As the United States reverses course on climate-change-related energy policies, Canada has a unique opportunity to take the lead on the transition to cleaner energy in North America. But realizing that potential will require much faster action to implement the clean-economy tax credits that were introduced by the previous Liberal government.
Under President Donald Trump, the U.S. government has taken aggressive measures to block renewable-energy development and promote fossil fuels. The massive fiscal bill approved by the U.S. Senate on July 1 will kill the generous tax incentives contained in the Inflation Reduction Act (IRA) that was signed by former president Joe Biden in 2022.
The Trudeau government responded to the IRA by announcing a suite of refundable investment tax credits (ITCs) that would help drive investment in clean technology adoption and manufacturing, carbon capture and storage, new hydrogen technology, the electric vehicle supply chain and clean electricity. However, the rollout of those tax credits has been painfully slow.
Six tax credits were planned, but two of those – the clean electricity and EV-related credits – have not yet been legislated into force. Investors’ take-up of the other four is hampered by undue complexity, bureaucratic sluggishness and the lack of federal resources that are required to manage their adoption, industry officials say.
Incentives are conspicuously absent
Prime Minister Mark Carney is promising swift action on energy policy in pursuit of his stated goal of making Canada an “energy superpower” in both low-carbon sources and conventional fossil fuels.
In his Canada Day address, he acknowledged the threat of climate change, saying the country is going to have to transform the economy with Canadian technology and “make our companies more competitive while fighting climate change.” In a speech to the Toronto Board of Trade a week earlier, Energy Minister Tim Hodgson stated the case more strongly: “Our climate is changing and we need to retool our economy to reflect that reality.”
However, three months into its mandate, the Carney government has not demonstrated the same urgency around clean-economy policies that it has shown with deregulation via the passage of Bill C-5. That bill, which received royal assent June 26, aims to accelerate construction of “nation-building” infrastructure such as pipelines, ports and transmission lines.
To not resource this program properly indicates a lack of understanding of what is needed to get people to engage with and leverage the credits.
– Bryan Watson, senior vice president at Venbridge Capital Ltd
If the federal government intends to build Canada into a “clean energy superpower,” it will require every tool it has to do so, including the tax credits. “I think we’re about to see how serious [the Carney government] is” with regard to the ITCs, says Lynn Côté, executive director of the Canada Cleantech Alliance. “The pressure is being felt as the team get in place. We’re looking to see when will the pedal hit the metal and what that will look like.” She adds, “These [tax credits] have the potential to be huge catalysts for important investments, but people have to know about them, and they have to be easy to use.”
Clean electricity waits in the wings
The clean-economy tax credits are expected to support some $500 billion in investment in clean technologies andinnovation over 10 years, the Parliamentary Budget Office projected last year. That figure is based on a scenario in which Canada generates the investment needed to meet its emission targets. But we will fall far short of those optimistic projections unless the Carney government commits to stronger climate action.
With the reversal in the United States, international wind, solar and battery companies are keen to invest in Canada, says Fernando Melo, federal director of the Canadian Renewable Energy Association. He’s confident the government will table legislation for the clean electricity credit this fall. “They want to get it done and need to get it right,” Melo says. “They’re in active listening [mode] this summer to get things right.”
Lack of staffing creating a barrier
Meanwhile, there are a number of bottlenecks that have hampered access to the ITCs that were legislated in June 2024, says Bryan Watson, senior vice president at Venbridge Capital Ltd. The problems include too few staff at the Canada Revenue Agency and Natural Resources Canada to review eligibility questions and conduct audits to determine compliance with the rules.
There are only two people assigned to respond to technical questions and curate the list of what technologies are included as “cleantech,” Watson says. At the same time, the CRA audit team is understaffed and takes more than three months to complete a review that is needed for the investors to claim their credit.
The current system will support large projects where investors have the resources to deal with doubt and delay, but smaller players – from farmers looking to add wind turbines to school boards keen to put solar panels on roofs – are often unable to access the credits, Watson says.
“This is grossly inadequate to manage a program like this,” he says. “To not resource this program properly, not put the proper communications resources in place, indicates a lack of understanding of what is needed to get people to engage with and leverage the credits.”
Market forces inadequate on their own
Declining costs of renewable and clean technology can make a compelling case for businesses, farmers and public-sector institutions like schools and hospital to invest in clean, energy-saving technology, particularly if their upfront costs are subsidized with tax credits.
However, it will take a broad array of policies to attract the investment needed to retool the economy with innovative technology and clean energy, said Rick Smith, president of the Canadian Climate Institute, in a statement after the May speech from the throne, delivered by King Charles. Smith urged Ottawa to enact the clean electricity tax credit, strengthen the industrial carbon price, finalize methane regulations for the oil and gas sector, establish well-defined guidelines for the financial sector, and apply clear flood- and fire-resilience criteria for federally supported housing.
Enacting policies, however, is not enough. The poor performance on the tax credits to date makes it clear: transformational energy and climate policies need strong leadership, both among key ministers like Hodgson, Finance Minister François-Philippe Champagne and Environment Minister Julie Dabrusin and within the bureaucracy. Adequate staffing is required to ensure that goals are met.
The Carney government faces an array of tough challenges, including managing trade relations with Trump, forging partnerships with restive provinces and Indigenous communities, and reining in a budget deficit even as spending on defence and housing increases.
It will take enormous commitment and discipline to meet the bold promise of making Canada a clean energy superpower – traits that have not yet been demonstrated on the clean energy and climate file.
Shawn McCarthy is an Ottawa-based writer and senior counsel with Sussex Strategy Group.
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