Budget 2021: Key climate, energy, and Indigenous highlights

Deputy Prime Minister and Minister of Finance Chrystia Freeland today released Budget 2021: A Recovery Plan for Jobs, Growth, and Resilience (Budget 2021), Chapter 5 of which poignantly (and, some may argue, politically) opens with the statement: “Climate change is real.” The budget is broadly focused on measures to “finish the fight” against COVID-19 and ensure a robust, inclusive, and resilient economic recovery from the COVID-19 recession. 

Budget 2021 includes $101.4b (4.2% of GDP) over the next three fiscal years in incremental investments since the Fall Economic Statement 2020. Three key themes dominate Budget 2021, which predicts a total deficit of $354.2b in 2020-21, and less than the previously predicted deficit of $382b. They are: (i) recovery from the COVID-19 pandemic; (ii) climate conscious growth and adaptation; and (iii) enhanced social equity.

This bulletin outlines key climate, energy, and Indigenous highlights from Budget 2021, which includes:

• $17.6b in additional investments to support a green recovery and a clean economy;
• $18b over the next five years to improve the quality of life and create new opportunities for people living in Indigenous communities; and
• increasing the ambition of Canada’s emission reduction target from 30% below 2005 levels by 2030 to 36% below 2005 levels by 2030 (we expect this new target to feature prominently for Canada at the Leaders’ Climate Summit to be hosted by President Joe Biden this Thursday (April 22, 2021).

Budget 2021 is the first budget to meaningfully address both emissions mitigation activities and climate adaptation in light of increasing extreme weather events and conditions. In doing so, there is tacit recognition of the importance of nature-based climate solutions for the ongoing resilience of communities and infrastructure. It also snuggles closer to mandatory climate-related financial disclosures for public issuers (TCFD), but doesn’t quite get there for entities other than Crown corporations, which will be required to report on climate risk in accordance with TCFD and gender and diversity.

Net-zero economy and climate initiatives:

• New emissions target. GHG emissions reductions of 36% from 2005 levels by 2030 (as compared to 30% from 2005 levels by 2030).
• Clean tech. Investments in transformational technologies, clean fuels and carbon capture, direct air capture (DAC), energy storage — up to $1b available for large transformative projects.
• CCUS and DAC. $319m over seven years to NRCan for research, development, and demonstrations and the introduction of a tax credit for capital invested in carbon capture, utilization and storage (CCUS) projects with the goal of reducing emissions by at least 15 megatonnes of CO2 annually (effective 2022).
• A 90-day consultation is expected to be launched soon to engage with stakeholders on the design of the investment tax credit.
• The tax credit will support DAC and hydrogen production, but is not anticipated to support enhanced oil recovery (EOR).
• Climate innovation acceleration. $5b over seven years to support the Net Zero Accelerator announced in Canada’s climate plan, providing a total of up to $8b targeted at resource and manufacturing — energy, mining, agriculture, forestry, steel, aluminum, autos, aerospace (in addition to $1.75b toward aerospace, $1b to life sciences and bio-manufacturing). $60m over two years, starting in 2021-22, to the Innovation Superclusters. $450m, on a cash basis, over five years, starting in 2021-22, for a Venture Capital Catalyst Initiative.
• Tax rates for business that manufacture zero-emission technologies. 50% reduction in corporate and small business income tax rates for businesses that manufacture zero-emission technologies to be phased out in 2032. They include manufacturing/production of: wind turbines, solar panels, and equipment used in hydroelectric facilities, geothermal energy systems, electric cars, busses, trucks, and other vehicles, batteries and fuel cells for electric vehicles, biofuels from waste materials, green hydrogen, electric vehicle charging systems, certain energy storage equipment, including equipment used in pumped hydroelectric energy storage, renewable fuel production, hydrogen production by electrolysis of water, and hydrogen refueling.
• They will also remove existing restrictions for water-current, wave and tidal energy, active solar heating, and geothermal energy technologies. Fossil-fuelled and low efficiency waste-fuelled electrical generation equipment will no longer be eligible after 2024.
• The reductions would go into effect on January 1, 2022, and would be gradually phased out starting January 1, 2029 and eliminated by January 1, 2032.
• Climate change capacity and reporting. $94.4m over five years to Environment and Climate Change Canada (ECCC) to increase domestic and international capacity and action to address climate change, enhance clean tech policy capacity, including in support of the Clean Growth Hub, and to fund reporting requirements under the Canadian Net-Zero Emissions Accountability Act.
• Climate Action Incentive. Proposal to change how the Climate Action Incentive is paid to taxpayers through quarterly cheques instead of annual refundable credit; increased payments directly to farmers in backstop jurisdictions (Alberta, Saskatchewan, Manitoba, and Ontario), beginning in 2021-22 — estimated farmers at $100m in the first year.
• Border carbon adjustments. The government intends to launch a consultation process on border carbon adjustments (BCAs) in the coming weeks. This consultation process will begin in the summer with targeted discussions, including with provinces and territories, importers, and exporters — especially those who deal in emissions-intensive goods. The broader public is expected to be engaged this fall.
• Forest-based economies. $54.8m over two years to NRCan to enhance the capacity of the Investments in Forest Industry Transformation program.

