New tax incentives for investment could increase Canada's emissions

Big greenhouse-gas emitters will be able to take advantage of new federal tax incentives Finance Minister Bill Morneau promised Wednesday even if that means more emissions, the government says.

Measures in Morneau's fall fiscal update will allow manufacturing and processing companies to write off the full cost of buying new equipment and machinery as soon as they put the purchases to use.

The change is intended to encourage capital investment in sectors that are exposed to international competition — including oil producers and refineries, and big chemical companies.

In the very last paragraphs of the 156-page fall fiscal-update book, the government admits that these investments could increase greenhouse-gas emissions, as well as create more air, water and soil pollution.

The government hopes that extending the same tax incentives to clean-energy-equipment purchases will reduce emissions enough to offset any increases from other companies, but it admits right now it can't say whether that will happen.

It also hopes any increase in emissions or other pollution would only be temporary because the measures will only be in place in full until 2024 and will be phased out entirely by 2027.

"Based on available data, it is not possible to assess whether the net environmental impact will be positive or negative in the short run," the document says.

Dale Marshall, the national program manager for Environmental Defence, said carbon emissions cannot be "an afterthought or some unknown quantity matched with hope."

He said this is why Canada needs a climate test to determine the emissions impact of all new policies and projects.

"Projects and policies that get us further from climate targets can then be nixed or significantly altered," said Marshall. "There are ways to stimulate the economy through investments in clean growth and not big-emitting projects."

Canada's international climate-change commitments under the Paris agreement require a reduction in existing emissions by nearly 200 million tonnes a year by 2030, which is the equivalent of the emissions of 44 million cars.

A recent United Nations report, however, says if the world is to achieve its Paris agreement goals to slow the planet's warming, countries like Canada will have to cut emissions almost in half — more like 350 million tonnes — by 2030.

The Liberal government under Prime Minister Justin Trudeau has been trying to find a balance between a strong economy and environmental protections, supporting the energy industry at the same time as it implements climate-change policies and introduces new environmental regulations.

The fiscal update defends Canada's oft-criticized oil-and-gas sector as a supplier of "secure, reliable and affordable" energy that is produced in a country with a "credible approach" to cutting emissions. It is also, the government says, a significant contributor to the Canadian economy and government revenues that help pay for programs that benefit all Canadians, and employs twice as many Indigenous people as the average of all Canadian industries.

The update also acknowledges Canada's oil producers are suffering from a recent drop in market prices for Canadian crude, and says the lack of pipeline capacity and Canada's near-total reliance on the U.S. for oil exports are to blame.

However there is nothing in the update to address those problems directly. Morneau and officials say the main solution lies in building the Trans Mountain pipeline expansion, a project that hit a major snag in August when the Federal Court of Appeal tore up federal approval.

Conservative finance critic Pierre Poilievre said the government has done nothing to help the oil industry other than continue to give oil to the United States for virtually nothing.

The government bought the existing Trans Mountain pipeline for an estimated $4.5 billion at the end of August, hoping to pull the expansion project out of uncertainty caused by political opposition to it in British Columbia. Now the government is going back to do another round of environmental reviews and more consultations with Indigenous communities to satisfy the court's concerns.

The fiscal update provided some more detail on that purchase, noting the final price won't be known until early December — once closing adjustments are completed 90 days after the deal was signed.

The pipeline expansion is to triple its capacity for oil shipped from Alberta to the B.C. coast with the goal of getting much of it into tankers bound for Asian markets. Diversifying markets for Canadian oil is expected to raise the price producers in Alberta can get for it.

Wednesday's document says the government expects to make $200 million a year off the existing pipeline, which is used to ship refined and crude fossil-fuel products to B.C., where they are used locally or exported to the United States.