Canada cleantech tax credits get big boost in federal budget

 Canada cleantech tax credits get big boost in federal budget

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The Canadian federal government has announced a series of spending commitments designed to reduce emissions and promote clean technologies. The initiatives are part of the government’s answer to the US Inflation Reduction Act. They include tax credits for investments in clean electricity, clean-tech manufacturing, and hydrogen. The cleantech tax credits are expected to cost around CA$55 billion through to the 2034-35 fiscal year. Further, the total incentives amount to CA$83 billion over that timeframe when other credits announced last year are factored in.

The government said that the funding is necessary to boost clean economy annual spending from its current level of CA$15 billion to the CA$100 billion that is needed. This will help Canada stay competitive as other countries, including the US, invest heavily in building clean economies. Deputy Prime Minister Chrystia Freeland said that tax credits are the backbone of the effort. And that they will provide stable and efficient support while leaving decision-making in the hands of the private sector.

Clean electricity is a major focus of the credits, with CA$6.3 billion set to be spent on this over the first four years starting in 2024. In total, CA$25.7 billion will be spent through to the 2034-35 fiscal year. The spending is designed to encourage more generation, as well as a better-connected east-west grid. This will help meet the expected doubling of electricity demand by 2050. Provincial utilities and Indigenous-owned corporations will be eligible for the credits.

Other funding areas include CA$11.1 billion in credits for manufacturing and CA$12.4 billion for carbon capture through to 2034.

Also read: Innovative green hydrogen startup Ohmium to secure US$250M

Analysts claim Canada’s cleantech tax credits not enough

However, some analysts suggest that this may not be enough to close the gap with what the US is offering. Michael Bernstein, executive director of Clean Prosperity, commented that “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’s approach focuses on construction-focused project support, while the US IRA covers operational costs with payments based on production volumes. Rachel Samson, vice-president of research at the Institute for Research on Public Policy, noted that there are still many details left to be determined about Canada’s plans, including how the $15 billion Canada Growth Fund will be spent.

The government has also delayed making any commitments on biofuels such as sustainable jet fuels. At the same time, the budget was notable for what wasn’t in it for the oil and gas industry. While last year’s carbon capture incentives were tweaked, the government did not go as far as some were pushing for. And the emissions cut-off for hydrogen production will likely exclude most carbon-capture based hydrogen projects. The lack of funding for these industries comes as climate advocacy groups have pushed against support for wasteful projects. They claim that these projects do not achieve near-term emission cuts, while oil and gas companies have reported record profits.

Overall, the federal government hopes that the spending commitments announced in the budget will allow private capital to do much of the heavy lifting. Collectively, it could potentially keep Canada competitive in the global transition to a clean economy. “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.


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