Key climate takeaways from a dramatic Fall Economic Statement

The morning began with a stunning resignation: Chrystia Freeland announced her resignation as Deputy Prime Minister and head of the Finance department the very day Canada’s Fall Economic Statement (FES) was announced.

Only a few journalists stayed until the mini-budget was released in the mid afternoon. Canada’s National Observer stuck it out to bring you the biggest climate takeaways while Canada stares down the threat of a Trump tariff wall. 

Extension of business tax credit a ‘huge gift to corporate sector,’ including oil and gas

The accelerated investment incentive — a tax credit system that gives businesses a tax break for investments in machinery and equipment — accounts for about three quarters of the new spending in the FES, David Macdonald, senior economist for the Canadian Centre for Policy Alternatives, told Canada’s National Observer. 

The program was  developed by Freeland's predecessor Bill Morneau and was due to ramp down in the coming years.

The tax credit is being topped up to a total value of $17 billion over five years starting in 2025-26, up from the $35 million that will be spent this fiscal year, effectively extending the program through the decade. To put it in perspective, the extension is more than 10 times the $1.6-billion GST tax holiday, Macdonald said. 

The announced fund includes additional green investment with a 100-per-cent tax deduction for climate-friendly machinery and equipment purchases like electric vehicles. 

But the program also opens the door for further tax breaks for the oil and gas industry, including oil and gas property expenses, according to the FES. 

“A major beneficiary of it is, generally, the oil and gas sector, one of the biggest capital investors in the country,” Macdonald said. “The equipment that you buy to extract more oil from the oilsands, you can write that off more quickly.”

Macdonald questioned whether these measures would insulate the economic shock a Trump tariff regime could bring, arguing that “continued corporate tax break isn’t going to make any difference.” 

“If there's a 25-per-cent tariff wall — if that's the test — I think it's going to fail pretty badly,” Macdonald said. 

Instead of an insulator from tariff shocks, he said the fund acts as a “huge gift to the corporate sector.” 

Tax credit for ‘clean hydrogen’ now includes methane pyrolysis 

Methane pyrolysis is now grouped under Ottawa’s investments into clean hydrogen, opening the door to use gas reserves for cleaner fuels. 

The Clean Hydrogen Investment Tax Credit is a refundable tax credit that supports the cost of eligible equipment used in clean hydrogen production. It is expected to cost $43.5 million over five years, starting in 2025. Support varies between 15 and 40 per cent of eligible expenses based on the hydrogen’s assessed carbon intensity, with projects that produce the cleanest hydrogen receiving the highest levels of support.

Methane pyrolysis is a nascent method of splitting methane molecules into solid hydrogen and carbon — which is controversial because, although it reduces emissions, it still releases some and encourages the continued production of gas. A senior finance official told Canada’s National Observer that development of the technology has the potential to replace some of the need for carbon capture, utilization and storage. 

Equipment used to convert clean hydrogen to ammonia may also be eligible for a 15 per cent tax credit. Labour requirements must be met to receive maximum credit rates.

Details on EV tax credit 

The economic statement included more information about the design and implementation of the Electric Vehicle Supply Chain tax credit to further incentivize Canadian corporations to invest in the growth of Canada’s EV industry. This 10 per cent refundable tax credit would require investment in three segments of the supply chain, including EV assembly, battery production and cathode active material production.

To be eligible, corporations will have to acquire at least $100 million dollars in property, which includes buildings, structures and their component parts, eligible for the Clean Technology Manufacturing Investment Tax Credit in EV assembly, battery production and cathode production for a total of $300 million in investment, with some wiggle room for subsidiary companies that do two of the above. 

The credit will be granted for property which are acquired and in use on or after Jan. 1, 2024. The tax credit will be maintained for nearly a decade before being reduced to five per cent for 2033 and by 2034, it will no longer be in effect.

Intent to amend the Impact Assessment Act

Following the Supreme Court’s decision to deem the federal Impact Assessment Act unconstitutional, Ottawa now intends to change the regulations governing what kinds of projects are subject to a federal assessment. A senior finance official said the changes are “potentially significant” for major projects seeking approvals. 

Ottawa plans to allow for regulators like the Canada Energy Regulator, Canadian Nuclear Safety Commission and offshore petroleum boards to be the sole approver of projects, side-stepping the federal impact assessment processes. For example, the Canadian Nuclear Safety Commission alone could apply for certain brownfield nuclear projects, rather than requiring a federal impact assessment.

Indigenous loan guarantee program now has a corporation

The federal government will deliver Indigenous loan guarantees through a newly-formed, wholly-owned subsidiary of the Canada Development Investment Corporation. The subsidiary will operate as the Canada Indigenous Loan Guarantee Corporation. 

Loans will be worth between $20 million and $1 billion and can apply to any sector. Ottawa will be announcing the first Indigenous loan guarantees in the near term. 

Matteo Cimellaro / Canada’s National Observer / Local Journalism Initiative