The federal government is set to carve out a bigger role for itself in electricity policy – an area of mostly provincial responsibility, but one that Ottawa has identified as pivotal to national economic interests as Canada competes for low-carbon investment.
New spending commitments to help modernize and expand the capacity of the country’s power grids will be a major component of a federal budget aimed at keeping pace with massive clean-energy investment in the United States, according to government sources. The Globe and Mail is not identifying the sources because they were not authorized to speak about the budget’s contents.
Policy levers that the government has been considering, the sources say, include some combination of tax credits, grants, financing mechanisms and the pursuit of joint funding agreements with provinces. There is growing recognition that grid investment is currently nowhere near what is needed to meet electricity demand that is expected to at least double as electricity is increasingly used to fuel transportation, heat buildings and power industry.
Natural Resources Minister Jonathan Wilkinson has made clean-electricity spending his department’s top budget ask. And a diverse array of interests – including the industry association Electricity Canada, the right-leaning Business Council of Canada and environmental groups – have also been pushing for it to be prioritized.
They have warned that the slow current pace of such investment imperils a Canadian competitive advantage of relatively ample non-emitting electricity supply, which is of growing importance to companies setting net-zero emissions targets for their operations. The U.S., which has to this point relied more heavily on coal and other fossil fuels, is rolling out hundreds of billions of dollars in clean-energy spending through the Inflation Reduction Act.
The budget, to be delivered next Tuesday by Finance Minister Chrystia Freeland, will be only part of Ottawa’s new effort to assert itself in this space. Officials in the Natural Resources Ministry said on Wednesday that the government is set to launch the Pan-Canadian Grid Council – a federal-provincial committee promised during the 2021 federal election campaign but slow to materialize. It will be aimed at cross-jurisdictional collaboration on grid strategy.
More contentiously, Environment Minister Steven Guilbeault currently has the task of developing a national Clean Electricity Regulation. To be rolled out at some point this year, it is intended to require all provinces to have net-zero emissions grids by 2035.
But for now, the government has the daunting task of using the budget to spur clean-power investment across all provinces and territories – each of which has a unique energy mix, its own regulatory and planning system, and in some cases an aversion to what they see as federal interference.
Among the simpler moves that the government could make, stakeholders say, would be to expand its existing Smart Renewables and Electrification Pathways (SREPS) program, which provides federal grants for relatively small projects involving power sources such as wind, solar and energy storage, and modernization tools such as technologically advanced demand-management systems.
That program quickly used up the approximately $1.5-billion that it was previously allocated, including a $600-million increase in last year’s budget, and is currently not accepting new applications despite many potential projects around the country that would be eligible. Industry observers expect it to at least be recapitalized, and perhaps see an increase to its scope and the scale of its grants, which are currently capped at $25-million.
Prime Minister Justin Trudeau said on March 22 there are a lot of things on the agenda for Joe Biden’s first trip to Canada, with jobs and economic growth chief among them. Natural Resources Minister Jonathan Wilkinson says critical minerals are also a major concern.
The Canadian Press
The government has previously indicated that the budget will also provide details on a new investment tax credit, promised in November’s Fall Economic Statement, worth up to 30 per cent of renewable-energy projects. That’s seen as a direct response to a similar incentive introduced in the U.S. through the Inflation Reduction Act.
However, the Canadian tax credit is likely to be more limited in its impact, because unlike in the U.S., the bulk of Canada’s electricity infrastructure is publicly owned and thus ineligible for tax measures.
Officials say one of the fundamental challenges with which the government has been grappling is whether and how to extend comparable incentives to provincial Crown Corporations and other public entities.
Given the variances between provincial systems, that may likely require creating some manner of broad funding pool that could then be allocated according to needs. That process might be shaped by federal-provincial energy tables that Mr. Wilkinson is establishing separately with each province, to help identify shared clean-economy priorities.
There is also the matter of supporting Indigenous-owned electricity projects, which account for a significant share of Canada’s wind and other renewable potential, but are similarly ineligible for tax supports.
Access to credit and capital is a particular challenge for those projects, because of the way that Indigenous finances in Canada are structured. One option that has been advocated heading into the budget, including by the Business Council of Canada, is to introduce a federal Indigenous loan-guarantee program, to backstop (and thus improve access to) commercial financing.
While Ottawa has at least appeared open to these and other proposals, it has also signalled that there remain limits to how deep it wants to reach outside its traditional jurisdiction.
At a meeting last month with leaders of climate and clean-economy groups, Ms. Freeland spoke encouragingly about green-power prioritization, according to several people who were in attendance.
But the Finance Minister expressed reservations about the idea, advocated by the federally funded Canadian Climate Institute, that Ottawa go so far as to treat electricity the same as it recently did child care – essentially setting national goals, and then striking tailored funding deals with each province to meet them.
She voiced concern, the attendees said, about alleviating provinces of responsibility to themselves step up in areas that are under their jurisdiction and should be economic priorities for them as well.
At the same time, Ottawa is grappling with how to use limited federal dollars to try to avoid falling behind in other sectors that are similarly considered pivotal to low-carbon competitiveness. Industries ranging from electric-vehicle manufacturing to hydrogen production to critical minerals are now getting massive subsidies in the U.S.
Ms. Freeland has said that the government will pick and choose where it believes Canada has the best chance of competing, rather than trying to do so across the board.
Clean power has been identified as one such area, and hopes are running high among the electricity sector’s advocates.
“We’re kind of stuck in neutral right now and we need to get this into gear,” said Electricity Canada president and chief executive Francis Bradley. He expressed optimism that “a transformative budget” will “not just put this into first but get this into second gear.”