Trudeau Wants to Catch Up With Biden on Clean-Energy Tax Credits

The most likely scenario is for the government to signal its intentions next month or in early December, with a more detailed policy to come in a budget in the first half of 2023. The energy sector also believes that’s the most probable sequence, according to people familiar who spoke on condition of anonymity in order to discuss government deliberations.

“It’s urgent,” Michael Gullo, vice president for policy at the Business Council of Canada, said by phone. “There’s a race going on to attract billions of dollars of investment.”

Canada’s carbon capture tax credits were unveiled in Freeland’s budget last April, but industry groups have since been pressuring her to bring Canada’s incentives in line with more generous US ones. They argue Canada risks falling far behind its neighbor in attracting the huge amount of capital needed to fund the technology.

Carbon-capture projects in the US got a major boost in August with the passage of the Inflation Reduction Act. The legislation, which increased tax credits by 70% to $85 per ton of carbon dioxide, was welcomed by executives from Exxon Mobil Corp. and Occidental Petroleum Corp.

‘More Than Double’

The Canadian Association of Petroleum Producers, in a Sept. 29 submission to Freeland’s department, said the government’s incentives would have to “more than double” to match benefits US investors will receive on equivalent projects.

The document — sent during a government consultation on the final design of the credits — warned that a carbon capture project built under Canada’s proposal “would not even meet its cost of capital,” while the same project built in the US “would not only meet its cost of capital but would return positive cash flow.”

The credits adopted by President Joe Biden’s administration “will attract significant capital investment thereby outpacing Canada in its own national policy to reduce GHGs and create jobs,” the industry group said in its submission.

Canada is attempting to reach its goal of net zero emissions by 2050 without curtailing oil and gas production, meaning technology such as carbon capture will be crucial. The April budget earmarked C$2.6 billion ($1.9 billion) over the next five years for carbon capture incentives, and then about C$1.5 billion annually until 2030.

However, the proposed tax credits will cover 50% of equipment costs for most projects, and 37.5% for other costs around transportation, storage and use. That compares to the new US tax credits that will cover about 85% of costs, and which industry groups argue are more flexible and apply more broadly.

It isn’t known yet whether Trudeau’s government is willing to put substantially more money on the table.

The prime minister, asked this week about the US legislation, confirmed the government is working on a response.

“We’re going to take further steps to make sure we continue to be competitive as a country that the world wants to come and invest in,” Trudeau told reporters Tuesday after he announced funding to boost critical minerals production in Quebec.