Finance

Trudeau’s budget lays out a clean tech strategy for Canada

Canada’s budget included a response to the Inflation Reduction Act, which the U.S. Congress passed last year.
Trudeau’s budget lays out a clean tech strategy for Canada

Saying that the U.S. Inflation Reduction Act poses a major challenge to Canada’s ability to compete in industries that will drive a clean economy, Canadian Prime Minister Justin Trudeau’s Liberal government unveiled C$80 billion (US$59 billion) in proposed tax credits for clean technology over the next decade, including C$25 billion ($18.46 billion) for investments in clean electricity.

“Without swift action, the sheer scale of U.S. incentives will undermine Canada’s ability to attract the investments needed to establish Canada as a leader in the growing and highly competitive global clean economy,” the budget document said. “If Canada does not keep pace, we will be left behind. We will not be left behind.”

Canada is the United States’ largest trading partner and is the latest to respond to the Inflation Reduction Act, which Congress passed last year. In January, the European Union pushed forward with a clean tech industrial plan aimed at keeping the continent in the vanguard of planning for a greener future and also address competitive challenges from China and the U.S.

The so-called “Green Deal Industrial Plan” was intended to make it easier to push through subsidies for green industries and pool EU-wide projects that are boosted with major funding as the EU pursues the goal of being climate neutral by 2050.

This article was originally published on sister site Renewable Energy World.

The budget acknowledges the importance of hydroelectric power in the country, saying: “Fortunately, Canada already has one of the cleanest electricity grids in the world. Roughly 83 per cent of our electricity comes from non-emitting sources, such as hydroelectricity, wind, solar, and nuclear.”

Tax credit

The Canadian federal budget, presented to Parliament on March 28, proposed a 15% refundable tax credit for eligible investments in:

  • Non-emitting electricity generation systems: wind, concentrated solar, solar photovoltaic, hydropower (including large-scale), wave, tidal, nuclear (including large-scale and small modular reactors);
  • Abated natural gas-fired electricity generation (which would be subject to an emissions intensity threshold compatible with a net-zero grid by 2035);
  • Stationary electricity storage systems that do not use fossil fuels in operation, such as batteries, pumped hydroelectric storage, and compressed air storage; and,
  • Equipment for the transmission of electricity between provinces and territories.

New projects and the refurbishment of existing facilities would be eligible.

Financing tool

The proposed budget also aims to position the Canada Infrastructure Bank as the government’s primary financing tool to support clean electricity generation, transmission and storage projects, including for major projects such as the Atlantic Loop. The Atlantic Loop is a series of interprovincial transmission lines that would provide clean electricity between Quebec, New Brunswick and Nova Scotia. Negotiations are under way with provinces and utilities to identify a path to deliver the project by 2030.

The budget said that the bank will invest at least C$10 billion ($7.39 billion) through its Clean Power priority area and at least C$10 billion through its Green Infrastructure priority area. It said the investments would be sourced from existing resources.

The budget also proposed measures intended to encourage businesses to invest in Canada and create jobs for Canadian workers. The plan would include investment tax credits to provide support for clean technology manufacturing, clean hydrogen, zero-emission technologies and carbon capture and storage. 

It also would deploy financial instruments through the Canada Growth Fund, such as contracts for difference, to absorb certain risks and encourage private sector investment in low-carbon projects, technologies, businesses and supply chains.

And it would offer targeted clean technology support delivered by Innovation, Science and Economic Development Canada to support battery manufacturing and advance the development, application and manufacturing of clean technologies.

To support that initiative, the budget proposed a refundable tax credit equal to 30%  of the cost of investments in new machinery and equipment used to manufacture or process key clean technologies, and extract, process or recycle critical minerals.

Clean hydrogen

The Canadian government’s proposed budget also announced details of a Clean Hydrogen Investment Tax Credit. Levels of support would vary between 15% to 40% of eligible project costs, with the projects that produce the cleanest hydrogen receiving the highest levels of support. 

The Clean Hydrogen Investment Tax Credit would also extend a 15% tax credit to equipment needed to convert hydrogen into ammonia, in order to transport the hydrogen. And labor requirements would need to be met to receive the maximum tax credit rates. Failing to meet those requirements would cut credit rates by 10 percentage points.