Deputy Prime Minister and Minister of Finance Chrystia Freeland today released Budget 2023: A Made-in-Canada Plan (Budget 2023). Resilient’s bulletin outlines key climate, energy, and Indigenous highlights from Budget 2023.
Clean Electricity, Clean Economy
Budget 2023 introduces “Canada’s Plan for a Clean Economy” (the Clean Economy Plan) with the following priorities: electrification; clean energy; clean manufacturing; emissions reduction; critical minerals; infrastructure; electric vehicles and batteries; and major projects. The Clean Economy Plan is centred on three tiers of federal financial incentives: (i) an anchor regime of clear and predictable investment tax credits; (ii) low-cost strategic financing; and (iii) targeted investments and programming to respond to the unique needs of sectors or projects of national economic significance.
Clean Electricity. Budget 2023 notes that Canada’s electricity demand is expected to double by 2050 and will require electricity capacity to increase by 2.2 to 3.4 times compared to current levels and proposes the following new funding and investments to support clean electricity in Canada:
- Canada Infrastructure Bank (CIB) will invest at least $10B through its Clean Power priority area, and at least $10B through its Green Infrastructure priority area, at least $20B to support the building of major clean electricity and clean growth infrastructure projects;
- $3B over 13 years to Natural Resources Canada to:
- Recapitalize funding for the Smart Renewables and Electrification Pathways Program to support critical regional priorities and Indigenous-led projects, and add transmission projects to the program’s eligibility;
- Renew the Smart Grid program to continue to support electricity grid innovation; and
- Create new investments in science-based activities to help capitalize on Canada’s offshore wind potential, particularly off the coasts of Nova Scotia and Newfoundland and Labrador.
- funding to advance the Atlantic Loop and support ongoing negotiations with provinces and utilities to identify a clear path to deliver the project by 2030.
Clean Economy. Budget 2023 proposes the following new funding and support for Canada’s clean economy:
- introduce legislative amendments in the fall to enable the Public Sector Pension Investment Board to manage the assets of the Canada Growth Fund to deliver on the Growth Fund’s mandate of attracting private capital to invest in Canada’s clean economy;
- consult on the development of a broad-based approach to carbon contracts for difference that aims to make carbon pricing more predictable and would complement contracts for difference offered by the Canada Growth Fund;
- enhance the reduced tax rates for zero-emission technology manufacturers by extending availability by another three years and extending eligibility to include the manufacturing of nuclear energy equipment and the processing and recycling of nuclear fuels and heavy water; and
- $500M over ten years to the Strategic Innovation Fund to support the development and application of clean technologies in Canada and direct up to $1.5B of its existing resources towards projects in sectors including clean technologies, critical minerals, and industrial transformation.
Investment Tax Credits
Budget 2023 proposes the following new investment tax credits and provides further details on previously-announced clean tech and hydrogen investment tax credits. The announcements are, in many cases, intended to level the playing field in light of significant clean economy incentives now available in the United States as a result of the Inflation Reduction Act.
Clean Electricity Investment Tax Credit. A 15 percent refundable tax credit for eligible investments in:
- non-emitting electricity generation systems: wind, concentrated solar, solar photovoltaic, hydro (including large-scale), wave, tidal, nuclear (including large-scale and small modular reactors);
- abated natural gas-fired electricity generation (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.
- extraction, processing, or recycling of critical minerals essential for clean technology supply chains, specifically: lithium, cobalt, nickel, graphite, copper, and rare earth elements;
- manufacturing of renewable or nuclear energy equipment;
- processing or recycling of nuclear fuels and heavy water;
- manufacturing of grid-scale electrical energy storage equipment;
- manufacturing of zero-emission vehicles; and
- manufacturing or processing of certain upstream components and materials for the above activities, such as cathode materials and batteries used in electric vehicles.
Investment Tax Credit for Clean Hydrogen. The previously announced Clean Hydrogen Investment Tax Credit will include the following key design features:
- support will vary between 15 and 40 percent of eligible project costs, with the projects that produce the cleanest hydrogen receiving the highest levels of support;
- a 15 percent tax credit will extend to equipment needed to convert hydrogen into ammonia, in order to transport hydrogen. The tax credit will only be available to the extent the ammonia production is associated with the production of clean hydrogen; and
- labour requirements will need to be met to receive the maximum tax credit rates.
Clean Technology Investment Tax Credit. Budget 2023 expands eligibility of the previously announced Clean Technology Investment Tax Credit to include geothermal energy systems that are eligible for capital cost allowance Classes 43.1 and 43.2 and modifying its phase-out start in 2034.
Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit. Budget 2023 enhances the CCUS Investment tax credit to:
- include dual use heat and/or power equipment and water use equipment;
- be available to projects that would store CO2 using dedicated geological storage in British Columbia;
- require projects storing CO2 in concrete to have their concrete storage process validated by a third-party based; and
- include a recovery calculation for the investment tax credit in respect of refurbishment property.
Reconciliation and Investments in Indigenous Priorities
Budget 2023 proposes the following new funding and investments to support Indigenous communities, climate action, and reconciliation:
- CIB will provide loans from its existing funding envelope to Indigenous communities to support them in purchasing equity stakes in infrastructure projects in which CIB is also investing;
- $40M to Crown-Indigenous Relations and Northern Affairs Canada to support Northern regulatory processes;
- $11.4M over three years to Crown-Indigenous Relations and Northern Affairs Canada to engage with Indigenous communities and to update federal duty to consult and accommodate guidelines for federal officials, supporting the implementation of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP);
- $19.4M over five years to Crown-Indigenous Relations and Northern Affairs Canada for the Northern Participant Funding Program to increase the participation of Indigenous Peoples and other Northerners in environmental and regulatory assessments of major projects;
- $21M to increase the participation of Indigenous Peoples and other Northerners in environmental and regulatory assessments of major projects in the territories;
- $8.7M for deeper engagement on a National Benefits-Sharing Framework to improve the quality and consistency of benefits Indigenous communities derive from major resource projects in their territories; and
- $5M to Indigenous Services Canada to support the co-development of an Economic Reconciliation Framework with Indigenous partners.
For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.
