April 19, 2021

By Smart Prosperity Institute


Even before it was released, Budget 2021 was memorable for being tabled as Canadians struggled on many levels through the ongoing COVID pandemic. It was also notable for being the first feminist federal budget tabled by the first woman as a Finance Minister. The budget is also noteworthy for committing $17.6 billion in green spending, centered around an ambitious pledge to surpass the previous 2030 GHG reduction target and decrease emissions by 36% below 2005 levels by 2030. Here are some of the highlights of a Budget that includes a range of measures to reduce emissions, drive clean growth and conserve nature.


Corporate Tax Cut for Zero-Emissions Technology Manufacturers

As promised during the 2019 election campaign, the government has committed to cutting the federal corporate tax rate in half for manufacturers of zero-emissions technology. This would apply to a set of technologies from solar panels to electric buses to green hydrogen. The reduced tax rate goes into effect in 2022 and will be phased out starting in 2029. The measure is expected to cost the government roughly $10 million each year in foregone corporate tax revenue. See the Smart Prosperity Institute brief from earlier this month on how the reduced rate is likely to be designed. Unfortunately, the budget lacks the elimination of cleantech parts tariffs that would help the competitiveness of Canadian manufacturers.


An Expanded List of ACCA-Eligible Clean Technologies

Previous budgets have allowed purchases of selected clean technologies to fully expense those expenditures in the year they were purchased. Smart Prosperity has suggested expanding the list of eligible technologies, and Budget 2021 does just that by adding “equipment used in pumped hydroelectric energy storage, renewable fuel production, hydrogen production by electrolysis of water, and hydrogen refueling” and removing restrictions on investments in “watercurrent, wave and tidal energy, active solar heating, and geothermal energy technologies”. Furthermore, certain fossil fuel-related technologies will no longer be eligible starting in 2024, a policy move also suggested by SPI to avoid incentivising technologies that don’t put us on a path to net zero emissions.


A Tax Credit for Carbon Capture and (Maybe) Green Hydrogen

The budget provides Investment Tax Credits for carbon capture, utilization and storage (CCUS), starting in 2022. Other design elements - including the tax credit rate - are still to be determined. While this is a welcome start, Smart Prosperity has advocated for the creation of both a suite of complementary tax measures - such as production tax credits - available in the US, the broadening of eligibility for existing instruments, and for tax instruments to be designed so they are accessible for pre-profit companies like start-ups. Further work to improve our investment landscape will be needed to compete with ambitious changes in the United States.


Driving Towards a Cleaner Transportation Future

Canadian low- and zero emission transportation and manufacturing received support. The creation of a Clean Fuels fund, a $1.5 billion investment, will support the production and distribution of low-carbon and zero-emissions fuels in Canada, as part of Canada’s hydrogen strategy. Additional support will be focused through procurement of low-carbon maritime and aviation fuels for use in federal domestic air and marine fleets. Finally, financial support is offered for the implementation of more ambitious emissions regulations for light and heavy-duty vehicles, and off-road residential equipment, as well as for the implementation of the Clean Fuel Standard. There is also a pledge to create a Critical Battery Minerals Centre of Excellence that would coordinate policy on critical minerals for manufacturing zero-emissions vehicles and renewable energy, and work with domestic and international partners.


Funding for Clean Innovation Programs

The budget commits $5 billion over seven years to the Net Zero Accelerator, in addition to the $3 billion announcement in the enhanced Climate plan, totalling an $8 billion investment through the new stream of the Strategic Innovation Fund. The government will, in partnership with the Government of B.C., provide up to $35 million to help establish the Centre for Innovation and Clean Energy to advance the scale-up and commercialization of clean technologies in B.C. and across Canada. The budget also commits up to $1 billion over 5 years to support the scale-up of promising clean technology projects, and draw in private sector investment. This funding addresses a critical need (scale-up financing) that has been identified by the Sustainable Finance Expert Panel and others. Further, it also commits to the development of a five-year program to support Canadian clean technology exports to sell into international markets, run through Global Affairs Canada.


