Budget 2021: Highlights for Canada’s Energy Sector

On April 19, 2021, the Government of Canada released its federal 2021 budget titled “A Recovery Plan for Jobs, Growth and Resilience” (Budget 2021).

Throughout Budget 2021, the Deputy Prime Minister and Minister of Finance describes the Government of Canada’s intention to make Canada’s COVID-19 recovery a “green recovery” that will foster a “new, sustainable economy.” To that end, Budget 2021 commits $17.6 billion in what may be considered as ”green stimulus measures” for Canada’s traditional industries, including its natural resources, manufacturing and energy sectors.

This article is an overview of the commitments made and legislative amendments expressed in Budget 2021 that will be of interest to Canada’s energy sector. For ease of reference, all headings below mirror those used in Budget 2021, which can be accessed in full here.

Chapter 4 – Helping Canadian Businesses Grow and Succeed

Investing in Canadian Innovators Through a Renewed Venture Capital Catalyst Initiative

  • $450 million over five years beginning in 2021 to provide additional venture capital to entrepreneurs, which may be of interest to early-stage energy companies across Canada

Boosting Canada’s Clean Technology Exports

  • $21.3 million over five years starting in 2021 for Global Affairs Canada’s continuation of its International Business Development Strategy for Clean Technology
  • The intention of the International Business Development Strategy is to assist Canadian firms in identifying export opportunities and accessing international climate financing

Maintaining Momentum on Regulatory Modernization

  • Proposed additional modifications to the Federal Government’s clean technology regulations

Supporting Innovation and Industrial Transformation

  • $8 billion over seven years starting in 2021 for increased funding in the Strategic Innovation Fund’s Net Zero Accelerator to help support industry decarbonization and clean technology projects

Chapter 5 – A Healthy Environment for a Healthy Economy

Propelling Clean Tech Projects

  • $1 billion over five years starting in 2021 to assist in attracting private sector investment for Canadian clean-technology companies
  • Budget 2021 recognizes that Canada lags in commercial scale-up, export and industry adoption of clean technologies, notwithstanding its position as a global leader in clean tech innovation

Growing Zero-emission Technology Manufacturing

  • Proposed reduction in the general corporate and small business income tax rates by 50% for businesses that manufacture or produce for zero emission technologies, including:
    • wind turbines, solar panels, and equipment used in hydroelectric facilities;
    • geothermal energy systems;
    • electric cars, busses, trucks, and other vehicles;
    • batteries and fuel cells for electric vehicles;
    • biofuels from waste materials;
    • green hydrogen;
    • electric vehicle charging systems; and
    • certain energy storage equipment.

Accelerating Investment in Clean Energy Technologies

  • Proposed expansion of the list of clean energy technology equipment eligible for tax incentives, including equipment used in:
    • pumped hydroelectric energy storage;
    • renewable fuel production;
    • hydrogen production by electrolysis of water; and
    • hydrogen refueling.
  • Proposed deletion of certain fossil-fuelled and low efficiency waste-fuelled electrical generation equipment from the eligibility list for tax incentives.

Enhancing Canada’s Supply of Critical Minerals

  • $9.6 million over three years starting in 2021 to create a Critical Battery Minerals Centre of Excellence at Natural Resources Canada
  • $36.8 million over three years starting in 2021 to Natural Resource Canada for research and development to advance critical mineral processing and refining

Charging and Fueling Zero-emission Vehicles

  • $56.1 million over five years starting in 2021 for the development and implementation, alongside international partners, of codes and standards for retail zero-emission vehicle charging and fueling stations

Federal Clean Electricity Fund

  • $14.9 million over four years starting in 2022 and $77.9 million in future years for Public Services and Procurement Canada to purchase renewable energy certificates for all federal government buildings

First Federal Green Bond

  • $5 billion issuance target for an inaugural federal green bond in 2021, which the government can use to fund green infrastructure or clean tech innovations

Tax Incentive for Carbon Capture, Utilization, and Storage

  • Proposed introduction of an investment tax credit for investments in carbon capture, utilization, and storage (CCUS) project to come into effect in 2022
  • The government will be seeking input from all industry subsectors (oil sands, refining, cement, fertilizer, power generation, direct air capture, etc.) for the creation of the incentive
  • The incentive is not intended to be available for Enhanced Oil Recovery (EOR) projects, but is intended to support the production of hydrogen

Advancing Carbon Capture, Utilization, and Storage Technologies

  • $319 million over seven years beginning in 2021 to Natural Resources Canada to support the research, development and demonstration of commercially viable CCUS projects

Cleaner Fuels for a Cleaner Environment

  • $67.2 million over seven years starting in 2021 for the implementation and administration of Canada’s Clean Fuel Standards to help make the fuels Canadians use cleaner

Supporting the Production and Use of Clean Fuels

  • $1.5 billion over five years beginning in 2021 for Natural Resources Canada to establish Clean Fuels Fund to support the production and distribution of low-carbon and zero-emission fuels, such as hydrogen and biomass, both in Canada and internationally
  • $67.4 million over seven years beginning in 2021, and $10.7 million ongoing thereafter, for Measurement Canada to ensure commercial transaction of clean fuels are measured as accurately as conventional fuels
  • Budget 2021 reiterates the Government of Canada’s desire to position Canada as a global hydrogen leader

Supporting a Centre for Innovation and Clean Energy in British Columbia

  • Up to $35 million to establish the Centre for Innovation and Clean Energy for the scale-up and commercialization of clean tech in British Columbia and throughout Canada

Investing in Clean Energy in Northern and Indigenous Communities

  • $40.4 million over three years beginning in 2021 for hydroelectricity and grid connectivity projects in Canada’s North
  • $36 million over three years beginning in 2021 for clean energy projects in First Nation, Métis and Inuit communities

Border Carbon Adjustments

  • Proposed consultation process on border carbon adjustments and international engagement to ensure regulation on the price of carbon applies fairly among trading partners

Budget 2021 will have a great impact on Canada’s energy sector. Beyond the proposed monetary commitments and legislative amendments, Budget 2021 may also be viewed as a signpost for industry and investors on the direction that the Government of Canada is moving towards. Ultimately, the Government of Canada is signaling that they view the energy sector as a very important industry for Canada to focus on in order to reach its net-zero emission goals.

Our energy practice group is well positioned to assist both public and private energy industry participants as they navigate the opportunities and changes that have arisen as a result of Budget 2021. We encourage you to reach out to a member of our team.