April 11, 2023 – Budget 2023, according to Department of Finance Canada, “makes transformative investments to build Canada’s clean economy, fight climate change, and create new opportunities for Canadian businesses and Canadian workers”. For our purposes, we will focus on those elements that involve electrification and zero-emission energy/electricity, and that will impact our energy security.

CLEAN INVESTMENT TAX CREDITS

Clean Electricity Investment Tax Credit

To support and accelerate clean electricity investment, Budget 2023 proposes to introduce a 15% refundable tax credit for eligible investments in non-emitting electricity generation systems, abated natural gas electricity-fired electricity generation, stationary electricity storage systems, and equipment for the transmission of electricity between provinces and territories.

Taxable and non-taxable entities such as Crown corporations and publicly owned utilities, corporations owned by Indigenous communities, and pension funds, would be eligible for the Clean Electricity Investment Tax Credit.

Clean Technology Manufacturing Investment Tax Credit

Budget 2023 proposes a refundable tax credit equal to 30% of the cost of investments in machinery and equipment used to manufacture or process key clean technologies, and extract, process, or recycle certain critical minerals essential to clean technology supply chains.

Clean Hydrogen Investment Tax Credit

Budget 2023 announces the details of the Clean Hydrogen Investment Tax Credit announced in the 2022 Fall Economic Statement, with the levels of support varying between 15% and 40% of eligible project costs, with the projects that produce the cleanest hydrogen receiving the highest levels of support.

Enhancing the Carbon Capture, Utilization, and Storage Investment Tax Credit

Carbon Capture, Utilization, and Storage (CCUS) is a suite of technologies that captures carbon dioxide (CO2) emissions to either store the CO2 or to use it in other industrial processes. Budget 2023 proposes that the Investment Tax Credit for CCUS be expanded to cover additional equipment, and now be available for dedicated geological storage projects in British Columbia.

Expanding Eligibility for the Clean Technology Investment Tax Credit

Budget 2023 proposes to expand eligibility for the refundable Clean Technology Investment Tax Credit to include eligible geothermal energy systems. This is in addition to the support announced in the 2022 Fall Economic Statement, through this credit, for investments in clean electricity generation and storage, low-carbon heating and industrial zero-emission vehicles, including related charging or refuelling equipment.

INVESTING IN CLEAN ELECTRICITY

A Clean Electricity Focus for the Canada Infrastructure Bank

The Canada Infrastructure Bank will invest at least $10 billion through its Clean Power priority area, and at least $10 billion through its Green Infrastructure priority area. This will allow CIB to invest at least $20 billion to support the building of major clean electricity and clean growth infrastructure projects. These investments will be sourced from existing resources.

Supporting Clean Electricity Projects

Budget 2023 proposes to provide $3 billion over 13 years to:

• Recapitalize funding for the Smart Renewables and Electrification Pathways Program to support critical regional priorities and Indigenous-led projects.
• Renew the Smart Grid program to continue grid innovation support.
• Create new investments in science-based activities to help capitalize on Canada’s offshore wind potential.

The Atlantic Loop

Ottawa is committed to advancing the Atlantic Loop—a series of interprovincial transmission lines that will provide clean electricity between Quebec, New Brunswick, and Nova Scotia—and is negotiating with provinces and utilities to identify a clear path to deliver the project by 2030.

Securing Major Battery Manufacturing in Canada

Cementing Canada’s place in electric vehicle battery manufacturing “will pay dividends now and in the future by creating good well-paying jobs and enabling growth in related industries like critical minerals mining and processing, battery components, and parts and automotive manufacturing”.

A GROWING CLEAN ECONOMY

Delivering the Canada Growth Fund

Announced in Budget 2022, the Canada Growth Fund—a $15-billion “arm’s-length, public investment vehicle”—will help attract private capital to build Canada’s clean economy. Budget 2023 announces that the government intends to introduce legislative amendments to enable the Public Sector Pension Investment Board (PSP Investments) to manage the assets of the Canada Growth Fund to deliver on its mandate of attracting private capital to invest in Canada’s clean economy.

One of the investment tools the Canada Growth Fund will provide to support clean growth projects is contracts for difference. These contracts can backstop the future price of, for example, carbon or hydrogen, providing predictability that helps to de-risk major projects that cut Canada’s emissions.

Enhancing the Reduced Tax Rate for Zero-Emission Technology Manufacturers

Budget 2021 reduced corporate income tax rates by half for zero-emission technology manufacturers. Budget 2023 proposes to extend the availability of these reduced rates by another three years, and to extend eligibility for them to include the manufacturing of nuclear energy equipment and the processing and recycling of nuclear fuels and heavy water.

“What we heard today from Minister Freeland is that nuclear is no longer an afterthought or just an ‘option on the table’. We are now fully integrated into Canada’s energy future, eligible for a range of incentives that are being made for all clean energy technologies,” said John Gorman, president & CEO, Canadian Nuclear Association.

“This is what we have been calling for over the past months and years: not special treatment, but just a level playing field and the opportunity to compete and show what we can do to secure a brighter future for Canada.”

Supporting Clean Technology Projects

Budget 2023 proposes to provide $500 million over ten years to the Strategic Innovation Fund to attract and spur high-quality business investments to support the development and application of clean technologies in Canada.

Getting Major Projects Done

Building Canada’s clean economy will require significant and sustained private sector investment in clean electricity, critical minerals, and other major projects. Ensuring the timely completion of these projects is essential. In Budget 2023, the government is proposing further steps to ensure Canada’s reviews of major projects are fit for purpose to meet our clean growth objectives while continuing to uphold the highest standards for environmental and other impacts.

By the end of 2023, the government will outline a concrete plan to improve the efficiency of the impact assessment and permitting processes for major projects, which include clarifying and reducing timelines, mitigating inefficiencies, and improving engagement and partnerships.

Fair Pay for Workers Who Build the Clean Economy

Following consultations with unions and other stakeholders, Budget 2023 announces additional details on the labour requirements for the Clean Technology and Clean Hydrogen Investment Tax Credits:

• To be eligible for the highest tax credit rates, businesses must pay a total compensation package, one that equates to the prevailing wage. The definition of prevailing wage would be based on union compensation, including all benefits and pension contributions from the most recent, widely applicable multi-employer collective bargaining agreement, or corresponding project labour agreements, in the jurisdiction within which relevant labour is employed.
• Additionally, at least 10% of the tradesperson hours worked must be performed by registered apprentices in the Red Seal trades.

Budget 2023 also proposes these labour requirements be met to receive the full Clean Electricity Tax Credit, and announces the government’s intent to apply labour requirements to the Investment Tax Credit for Carbon Capture, Utilization, and Storage (details to come).

These labour requirements will come into effect October 1, 2023. The government will consult with labour unions and other stakeholders to refine these labour requirements in the months to come.

Additional Reading

The Canadian Tax team of Fuller Landau—an accounting, tax, and advisory firm—published a very helpful breakdown of the March 2023 federal budget.