Major new dollars for affordable and energy-efficient housing, a C$15-billion fund to accelerate clean investment, and a controversial tax credit for carbon capture and storage (CCUS) technology are among the big-ticket items in the federal budget tabled in the House of Commons yesterday by Deputy Prime Minister and Finance Minister Chrystia Freeland.
The 304-page document [pdf] confirms funding for the $9.1 billion in new measures announced in the government’s Emissions Reduction Plan last week, while adding $2.6 billion over five years for the CCUS tax credit. It also commits $10.1 billion for measures aimed at making housing more affordable and energy-efficient and doubling the country’s supply of new units, from 200,000 to 400,000 per year, over the next decade.
“Carbon pricing is an important part of driving Canada towards a cleaner economy,” the budget states, in a section that acknowledges the country as the world’s second-highest per capita carbon polluter. “But to reduce Canada’s emissions, and ensure our economy is competitive in an increasingly green world, significant investments are also needed, from both government and private capital. This includes investment in the development and usage of clean technologies that are needed to grow Canada’s supply capacity while reducing emissions.”
The budget commits the government to “taking action to help mobilize readily available private capital to invest in Canada’s capacity to ensure that Canada’s workers and businesses prosper in the green transition. The goals are both to achieve net-zero and to build the new low-carbon industries we will need as engines for future growth.”
It describes a new $15-billion Canada Growth Fund aimed at attracting $125 to $140 billion per year in investment for emission reductions, economic diversification, low-carbon industry development, and “critical supply chains in areas important to Canada’s future prosperity—including our natural resources sector.” Ottawa aims to attract $3 in private capital for every $1 it invests through the fund.
Other budget lines include:
• $3.8 billion over eight years to implement the country’s first-ever Critical Minerals Strategy, including a new 30% exploration tax credit for a list of metals, from lithium and cobalt to uranium, plus $144.4 million over five years to promote sustainable mining;
• $1.7 billion over five years for an extended range of zero-emission vehicle incentives;
• $400 million over five years for ZEV charging and fuelling infrastructure;
• $548 million in emission reduction incentives for medium- and heavy-duty vehicles, plus $200 million for a green freight assessment program;
• A $1.5-billion carbon price refund for small and medium businesses;
• $2 billion over nine years for an expanded Oceans Protection Plan, including coastal protections, aquatic habitat restoration, and wider emergency management under the Canada Shipping Act;
• $133 million for freshwater protection;
• $377 million over five years for improved wildfire management;
• $887 million over five years for agricultural cleantech and climate action;
• $780 million in new funding for “nature-smart” climate solutions;
• $677 million for new clean electricity initiatives, including interprovincial grid projects, small modular nuclear reactor (SMR) development, a seven-year smart renewables and electrification program, and a new Pan-Canadian Grid Council;
• $120.6 million over five years for SMRs;
• $396.8 million over two years for high-frequency (but not high-speed) rail service between Quebec City and Toronto;
• $193 million over five years for plastic waste reduction;
• A maximum 30% tax credit for batteries, clean hydrogen, and other net-zero technologies.
Missing the Mark on Energy Poverty
The government’s affordable housing plan lays out a 10-year agenda to encourage cities to build more homes in “denser, more sustainable neighbourhoods”, build more affordable housing units faster, launch the biggest co-op housing investment in 30 years, and “accelerate retrofits and build more net-zero homes in communities across Canada so that people can save on energy bills.”
The budget pours $4.4 billion into a greener affordable housing loan program, commits $350 million over five years to green building and deep retrofit strategies, and confirms $33.2 million over five years for an Energiesprong-style energy retrofit pilot. It allocates $2.9 billion to build or repair 22,100 units for the most vulnerable, commits to more affordable and energy-efficient rental units, establishes a multigenerational home renovation tax credit for secondary suites, earmarks $150 million over two years for affordable housing in the three northern territories, and ties provinces’ and territories’ access to federal infrastructure and transit funding to their efforts to increase housing supply.
Efficiency Canada Research Director Brendan Haley said he saw some good intentions in a budget that still left out the low-income households at greatest risk of energy poverty.
“I think you see strong ambition in terms of a green building strategy that will get us to net-zero, and I’m hoping that can inform more of a mission-oriented approach to energy efficiency rather than the more incremental one we’ve traditionally had,” Haley told The Energy Mix. “While I don’t think the levels of public investment in this budget on buildings and energy efficiency match what is needed to spark a kick-off in net-zero buildings and retrofits, I was at least happy to see some activities that will think about things a little bit differently,” like the Energiesprong initiative and energy retrofit accelerators.
In the lead-up to the budget, Efficiency Canada had called for a $5-billion investment to drive new approaches to mass, deep energy retrofits.
