Budget 2023 moves Canada toward low-carbon future, but there's catching up to do, say experts

Following yesterday's federal budget, two Calgary industry experts say Canada is moving closer to a low-carbon energy future — but there's lots of work ahead to catch up to other countries, and the government needs to act fast, they caution.

The budget offers $16.4 billion in tax credits for clean tech manufacturing, clean electricity and hydrogen over the next five years, adding to the $6.7 billion in supports for clean tech investment announced last fall. Finance minister Chrystia Freeland has also agreed to add $500 million to the $4.1 billion in support announced last year for carbon capture, utilization and storage.

Beyond those subsidies, the government has committed billions toward a handful of potentially lucrative funds, including $15 billion for the Canada Growth Fund, $8 billion for a "net zero accelerator" and $20 billion through the Canada Infrastructure Bank.

Yrjo Koskinen, BMO professor of sustainable and transition finance at the University of Calgary, calls the budget "very sensible."

He says investing in critical minerals and clean hydrogen puts Canada one step closer to being a leader in this field, especially considering the upcoming demand from other countries.

"Europe will be switching towards more and more hydrogen, and if Canada can produce clean hydrogen for Europe, that could be a huge, huge margin market for our country," said Koskinen, who notes that it's critical to move swiftly to not lose the opportunity.

However, he says what's more important in the budget is the government's "contracts for difference," a system that ensures eligible companies receive compensation from the federal government if the industrial carbon price goes down.

In other words, it gives carbon pricing certainty in the future if there's a change in government.

"That's very important because uncertainty is really a poison for investments," said Koskinen. "There's no excuse not to invest anymore."

No clarity on carbon capture credit 

But Richard Masson, an executive fellow with the University of Calgary's School of Public Policy and chair of the World Petroleum Council-Canada, says this country doesn't have a good track record of governments sticking to their word, and a resulting lack of trust may be an issue.

"I don't have very much confidence that one government can bind a future government to a set of policies," said Masson.

While any bit helps, Masson says companies are likely disappointed that the budget didn't include more clarity on a higher investment tax credit for carbon capture. 

"Companies were hoping for a 75 per cent investment tax credit for carbon capture," said Masson.

It's currently sitting at 50 per cent, per last year's budget, and "now they have to wait another year or for some other statement along the way."

He says it's clear the main driver behind the budget — particularly with subsidies for clean energy — was to try to respond to the Inflation Reduction Act, which was recently passed in the United States.

"Maybe we're lining up a little bit better because we can see the U.S. as a bit of a competitive threat. Before, the U.S. wasn't doing much of anything. We could do whatever we wanted in Canada."

Masson says it's possible that competition will lead Canada to a better place in terms of a low-carbon future.

Catching up to others

The main thing holding up clean energy development and manufacturing in Canada, say Masson and Koskinen, is slow approval processes for projects.

"We need to get better at permitting large infrastructure projects and reduce regulations to get these things done, and not only talk about them on paper," said Koskinen.

That's key to catching up to other areas of the world, like the U.S. and Europe, he says.

He says it's "a life or death question" for oil and gas companies to reduce their greenhouse gas emissions before demand for oil and gas eventually reduces.

"At that point, who's going to produce the remaining oil and gas? Countries that are the cleanest. We need to be among the cleanest countries in the world by 2030," said Koskinen.

As a democratic country, doing so would be a service to the whole world, he says.

"The race is on."