Forget about all the red ink. Tuesday’s federal budget was written in hues of emerald as Finance Minister Chrystia Freeland clearly struggled to keep up with her US counterparts in greening Canada’s economy — the the tune of $20 billion over five years, a number that could climb as high as $80 billion over 10..In her budget address, Freeland compared it to the railroad with long term benefits for generations to come..“With the race to build the global clean economy already underway, there is a new national project in front of us: to build our generation's version of the Transcontinental Railway—one that will protect our environment, grow our economy, and ensure every single Canadian can share in the prosperity we will create together.”.At the end of the day, she really didn’t have much choice. That’s because US President Joe Biden’s Inflation Reduction Act (IRA) could easily swell to more than $1.7 trillion in government handouts over the same period, in what EU officials have complained is a green trade war for investment dollars..That’s why Freeland introduced a suite of relatively minor administrative moves — tax credits, mostly — that seem like a big number in aggregate, but really don’t move the needle in isolation, depending on what side of the ledger you’re on. If you’re a fiscal hawk it probably goes too far; the radical greenies won’t think it went far enough..And despite a small carve out from protectionist ‘buy America’ rules, Biden was mostly unapologetic for opening the taxpayer taps during his speech in Ottawa last week. Freeland added a provision that foreign countries — ie American ones — will be afforded the same treatment as Canadian firms in their respective jurisdictions..“Of course, the federal government needs to better position Canada to compete with the U.S. for investment in the energy transition,” Randall Bartlett, senior director of Canadian economics at Desjardins, wrote in a research note. “But it can’t break the bank to do it.”.It’s not entirely clear if it could have ever been enough without bankrupting the federal treasury. In that sense, Freeland steered a pretty fine line in leaving the door open to new investments in carbon capture and storage (CCS) and new production technology without entirely giving away the farm..To wit: the proposed ‘differences’ contracts for carbon emissions are mostly a formality that provides large emitters a minimum level of confidence to move forward with CCS projects without a huge outlay of money. The details have to be worked out, but think of it as a floor price for emissions — akin to dairy marketing boards for industry..To that end, eligibility for last year’s CCS tax incentives was expanded slightly, by a half a billion dollars. The government also set aside $2 billion to help industry decarbonize operations. It’s still pretty small in the bigger scheme of things. .In a statement Lisa Baiton, president of the Canadian Association of Petroleum Producers, said her group is “encouraged” by the government’s recognition of the need for regulatory streamlining, but cautioned more work needs to be done if the country is to meet its ambitious climate change goals..“The path to a lower emission economy can only be done by aligning environment, energy and economic policies to attract investment and accelerate the permitting process for large scale decarbonization projects like carbon capture and electrification.”.The biggest ticket item was a 30% investment tax credit aimed at building out EV supply chains, including incentives for critical minerals and battery manufacturing..Even $20 billion — although it sounds like a large number — is relatively tiny compared to the amount the Liberals have spent on greening Canada’s economy since coming to power in 2015, or well over $100 billion, including $35 billion for the Canada Investment Bank and $33.5 billion for public transit and other so-called green infrastructure programs..The Conference Board of Canada, while noting the budget more or less aligns with its own economic forecasts, called it “clean and green, but not very lean.”.Despite pressure to keep up with the US for investment, analysts warned too much government stimulus risks stoking inflation..“In a year in which the central bank is still applying high-interest rates to contain growth, fiscal policy should not add stimulus that would only be countered by further rate hikes,” wrote Avery Shenfeld, CIBC Capital Markets chief economist.
