The federal government is looking to capitalize on a new era of “friendshoring” among democratic nations with a new suite of clean technology and natural resources investment incentives designed to try to keep Canada competitive in an increasingly green-focused global economy.
In the fall economic statement Thursday, Finance Minister Chrystia Freeland, who is also the country’s deputy prime minister, says the world’s economy is at a “turning point,” and that Canada can be poised to benefit from this shift with its rich cache of resources that are in high global demand.
“We are entering an era of friendshoring — a time when our democratic partners and their most important companies are looking to shift their dependence from dictatorships to democracies,” Freeland said in a prepared copy of her speech in the House of Commons.
“We have the natural resources to power the global net-zero transition and to support our allies with their energy security as that transition continues to pick up speed.”
Global economic tensions and a push among democratic countries toward net-zero economies underpin many of the new initiatives outlined in the Trudeau government’s fall economic statement.
The document outlines how record-high inflation and interest rates are slowing economic growth, but also how global forces such as Russia’s war with Ukraine and supply chain woes have also been wreaking havoc with efforts to stabilize the cost of living for Canadians.
Canada is not the only country grappling with these volatile global market conditions, but it can stand to benefit from countries and private sector companies looking to invest in green technology and clean energy solutions as they look to prioritize trade and investment with countries that share their values, Freeland said in her prepared remarks.
But the United States’ Inflation Reduction Act also appears to have played a role in spurring Canadian efforts to better keep up with the U.S. on clean energy investments and incentives.
The bill includes nearly US$400 billion in tax incentives, grants and loan guarantees for clean energy sectors including electricity production, electric cars and battery manufacturing.
Ottawa has been seized with a lack of business investment in Canada in recent years, a senior government official told reporters Thursday.
The U.S. inflation bill, designed to drive foreign direct investment, has been a “game changer” that has created a “gravitational black hole” for foreign capital, the official said, describing it as an “aggressive and ambitious industrial policy” from the U.S.
That’s why Thursday’s fiscal update includes measures aimed at driving more investment in Canadian green technologies in addition to new initiatives focused on clean power, electric vehicles, battery manufacturing and critical minerals.
The fall economic statement proposes a refundable tax credit equal to 30 per cent of the capital cost of investments in electricity generation and storage systems, including solar, wind and hydro solutions, as well as low-carbon heating equipment, such as heat pumps and solar heating.
This tax credit will also apply to industrial zero-emission vehicles and related charging or refueling equipment, such as hydrogen or electric heavy-duty equipment used in mining or construction.
To qualify for the full 30 per cent credit, companies will have to adhere to certain labour conditions to ensure “good jobs” are created as a result of this measure.
The fiscal update also outlines the design, operations, and investment strategy of the $15-billion Canada Growth Fund announced in Budget 2022.
The mandate of this fund will be to make investments to attract private sector investment in Canadian businesses and projects that reduce emissions as well as accelerate the development of key technologies, such as low-carbon hydrogen and carbon capture and projects that capitalize on Canada’s natural resources.
In another move aimed at matching the U.S. inflation act, Ottawa has restated its commitment — announced in Budget 2022 — to establish an investment tax credit for clean hydrogen production.
In the coming weeks, the Department of Finance plans to launch a consultation on how best to implement this tax credit based on the lifecycle carbon intensity of hydrogen.
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Freeland says she believes the global shift toward net-zero technologies and the trend of democracies banding together to reduce reliance on foreign dictatorships represents the “most significant opportunity for Canadian workers and Canadian businesses in a generation.”
“With major investment tax credits for clean technology and clean hydrogen, we will make it more attractive for businesses to invest in Canada to produce the energy that will power a net-zero global economy,” Freeland said, adding the country is at “a pivotal moment.”
The global green transition calls for an industrial transformation comparable in scale only to the Industrial Revolution itself, and Canada has the manpower, the natural resources and the manufacturing base needed to drive that transformation, she said.
“We can lead the global economy in a way that far exceeds our footprint as a country of just 39 million people… But we cannot wait, because time truly does not wait.”
