On Monday 16 December, shortly after Minister of Finance Chrystia Freeland announced her resignation, the government of Canada released The 2024 Fall Economic Statement: Reducing Everyday Costs and Raising Wages. This statement outlines the government’s economic plan to reduce everyday costs and invest in the kind of economic growth that raises wages, all to put more money in the pockets of Canadians. ClearBlue has highlighted updates on select topics from the 2024 Fall Economic Statement (FES) of Canada:
More Generous Canada Carbon Rebate Rural Top-Ups and Canada Carbon Rebate for Small Business
The government is enhancing the Canada Carbon Rebate by introducing more generous rural top-ups to help offset the higher costs of living in rural areas. This is combined with a new Canada Carbon Rebate for small businesses, aimed at supporting them in managing the impacts of the carbon tax. These measures are designed to ensure that both rural households and small businesses are adequately supported during Canada's transition to a low-carbon economy.
A new rebate program specifically for small businesses will be established to help them manage the costs associated with the carbon tax. The FES proposes several modifications to the rebate program for the 2024-25 and later fuel charge years. The eligibility is being expanded to include cooperative corporations and credit unions. A minimum payment rule will be introduced, ensuring that eligible corporations with 1 to 20 employees receive a payment corresponding to having 20 employees. This rule will apply proportionally if the business has employees in multiple provinces. Additionally, a phase-out will be implemented, reducing the payment amounts on a straight-line basis for businesses with between 300 and 500 employees, with the rebate being eliminated once the number of employees reaches 500.
These rebates are in addition to other relief measures provided by the federal government to minimize the burden of the carbon tax on households. This includes pausing the tax on home heating oil for three years. In early 2024, the government changed the name of the rebate program from the Climate Action Incentive Payment to the Canada Carbon Rebate to provide more transparency and understanding of the returns taxpayers were receiving.
Clean Electricity Investment Tax Credit for Provincial and Territorial Crown Corporation
A new Clean Electricity Investment Tax Credit will be available for provincial and territorial crown corporations. This refundable tax credit, effective as of April 16, 2024, offers a 15% rate for investments in eligible property related to low-emitting electricity generation, electricity storage, and interprovincial and territorial electrical transmission. To be eligible, projects must not have begun construction before March 28, 2023, and must be available for use before 2035. The credit is intended to encourage investments in clean electricity projects and will help crown corporations play a significant role in the transition to a low-carbon economy.
Implementing the EV Supply Chain Investment Tax Credit
The government will implement an EV Supply Chain Investment Tax Credit to incentivize investments in the electric vehicle supply chain. The tax credit offers a 10% refundable tax credit on the cost of property acquired and made available for use on or after January 1, 2024. This includes support for battery manufacturing, critical mineral extraction, and processing. The tax credit will gradually diminish over time, reducing to 5% in the years 2033 and 2034, and will no longer be in effect after 2034. This phased approach is intended to encourage immediate investment in the EV supply chain while providing a transition period for businesses to adjust.
Making Clean Hydrogen through Methane Pyrolysis
Canada will invest in the production of clean hydrogen through methane pyrolysis, a process that generates hydrogen without emitting CO2. The 2024 Fall Economic Statement proposes that the Clean Hydrogen investment tax credit be expanded to include hydrogen produced from methane pyrolysis, a nascent but promising new method, as an eligible production pathway. Expanding the Clean Hydrogen investment tax credit to include methane pyrolysis is expected to cost $43.5 million over five years, starting in 2025-26.
Investing in Canadian Biofuels
The government will invest in the development and production of Canadian biofuels, providing a cleaner alternative to traditional fossil fuels. The government has committed $1.77 billion to the industry, which includes $1.27 billion for constructing new biofuel facilities, funded through the Canada Infrastructure Bank and a revised Clean Fuels Fund. Additionally, a biofuel production fund worth up to $500 million annually will be established to subsidize ongoing facility operations, mirroring a production tax credit.
Canada Growth Fund
The $15 billion Canada Growth Fund will continue to be utilized to attract private sector investment in key sectors, including clean technologies and renewable energy. The fund will continue to use concessional finance instruments to make clean growth projects more attractive to conventional investors, despite their often novel, high-risk, and long-return-horizon nature. To date, the Canada Growth Fund has committed $3 billion to 8 investments focusing on geothermal power and heat, climate impact and transition funds, carbon capture and CCUS technologies.
Carbon Contracts for Difference
Carbon contracts for difference have introduced three carbon contracts to provide stability and predictability for investors in low-carbon projects. These contracts will help manage the risks associated with carbon pricing, ensuring that investors have a clear and stable financial environment in which to invest in clean energy and other low-carbon initiatives. The FES 2024 announces the development of an expanded range of CCFD offerings tailored to different markets and their unique risks and opportunities. The CGF will continue to offer bespoke CCFDs and carbon offtake agreements. Additionally, contracts with the CGF can be negotiated through a streamlined technical and commercial process thereby providing more “off-the-shelf” CCFDs to companies.
Mandatory Climate Financial Disclosures
The government will implement mandatory climate financial disclosures for publicly traded companies and large financial institutions. Under the new requirements in FES 24, large federally incorporated companies will be obligated to disclose climate-related financial information, aligning with the Task Force on Climate-related Financial Disclosures (TCFD) framework. This includes details on how businesses manage climate risks and opportunities, providing investors with transparent and reliable information to make informed decisions. The federal government will work with provincial and territorial partners to ensure broad disclosure coverage across the Canadian economy and harmonize these regulations with those for public companies and federally regulated financial institutions. In conjunction with these new disclosure requirements, the government is introducing a sustainable investment taxonomy, known as the "Made-in-Canada Guidelines." This taxonomy will help categorize "green" and "transition" economic activities, guiding investors in assessing whether a company's activities align with Canada's net-zero emissions goals by 2050. The taxonomy will initially focus on key sectors such as electricity, transportation, buildings, agriculture, manufacturing, and natural resources, with guidelines for two to three priority sectors to be published within the first 12 months.
Advancing Border Carbon Adjustments
Canada will advance its work on border carbon adjustments to ensure that Canadian businesses remain competitive while maintaining the integrity of the carbon pricing system. This involves adjusting carbon costs at the border to level the playing field with countries that do not have similar carbon pricing mechanisms, thereby protecting Canadian industries from unfair competition. In response to the threat of steep tariffs from the U.S., particularly those proposed by the incoming U.S. administration under President-elect Donald Trump, the government has pledged to spend $1.3 billion over six years on a border security package. While this package is primarily aimed at enhancing border security, it also aligns with the broader strategy of protecting Canadian economic interests, including those related to carbon pricing and trade competitiveness.
Advancing Canada's G7 Presidency Priorities
During Canada's G7 Presidency, the government will focus on advancing global climate action priorities. This includes promoting clean energy, reducing greenhouse gas emissions, and supporting climate resilience and adaptation efforts globally. The FES 24 also emphasizes Canada's commitment to strengthening the rules-based multilateral trading system and implementing a more stable and fairer international tax system. This aligns with the broader G7 goals of promoting economic resilience, confronting non-market policies and practices that undermine the level playing field, and addressing global overcapacity challenges.
ClearBlue will continue to monitor developments and provide ongoing updates and analysis.