This memo focuses on three clean technology funding programs in the recent federal budget. They present significant opportunities for sector participants, but have also raised many questions and even sparked some confusion.
Finance Minister Chrystia Freeland has tabled the Budget Implementation Act, which includes specific measures regarding budget program implementation. However, some details regarding the three specific programs remain open for consultation, including eligibility requirements.
Here, we share what you need to know about the Investment Tax Credit for Clean Technology Manufacturing, the Canada Clean Technology Investment Tax Credit and the Canada Growth Fund.
Investment Tax Credit for Clean Technology Manufacturing
What it is: The $4.5 billion Investment Tax Credit for Clean Technology Manufacturing is a refundable tax credit equal to 30 per cent of the cost of investments in new machinery and equipment used to manufacture or process key clean technologies, and to extract, process, or recycle key critical minerals.
Eligible initiatives include: mining or recycling critical minerals; producing, processing or recycling nuclear fuels or technologies; electrical power storage; electric vehicle manufacturing; as well as upstream activities associated with all of these. The tax credit is to be applied to the capital costs of eligible “property”, including machinery and equipment (and certain industrial vehicles) used in manufacturing, processing, or extracting critical minerals, and related control systems.
The tax credit is to be applied to property that supports eligible activities related to critical minerals — lithium, cobalt, nickel, graphite, copper, and rare earth elements.
The goal: The tax credit is fundamentally about supporting and strengthening the green energy supply chain. Its application is focused on capital purchases of technologies with a proven track record, and most fundamentally on manufacturing — actually making (or extracting) the things needed to build a green economy.
What’s next: The exact technologies that will qualify for the credit remain unclear. For example, the budget mentions electrolysis but is silent on other methods to extract green hydrogen. More details are expected after consultations involving the finance department.
Canada Clean Technology Investment Tax Credit
What it is: Announced in the 2022 Fall Economic Statement (FES), the 30-per-cent refundable tax credit will apply to business capital expenditures on eligible property purchased on or after March 28 (Budget Day) 2023.
The budget expanded the proposed credit to include geothermal. The previously announced version was limited to electricity generation (solar, wind, small modular reactors), storage of the electricity (batteries, thermal, compressed air, magnetic energy storage), low-carbon heat sources such as solar heating or heat pumps, and industrial zero emissions vehicles (i.e. heavy equipment used by industry, construction and mining).
The goal: The purpose of this tax credit is to spur investment in the technologies needed on a large scale for Canada to hit its 2050 net-zero targets. The full list of eligible technologies will be made clear through legislation. It is designed essentially to be industry agnostic, encouraging all private sector entities to purchase technologies that will lower their carbon footprint.
It’s also worth noting that eligible businesses can only claim one of the following per eligible “property” or capital investment: the Investment Tax Credit for Clean Technology Manufacturing, the Investment Tax Credit for Clean Technology, the Investment Tax Credit for Clean Electricity, or the Investment Tax Credit for Clean Hydrogen.
(For example, a business could receive the Investment Tax Credit for Clean Technology for a new ZEV and the Investment Tax Credit for Clean Technology Manufacturing for a capital purchase related to green energy production or critical mineral extraction.)
What’s next: Implementation details are expected in a second budget bill to be tabled later this year. While there is room for minor amendments, this tax credit is considered mostly “baked” in scope and structure. Any direct engagement with government probably should focus on ensuring that any capital expenditures under consideration would be eligible for the credit.
Canada Growth Fund
What it is: Announced in Budget 2022, the $15-billion Canada Growth Fund (CGF) is aimed at investments in Canadian businesses and projects focused on pushing Canada closer to a net-zero economy. The CGF is intended to spark application of key technologies (hydrogen, CCUS, etc.) and to promote job creation. There is also a specific focus on unlocking natural resource extraction and strengthening critical supply chains.
In Budget 2023, the government announced that the Public Sector Pension Investment Board (PSPIB) will manage the CGF. This will include the so-called “contracts for difference”, a price stabilization tool that the government announced last year aimed at de-risking investment uncertainty related to prices for things like carbon credits, hydrogen, green ammonia, etc.
The goal: The CGF is focused on three key objectives:
- Administer contracts for difference, including a standard design option that the government will work with fund administrators to create. The need for greater carbon price certainty, or at least protection from uncertainty, drove this aspect. But the government has not limited application to carbon, as noted previously.
- Provide equity investment in proven, scalable technology that requires funding to get to market, or larger markets. This may take the form of an equity stake through the CGF, but with expected below market returns.
- Offer debt instruments for companies (or projects) not prepared to offer equity or not structured to do so. This could take the form of below-market loans or debt provisions for initiatives deemed too high risk for traditional lenders. Again, the goal is to provide funding to advance projects faster than may be possible with private capital alone.
Applicants to the CGF must have a Canadian presence, own their IP, and align with CGF goals — to support proven technologies ready to scale or commercialize and to grow the green supply chain.
It’s worth noting that, while the fund is intended to help smaller companies grow and newer proven technologies scale, legacy companies will be eligible to apply for funding that would de-risk expensive clean technology projects. For example, the fund could in certain scenarios provide a debt instrument to help a company purchase a CCUS system.
What’s next: Finance department consultations on contracts for difference will begin later this spring.
For more information navigating these new initiatives, contact us at firstname.lastname@example.org.