This article was published by The Energy Mix on April 18, 2024.
By Mitchell Beer
A massive, high-profile splurge on affordable housing and “gentle” urban density, a new tax credit for electric vehicle supply chains, and new details on Ottawa’s investment tax credits for clean electricity, technology, and hydrogen are among the major features of the federal budget unveiled Tuesday by Deputy Prime Minister and Finance Minister Chrystia Freeland.
The budget has simultaneously drawn praise for devoting the single largest chunk of new funding, C$14.2 billion over five years, to clean economy initiatives, and criticism for only allocating $2 billion to new climate spending over the same time span. Analysts on both sides of that fence agree that too much of the government’s funding, particularly for clean energy tax credits, is backloaded to later years, when faster action is needed to shift energy systems and reduce the greenhouse gas emissions driving global temperatures to record highs.
For example, while Ottawa’s investment tax credit for clean electricity is pegged at $32.2 billion over the next decade, only $7.2 billion—about 22% of the total—will flow before 2029.
The suite of tax credits, first introduced in last year’s budget, is meant to “crowd in more private investment, securing Canadian leadership in clean electricity and innovation, creating economic growth and more good-paying jobs across the country,” this year’s document states. “Investors at home and around the world are taking notice of Canada’s plan. In defiance of global economic headwinds, last year public markets and private equity capital flows into Canada’s net-zero economy grew—reaching $14 billion in 2023, according to RBC.”
With the enabling legislation, Bill C-59, expected to receive Royal Assent before June 1, the budget says tax credits will be available as of January 1, 2022 for carbon capture, utilization and storage (CCUS) investments and March 28, 2023 for clean technology. Ottawa will also introduce legislation to enable its hydrogen and cleantech manufacturing tax credits, expand the cleantech investment credit to include combined heat and power projects using waste biomass, and make the EV supply chain tax credit available as of January 1, 2024.
The supply chain credit is pegged at 10% through 2032 and 5% for 2033 and 2034, at a cost of $80 million through 2029 and $1.02 billion in the five years that follow. It’s “fuelling industry speculation that Canada is close to landing a massive electric vehicle investment by Honda,” climate policy columnist Adam Radwanski reported in Thursday’s Globe and Mail.
“More than just heralding the potential for the largest EV-related Canadian commitment by a global auto giant to date, the new measure is seemingly part of a shift in strategy for how Canada subsidizes supply chain growth – one in which Ottawa and the provinces stop competing for investment by simply matching multi-billion-dollar subsidies offered in the United States, and instead offer more nuanced packages that could prove more efficient.”
“There’s a very short list of very big companies who are looking at a very big investment and talking to Canada, Ontario, and Quebec, to whom this would apply,” Automotive Parts Manufacturers’ Association President Flavio Volpe told Radwanski. “The translation here is that there are big new EV investments coming.”
“All the bread crumbs are leading to something,” agreed Brendan Sweeney, managing director of the Trillium Network for Advanced Manufacturing.
The Globe has details of a possible deal with Honda.
The budget also pours $3.1 billion into nuclear research and environmental remediation over the next 11 years—but none of it, apparently, devoted directly to electricity generation.
The ‘Say-Do Gap’
Despite the flurry of activity, analysts agree the budget still falls well short of what will be needed to meet Canada’s climate and energy transition targets.
Corporate Knights says the budget fails to address a $14-billion “say-do” gap between Ottawa’s clean economy commitments and its actual expenditures through the end of its current fiscal year—not to mention a far larger discrepancy the government itself has acknowledged in the dollars available to decarbonize the economy and address climate impacts.
“When it released the 2022 budget, the federal government estimated the overall climate funding gap in Canada to be up to $125 billion per year. Over the next 10 years, planned federal climate investment averages $15 billion per year, mostly in the form of investment tax credits,” write Corporate Knights CEO Toby Heaps and Research Analyst Jessica Carradine.
“This leaves a gaping hole of up to $110 billion a year, which the federal government along with other levels of government and the private sector will need to fill if Canada is going to meet its climate commitments and seize upon clean economy growth opportunities.”
The year-by-year pacing of Ottawa’s spending pledges is contributing to the problem, analysts say.
“The climate tax credits we’ve seen introduced in the last two budgets (especially a year ago) have very low and slow take-ups,” Climate Emergency Unit Team Lead Seth Klein wrote in an email. That’s “an inherent problem when we are hoping for the private sector to step up and do what is essentially a public job of investing in needed climate infrastructure.”
The Canadian Climate Institute pointed to a similar gap in climate adaptation funding. While the budget commits to a national flood insurance program and allocates $175 million over five years for First Nations emergency preparedness, “helping communities prepare for escalating climate damages requires sustained focus and investment,” Institute President Rick Smith said in a release. “Unfortunately, this budget continues a trend of under-investing in crucial preventative measures, such as delivering on federal responsibilities under the National Adaptation Strategy.”
He added that the big-ticket commitment on affordable housing “misses an opportunity to ensure new homes are built to be more resilient to climate hazards, which will drive up the costs of home ownership over time as climate-fuelled disasters escalate.”
Affordable Housing, Gentle Density
In a statement Friday that capped a week or more of pre-budget program announcements, Prime Minister Justin Trudeau declared the government’s intention to deliver 3.87 million new homes by 2031, calling it “the most comprehensive and ambitious housing plan ever seen in Canada.” Ottawa’s 28-page housing strategy aims to tackle a yawning gap in affordable housing supply by “bringing down the costs of homebuilding, helping cities make it easier to build homes at a faster pace, changing the way Canadian homebuilders manufacture homes, and growing the work force to ensure we get the job done,” Infrastructure Canada said in a backgrounder.
