Corporate tax breaks are the future of Canadian climate policy, according to the latest federal budget, which commits $80 billion over the next decade — of which $56 billion is new money — to subsidies for clean investments.
Investments in clean electricity, clean technology, clean manufacturing, hydrogen and carbon capture technologies will all soon be eligible for refundable tax credits of 15 to 40 per cent. The budget also puts more faith in the market to determine climate priorities, including a commitment to shift responsibility for the $15-billion Canada Growth Fund to a “professional, independent investment team.”
In announcing these measures, a senior government official said that by emphasizing tax breaks over public spending, “decision-making remains in the market, where it should be, because that’s where the expertise is.”
That’s a concerning abdication of government leadership at a pivotal moment for climate action.
As the latest IPCC report reminds us, there is “a rapidly closing window of opportunity to secure a livable and sustainable future for all.” Now, more than ever, we need bold public leadership to rapidly decarbonize the Canadian economy.
And while the private sector certainly has a role to play, we should not be leaving vital investments up to chance.
Take the electricity grid. As the Canadian economy electrifies over the coming decades, we will need to double clean electricity generation and triple electricity transmission capacity. The budget correctly notes that Canada’s “economic prosperity depends on significant investments today … [in a] national electrical grid that connects Canadians from coast-to-coast-to-coast,” which, according to research from the David Suzuki Foundation, will cost in the ballpark of $15 billion to $20 billion per year.
Yet, the government’s strategy for securing this vital investment amounts to offering a 15 per cent discount on new electricity projects and hoping for the best.
While this government has always used corporate subsidies to varying degrees, Budget 2023 marks a definitive shift in this direction. Compared to the $56 billion in new corporate subsidies, this budget only includes about $4 billion in new direct public spending on climate action.
The federal government’s long-term strategy appears to be a reliance on carbon pricing and investment tax credits to drive the clean economy, with only a limited role for public financing, writes @hadrianmk #Budget2023 #FederalBudget #cdnpoli
To be fair, when you add up all the backloaded spending from previous budgets, we estimate the federal government will spend upwards of $14 billion directly on climate action in 2023-24. It’s a far cry from the two per cent of GDP — closer to $50 billion per year — we ought to be spending, but it still reflects a government with its hand on the tiller.
Moving forward, however, the government’s long-term strategy appears to be a reliance on carbon pricing and investment tax credits to drive the clean economy, with only a limited role for public financing and what one official called “bespoke” public investments in select projects. Public co-ordination is taking a back seat.
And once this previously announced spending winds down in the next few years, corporate Canada will be expected to take the wheel.
This market-based approach may ultimately work for scaling up the clean economy. But even if it does, it will do little to address the country’s largest source of greenhouse gas emissions: oil and gas production. The budget makes scant mention of the sector and, in fact, includes new incentives for blue hydrogen, carbon capture and other technologies that will encourage further oil and gas extraction.
So while $80 billion is a significant and welcome commitment to climate action, there are some serious caveats. Unless and until we get a stronger regulatory approach to phasing out fossil fuels, these kinds of incentives will, at best, only get us halfway there.
Ultimately, to achieve a net-zero economy with the urgency the climate crisis demands, we need a government that is not only willing to spend but also to lead.
Hadrian Mertins-Kirkwood is a senior researcher with the Canadian Centre for Policy Alternatives.