Federal budget 2021: With their budget’s green-recovery plans, the Liberals place a big bet on large industry

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After over a year of talk about how to fashion a green recovery from the COVID-19 pandemic, the federal government has landed on an approach that places heavy industry at the centre of its efforts.

The biggest new climate-related expenditure promised in Monday’s budget is an additional $5-billion over seven years, atop $3-billion previously announced, for the Net Zero Accelerator – a fund geared mostly toward helping heavy-emitting sectors transform themselves through clean-technology investment.

The most contentious new promise is an investment tax credit for carbon capture, utilization and storage (CCUS), which stands to be a boon for sectors whose emissions are otherwise difficult to reduce. There will be a 90-day consultation period before details and costs – likely to be in the billions – are confirmed. Over that time, environmental groups, which dislike that fossil fuel producers would be the main beneficiaries of the credit, will be pitted against an industry that will chafe at the budget’s suggestion that enhanced oil recovery (EOR) be exempted from the credit’s qualifying uses.

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The budget also includes $1-billion over five years to “help draw in private sector investment” for large-scale, clean-technology projects for which companies have had trouble raising capital. And the plan follows through on the governing Liberals’ pledge from the last election campaign to cut in half the corporate tax rates of zero-emission technology makers. That policy is projected to cost only $45-million over five years, reflecting the small number of such manufacturers currently turning a profit in Canada, but could be more expensive in future if it succeeds in attracting investments by multinational companies such as automakers pivoting to electric vehicles.

It adds up to a clear decision about where Ottawa believes it can get the best bang for its buck, given the pool of money available for climate initiatives was smaller than many green-stimulus advocates had hoped. That’s a consequence of most of the budget’s $100-billon in recovery spending going to a national child-care program and other social and economic investments that aren’t primarily environmental.

Ottawa is now saying that it will exceed its Paris Agreement commitments by lowering emissions 36 per cent from 2005 levels by 2030 and is poised to announce more ambitious targets this week at a climate summit played host to by U.S. President Joe Biden. So it was looking for new ways to efficiently achieve reductions in the reasonably near-term. Helping decarbonize heavy-emitting sectors was deemed the best way to meet that criterion, while also fitting into a broader effort to improve Canada’s global competitiveness through more interventionist industrial strategy.

Otherwise, when it comes to the budget’s roughly $12-billion in previously unannounced environmental spending over five years (not including the undetermined cost of the CCUS tax credit), the best news came for conservation and biodiversity proponents. Ranging from protection of land and inland waters to urban green spaces to saving wild salmon populations, there is to be $4.1-billion in new nature-based investment, not all of it strictly climate-related.

Advocates of most every other form of climate investment are liable to be disappointed, to varying degrees, by spending spread thinly across various policy areas.

To improve energy efficiency of buildings, the budget pledges low-interest loans of up to $40,000 for residential renovations, atop a previously announced grants program for smaller projects. It comes nowhere near the comprehensive retrofit strategy – including larger and more targeted grants, and training programs to improve the construction industry’s capacity – pushed from the pandemic’s outset as a way to create jobs while reducing emissions.

While the industrial funding could go toward developing an electric-vehicle supply chain, and an additional $45-million over three years to develop a strategy around battery-component minerals could further help, there is almost nothing new to encourage Canadian drivers to switch to EVs.

To address agricultural emissions, which have been mostly ignored to date, $200-million over two years to support sustainable farming practices such as cover cropping and decreased use of nitrogen fertilizer is a start. But it’s well short of the hardly extravagant $600-million that the group Farmers for Climate Solutions had called for.

Similarly, the Liberals heeded calls to provide oft-overlooked funding for adaptation to extreme weather and other climate-change effects. But the main commitment in that regard, an additional $1.4-billion over 12 years to fund communities’ infrastructure resilience, is a drop in the bucket.

And when it comes to economic competitiveness, one apparent omission altogether is support for early-stage clean-technology companies, which often struggle more in this country than elsewhere to raise capital.

But it’s possible smaller businesses could benefit from the investment tax credit ostensibly for carbon capture by large industry – which points to both opportunity and ambiguity in the centrepiece industrial policies.

It’s not just whether the tax credit applies to EOR – which involves captured carbon being injected into the ground to facilitate oil extraction – that needs to be resolved during the consultation period. The government has also left the door open to the measure being applied to investments in other forms of technology, beyond CCUS. And it has yet to decide whether the credit will be refundable, which would allow preprofit companies to benefit. Not to mention that it’s still up in the air what rate the credit will be offered at.

The plans for the Net Zero Accelerator aren’t all that much clearer. The fund was only announced late last year, and the government didn’t wait to see how it works in practice – or even provide many specifics on how applications to it will work – before more than doubling its allocation.

That doesn’t mean Ottawa is necessarily moving with undue haste, nor that it should be putting the money elsewhere instead.

In a budget that was the Liberals’ best shot to lay groundwork for the postpandemic economy they envision, but also one in which climate funds were constrained by other priorities, they had to pick a lane even if they weren’t yet completely sure how to navigate it. And cleaning up large industry is a perfectly reasonable one.

But for a government known to struggle with the details after big announcements, there won’t be much room for error in the months ahead. The Liberals’ green-recovery legacy now hinges largely on nailing this fuzzy pair of policies.