Canada Announces Investment Incentives for Clean Energy and … – Pillsbury Winthrop Shaw Pittman

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By Jeffrey S. Merrifield, Elina Teplinsky, Sidney L. Fowler, Ashley L. Meredith
By Jeffrey S. Merrifield, Elina Teplinsky, Sidney L. Fowler, Ashley L. Meredith
On November 3, 2022, the Authorities of Canada launched the 2022 Fall Financial Assertion, outlining the federal government’s plans to make investments in staff that may develop the financial system, create well-paying jobs, and sort out funding and productiveness challenges. A significant objective of the Financial Assertion is boosting power funding and taking “important steps” to make sure Canada stays aggressive in gentle of the passage of the U.S. Inflation Discount Act (IRA). Lots of the provisions within the Financial Assertion do in reality channel provisions within the IRA. The 2 incentive packages create a robust funding setting for clear power in North America.
In a speech accompanying the discharge of the Financial Assertion, Deputy Prime Minister and Minister of Finance Chrystia Freeland said “[w]ith main funding tax credit for clear expertise and clear hydrogen, we’ll make it extra enticing for companies to spend money on Canada to supply the power that may energy a net-zero international financial system.”
Key energy-related incentives within the Financial Assertion are summarized under.
Clear Know-how Funding Tax Credit score
The Financial Assertion proposed a refundable funding tax credit score (ITC) value as much as 30 p.c of the capital price of investments in:
The ITC will likely be out there as of the day of Price range 2023 (the day within the spring when the Canadian Minister of Finance presents the finances), and stop impact in 2035, with a phase-out interval beginning in 2032.
Clear Hydrogen Funding Tax Credit score
The Financial Assertion additionally introduced a refundable ITC of as much as 40 p.c for investments in clear hydrogen manufacturing. The ITC will likely be based mostly on the life cycle carbon depth of the hydrogen produced. The Financial Assertion directs the Division of Finance to launch a session on how greatest to implement the tax credit score and factors to the IRA, which makes use of the Argonne Nationwide Laboratory’s GREET mannequin for all times cycle emissions, as a mannequin for tying credit to emissions. The clear hydrogen ITC will likely be out there for eligible investments made as of the day of Price range 2023 and will likely be phased out after 2030.
Wage and Apprenticeship Necessities
Just like the IRA, so as to obtain the very best doable credit below the clear expertise ITC or hydrogen manufacturing ITC, undertaking builders should meet sure labor circumstances which will likely be developed by the Division of Finance. The Division of Finance will seek the advice of with a broad group of stakeholders, however particularly with unions, on how greatest to connect labor circumstances to the proposed tax credit. Whereas the labor circumstances are usually not absolutely outlined, the Financial Assertion gives that for the clear expertise ITC, the labor circumstances would require a undertaking to pay prevailing wages based mostly on native market circumstances and make sure that apprenticeship coaching alternatives are being created.
For the clear expertise ITC, firms that adhere to those circumstances will likely be eligible for the total 30 p.c credit score, whereas these that don’t will solely be eligible to obtain a 20 p.c credit score. That is considerably much less restrictive than the IRA, the place builders who fail to fulfill the prevailing wage and apprenticeship necessities lose five-sixths of the out there credit score. Canada’s clear hydrogen ITC has more durable labor and apprenticeship circumstances—there, the utmost 40 p.c credit score drops to 10 p.c if these circumstances are usually not met.
Particular particulars of the labor circumstances will likely be introduced in Price range 2023.
Enhancing Regulatory Processes for Vitality Tasks
The 2022 Fall Financial Assertion additionally proposes to offer funding that may enhance regulatory processes for main initiatives, together with furnishing as much as $1.28 billion over six years (beginning in 2022 – 2023), with $0.5 million in remaining amortization and $55.4 million per yr to the Impression Evaluation Company of Canada, the Canada Vitality Regulator, the Canadian Nuclear Security Fee, and 10 different federal departments. The Impression Evaluation Company of Canada and the Canada Vitality Regulator will proceed to get better a portion of their prices from the events whose purposes they’re reviewing and assessing.
This funding is designed to make sure that these companies can improve their capability and enhance the effectivity of assessments so as to reply to a rising variety of main initiatives being proposed.
Future Consultations to Develop the Applications
The Financial Assertion directs Canada’s Division of Finance to interact in consultations about these tax credit, together with the potential for the clear power ITC to be out there for different applied sciences, the event of an acceptable carbon intensity-based system for the clear hydrogen ITC, ranges of help for various hydrogen manufacturing pathways in Canada, and labor situation necessities. Corporations situated in Canada or doing enterprise with Canada can be suggested to watch these consultations and interact with the Division of Finance on these points, as the precise framework for the ITCs could impression the economics of future power initiatives situated in Canada. As well as, clear power applied sciences which weren’t particularly named as eligible for the clear expertise ITC—similar to large-scale nuclear or industrial fusion power—could think about participating with the session course of to advocate that their applied sciences be included.
Pillsbury has offered authorized help on power issues for a number of branches of the Canadian authorities, Canadian power producers, suppliers, laboratories and constructors and is a member of the Canadian Nuclear Affiliation. Our crew stands able to help in-bound and out-bound funding on this vibrant and dynamic power market.
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