In September of 2015, then Governor of the Bank of England, Mark Carney, stood before a group of leading insurers assembled by Lloyd’s of London. His message to those assembled was stark: any investor who was not actively looking to transition funds from fossil fuel based holdings was exposing themselves to the risk of holding trapped assets. Reaction to Carney’s comments was swift and ranged from joyful righteousness through to outright denial.
What a difference five years can make.
For the first time in over two years our Federal Government tabled a Budget on April 19th. The challenge of this Budget is to ease the country out of a global pandemic and into a still uncertain future. In its preamble, it was clear that the government saw our transformation toward a greener economy as a big part our path forward. In a unveiled jab at Conservative Party Leader Erin O’Toole’s March 2021 party convention upset, the Budget’s Chapter 5, entitled A Healthy Environment for a Healthy Economy, opens with the declaration: “Climate change is real”. We then get a refresher on the investments this administration has made since 2015 – roughly $12 billion annually between 2015 and 2020. In 2020, that investment was further topped up by $15 billion.
This 2021 Budget proposes the biggest investment yet, an additional $17.6 billion in new direct spending and tax relief measures intended to lower Canada’s reliance on carbon–based fuel.
In introducing this Budget, Deputy Prime Minister and Minister of Finance Chrystia Freeland said this Budget was intended to contribute to meeting our greenhouse gas reductions targets, including achieving net-zero emissions by 2025 and preserving 25 per cent of land and marine conservation targets by 2025. While there are measures targeted toward homeowners, preserving and protecting our natural environment and strengthening our ability to be resilient in the face of climate change, it is the industry reforming aspects of this budget that are most revealing.
Here are the three announcements that begin to shape whether Canada is to become a leader, a laggard or part of the crowd as the global economy evolves toward cleaner energy sources:
- The governments Net Zero Accelerator, launched late last year is intended to “build and secure Canada’s clean industrial advantage.” The government believes this $5 billion over seven years will leverage an additional $8 billion of support for projects that will help reduce domestic greenhouse gas emissions across the Canadian economy. The plan is to decarbonize heavy-emitting sectors like steel and aluminum, in particular.
- The Budget 2021 proposes to introduce an investment tax credit to incent capital invested Canada’s emerging carbon capture, utilization, and storage (CCUS) industry. Natural Resources Canada is to be awarded an additional $319 million over seven years, starting in 2021-22, with $1.5 million in remaining amortization to further support the research and development of CCUS technologies. Taken together, the government is betting on this technology to deliver on both emissions targets and economic development opportunities.
- In a similar vein, the government signaled its belief that the demand for zero-emission technology will only grow. Given what Canadians have experienced due to a lack of investment in homegrown biotech, namely our dependence on other global players to produce our COVID 19 vaccines, we are in no mood to miss another innovation “boat”. Again using taxation incentives, Budget 2021 proposes to reduce—by 50 per cent—the general corporate and small business income tax rates for businesses that manufacture zero-emission technologies. This incentive program would run over the next 10 years starting in January 2022.
As part of these announcements, the Budget also commits to undertake an analysis to ensure that Canada keeps pace with the U.S. and other jurisdictions in providing the appropriate tax structures and incentives to encourage clean economy businesses to invest, grow, and deploy solutions here in Canada. This suggests the government sees opportunities to more closely align itself to the Biden administration.
Like reaction to Mr. Carney’s prognostications in 2015, the response to this Budget runs the gamut.
Some argue this Budget is “falling short” with “concerning elements”, including “financial support and new tax breaks for high-emitting sectors, including oil and gas.” Others called these investments “significant” and asserted that the mix of “unique incentives and opportunities” encompassed the entire country. Not surprisingly, those still heavily committed to the natural resource sector saw the proposed Budget as a “massive letdown.”
In her remarks to Parliament upon tabling this budget, Freeland said: “In 2021, job growth means green growth. By making targeted investments in transformational technologies, we can ensure that Canada benefits from the next wave of global investment and growth.”
Time will tell.