Key elements of the plan include:
• Adding $15 billion to Canada Mortgage and Housing Corporation’s Apartment Construction Loan Program, bringing the total fund to $55 billion, to help cover the cost at least 30,000 new rental units on top of the 100,000 the program was meant to support by 2031-32;
• A $6-billion fund to cover water, wastewater, stormwater, and solid waste infrastructure for new homes, most of it conditional on provinces and territories legalizing “missing middle” housing—including duplexes, triplexes, fourplexes, townhouses, and small multi-unit apartments;
• A $4.3-billion Indigenous housing strategy for rural, urban, and Northern communities to fund “culturally appropriate Indigenous housing to be delivered by Indigenous governments, organizations, and housing and service providers”;
• $4 billion to support affordable, rental, and co-op housing;
• $1 billion in additional funding over four years to support the government’s homelessness strategy, plus another $250 million to “address the urgent issue of encampments and unsheltered homelessness”;
• New requirements attached to public transit funding that require communities to “directly unlock housing supply” by allowing high-density housing and eliminating minimum parking requirements near high-frequency transit lines;
• Up to $40,000 in loans to help homeowners add secondary suites to their homes;
• A new public lands program, led by a new deputy minister attached to the Privy Council Office, to “unlock underused public land to build more housing, accelerate the process of making public land available for housing, lease public land instead of selling it off, and create a new mapping tool to keep track of federal lands that can be used for housing”;
• $400 million over three years, added to the existing $4-billion Housing Accelerator Fund, to prompt more cities to “cut red tape, fast-track home construction, and invest in affordable housing”;
• Multiple measures aimed at protecting renters, supporting first-time homebuyers and current owners, supporting municipal enforcement of restrictions on short-term rentals, and extending a ban on foreign investors buying residential property.
Scaling Back Energy Retrofits
The budget includes $800 million over five years for the Canada Greener Homes Affordability Program, a revamped home energy retrofit program targeted to low- and median-income households. It replaces a $2.6-billion Greener Homes Grant Program that was so popular that it burned through its seven-year budget in about 30 months, but created obstacles for households in greatest need of a break on their energy bills.
The program shift drew mixed reviews from some of the key climate and energy organizations that have focused their recent efforts on affordability and energy poverty.
“Affordable housing isn’t affordable unless it’s energy efficient,” Betsy Agar, director of the buildings program at the Calgary-based Pembina Institute, said in a release. “By focusing on helping homeowners lower home energy bills, this investment will also help reduce building energy demand and carbon pollution through comprehensive retrofits and by building quality new homes.”
The $800-million pledge from Ottawa, along with $73.5 million for technical support and building code development, “is a good start,” she added. “Now we hope this investment is matched by all other orders of government and utilities to increase the pace of deep retrofits and meet our carbon reduction targets and ensure new housing is built right the first time.”
Brendan Haley, senior director of policy strategy at Efficiency Canada, agreed that “some Canadians are spending less on food and prescription drugs because of energy bills, and a targeted program will help those in most need.” But he warned that the budget clawback for energy retrofits “could double existing provincial investments in low-income energy efficiency, yet represents a reduction in residential retrofit effort” compared to the previous program.
Cancelling the wider Greener Homes program “would set us back years in achieving our [greenhouse gas] emissions reduction goals, and denies the majority of Canadian homeowners the supports they need to create energy-efficient and climate-ready homes,” Green Communities Canada wrote last month in an open letter to Energy and Natural Resources Minister Jonathan Wilkinson. “The forests are burning, and nearly all houses in the country need to be retrofitted. Now is not the time to slow down.”
“This was a moment to do more, not less,” a group of five climate organizations agreed in a joint statement. “Solving the housing crisis requires long-term thinking, and unless Canada does more to ensure that necessities—like heating—are reliable, affordable, healthy, and sustainable, we risk dragging out the housing crisis as well as the climate crisis.”
The housing plan “falls short by failing to tie massive financial supports for new housing construction to building homes with modern and efficient electric heating,” the groups added. “If the committed funds prop up gas use in homes, we’ll see more damaging pollution and high energy bills. This was a missed opportunity.”
And Meanwhile…
The budget also:
• Introduces a new carbon tax rebate for small businesses;
• Adds $607.9 million over two years to the government’s existing EV purchase incentives;
• Provides $150 million over five years for “shovel-ready economic opportunities” in Indigenous communities, plus up to $5 billion for an Indigenous Loan Guarantee Program whose development to date has been overwhelmingly focused on fossil fuel megaprojects;
• Promises $462.4 million over five years to help VIA Rail cover operating costs, another $371.8 million over six years to develop high-frequency rail through the Toronto-Quebec City corridor, and $63.1 million for Indigenous rail operators serving remote routes in Manitoba, Quebec, and Labrador;
• Allocates $500 million per year from compliance payments under the federal Clean Fuel Regulations to support biomass development, with a specific focus on renewable diesel, sustainable aviation fuel, and renewable natural gas;
• Launches consultations on a Youth Climate Corps;
The budget raised climate hawks’ ire by failing to impose a windfall profits tax on oil and gas companies.
“Today’s budget focused on fairness missed a major opportunity to hold the fossil fuel industry accountable for the intergenerational costs of climate change,” Thomas Green, senior climate policy advisor at the David Suzuki Foundation, said in a release. “Canada should tax the excess profits of oil and gas companies, like many other countries do. Revenues could help finance essential investments in climate and nature solutions, like public transit and building retrofits, which both reduce the cost of living and help the environment.”
Be the first to comment