BUDGET 2024 AND THE CLIMATE
On April 16, 2024, the Trudeau government announced its annual Budget and Financial Statements, formally known as Budget 2024. For those who like to delve into the details, the main statement can be found here:
https://budget.canada.ca/2024/report-rapport/toc-tdm-en.html
The purpose of this note is to summarize the contents of Budget 2024 that relate to federal government climate policy and programs, and to comment briefly on the ones that appear to be of largest significance. Generally, these topics were not well covered in the mainstream media’s reporting.
Most climate-related information was contained in Chapter 4, under the heading “Attracting Investment for a Net-Zero Economy”; Chapter 8, under “Tax Fairness”; and Annex 3 under “Business Income Tax Measures”.
Attracting Investment for a Net-Zero Economy
Improving Electric Vehicle Supply Chains
The budget notes that the government’s main financing of “low-carbon” projects, technologies, businesses and supply chains is done through the Canada Growth Fund, a $15 billion investment fund allegedly led by a team of senior pension investment professionals. Using that fund, the government is committed to build an “end-to-end electric vehicle battery supply chain”, stimulate “major clean electricity and clean growth infrastructure projects and investments of at least $20 billion from the Canada Infrastructure Bank”, spend $3.8 billion for Canada’s Critical Minerals Strategy, and spend $3 billion to recapitalize the Smart Renewable and Electrification Pathways Program.
Budget 2024 states the government’s intention to introduce a new 10 per cent Electric Vehicle Supply Chain investment tax credit on the cost of buildings used in key segments of the supply chain, including electric vehicle assembly, EV battery production and cathode active material production. The tax credit would apply to property that is acquired and becomes available for use on or after January 1, 2024. It would be reduced to 5 per cent for 2033 and 2034, and would no longer be in effect after 2034. This is expected to cost $80 million over five years and an additional $1.02 billion from 2029-30 to 2034-35. This is in addition to the almost $38 billion that federal and provincial governments have committed to EV battery plants.
Investment Tax Credits
The government has already begun delivering five major investment tax credits to support “clean energy”. Investment tax credits are simply subsidies delivered through the tax system and therefore funded by all taxpayers. The current ones are for Carbon Capture, Utilization and Storage; Clean Technology Investment; Clean Hydrogen Investment; Clean Technology Manufacturing Investment; and Clean Electricity Investment. Budget 2024 expands the eligibility of the Clean Tech and Clean Electricity investment tax credits to support using biomass to generate heat and electricity.
The Clean Electricity investment tax credit is expected to cost $7.2 billion over five years starting in 2024-25 and an additional $25 billion from 2029-30 to 2024-35. For provincial and territorial Crown corporations to be eligible for this tax credit, the government of the province or territory would have to publicly commit to “work towards a net-zero electricity grid by 2023” and pass through the value of the tax credit to electricity ratepayers. (this may not go down well in a few provinces).
Carbon Contracts for Difference
Carbon contracts for difference are generally poorly understood by the Canadian public. They potentially could be used in different ways to protect an investor against a loss of a subsidy if a future government chose to change the existing pricing or taxation regime. For example, if a Conservative government were elected, it might decide to eliminate the current carbon tax regime now scheduled to increase to $170 per tonne by 2030. It also might decide to reduce or eliminate some of the climate-related subsidies that the present Liberal government has implemented. A contract for difference would insure against losses of those who had invested based on the expectation that the subsidies would continue. In other words, the present government would guarantee that the investors continued to receive the same financial benefits as they would have if the existing policy had continued. In effect, this would perpetuate the Liberal government’s subsidies, with taxpayers held accountable.
The 2023 Fall Economic Statement announced that the Canada Growth Fund will be the main federal entity to issue contracts for difference, including issuing up to $7 billion of them. Budget 2024 announced that the Canada Growth Fund is developing an expanded range of contract for difference offerings tailored to different markets, and that the Canada Growth Fund will “explore ways to broaden its approach, for example by developing off-the-shelf contracts for certain jurisdictions to offer these contracts on a competitive basis for set amounts of emissions reductions”. Budget 2014 also announced that the government will “ensure that the Canada Growth fund continues to have the resources to fulfill its role” as federal issuer of contracts for difference.