In the end, “there are some funds to accelerate adoption of net-zero building codes for new buildings, which is absolutely needed,” Haley added. But “the most confusing and disappointing aspect of the budget is low-income energy efficiency,” where the budget language leaves behind the low-income homeowners, many of them in rural areas, “who are actually the majority of households in energy poverty.” These are “households in poverty with unsustainable energy bills that have no way to afford the up-front costs of an upgrade,” he added, and “it’s quite irresponsible to push loans onto low-income Canadians who don’t have the financial means and would resist taking on debt.”
CCS Tax Credit ‘Keeps Fossils in Driver’s Seat’
As expected, the budget confirms the government’s commitment to a CCUS tax credit that will total $7.1 billion this decade, describing the measure as “a key part of the government’s broader plan to work with industry towards the goal of decarbonization”. Early news reports focused on the $2.6 billion the government expects to hand over to fossils and other CCUS proponents through the 2026/27 fiscal year; after that, Ottawa foresees subsidies worth another $1.5 billion per year through 2030.
The list of eligible uses for the tax credit includes CO2 storage in geological formations or concrete, but not the controversial process called Enhanced Oil Recovery (EOR), in which captured carbon is pumped into depleted wells to force more oil to the surface. As recently as January 2021, a study by the respected Tyndall Centre for Climate Research in the UK found that 81% of the world’s captured carbon was being used for that purpose.
For the rest of this decade, the budget says, the tax credit will cover 60% of equipment costs for direct air capture projects, 50% for all other kinds of CCUS, and 37.5% for transportation, storage, and use. “To encourage the industry to move quickly to lower emissions, these rates will be reduced by 50% for the period from 2031 through 2040,” the budget document states.
Ottawa will also “engage with relevant provinces in the expectation that they will further strengthen financial incentives to accelerate the adoption of CCUS technologies by industry.”
A brief statement from the Canadian Association of Petroleum Producers declared budget commitments on CCUS, hydrogen, and small modular nuclear reactors “an important step to achieve national reductions”. But the announcement was a small fraction of the $50 billion the fossil industry had demanded that Ottawa shell out to help it decarbonize production through 2050.
Still, climate hawks took aim at what amounts to a new fossil fuel subsidy.
“Carbon capture is not a climate solution—it’s a greenwashing strategy used to justify more fossil fuel production and get more taxpayer money into the pockets of executives and shareholders,” said Julia Levin, senior climate and energy program manager at Environmental Defence Canada. “By relying on future unproven techno-fixes to cut emissions, the government is gambling with our lives.”
“The climate and energy security crises require a vision and a transition plan that prioritize the needs of people and communities everywhere,” agreed Eddy Pérez, international climate diplomacy manager at Climate Action Network-Canada. “Today, Minister Freeland has announced that Canada still intends to keep the fossil fuel industry in the driver’s seat by giving them expensive tax credits instead of using those funds to invest in a safe, sustainable future.”
In its release, CAN-Rac welcomed the budget commitment to increase Overseas Development Assistance, including funding for international COVD-19 assistance, but described it as “pocket change in the face of the devastating climate-induced losses and damages the world faces.”
“Budget 2022 treats Direct Air Capture and other technologies that suck carbon dioxide out of the air like a silver bullet that we should throw taxpayer dollars at so that the oil and gas industry can keep expanding,” said Andrew Gage, staff lawyer at West Coast Environmental Law. “Canada needs to recognize the risks and limitations of these technologies and ensure that they actually help solve the climate crisis without creating new environmental and social problems.”
“The new investment of over $1.5 billion in nature-based climate solutions in Canada’s 2022 budget is welcome, but it is sadly overshadowed by a new $2.6-billion subsidy for unproven carbon capture technologies, and Canada’s recent decisions that allow the expansion of fossil fuel production,” said Michael Polanyi, policy and campaign manager at Nature Canada. “Nature can neither survive, nor protect us, without a just transition towards a carbon-neutral, nature-positive and equitable world.”
“The current budget allocations to the promised ‘just transition’ to a low-carbon economy are inadequate, and give Canadian workers and communities little reassurance that they will be supported through this transition,” said Environmental Defence climate and energy program manager Aliénor Rougeot. “Financing a just transition requires the significant investment of public funding—for income support, retraining, bridges to retirement and, as a last resort, fair relocation to other communities.”
“We are appalled at the upside-down priorities reflected in this budget. You would never know that we are in a Code Red climate emergency,” said ClimateFast Co-Chair Lyn Adamson. “We cannot expand oil and gas production and expect to reduce emissions,” she added, and “it’s radically wrong to keep pushing oil industry false solutions ahead of the needed transition.”