That, coupled with attempts by many Western democracies to reduce their “economic dependence on dictatorships,” Freeland said, “represents the most significant opportunity for Canadian workers in the lives of everyone here today.”
Canadian business leaders have long urged the federal government to deliver a competitive response to the US Inflation Reduction Act, which pledged up to $369 billion in stimulus to clean growth.
“Without quick action, the sheer scale of US stimulus will erode Canada’s ability to attract the investment needed to establish Canada as a leader in the growing and highly competitive global clean economy. If Canada doesn’t keep up, we’ll be left behind,” the budget document said. “We will not be left behind.”
A senior government official told reporters the budget is trying to bring Canada roughly on par with the US by lowering the cost of investing in clean technology. Canada needs about CA$100 billion a year in clean technology investment to meet the government’s goal of net-zero emissions by 2050 – down from CA$15 billion of current investment to CA$20 billion, the official said.
The budget introduces two new recoverable tax credits, including the 15 percent zero-emission electricity generation credit. The Liberal government has pledged that Canada will achieve a net-zero electricity grid by 2035, while demand for clean electricity is expected to double by 2050.
The government is also announcing a 30 percent manufacturing facility tax credit for renewable and nuclear energy projects, zero-emission vehicles, and the extraction and recycling of critical minerals, which is expected to cost $11 billion by 2035.
Ottawa also plans to introduce tax credits for investments in hydrogen, carbon capture, use and storage (CCUS) and other clean technologies, including geothermal. The official said tax credits are the “workhorse” of the government’s plan to compete with the US. “They are clear, they are predictable, they are broad in scope and they are widely available,” the official said.
Canada’s plan aims to invest in clean technology – a key difference from the Inflation Reduction Act, which offers tax credits for manufacturing. The government official said Ottawa is “unconvinced” by the Biden administration’s approach, which provides no incentive to improve production efficiency over time.
The official also pointed to Canada’s federal carbon pricing system as a key difference between the two countries’ strategies to drive the transition to a low-carbon industry. The budget announces that Canada will use CFDs – which offer companies some certainty about the value of carbon credits – as another means of stimulating investment in clean technology without major public spending.
“In contrast, the United States has chosen to rely heavily on new industry subsidies to reduce its emissions,” the document said.
Robert Asselin, senior vice president for policy at the Business Council of Canada, said the government had “done as much as it probably could” with the series of new tax credits.
“They seem pretty purposeful,” he said. “Nobody knows whether they will achieve the desired turnover.”
But Asselin added that Canada has not yet matched the US push for clean technology R&D.
The government also promises to reduce the time it takes to get major projects off the ground, including critical mineral mines. The budget promises a “concrete plan to improve the efficiency of impact assessment and permitting procedures” by the end of 2023.
Ottawa also promises a new round of consultations on a possible response to measures in the Inflation Reduction Act that favor US suppliers. The government is considering responding in the same way with measures that could limit the new Canadian tax credits to domestic suppliers.
Mostafa Askari, chief economist at the Institute for Fiscal Studies and Democracy, said it’s still unclear how the “size” of Canada’s plan compares to the US. “It’s very difficult to say,” he said. “But my take on that was that they had to do that.”
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