Finance Minister Chrystia Freeland is set to deliver a budget with more spending to combat climate change than the federal government has ever previously committed.
Whether that amount is enough to meet expectations built over the past year is a different matter.
Almost from the moment that COVID-19 hit, environmental groups – and some sympathetic cabinet ministers – began pushing the government to use postpandemic recovery spending to reduce Canada’s emissions and prepare it to succeed in a decarbonizing global economy.
Their case has been bolstered by competitive pressure as President Joe Biden has spent his early months in office aggressively trying to establish the United States as a leader in sustainable-economy transition. Fittingly, he will host an international climate summit three days after the budget’s April 19 release.
The ideas have abounded for how Canada should spend on climate-related policies, but the available funds are not infinite. Ms. Freeland has said Monday’s budget will feature between $70-billion and $100-billion in recovery spending over three years, which includes the billions of dollars for public transit and other expenditures already promised in recent months. Other priorities, such as a child care investment to address social inequalities exacerbated by the pandemic, will use up a good portion of the balance.
The fundamental challenge for the Liberals has been determining how to most efficiently use the available dollars to supplement the rising carbon price at the heart of its strategy to reduce emissions.
It’s evidently been a struggle, since potential climate-related elements of the budget were still being actively debated within government as recently as the start of this week.
For those who recognize this as a make-or-break moment for the Liberals’ promise to put Canada on a path to net-zero emissions, these are some of the fronts to watch closely:
With the United States increasing its use of tax credits to support clean-technology development and deployment, one of the hottest prebudget debates has been about Canada following suit.
The biggest push has been for an equivalent to the 45Q production tax credit in the U.S., which encourages carbon capture, utilization and storage. It’s a contentious subject among environmental groups, because it could benefit the struggling oil and gas industry. But it could also assist other hard-to-decarbonize sectors such as steel and cement, while helping Ottawa’s relations with an Alberta government that has lobbied for it.
Quieter, but not less compelling, has been a case for investment tax credits that, among other benefits, would do more to attract scale-up capital for early-stage clean technology companies.
It’s possible the budget will include both (and possibly even a corporate tax cut for companies that develop and manufacture zero-emissions technology, which the Liberals promised last campaign). But with the Finance Department resistant to layering in new measures that complicate the tax system, a likelier outcome may be some sort of hybrid credit aimed at providing support for a range of technologies.
DIRECT SPENDING ON DECARBONIZING INDUSTRY
If the Liberals are looking to signal an activist industrial strategy, expect to hear more about the Net Zero Accelerator.
Announced late last year, it’s a program (under the broader Strategic Innovation Fund) that has so far been allocated $3-billion over five years to subsidize clean-technology deployment by large-emitting industries.
Federal officials make little secret of their intention to ramp up that funding, since $600-million a year won’t go far in paying for major decarbonization efforts.
But the government might want to wait to see how the initial money goes out the door before committing more of it. Or it might be so eager to convey urgency that it locks in additional funds now.
BUILDING AN EV SUPPLY CHAIN
The budget probably won’t include major new measures to encourage domestic sales of electric vehicles, beyond existing rebates and investments in charging infrastructure. Ottawa is waiting for the Biden administration to bring in new fuel-efficiency rules on which Canada typically aligns with the U.S., and gauging American interest in a continental policy mandating that a growing share of each manufacturer’s vehicle sales be EVs.
A more interesting question, for now, is whether the government will detail any plans to make Canada more of a player in EV manufacturing.
The Liberals have been speaking for a while about capitalizing on Canada’s rich supply of key component minerals and auto-making expertise to build a full supply chain, including battery production. But aside from some success in attracting vehicle-assembly commitments, their strategy hasn’t taken shape yet.
Scaling up the Net Zero Accelerator may offer part of the answer there, since the auto sector is an industry it’s supposed to support. But there are mounting calls for the government to provide more designated resources for mining and mineral refining in particular.
Government officials know they need to start turning the vague talk into action.
GETTING SERIOUS ABOUT RETROFITS
From the pandemic’s outset, energy-efficiency retrofits to buildings – which account for about 13 per cent of Canada’s carbon footprint, mostly from fossil-fuel heating – have been seized on by green-stimulus advocates as a way to create jobs while reducing emissions.
So far, Ottawa has announced in the Fall Economic Statement that it will provide grants of up to $5,000 for home retrofits. But that’s likely to be fairly modest and inefficient in its decarbonization impact.
At the time, the government said it would also develop a low-cost loan program to support deeper home renovations. Little has been heard of that since, though, and it remains to be seen if it will be in this budget.
There is room for more. That could include more targeted grants for larger projects in houses and apartment buildings, plus training and other programs to help the construction industry meet demand.
Energy-efficiency funding could also come into play through programs to build or renovate affordable housing. It’s one of the few clear ways the government could address its equality and environmental aims at once.
WORKING WITH FARMERS
Agriculture, which accounts for about 10 per cent of national emissions, has been largely overlooked in Canada when it comes to climate policy. But with many of its activities exempted from carbon pricing – and a backlash over areas carbon pricing does touch, especially energy costs for grain drying – there’s a strong case for Ottawa to spend some money in ways that help both sustainability and farmers’ bottom line.
There is also an intersection with the Liberals’ broader desire to invest more in solutions based on nature. As part of a broader effort that includes funding for the government’s commitment to plant two billion trees, it wouldn’t be surprising to see incentives for farmers to protect ecosystems on their properties.
But there are other options, too. A prebudget submission by the group Farmers for Climate Solutions included calls for programs to reduce use of nitrogen fertilizers, and promote the practices of cover cropping (in which unharvested crops sequester carbon while enhancing soil) and rotational cattle grazing. It depends how eager the government is to engage a sector that has viewed its climate policies with suspicion.
PREPARING FOR CLIMATE CHANGE’S EFFECTS
Led by the insurance industry, there has been a push for spending not just on mitigating climate change, but also adapting to increasingly inescapable consequences such as more floods and wildfires.
The government recently promised the formulation of “Canada’s first-ever national adaptation strategy,” in consultation with provinces, which could take a while. But there are some investments it could make now.
Most obvious would be an extension and expansion of a $2-billion program that helped cities brace their infrastructure, which wasn’t sufficient. The budget could also confirm that the $5,000 home retrofit grants will cover measures such as flood protection.
It’s not a subject that easily lends itself to optimistic political messaging, which is perhaps why it’s gotten short shrift in Canada thus far. But this budget may reflect many ways in which the country’s climate discourse is expanding.