Ottawa is being told to pick up the pace in implementing its promised spending measures to boost low-carbon investment lest Canada fall further behind the United States and other jurisdictions already putting such policies into action.
Industry is concerned about a series of refundable investment tax credits – for manufacturing and capital investment in clean technology, building non-emitting electricity capacity, hydrogen production and carbon capture – packaged in this spring’s budget, which the government estimates will total about $80-billion over the next decade.
Also causing worry is the slow rollout of the Canada Growth Fund, a new financing agency to support some of the same forms of investment.
The promised policies are distinct from the mammoth subsidies tailored to automakers Stellantis NV STLA-N and Volkswagen VWAGY for battery plants in Ontario, which have recently dominated public attention. Speaking to reporters last week after announcing a package for Stellantis worth as much as $15-billion, Finance Minister Chrystia Freeland identified finalizing the tax credits and the Canada Growth Fund’s scale-up as next steps in courting broader investment.
Leaders and representatives of sectors that are supposed to benefit from these measures, whom The Globe and Mail interviewed to gauge how they think implementation is going, were quick to acknowledge that Ottawa is working its way through the complexities of a form of industrial policy it has rarely embraced before.
But most expressed the view that Canada is at risk of watching capital flee to the U.S., where hundreds of billions of dollars in green subsidies via last year’s Inflation Reduction Act have started to flow. By contrast, many of Ottawa’s measures remain shrouded in uncertainty around their timing or contents.
“I’ve never seen so many of our members saying, ‘I’m getting so much pressure from the U.S.,’” said Dennis Darby, president of the industry group Canadian Manufacturers and Exporters. Companies want to stay in Canada and invest here, he said, and the tax credits should help. But “slow execution, in terms of the rules, timing, what is and is not included, and conditions to qualify” are making them anxious.
A spokesperson for Ms. Freeland pushed back against the concerns. “The investment tax credits are already providing business with the certainty needed to make investments in Canada,” said Katherine Cuplinskas, noting that the government has committed to making them retroactive so companies can proceed with qualifying expenditures.
That approach does not appear to have fully overcome a range of nagging doubts.
In some cases, it’s primarily a matter of how long it has taken for promised policies to become law. That applies to a 50-per-cent investment tax credit for carbon capture, utilization and storage (CCUS) technology, intended to help reduce emissions from oil-and-gas production and some forms of heavy manufacturing, which was first announced in 2021.
Most major questions about the shape of that measure have been resolved, and Ottawa is hoping to enact it through a budget implementation bill this fall and make it retroactive to 2022. (One aspect still in discussion is how labour requirements involving fair wages and apprenticeship ratios, also being attached to most of the other credits, will be enforced.)
But Cement Association of Canada president Adam Auer – whose members include Germany’s Heidelberg Materials HDELY, which is aiming to build the sector’s first large-scale North American CCUS facility in Edmonton – said retroactivity isn’t worth much until the measure gets through Parliament.
“Everyone is very happy these things have been brought into the conversation and made it to this point,” he said, “but they’re not going to inform final investment decisions until they’re law.”
Mr. Auer added that in industries like his, dominated by large multinationals, Canada is competing “not only for external capital but also internal capital” – meaning further delays could cause limited budgets for the new technology to go to places with greater policy certainty.
In other sectors, especially electricity, the issue is less about timing than confusion about how the tax credits promised for the first time in this year’s budget will work.
Representatives of interests in that space – including the Canadian Renewable Energy Association, Energy Storage Canada and industry group Electricity Canada – said they’re relatively clear on a 30-per-cent tax credit, first promised in last year’s fall economic statement, to be available to private developers of clean power.
They also praised Ottawa for pledging a 15-per-cent credit for non-taxable entities in this year’s budget – a response to concerns that the initial commitment would do nothing for provincial power utilities or for Indigenous communities increasingly leading or holding equity in energy projects. (It will be refundable, like the other credits, so essentially a straight subsidy.)
But there have been almost no details since the budget about how the latter credit will work, including how vague wording in the budget about a required commitment to net-zero electricity will be imposed. It’s also unclear how the two credits will interact with each other on projects involving both taxable and non-taxable entities.
A danger, according to the sectoral organizations, is that private companies may delay investments as they await eligibility details for non-taxable partners – problematic as Canada races to ensure it has enough electricity during a shift from fossil fuels.
There is also confusion among manufacturers around eligibility for a 30-per-cent tax credit, promised in this year’s budget, for making or processing “clean technologies and their precursors.”
For instance, apropos electric-vehicle supply chains, the government has said that the manufacturing credit will be available to companies that mine or refine battery materials and won’t be available to automakers such as Volkswagen and Stellantis with separate subsidy deals. But it isn’t clear whether or how automotive parts manufacturers supplying automakers with EV components will qualify.
Mr. Darby also said his organization is pushing for that credit to be retroactive to 2023, because manufacturers are making investment decisions now, while Ottawa says it will be retroactive to the start of 2024 if not law by then.
Representatives of the emerging non-emitting hydrogen sector, which aims to produce the fuel source for hard-to-decarbonize domestic and foreign sectors such as heavy industry and commercial transportation, were somewhat more patient in their assessments.
Canadian Hydrogen and Fuel Cell Association president Ivette Vera-Perez said eligibility requirements and other considerations around a tax credit promised last fall and worth between 15 per cent and 40 per cent are complex enough that she understands needing some time to get it right.
“The worst thing that could happen would be to think we’ve got an instrument and then find that it’s not useful,” she said.
However, Ms. Vera-Perez and others across several sectors also flagged the launch of the $15-billion Canada Growth Fund – intended to provide financing tools, such as carbon contracts for differences, to de-risk projects – as an area of concern.
This year’s budget said the CGF, first announced in 2022, would “begin investing in the first half of 2023.” But that time frame passed without any financing agreements being reached, as the Public Sector Pension Investment Board, which has been tasked with managing the fund, works to interpret its mandate.
As with some of the tax credits, a common impression is that Ottawa quickly made policy commitments to address competitiveness needs and gaps in its national emissions-reduction strategy, and now there’s a need to both hurry up and get the fine print right.
“We’re asking for two things at the same time,” Ms. Vera-Perez said of the competing pressures.
“I think there’s a balance to be found,” she said. “Investment decisions, rationally or not, are being made right now based on the signal from Canada.”
Mr. Auer was more pointed. “We’re running into the old saying that capital is impatient,” he said.
“Money is flowing in other jurisdictions, and in Canada we still have only the potential of that money flowing effectively.”