Canada plans $20 billion in subsidies for carbon capture, clean tech

By Steve Scherer

OTTAWA (Reuters) – Canada’s government will present legislation this month to start paying subsidies for carbon capture and net-zero energy projects, a source with direct knowledge of the matter told Reuters, part of a plan to worth around $20 billion over five years.

A long delay in state support for carbon capture utilization and storage (CCUS) projects and for equipment used to produce low-carbon energy prompted industry lobbies to warn in September that some C$50 billion ($36 billion) worth of investments were at risk if the government did not act soon to provide some certainty for the sector.

Finance Minister Chrystia Freeland will announce the investment tax credit (ITC) funding when she presents the so-called Fall Economic Statement (FES) to parliament on Tuesday afternoon, the source added.

It will be included in the FES legislation to be sent to parliament later this month, the source said. Previous budget documents estimated all five of the ITC programs together would funnel an estimated C$27 billion ($19.7 billion) during their first five years in operation.

The government will concurrently introduce to parliament the labor provisions that will be tied to most of the ITCs. They require investors pay workers the prevailing union wage and provide apprenticeship opportunities in order to collect the maximum subsidy.

Canada is lagging the U.S. on the incentives seen as necessary to spur investment in new, low-carbon technologies. Washington has been offering massive incentives to clean tech companies under the U.S. Inflation Reduction Act (IRA) for well over a year.

President Joe Biden has lauded the $430 billion IRA passed in August, 2022, as an economic powerhouse. Bank of America estimates it has already spurred $132 billion of investment across more than 270 new clean energy projects.

CCUS are seen as vital to cutting emissions from Alberta’s oil sands without slashing production. Canada is the world’s fourth-largest oil producer.

The transition to a low-carbon economy is a cornerstone of Prime Minister Justin Trudeau’s economic policy and ITCs are key to help the government meet its goal of net-zero emissions by 2050.

There is “a global race for capital and investments in these sorts of projects,” the source said. “The government is trying to provide certainty to investors.

The finance ministry does not comment on fiscal documents before their publication, a spokesperson said.

The CCUS were first announced in the spring of 2021, and the clean tech ITCs were announced a year later – both before the IRA was launched – but Canada is only now launching the legislation needed to get the money flowing.

Freeland will also provide a timeline for the other promised ITCs, with public consultations for two of the three remaining programs starting this year and legislation for all of them put forward by the end of next year, said the source who was not authorized to speak on the record.

Funding for ITCs for machinery and other tools needed to build green technologies, and for producing hydrogen, is likely to be presented in the spring of 2024, with clean electricity ITCs coming in the fall, the source said.

The FES will offer additional spending to boost construction amid a housing supply crunch, the source said.

The fiscal statement will also put forward additional reforms to the Competition Act, the source said, in a bid to address affordability issues. The changes will be more broad than those announced earlier this year, and will address things like predatory pricing, the source said.

($1 = 1.3718 Canadian dollars)