Energy, infrastructure, and transportation initiatives:

• Home energy retrofits. $4.4b on a cash basis ($778.7m on an accrual basis over five years, with $414.1m in future years) to the Canada Mortgage and Housing Corporation to help homeowners complete deep home retrofits through interest-free loans worth up to $40,000.
• Tax incentives for clean energy generation and energy efficiency. Expansion of the list of clean energy generation and energy efficiency equipment eligible for existing tax incentives to include equipment used in pumped hydroelectric energy storage, renewable fuel production, hydrogen production by electrolysis of water, and hydrogen refuelling.
• Certain existing restrictions related to investments in water current, wave and tidal energy, active solar heating, and geothermal energy technologies would also be removed.
• Public transit. $14.9b over eight years to build new public transit, electrify existing transit systems, and develop transit solutions to connect rural, remote and Indigenous communities.
• Standards for retail ZEV charging stations. $56.1m over five years ($13m ongoing) to Measurement Canada to develop with the United States, a set of common codes and standards for retail zero-emission vehicle (ZEV) charging and fueling stations.
• Luxury tax. A luxury tax on new cars and private aircraft worth more than $100,000 and pleasure boats worth more than $250,000.
• Mining critical battery minerals. $9.6m over three years to create a Critical Battery Minerals Centre of Excellence at NRCan and $36.8m over three years to NRCan for federal research and development to advance critical battery mineral processing and refining expertise. This funding will assist in strengthening the Canada-U.S. Joint Action Plan on Critical Minerals Collaboration.Clean Fuel Standard. $67.2m over seven years to ECCC to implement and administer the Clean Fuel Standard.
• New GHG regulations. $104.6m over five years to ECCC to strengthen GHG emissions regulations for light- and heavy-duty vehicles and off-road residential equipment, establish national methane regulations for large landfills, and undertake additional actions to reduce and better use waste at these sites.
• Measurement for low-carbon fuel transactions. $67.4m over seven years, with $5.6m in remaining amortization and $10.7m ongoing, for Measurement Canada to ensure that commercial transactions of low-carbon fuels are measured accurately just as they are for conventional fuels.

Indigenous communities initiatives:

• UNDRIP. $31.5m over two years, for the co-development of an Action Plan to implement the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) and achieve its objectives.
• Clean energy projects in Indigenous communities. $36m over three years through the Strategic Partnerships Initiative, to build capacity for clean energy projects in Indigenous communities.
• $40.4m over three years to support feasibility and planning of hydroelectricity and grid interconnection projects in the North that will provide clean power to northern communities and help reduce emissions from mining projects.
• Infrastructure in Indigenous communities. Distinctions-based investments of $6b over five years, with $388.9m ongoing, to support infrastructure in Indigenous communities, including:
• $4.3b over four years for the Indigenous Community Infrastructure Fund;
• $1.7b over five years, with $388.9m ongoing, to cover the operations and maintenance costs of community infrastructure in First Nations communities on reserve.
• Essential health care. $1.4b over five years, and $40.6m ongoing, to maintain essential health care services for First Nations and Inuit communities.
• Health impacts of climate change. $22.7m over five years to support First Nations and Inuit as they manage health impacts of climate change.
• Federal procurement. $87m over five years to modernize federal procurement and create opportunities for specific communities which will, in part, assist Canada in meeting a target of 5% of federal contracts being awarded to businesses managed and led by Indigenous people.
• Community Futures Network of Canada. $80m, on a cash basis, for the Community Futures Network of Canada and regional development agencies, and to shift remaining funds under the Indigenous Business Initiative (IBI) into 2021-22, to extend the application deadline for the Regional Relief and Recovery Fund and IBI, in support of small businesses in rural communities serving local populations.

