030 to 2040, which the government hopes will accelerate projects so Canada can start capturing more carbon, faster.
Carbon capture facilities force carbon dioxide emissions deep into the ground or into concrete to keep them out of the atmosphere.
The federal government expects between 20 and 40 facilities to be operational by the end of the decade.
The bulk of these projects will likely qualify for a 50% tax credit under the new program – the minimum level that the Alberta government says would make the facilities feasible. The biggest tax break under the new program – 60% – is reserved for direct air capture, a nascent technology that has yet to demonstrate its feasibility on a large scale.
While environmental groups have criticized the CCUS tax credit as just another fossil fuel subsidy, industry groups have hailed the move, saying it shows the government understands the importance oil sands to the country’s energy security.
MEG Energy President and CEO Derek Evans told The Globe that although the oil and gas sector initially requested 75% credit, 50% will be “incredibly supportive” of all energy-intensive industries. emissions across the country, including fossil fuels.
At the same time, Ottawa is phasing out flow-through shares, which allow public companies to pass on certain exploration costs to investors, and play an important role in junior oil and gas companies to secure investment from shareholders. This tax deduction will be eliminated effective March 31, 2023, as part of Ottawa’s commitment to end federal fossil fuel subsidies.
Another key pillar of the budget is to reduce the risk that private companies assume in order to launch necessary but costly investment projects. With a new eight-year, $3.8 billion Critical Minerals Strategy, the government aims to unlock the country’s vast deposits of rare earth minerals that are critical to building a supply chain of electric vehicle batteries.
The budget provided more details on initiatives outlined in last week’s emissions reduction plan, including: more money to help homeowners make energy-efficiency upgrades; the creation of a national grid council to expand clean electricity infrastructure; increased spending on natural climate solutions; funding for Indigenous-led climate solutions; and $900 million to expand the nation’s zero-emission vehicle charging infrastructure.
The budget contained few details on the government’s planned expansion of the rebate on zero-emission vehicles, but made it clear that the revamped program would include more expensive options, such as vans, trucks and SUVs. The government will spend an additional $1.7 billion over five years on the incentive.
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