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Deputy Prime Minister and Finance Minister Chrystia Freeland rises during Question Period in the House of Commons on Parliament Hill in Ottawa on Feb. 13.PATRICK DOYLE

Tuesday’s federal budget will announce a clean-tech manufacturing tax credit aimed at encouraging the mining of critical minerals in Canada, a credit that will be worth more than $3-billion over five years, according to a senior government official.

The 30-per-cent clean-tech manufacturing tax credit can be used to offset the cost of equipment used for mining and processing critical minerals, which are key to the green transition because they are the building blocks of clean-energy technology such as batteries.

The tax credit for manufacturing is separate from two similar programs that have previously been proposed by the government. The 2022 fall economic statement announced a 30-per-cent investment tax credit for clean technologies, which is aimed at the purchase of products that have already been manufactured, such as zero-emission vehicles or clean energy power systems such as solar or wind energy.

The 2022 budget also announced an investment tax credit for clean hydrogen production.

The Globe and Mail is not identifying the official because they were not authorized to be named while describing elements of the federal budget.

The budget’s inclusion of the manufacturing tax credit was first reported by Reuters.

The tax credit will be a key component of what the official said will be a substantive budget chapter on green energy and the clean economy. That section of the budget will chart Canada’s response to the Inflation Reduction Act, a package of American tax breaks and incentive programs that are worth about US$400-billion and meant to spur a wholescale economic transition south of the border.

Introduced last year, the lucrative U.S. subsidies sparked widespread concern among industry associations and business groups that the spending package would leave Canadian companies at a deep disadvantage as they try to compete for capital.

The federal government has promised that the budget will represent Canada’s response to the American spending and that it will ensure businesses can continue to compete.

During his visit to Ottawa last week, U.S. President Joe Biden made the pitch that the Inflation Reduction Act will be a net positive for Canada, framing it as the basis for a North America-wide economic transition. He added that Washington wants to be able to source critical minerals and other clean technology components from allies such as Canada, in an effort to reduce dependence on China.

“We each have what the other needs,” Mr. Biden said, noting that Canada has the raw resources and the U.S. has the processing capacity.

Business Council of Canada president and chief executive officer Goldy Hyder said Mr. Biden’s visit “shined a light on ways that Canada and the U.S. can work together in the global race to the top on clean energy.”

“But it is critical that we deliver the goods,” he said, pointing to Tuesday’s budget as a test of the federal government’s ability to “act with ambition, speed and purpose.”

His organization has called on the government to respond to the Inflation Reduction Act without significant new spending, by rationalizing existing programs meant to spur clean technologies. Specific recommendations include streamlining environmental assessments to shorten approval timelines and predictable tax credits for clean technologies.

Last year, the federal government announced $3.8-billion in funding toward the Canadian critical minerals industry over eight years, which was the first significant round of funding the industry had received in this country.

While most of the funding has yet to be allocated, several mining companies have already benefited. Last year, Australian miner Rio Tinto received a grant of up to $222-million from Ottawa to help it decarbonize a 1950s-era plant in Quebec that produces steel, scandium and titanium dioxide.

Canada and the United States are increasing their spending in critical minerals as both countries attempt to establish a footing in an industry dominated by China.

Canada is far behind China in all the key battery minerals. The only lithium mine in Canada is owned and operated by a private Chinese company. Canada produces only small amounts of cobalt and graphite. While Canada historically has been a major nickel producer, there is little-or-no refining capacity to process nickel for the electric car industry. Brazilian mining company Vale SA, however, has plans to build a new refinery in Quebec that would address that shortfall.

Jonathan Wilkinson, the federal Natural Resources Minister, told The Globe earlier this month that while Ottawa can’t match the amount of spending on offer from the United States, the federal government is considering a wide range of options to assist the industry. Among the measures the government was considering ahead of the budget was providing equity and loans to Canadian mining companies. That could be done through the Canada Growth Fund and Canada Infrastructure Bank, respectively, Mr. Wilkinson said.

The growth fund was announced in last year’s budget but has not yet been established.

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