Budget 2024 announced that Environment and Climate Change Canada (ECCC) will work with provinces and territories to “improve the functioning of carbon credit markets, in order to help unlock additional decarbonization projects throughout Canada.” The inclusion of this rather obscure statement in the section of the Budget relating to contracts for difference implies that ECCC may seek to implement other ways to make climate policy-motivated subsidies permanent, regardless of a possible change in government.
Getting Major (Climate) Projects Done
Budget 2024 announced measures to clarify and reduce timelines for approval and implementation of major projects that support “clean growth”, while ignoring the need for such improvement for projects that advance economic development, especially in the resources sectors. Specifically, the government will increase funding to the Privy Council Office Clean Growth Office, establish a new Federal Permitting Coordinator, set a target of five years or less to complete federal impact assessment and permitting processes for “designated” projects, and set a three-year target for nuclear project reviews (the last point may be the biggest surprise in the Budget).
Securing the Canadian Biofuels Industry
Budget 2024 announced the government’s intention to spend up to $500 million per year to support biofuels production.
Tax Fairness
Canada Carbon Rebate for Small Business
One of the great inequities in the current carbon pricing system is that small to medium sized businesses were excluded from the rebate systems that were, more or less, available to households and to large industrial plants.
Budget 2024 proposes to return to small businesses a portion of the fuel charge proceeds from a province where the federal regime applies (i.e. Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador). The rebate will be an automatic, refundable tax credit payable directly to the firms, sized in proportion to the number of persons they employ in the province. The tax credit amount would be equal to the number of persons employed by the eligible corporation in the province in that calendar year multiplied by a payment rate specified by the Minister of Finance for the province for the corresponding fuel charge year.
While this change probably will be welcomed by small and medium-sized businesses, it is essentially a politically-motivated “fix” to one of the many design problems with the carbon dioxide pricing regime. A report by the Fraser Institute previously found that the estimated impacts of a $170 per tonne carbon tax by 2030 would include an added $22 billion annually to the consolidated government deficit. The introduction of the new rebate scheme will increase that deficit.
Subsidies for EV Purchasers
Budget 2024 proposes to provide $607.9 million over two years, starting in 2024-25 to Transport Canada to top up the subsidies for the Zero-Emission Vehicles program.
Comments
As has long been characteristic of the Trudeau government’s climate policy, the Budget 2024 measures add significantly to the proposed expenditures but offer no evidence concerning the cost-benefits, cost effectiveness or ultimate environmental benefits of the measures. They are offered primarily as though their merits were self-evident regardless of the costs. Unsurprisingly, there were no announcements with respect to a reduction in the number of climate measures or of their costs.
There were three measures that might count as mild surprises. The first is the implementation of a carbon tax rebate for small business, after six years of refusing to implement such a measure. This seems to be a political response to the success of the Conservative Party’s “Axe the Tax” campaign against the carbon dioxide pricing regime.
The second surprise was the blatant endorsement of contracts for difference, which surely raise important questions not only about their costs but the appropriateness of holding a future government (and taxpayers) financially liable to protect against the costs to industry of policy decisions made by the current government.
The third surprise was the implicit endorsement of nuclear energy as one of the “clean” energy sources that will henceforth receive favourable treatment from federal climate policy.
An important missing element was the clarification of the details concerning the provisions of the investment tax credit for Carbon Capture, Utilization and Storage, without which decisions to proceed with major investments in these technologies may be delayed. One can only guess at what is causing the delay.
Contributed by Robert Lyman © 2024. Robert Lyman’s bio can be read here.
This Liberal government has created a way to stay in power no matter who wins an election. They simply pass flawed or unconstitutional bills (like the Convoy lockup) that will take decades to unravel in the courts.
In addition to his analysis, it would be be good if the author pointed out that there is zero basis in fact that CO2 (Plant Food) is a thermostat for the planet. It is not. As such, he might ask, what is the true purpose of a Carbon Tax?
I would suggest it is to control and ration the lifeblood of prosperity ,abundance and freedom for humanity – hydrocarbons.
If Canadas population and industry was eliminated from the face of the earth – there would be about 1 part per million less CO2 in the atmosphere every 4 years.
Bear in mind that CO2 levels have been as high as 7000 ppm in geological history and the earth did not burn up – we are now at about 430 ppm.
Long before climate policies have any effect on the climate, nations that embrace them will be bankrupt and living under totalitarian rule – which I would suggest is the actual goal of climate policies.