This article was previously published in National Newswatch.
The 2023 federal budget rolls out hefty new support to accelerate low-carbon growth and expand clean electricity supply across the country—underscoring the new reality that climate action and economic policy are one and the same.
This is the most consequential budget in recent history for accelerating clean growth in Canada, and a shrewd response to the U.S. Inflation Reduction Act.
The world’s major economies know that investing in clean energy is the catalyst for future competitiveness, and Budget 2023 takes decisive steps to ensure Canada won’t fall behind in the global race to net zero.
The budget builds on Canada’s existing policy strengths, such as carbon pricing and clean fuel regulations, and provides targeted support to attract the private capital required to drive new sources of clean economic growth. In particular, new funding through Investment Tax Credits (estimated to cost $17 billion over the next five years) as well as new focus for the Canada Growth Fund and the Canada Infrastructure Bank, will help mobilize additional investment in clean growth projects across the country, such as clean electricity, hydrogen, clean technology manufacturing, electric vehicles, and batteries.
Specifically, Investment Tax Credits will help drive investment to new sources of economic growth and competitiveness. For example, a 30 per cent refundable credit will support investment in new machinery or equipment used to manufacture or process clean technologies and extract, process, or recycle key critical minerals. Similarly, tax credits of 15-40 per cent will support production of clean hydrogen and conversion to ammonia for transport.
By tasking the Public Sector Pension Investment Board (PSP Investments) to manage the Canada Growth Fund’s assets, the budget ensures that the Growth Fund can move quickly to mobilize private capital. Critically, the budget notes the importance of transparency and accountability in ensuring these investments are consistent with the Fund’s mandate.
Furthermore, the budget clarifies the role of the Canada Infrastructure Bank to make it “the government’s primary financing tool for supporting clean electricity generation, transmission, and storage projects.” Drawing on existing resources, it commits at least $10 billion of support for clean power and an additional $10 billion for clean growth infrastructure. Notably, the budget also indicates the Canada Infrastructure Bank will provide loans to support Indigenous communities in purchasing equity stakes of projects in which the Infrastructure Bank is investing, an approach consistent with our recommendations.
Another key policy tool moved from the wonky margins to the mainstream in this budget are contracts for difference which leverage Canada’s biggest advantage—carbon pricing—to help attract investment for clean growth projects at a lower cost than with straight-up subsidies. We strongly support this approach. Directing the Canada Growth Fund to provide tailored contracts for difference for large projects—whether tied to prices of carbon or commodities such as hydrogen—can get some projects moving quickly in the short-term. And by consulting on broader carbon contracts for difference it can reinforce certainty around future carbon prices, making the carbon pricing work better.
Clean electricity is a linchpin of Canada’s net zero pathways and its future competitiveness—a fact that comes through very strongly in this budget.
Clean electricity is Canada’s greatest competitive advantage in attracting investment, and we need more of it.
This budget takes significant strides toward building bigger, cleaner, and smarter electricity systems across the country, by leveraging existing resources via the Canada Growth Fund and Canada Infrastructure Bank, and offering new Investment Tax Credits for the electricity sector worth $6.3 billion over the next five years and $25.7 billion over the next decade. By making these tax credits (some of which are available to crown corporations and public utilities) conditional on provincial commitments to affordable net zero electricity, the budget will also create incentives for essential provincial and territorial action on clean electricity. These shifts will underpin Canada’s net zero transition and make energy more affordable and reliable for Canadians in the long run.
Finally, the budget provides some support for building resilience to climate-related disasters. It dedicates $15 million to Public Safety Canada to create a public portal providing Canadians information about their vulnerability to floods, $48 million to Public Safety to identify high-risk flood areas and implement a modernized Disaster Financial Assistance Arrangements Program, and $31.7 million to stand up a flood insurance program for Canadians without access to insurance.
With these commitments, Budget 2023 invests in the right priorities to tackle climate change and build a stronger, cleaner, and more competitive economy.