Supporting Low-Carbon Buildings

The budget includes a commitment to provide $4.4 billion in interest-free loans to Canadians to reduce emissions from residential building stock. In addition, it specifies that the government will provide support to Canadians in the form of free energy audits -- 700,000 grants, each with a value up to $5,000. Importantly, the Budget specifies that a separate loan stream will be created for low-income homeowners, and rental properties serving low-income renters. While it is welcome, research has indicated that grant financing may play a stronger role in improving accessibility for low-income homeowners and renters, so this instrument should be considered as the budget moves to implementation.


Adding to the Agility of Canada’s Regulatory System

The government continues to support the modernization and increased agility of the nation’s regulatory system. Additional funding has been proposed to extend the External Advisory Committee on Regulatory Competitiveness to support targeted regulatory reviews and to address specific issues of regulatory incoherence and uncertainty in the clean transportation sector. Specifically, codes and standards for retail ZEV charging stations will be developed and implemented in partnership with international governments, including the United States. Additionally, the budget provides $64.7 million over four years to Measurement Canada to ensure that commercial transactions of low carbon fuels are as accurate as conventional fuels.


Conserving Natural Capital

This budget continues to work towards the goal of protecting 25% of Canada’s lands and oceans by 2025, committing $2.3 billion over the next five years to protect up to an additional one million km2 in protected areas - a massive investment in nature conservation. Some of this funding will go towards the establishment of Indigenous Protected and Conserved Areas. It also commits an additional $976.8 million over five years for ocean conservation, and another $200 million over three years into a ‘Natural Infrastructure Fund’ to support natural and hybrid infrastructure projects. Further, $27 million over 5 years will be spent to establish a Census of the Environment to monitor environmental trends and inform policy-making.


Supporting Climate Solutions on Farms

The budget takes up most of the recommendations from the Farmers for Climate Solutions Expert Task Force pre-budget submission, which SPI contributed to as part of its Expert Task Force. Notably, an additional $200 million over two years for the Agricultural Climate Solutions program was announced, targeting improved nitrogen management, cover cropping, and normalizing rotational grazing. It also commits that $60 million from the Nature Smart Climate Solutions Fund will be allocated to the protection of wetlands and trees on farms, including through a reverse auction pilot program - a key recommendation made by SPI. Finally, funding was also allocated to help farmers power their farms with clean energy sources and move off diesel, ($10 million over two years) and support the diffusion of more efficient grain dryers ($50 million).


Boosting Job Growth in a Green Recovery

Recognizing the need to support workers transition to new jobs, the budget proposes $250 million over three years to scale-up proven approaches to upskill and redeploy workers to help approximately 15,500 Canadians connect with new work opportunities. The additional investment of $5 billion over seven years in the Net Zero Accelerator, above and beyond the existing $3 billion committed in December 2020 in the enhanced climate plan, will help leverage Canada’s strength in job-creating resource and manufacturing sectors. This cumulative $8 billion investment will help to form the base of Canada’s sustainable and resilient economy. While Budget 2021 commits to creating 500,000 new jobs over the next years, it does not offer a plan to respond to the varying job needs of workers in different parts of Canada that will be impacted differently by the green transition.   


Moving on Climate Disclosure and Green Bonds

Moving beyond encouragement, the government will now require that crown corporations adopt the Task Force on Climate-related Financial Disclosures (TCFD) standards, as well as gender and diversity reporting. Concerning climate risks, crown corporations with more than $1 billion in assets will start reporting in 2022 with smaller entities having until 2024 to comply. In addition, the government has affirmed its commitment to engage with provinces and territories, to promote climate disclosures by a broad array of private and public companies. The Budget also confirms the indication made in the 2020 Fall Economic Statement that the federal government will publish a green bond framework and issue its inaugural green bond in 2021-22 with an issuance target of $5 billion.


Women in Cleantech

The government proposes substantial investments in clean technology to support net-zero transformation. However, the government acknowledges that investments in clean technology might disproportionately benefit men, who are more likely to access employment opportunities associated with cleantech projects. Little information is provided on how women can benefit from these new economic opportunities. Furthermore, the Budget lacks any green job policies that target the substantial number of women who have dropped out of the labour force during the pandemic.


Advancing Ambitious Policy to Meet the Moment

The federal government’s 2021 budget offers a wide-ranging set of measures aimed at driving clean growth, encouraging nature-based solutions, supporting innovation, and advancing a host of other priorities. Moving forward, Smart Prosperity looks forward to engaging with partners to ensure policy design and ambition aligns with the scale of both the challenge and the opportunity.