The federal government’s recently tabled 2021 budget (“Budget 2021”) included significant funding for clean technology and climate change initiatives that support the energy transition. The government is seeking alternative applications of our existing resources as Canada drives towards its goal of net-zero emissions by 2050, creating unique incentives and opportunities for the energy sector right across the country.
These budgetary measures extend to all corners of our economy, with the government leaning in with support through funding and tax measures. The current government views Canada as being able to emerge as a leader in the development of clean technology, zero-emission vehicles, and the use of carbon capture, utilization, and storage (“CCUS”) technology. Whether we can compete at that level, in the face of almost every other country looking to do the same, remains to be seen. However, for businesses in the favoured sectors, and those pivoting to enter, it is going to be a golden age, with ample government support and seemingly endless private capital, especially for those businesses with an Environmental, Social, and Governance story to tell.
Please see below for a summary of select proposals from Budget 2021 providing opportunities to the energy sector.
It is a good time to be in the climate tech sector. The federal government is prioritizing the growth of clean technologies. To ensure global leadership regarding CCUS technologies, the federal government plans to provide $319 million over seven years to Natural Resources Canada through research, development, and demonstrations that would enhance the country’s ability to move towards these technologies and reach net-zero emissions by 2050.
Over the course of five years, the federal government will also make up to $1 billion accessible to support large-scale clean technology projects, beginning in 2021-2022 the intention is to drive private sector investment to help scale up technologies and ready them for export around the world. Working with the government of British Columbia, the federal government will also provide up to $35 million to help build the Centre for Innovation and Clean Energy to improve the scalability and commercialization of clean fuels and CCUS technologies.
With every country looking to its technology economy for the same thing, we can expect the winners in this area to be those businesses already on the road to proof of concept, with technologies that are easily scalable and can be brought to market in short order.
To help communities in Canada’s North transition to cleaner energy sources, the budget also provides the following:
- $40.4 million over three years, starting in 2021-2022, to support feasibility and planning of hydroelectricity and grid interconnection projects in the North.
- $36 million over three years, starting in 2021-2022, through the Strategic Partnerships Initiative, to increase capacity building in First Nations, Inuit, and Métis communities with regard to clean energy projects, which aim to provide sustainable economic development opportunities.
As further incentive for the energy transition, the federal government is also expanding the list of eligible equipment for accelerated capital cost allowance deductions, which they hope will propel corporations to invest in clean energy generation and energy efficiency equipment. The incentive, in place since 2018, is in fact a time-limited measure giving businesses the ability to write off the cost of investments in defined clean energy assets more quickly than other capital assets. The now lengthened list includes equipment used in pumped hydroelectric energy storage, renewable fuel production, hydrogen production by electrolysis of water, and hydrogen refueling. In addition, after 2024, this incentive may not apply to certain fossil-fueled and low efficiency waste-fuelled electrical generation equipment.
Through the Net Zero Accelerator, the federal government will invest in decarbonizing large emitters, while integrating the use of clean technologies across the economy. Beginning in 2021-2022, the Net Zero Accelerator will receive $5 billion over seven years. Referred to as a “historic investment” by the government, they view this as being able to spur Canada’s shift to innovative net-zero technologies, reduce pollution, create economic benefits like jobs for Canadians in the clean technologies industry, and attract the large-scale investments needed to meet the goal of net-zero emissions by 2050.
We can expect to see many large emitters looking to take advantage of these programs, with significant investments to be made in clean energy generation, energy efficient equipment and clean technology.
The government believes that a lower tax rate will help create jobs and increase the demand for clean technology manufacturing in Canada. Therefore, they are proposing to lower the general corporate and small business income tax rates for businesses that manufacture zero-emission technologies by 50%. Eligible manufacturers include those manufacturing or producing wind turbines, solar panels, electric vehicles, biofuels and green hydrogen.
For a more detailed summary of the measured set out in Budget 2021 directed at zero-carbon vehicles, see our Automotive Group bulletin.
The federal government is introducing an investment tax credit for capital invested in CCUS projects that have the goal of reducing emissions by at least 15 megatonnes of CO2 annually, but not enhanced oil recovery projects. The tax credit, starting in 2022, would be specifically aimed at direct air capture projects as well as hydrogen production. This measure provides an opportunity for blue hydrogen sector participants unable to access the lower tax rates available to zero-emission technologies discussed above.
The federal government is also introducing measures to decrease the corporate income tax rates for qualifying zero-emission technology manufacturers for income created from eligible manufacturing activities. They hope to decrease the federal general corporate rate from 15% to 7.5% and the federal small business tax rate from 9% to 4.5% for income of qualifying taxpayers from such activities. A taxpayer could qualify for this measure if at least 10 per cent of its gross revenue from all active corporate activity within Canada results from activities deemed to be “eligible.”
For a more detailed summary of all of the tax measures included in Budget 2021, see our Tax Group bulletin.
The government’s goal to transition to a low carbon economy will necessitate a shift to low carbon fuels. In order to support clean fuel investments, the government is introducing a budget envelope of $1.5 billion over five years to Natural Resources Canada to establish a Clean Fuels Fund. The fund will support the production and distribution of low-carbon and zero-emission fuels, including hydrogen and biomass, across Canada, and around the world. This fund is also expected to position Canada as a global hydrogen leader pursuant to the Hydrogen Strategy for Canada(PDF).
To encourage industry to produce clean fuels, the federal government has announced its commitment to buy low-carbon fuels for use in federal domestic air and marine fleets paired with the initiatives below:
- An investment of $227.9 million over eight years, starting in 2023-2024, to the Treasury Board Secretariat to implement a Low-Carbon Fuel Procurement Program within the Greening Government Fund, which will support the long-term development of low-emission marine and aviation fuels.
- Using and expanding federal procurement to support the Greening Government Strategy so that public dollars prioritize the use of lower carbon materials, fuels, and processes.
The government has prioritized powering federal buildings with 100 per cent clean electricity by 2022, and so the budget aims to provide $14.9 million over 4 years, starting in 2022-2023, with $77.9 million in future years, to Public Services and Procurement Canada for a Federal Clean Electricity Fund to purchase renewable energy certificates for all federal government buildings.
As governments seek solutions to the growing concern of climate change, there will continue to be shifts in Canada’s energy landscape. Industry should take advantage of these opportunities presented by the federal government, including funding and incentives. Many countries have been expanding their energy portfolios to find economical and feasible alternative energy resources. Jurisdictions across Canada are beginning to advance their own policies and messaging about the unique potential for new technologies and energy alternatives, and the federal government is prioritizing these initiatives. These next few years as Canada’s energy sector continues its transition, now with considerable support from Budget 2021, businesses may have the capacity to contribute in a significant way to Canada’s targets as the country continues to chase its net-zero emissions target.