In early November, the Government of Canada’s Fall Economic Statement was released, which provided updates on Canada’s economic plan following Budget 2022. Included in this were several proposals related to net-zero commitments, such as new investment tax credits, a growth fund, and an innovation agency.
NorthBridge has compiled a summary of key points outlined as part of the Statement. Further updates on the SR&ED review will be included as part of Budget 2023.
An Investment Tax Credit for Clean Technologies
Originally proposed in Budget 2022, an investment tax credit will be made available from 2023-2035 to boost adoption of clean technologies, specifically net-zero technologies, battery storage solutions, and clean hydrogen.
The refundable tax credit will be able to be claimed to cover up to 30% of the capital cost of investments in:
- Electricity generation stations (e.g., solar photovoltaic, small modular nuclear reactors)
- Stationary electricity storage systems that do not use fossil fuels (e.g., batteries, supercapacitors, magnetic energy storage, gravity energy storage, thermal energy storage)
- Low carbon heat equipment (e.g., active solar heating, air-source heat pumps, ground-source heat pumps)
- Industrial zero-emission vehicles and related charging/refueling equipment (e.g., hydrogen or electric heavy-duty equipment used in mining or construction)
Businesses which do not follow certain labour conditions will only be eligible for a credit of 20%.
An Investment Tax Credit for Clean Hydrogen
The establishment of an investment tax credit to support clean hydrogen production has been announced, as wider implementation of clean hydrogen is considered an essential part of Canada’s path to net-zero.
The refundable tax credit will run from 2023-2030, with the lowest carbon intensity tier eligible to receive a credit of at least 40%. The level of tax credit received will be dependent on whether certain labour protection requirements are met, related to wages and apprenticeship opportunities.
Further details about this tax credit, including the appropriate carbon-based system in a Canadian context and the level of support needed for production pathways, will be announced following consultations between the Department of Finance and relevant stakeholders.
An Investment Tax Credit for Carbon Capture, Utilization, and Storage
For businesses incurring costs related to carbon capture, utilization, and storage, a refundable tax credit will soon be made available for expenses incurred following January 1, 2022.
Currently, tax credit rates will be:
- 60% for capture equipment used in a direct air capture project from 2022-2030, and 30% from 2031-2040
- 50% for other eligible capture equipment from 2022-2030, and 25% from 2031-2040
- 37.5% for eligible transportation, storage, and use equipment from 2022-2030, and 18.75% from 2031-2040
Eligible expenditures will include purchases and installation of equipment used on eligible CCUS projects, such as capture, transportation, storage, and use equipment. This includes the conversion of existing equipment, building costs, and monitoring and tracking equipment. Projects must capture CO2 in Canada and must have eligible expenses of $250M or more over the lifespan of the project in order to be eligible.
Clean Energy Tax Incentives
Additionally proposed tax incentives for clean energy include:
- Expanded tax deductions for business investments in clean energy equipment to include air-source heat pumps.
- The 50% reduction of the general corporate and small business income tax rates for zero-emission technology manufacturers will be extended to include manufacturers of air-source heat pumps.
- Halved tax rates for businesses that manufacture zero-emission technologies.
Investing in Skills for a Net-Zero Economy
Beginning in 2023-2024, $250 million will be invested to support a Sustainable Jobs Training Centre, which will provide micro-credentials for upskilling and reskilling, in areas such as the sustainable battery industry and low-carbon building and retrofits.
In addition to this, projects will be funded to support unions in leading the development of green skills training, and the Sustainable Jobs Secretariat will provide information on federal programs and funding available for low-carbon projects.
Launching the Canada Growth Fund
Upcoming legislation will provide further details on the Canada Growth Fund, an investment fund designed to leverage private sector investment to meet climate and economic objectives. The primary goals of the Fund include:
- Reducing emissions
- Accelerating key technologies
- Scaling up clean companies
- Capitalizing on Canada’s natural resources
Through the Fund, concessional loans and contracts will be available to allow businesses to plan for long-term investments in decarbonization. Run by a team of investors, the government will establish guidelines for investment policies, application processes, ESG compliance, and performance measurement prior to opening the Fund.
Launching a Canadian Innovation and Investment Agency
As stated in Budget 2022, the Canadian government has committed $1 billion over the next five years to establish a Canadian innovation and investment agency which will support domestic innovation and commercialization efforts. Overseen by Parliament with advice from private sector experts, the agency will focus on job creation, goods and services generation, and business success.
Sector-Specific Investments and Strategies
To accelerate the advanced manufacturing sector, continued investments will be made in consultation with industry experts and unions to create jobs and build on a net-zero economy. Specific announcements regarding the manufacturing sector will be made in Budget 2023.
In addition to this, the development of a critical minerals strategy has been proposed as a way to secure Canada’s role as a leader in the critical mineral supply chain. This strategy will include tax and investment programs to develop the mining, processing, manufacturing, and recycling industries to provide the minerals required in clean technologies including electric vehicles, batteries, and renewable energy technologies.