Canada recently pledged to raise its emissions reduction goal to 40-45% below 2005 levels, up from 30%. How does the 2021 budget support this plan?
TL;DR
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A temporary 50% reduction in corporate income taxes for qualifying zero-emission tech manufacturers is in the offing.
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Up to $8 billion in funding for projects that reduce GHG emissions, and Canada’s first federal green bond to be issued for $5 billion.
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$1.5 billion for production and distribution of low/zero carbon fuels, and over $300 million for R&D to improve commercial viability of carbon capture and storage technology.
Government budgets are always long-winded affairs, and Canada’s 2021 budget is no different, coming in at 725 pages.
We’ve saved you the trouble of looking through such a weighty tome and have compiled information on the government’s energy and climate change proposals below for your convenience.
You can read the entire budget here if you so wish.
Taxes
The 2021 budget includes a temporary 50% reduction in corporate income tax rates (which will be gradually phased out between 2029 and 2032) for qualifying zero-emissions technology manufacturers. Eligible companies must procure at least 10% of their gross revenue in Canada from manufacturing or processing activities related to zero-emissions technology.
Under this proposal, the general corporate tax rate would fall from 15% to 7.5% and the small business tax rate from 9% to 4.5% for eligible income earned through the aforementioned means.
The budget also expands the list of clean energy / energy conservation equipment (that fall under Classes 43.1 and 43.2) eligible for accelerated tax write-offs, known as CCA, or capital cost allowance. CCA is “the deduction you can claim over a period of several years for the cost of depreciable property, that is, property that wears out or becomes obsolete over time such as a building, furniture, or equipment.”
The expanded list includes pumped hydroelectric energy storage, renewable fuel production, hydrogen created via H₂O electrolysis or hydrogen refuelling.
General corporate tax rate would fall from 15% to 7.5% and the small business tax rate from 9% to 4.5% for eligible income.
CCA is only available if, at the time a property is acquired and available for use, all applicable regulations, by-laws, and Canadian environmental laws have been met. Certain fossil-fuelled and low-efficiency waste-fuelled technologies currently in Classes 43.1 and 43.2 will no longer be eligible for properties that become available after 2024.
Starting in 2022, the government also proposes introducing an investment tax credit for capital invested in carbon capture, utilization, and storage (CCUS) projects that aims to reduce emissions by at least 15 mega tonnes of CO₂ per year.
Green economy & project funding
The budget allocates $5 billion over seven years to the Net Zero Accelerator to ultimately provide up to $8 billion in funding for projects that reduce greenhouse gas (GHG) emissions. The government will also provide $1 billion over five years to help draw in private sector investment to support large-scale clean energy projects.
The 2021 budget also announced the first of many federal green bonds, with Canada’s inaugural issuance aiming for $5 billion, funds that will support green infrastructure, clean tech, and nature conservation projects.
Over five years, $4.4 billion will go to the Canada Mortgage and Housing Corporation to provide loans to homeowners and landlords to conduct retrofits and other upgrades that fall under those authorized by EnerGuide energy assessments.
Existing restrictions on investments in water-current, wave and tidal energy, active solar heating, and geothermal energy will also be removed.
$4.4 billion will go to the Canada Mortgage and Housing Corporation to provide loans to homeowners and landlords to conduct retrofits
An additional $200 million over two years is allocated to the $185 million already part of the Agricultural Climate Solutions program to improve nitrogen management, cover cropping, and normalizing rotational grazing. $10 million is earmarked to help transition farms off of diesel energy generation and towards clean energy.
The recently expanded $165 million Agricultural Clean Technology program prioritizes $50 million to aid farmers in purchasing more efficient grain dryers.
Public Services and Procurement Canada will spend $14.9 million over four years as part of the Federal Clean Electricity Fund to purchase renewable energy certificates for all federal government buildings.
$40.4 million over three years will fund planning and feasibility studies of hydroelectricity and grid interconnection in the North, while $36 million during the same time period will go to help First Nations, Metis, and Inuit communities build capacity for local, economically sustainable, clean energy projects.
Transport and Fuels
$1.5 billion over 5 years is allocated to Natural Resources Canada to support the production and distribution of low/zero carbon fuels. Environment and Climate Change Canada will spend $104.6 million over five years to strengthen GHG regulations for light and heavy duty vehicles, and off-road residential equipment.
$67.2 million over seven years will be provided by Environment and Climate Change Canada to establish new opportunities for biofuel producers.
$56.1 million is set aside for Measurement Canada to develop and implement (together with international partners) codes and standards for retail zero-emission vehicle (ZEV) charging and refuelling stations. Measurement Canada will also spend $67.4 million over seven years to ensure commercial transactions of low-carbon fuels are as accurately measured as conventional fuels.
As part of Ottawa’s green plans for federal operations, $227.9 million over eight years will be allocated to the Treasury Board Secretariat to implement the Low Carbon Fuel Procurement Program for the federal government fleet.
Research, Development, Promotion
Natural Resources Canada will spend $319 million over seven years to support research, development, and demonstrations to improve the commercial viability of CCUS technology.
The National Research Council will allocate $90 million over five years to modernize the Canadian Photonics Fabrication Centre, and Global Affairs Canada will spend $21.3 million over five years to continue the International Business Development Strategy for Clean Technology.
Environment and Climate Change Canada will spend $94.4 million over five years to increase both domestic and international capacity and action to address climate change, enhance clean technology policy, and fund reporting requirements under Canada’s Net Zero Emissions Accountability Act.
$9.6 million over three years by Natural Resources Canada will create a Critical Battery Minerals Centre of Excellence, with another $36.8 million earmarked for research and development to advance critical battery mineral processing and refining expertise.
Together with the BC provincial government, Ottawa is spending $35 million to build a new Centre for Innovation and Clean Energy to aid the scale up and commercialization of clean technologies.
