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The Canadian plan is a reflection of the US Inflation Reduction Act, and includes two new investment tax credits (ITCs) targeted at clean energy manufacturing and technology that will remain at 30% until 2033, decreasing to 15% in 2034 before disappearing completely after 2034.
Canadas federal government this week outlined a six-year investment tax credit that puts in place a 30% tax credit for solar, wind and energy storage projects deployed through March 2034.
The Clean Technology Investment Tax Credit (ITC) was included as part of the Canadian governments fiscal priorities on March 28, 2023 Budget Day, with the Honorable Chrystia Freeland, Deputy Prime Minister and Minister of Finance by releasing the federal government budget for 2023, titled “A Made-In-Canada Plan.”
The Canadian government prioritizes a clean energy economy as one of the three main pillars of its multi-year budget. The federal government has a goal of making its power grid net zero carbon by 2035, which will bring $20.9 billion in tax incentives for clean energy projects over the next six years.
Against the backdrop of the US Inflation Reduction Act , Canadas 2023 Budget includes two new ITCs targeting clean energy and technology manufacturing. In its statements this week, the government said the new plan allows Canada to remain competitive with its southern neighbor.
Cleantech ITC
In the Fall 2022 Economic Statement, the Government proposed a 30% refundable ITC for cleantech, available for eligible properties that are purchased or available for use on or after March 28, 2023. In the 2023 Budget, the Government expanded this ITC to apply it to geothermal energy projects, in addition to solar, wind and energy storage. The duration of the ITC was also extended from phasing out in 2032, as intended in the 2022 proposal, and will remain at 30% until December 2033, reducing to 15% in 2034 before disappearing completely after 2034. .
ITC for clean electricity
A new incentive offered by the Canadian government is a refundable investment tax credit of 15% on capital costs incurred by non-taxable entities. These include indigenous or tribal communities, municipal utilities, and Crown corporations investing in renewable energy, energy storage, interprovincial power transmission, and other clean energy infrastructure projects.
The ITC also applies to new hydroelectric, wave and tidal projects, nuclear (including small modular reactors), and electricity generation from reduced natural gas.
Clean Hydrogen ITC
The Clean Hydrogen ITC was announced as part of the Governments 2022 proposals. New details of the hydrogen ITC core design elements include a volumetric ITC credit based on the projects carbon intensity, as measured by kilograms of carbon emissions produced per kilogram of hydrogen, and compliance with prescribed labor conditions.
Green hydrogen produced with the lowest carbon emissions and with skilled labor can receive an ITC of up to 40%, while gray or blue hydrogen, as it is called, that uses less carbon recovery can receive an ITC of between 5% and 25%, depending on working conditions.
Clean Manufacturing ITC
The Government has established a 30% refundable tax credit incentive for investment in machinery and equipment used to manufacture clean energy project components and extract relevant critical minerals from Canada. This tax credit is available for the manufacturing of renewable energy and energy storage equipment, and the recycling of critical minerals used in EVs and energy storage batteries.
SREP Recapitalization
In Budget 2023, the Government of Canada pledged $30 billion in recapitalized investments for the Smart Renewables and Electrification Pathways (SREPs) program, a program that supports regional priorities and indigenous-led projects.
Public Pay and Apprenticeship
Like the US IRA, the Fall 2022 proposal indicated Canadas intention to include pay and apprenticeship requirements for the proposed clean hydrogen and clean technology investment tax credits. The 2023 Budget proposes a wage and learning target for workforce related to renewable energy, green hydrogen, carbon capture technology, and excluding zero emission vehicles or low carbon heating equipment. The labor requirements apply to work performed on or after October 1, 2023.
With respect to the apprenticeship component, 10% of the total labor hours in the relevant fiscal year by covered workers performing work on subsidized project elements must be performed by registered apprentices.
Labor requirements apply to workers hired directly by the project owner or through contractors and subcontractors on project or infrastructure development projects. Labor requirements do not apply to clerks, clerks, supervisors, or executives of such companies.
Canadas 2023 Budget includes $20 billion to support investments in clean energy projects, including at least $10 billion through the Clean Energy priority area and at least $10 billion through the Green Infrastructure priority area, set up by the Canadian Infrastructure Bank.
Toronto-based Westbridge Renewable Energy, a developer of large-scale solar power projects, has issued a statement applauding the Budget 2023 initiatives:
“Access to low-cost clean energy is one of the most important factors in helping Canada reduce carbon emissions, move to a green economy and foster economic growth. With energy consumption in Canada expected to double by 2050, it is imperative to invest in clean technologies that help us meet that demand sustainably,” said Stefano Romanin, CEO of Westbridge. |
