On November 21, 2023, the Government of Canada released its 2023 Fall Economic Update. In addition to updating Canadians on current economic and fiscal developments, the update provided a recommitment by the federal government to pursue clean energy initiatives and related tax incentives for clean energy projects.
However, for most of the investment tax credits (ITCs) proposed, the government indicated that significant legislative details for most credits will not arrive until 2024. As a result, regulatory uncertainty will continue for potential and upcoming clean energy project leaders looking to plan their capital investments.
Investment tax credits
As part of the federal government’s clean economy jobs plan, there is a focus on implementing ITCs for various sectors. This includes carbon capture, clean technology adoption, clean hydrogen, clean technology manufacturing and clean electricity. Timelines for these tax credits are outlined in the plan with legislative introductions, consultations and implementation dates specified.
The Economic Update also outlines the expansion of eligibility for clean technology and clean electricity ITCs to support the use of waste biomass for heat and electricity generation, in addition to promoting the use of organic by-products from industries like forestry and agriculture to generate affordable energy and reduce emissions.
The Economic Update confirmed the Canadian government’s intention to continue with the following clean energy-related measures and legislative proposals:
- Carbon Capture, Utilization and Storage (CCUS) ITC – the Economic Update confirmed the government’s commitment to this ITC.
- Clean Technology ITC – as announced in Budget 2023, a 30 % refundable Clean Technology ITC will continue to be available to eligible taxpayers investing in eligible property that is acquired and became available for use on or after March 28, 2023, and before 2035, subject to a phase out in 2034. This includes specific systems and equipment used for electricity generation, stationary electricity storage, low-carbon heating, non-road zero-emission vehicles and related charging or refueling equipment.
- Labour requirements related to certain ITCs – reiterating Budget 2023’s announcement outlining labour requirements to pay prevailing union wages and provide apprenticeship training opportunities, the update made it clear that to receive the maximum credit rate for the clean technology, clean hydrogen, clean electricity and CCUS ITCs, meeting stated labour requirements will be mandatory.
- Reduced tax rates for zero-emission technology manufacturers – the government will move forward with this previously announced measure to enhance tax rates for this manufacturer class.
- Clean Hydrogen ITC – details of the Clean Hydrogen ITC, first announced in Budget 2023, were revealed in the update. This included details on credits for clean ammonia production, power purchase agreements and renewable natural gas use in clean hydrogen projects.
- Clean Technology Manufacturing ITC – the Economic Update confirmed the government’s commitment to this previously announced ITC, with draft legislation projected to be introduced in early 2024.
- Clean Electricity ITC – the update confirmed Ottawa’s commitment to this previously announced ITC. It indicated that design and implementation details will be published in early 2024, targeting an introduction of legislation in Parliament for fall 2024. The ITC would be available from the day of Budget 2024 for projects that did not begin construction before March 28, 2023.
Implementation
In support of the initiatives and incentives contemplated in the Economic Update, on November 28, 2023, the federal government tabled a bill to introduce the Fall Economic Statement Implementation Act, 2023. Expected to be implemented by 2024, this legislation aims to support Canada’s transition to a clean economy by providing the ITCs for CCUS and clean technology projects discussed above. It also introduces the labour requirements noted above for businesses to receive the maximum credit rates for these projects, as well as for clean hydrogen and clean electricity projects.
Key takeaways
Overall, the Economic Update continues the trend of the federal government incentivizing capital investment in clean energy and clean technology expansion through tax credits. However, it remains likely that such incentives will need to be formally implemented by Parliament before these incentives steer significant capital investment towards new projects.
The remaining ITCs will not be introduced to Parliament until after Budget 2024. While these ITCs are promising for those looking to develop clean energy and clean technology, regulatory uncertainty is likely to continue until legislation is introduced and actually passed by Parliament.
With the additional details provided around various new clean energy tax incentives and credits, we expect investment in clean technology to accelerate in the months and years ahead.
If you have questions about applying for an investment tax credit, or would like to learn more about our experience in clean energy, contact a member of our Energy team.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.