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    Canadian budget directs C$55bn to energy transition


Budget measures totalling C$83bn over past two years framed as Canada's answer to US Inflation Reduction Act.

by: Dale Lunan

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Canadian budget directs C$55bn to energy transition

The Canadian government released its 2023 budget on March 28 with new commitments to clean energy totalling C$55bn (US$40bn) and framed as its answer to the US$369bn Inflation Reduction Act (IRA).

The majority of the new spending includes investment tax credits aimed at clean electricity, clean hydrogen and clean-tech manufacturing that will remain in place through the 2034-2035 fiscal year. On top of tax credits for carbon capture, utilisation and storage (CCUS) and other clean-tech investments in the 2022 budget, the total commitment from Ottawa comes to about C$83bn over the same timeframe.


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A 15% investment tax credit (ITC) for eligible investments in new electricity generation is aimed primarily at renewables, but is also available to abated gas-fired electricity generation, subject to an emissions intensity threshold “compatible with a net-zero grid by 2035.”

Refundable ITCs ranging from 15% to 40% will also be available for investments made in clean hydrogen, aimed primarily at green hydrogen but also available to blue hydrogen that meets a carbon intensity threshold of less than 4 kg of CO2-equivalent/kg of hydrogen. 

Minor adjustments were made to the CCUS tax credit framework, extending its applicability to geologic sequestration projects in BC, while the government committed to exploring carbon contracts for differences (CCfD) to provide enhanced certainty for low-carbon investments, including for CCUS and other abatement strategies.

“Industry and governments need to continue to work together at all levels to ensure that large clean technology and energy decarbonisation projects get built here in Canada,” Lisa Baiton, CEO of the Canadian Association of Petroleum Producers (CAPP) said in a statement. “We are continuing to review the programs announced in the federal budget to determine if they will help Canada compete on the world stage.”

The Chemistry Industry Association of Canada (CIAC), many of whose members rely on natural gas as a feedstock, said CCfDs can be an effective mechanism to de-risk the uncertainty of future carbon prices or carbon credit prices below Canada’s schedule for steadily increasing carbon prices to C$170/metric ton by 2030.

“CIAC welcomes the government's signal to implement CCfDs and encourages their broad eligibility as a form of long-term insurance against future carbon price volatility to all industrial emitters – including chemistry – making large decarbonisation investments,” it said.