Sustainable finance and related federal government initiatives:

• Green bonds. Publication of a green bond framework in the coming months in advance of issuing the inaugural green bond in 2021-22, with an issuance target of $5b, subject to market conditions.
• Climate lens for federal decision-making. $36.2m over five years to ECCC to develop and apply a climate lens that ensures climate considerations are integrated throughout federal government decision-making.
• TCFD standards. Falls short of requiring mandatory TCFD disclosures, but moves noticeably toward that goal. Canadian Crown corporations will be required to adopt TCFD standards as an element of their corporate reporting by 2022 (for entities with over $1b in assets) or 2024 (for entities with less than $1b in assets). Government of Canada has also announced that it is joining the Task Force on Nature-related Financial Disclosures (a framework for corporations and financial institutions to assess, manage, and report on dependencies and impacts on nature).
• Marine and aviation fuels. $227.9m over eight years, starting in 2023-24, to the Treasury Board Secretariat to implement a Low-Carbon Fuel Procurement Program within the Greening Government Fund to support the long-term development of low-emission marine and aviation fuels.
• Climate finance for cean tech exports. $21.3m over five years, starting in 2021-22, and $4.3m per year ongoing, to Global Affairs Canada for the continuation of the International Business Development Strategy for Clean Technology.
• RECs for government buildings. $14.9m over four years, with $77.9m in future years, to Public Services and Procurement Canada for a Federal Clean Electricity Fund to purchase renewable energy certificates (RECs) for all federal government buildings.

Climate change adaptation and resilience:

• Disaster mitigation and adaptation. $1.4b over 12 years to Infrastructure Canada to top up the Disaster Mitigation and Adaptation Fund, to support projects such as wildfire mitigation activities, rehabilitation of storm water systems, and restoration of wetlands and shorelines, including $138m for Indigenous recipients.
• Standards to Support Resilience in Infrastructure Program. $11.7m over five years through Infrastructure Canada to renew the Standards to Support Resilience in Infrastructure Program, so that the Standards Council of Canada can continue updating standards and guidance in priority areas such as flood mapping and building in the North (take note P3s and Construction).
• Flood mapping. $63.8m over three years to NRCan, ECCC, and Public Safety Canada to work with provinces and territories to complete flood maps for higher-risk areas.
• Wildfire preparedness in national parks. $100.6m over five years, with $4.7m in remaining amortization, to Parks Canada to enhance wildfire preparedness in Canada’s national parks.
• Wildfire risk mapping. $28.7m over five years, with $0.6m in remaining amortization, to NRCan to support increased mapping of areas in Northern Canada at risk of wildfires.
• Disaster response and recovery. $1.9b over five years, on a cash basis, to Public Safety Canada to support provincial and territorial disaster response and recovery efforts.

Agricultural initiatives:

• Agricultural Climate Solutions program. An additional $200m over two years to launch immediate, on-farm climate action under the Agricultural Climate Solutions program. This will target projects accelerating emission reductions by improving nitrogen management, increasing adoption of cover cropping, and normalizing rotational grazing.
• Nature Smart Climate Solutions Fund. Allocate $60m over the next two years, from the Nature Smart Climate Solutions Fund, to target the protection of existing wetlands and trees on farms, including through a reverse auction pilot program.
• Agriculture Clean Technology Program. Allocate $10m over the next two years, from the Agricultural Clean Technology Program, toward powering farms with clean energy and moving off diesel.

Nature-based initiatives:

• Conservation of protected areas. $2.3b, with $100.5m in remaining amortization, to ECCC, Parks Canada, and the Department of Fisheries and Oceans to:
• Conserve up to 1 million sq. km more land and inland waters to achieve Canada’s 25% protected area by 2025 target, including through national wildlife areas, and Indigenous Protected and Conserved Areas.
• Create jobs in nature conservation and management.
• Accelerate new provincial and territorial protected areas.
• Support Indigenous Guardians.
• Take action to prevent priority species at imminent risk of disappearing, including through partnerships with Indigenous peoples.
• Natural Infrastructure Fund. $200m over three years to Infrastructure Canada to establish a Natural Infrastructure Fund to support natural and hybrid infrastructure projects.
• Ocean conservation. $976.8m over five years, with $80.0m in remaining amortization, to help Canada reach its 25% by 2025 target to protect the health of our oceans, commercial fishing stocks, and Canadians’ quality of life, especially in coastal communities.