Canadian businesses and communities are calling for climate action that drives future growth. Many are already facing wildfires, flooding and other impacts of climate change.
Canada has pledged to achieve net-zero emissions by 2050, alongside an accelerated goal of reducing carbon emissions by 40-45% below 2005 levels by 2030. Fossil fuel subsidies will also be eliminated by 2023.
There is some concern that Canada currently lacks the skills and expertise required to implement climate solutions. Strategic government incentives are intended to help drive the green transition and help businesses meet critical targets. A successful transition needs expanded employment and education programs, investments in clean technology and renewable energy, and industry incentives to support green investment.
While many Canadian business leaders embrace sustainability, adopting greener approaches can present considerable challenges and introduce new risks. Reducing carbon emissions through offset purchases and upgrading to clean tech can increase costs. Organizations may need new business strategies and a comprehensive plan to achieve regulatory compliance and remain profitable.
Federal Budget 2022 measures
New and ongoing green transition measures aim to help Canadian industries and citizens prosper alongside the planet. Ultimately, it remains up to individual organizations to shoulder much of the responsibility. In the coming months, Canadian businesses may face new demands from stakeholders who want to see clear green transition plans that set measurable ESG targets and demonstrate tangible progress towards environmental goals.
Encouraging carbon capture
The refundable investment tax credit for carbon capture, utilization, and storage (CCUS) aims to help reach sustainability goals and provides incentives for companies to seek alternatives to fossil fuels. The credit is available to businesses that purchase and install eligible equipment that capture, transport, store, or use CO2 as part of an eligible CCUS project. The effectiveness of projects is set to be assessed by the government every five years and taxpayers will need to provide various climate-related disclosures.
In efforts to speed up the launch and adoption of CCUS projects and technology, the rates on eligible expenses are two times higher for the current period (2021 to 2030) as compared to 2030 to 2040. The highest tax credit rate (60% from 2021-2030 and 30% from 2030 to 2040) – is reserved for capture equipment used in direct air capture projects, as opposed to equipment installed for CO2 transport, storage, or use.
Eligibility will involve various assessments by federal bodies and taxpayers will be required to produce a climate-related financial disclosure reports outlining climate strategies and practices.
Supporting green alternatives to drive growth
The budget emphasizes the green transition as a growth and leadership opportunity. A 30% Critical Mineral Exploration Tax Credit (CMETC) will apply to exploration expenses on minerals used to advance the green transition. Although the credit will encourage investment in activities with environmental impacts, the minerals extracted will be used in sustainable tech, such as battery production and permanent magnets for use in zero-emission vehicles (ZEVs).
A new investment tax credit in development (for fall 2022) is expected to provide up to 30% on net-zero technologies, battery storage solutions, and clean hydrogen. Incentives are also available for air-source heat pumps used as an efficient, zero-emissions alternative for space and water heating.
The federal government will develop guidelines, tools and targets to procure goods with reduced environmental impact.
Launching a zero-emissions mobility plan
A priority area for pollution reduction in Canada is the transportation sector, which produces 27% of greenhouse gas emissions in Canada. Transportation and logistics companies may face outsize challenges in the months ahead, from increased operational costs, to technology outlays, and time commitments, as they work to reduce their fossil fuel dependence and shift to greener alternatives.
The government has introduced initiatives to help people and business owners make an accelerated transition to ZEVs through sales mandates and green retrofitting. Funding from various programs totalling $900 million is to be put towards charging and refuelling infrastructure in both Canadian cities and sub-urban and remote communities.
Facilitating the switch to green jobs
A new Futures Fund for resource-intensive provinces will help support re-skilling and transfers to sustainable careers and a new Clean Jobs Training Centre will provide workers and their employers with the tools and capabilities to succeed in the green economy.
How KPMG can help
As Canadian organizations tackle the green transition, KPMG professionals can help navigate the changing regulatory landscape and guide access to new green incentives. While decarbonization brings new challenges, our experienced consultants can help develop sustainable finance and tax strategies that help set, meet and comply with ESG commitments. Our team can help businesses develop sound green transition plans, fulfill their reporting and assurance needs, and help grow their businesses towards a sustainable tomorrow.
The morning after budget day, KPMG hosted a live webcast with an overview and analysis of the measures announced in the budget. These clips are highlights of key measures discussed during the webcast.