A year after Ottawa announced low-carbon tax credits, investors are still waiting for specifics

The credits are designed to be a counter to the U.S. Inflation Reduction Act

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OTTAWA – Liberal tax credits supposed to keep jobs in renewable and low-carbon sectors from flowing to the U.S. still aren’t in place nearly a year after they were first announced, a delay that has Canadian business groups worried that companies will opt to take their investments south of the border anyway.

The federal Liberals have unveiled a suite of investment tax credits (ITCs) they have said will attract more investment in low-carbon technologies. These include incentives for hydrogen production, carbon capture and storage, clean electricity and clean manufacturing, with the government offering credits for up to 30 per cent of the cost of new investments.

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The credits are designed to encourage various low-carbon enterprises, ranging from electric power plants, nuclear reactors and critical mineral mines to battery plants and solar equipment factories. They have been positioned to counter to the U.S. Inflation Reduction Act, which is offering massive government subsidies to companies that invest in such things in the U.S.

The government announced all of the tax credits in either the 2023 budget or the 2022 fall economic update, but none of them are actually in place yet, as the legislation creating them has not yet been introduced into the House of Commons.

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The Liberals released draft legislation for two of the credits, the carbon capture and clean technology credits, but they have yet to release any details on the credits for electricity, manufacturing or hydrogen production.

The government has committed to labour requirements to receive the credits, like a requirement to pay prevailing wages or work with unionized labour. It has also suggested the credits will be in place for 10 years, until 2034.

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Evan Wilson, a vice president with the Canadian Renewable Energy Association, said his members were pleased to see the government match what was on offer in the U.S., but now they need specifics.

“Lots of details are needed still, so that we know how to move forward with our projects. But by and large, we’re really excited about the signal that’s being sent,” he said.

Wilson said many of the renewable energy products are being led by multinational companies who have teams from both the U.S. and Canada pitching projects, and right now the Americans have an edge.

“It is the perspective of some of our members that the teams on the U.S. side of the border, because the IRA is in place, have a better story to tell.”

The Business Council of Canada has urged the government to speed up the work on the ITCs so companies can start applying for and receiving credits. The government consulted on the credits this summer and the council’s underlying message was to hurry up.

“The federal government has committed to developing ITCs for clean technologies in its last three budgets. As of today, none are in force, minimizing their ability to support final investment decisions in the near term,” the council wrote.

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It emphasized that the U.S. program is already paying out to companies.

“Delays in finalizing the terms and conditions of each ITC through law effectively freezes capital and diminishes Canada’s ability to achieve its emissions reductions targets and fulfill important commitments,” the council wrote. “Finance Canada needs to send a clear and bankable market signal articulating the details of its ITCs. The sooner it does so, the sooner companies can invest in emerging technologies and equipment.”

A government source speaking on background, because they were not authorized to speak publicly insisted finalizing the credits is a high priority and something they hope to complete soon.

The source emphasized that Ottawa has never creates credits like this before and wants to ensure it gets them right.

Katherine Cuplinskas, press secretary to Finance Minister Chrystia Freeland, said the credits were purposely made retroactive so companies would know they are coming even if they are not firmly in place now.

She said the government knows the importance of matching the American credits.

“We know that an important part of this is growing Canada’s clean economy. Our government is making over $120 billion in historic investments to achieve this, including by creating clean technology investment tax credits which are already helping both businesses and workers plan for the future,” she wrote in a statement.

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