A trifling earmarked for clean transition

This week’s federal budget is a disappointment for those who expected Ottawa to act boldly in ensuring that Canada doesn’t get left out of the next Industrial Revolution.

The centrepiece of the budget, delivered by Finance Minister Chrystia Freeland, is nearly $21 billion in spending on tax credits and programs for green energy projects.

That includes a new investment tax credit for clean energy manufacturing, budgeted at $4.5 billion over five years, and a $5.6 billion program to fund clean hydrogen production.

Frankly, these are trifling sums. The funding commitments in this budget don’t match the government’s own rhetoric about making Canada a contender in the global race to develop advanced clean-energy technologies.

And the budget falls far short of America’s massive spending in clean-energy transformation, which Ottawa has been urged by business groups to match — not dollar-for-dollar but by a sizable amount.

Otherwise, they fear, Canada won’t be able to compete with the huge incentives the Biden administration began providing last year.

Freeland raised expectations about using this budget to spur development of Canadian clean-tech prowess in her prebudget events.

“Canada will either capitalize on this historic moment, on this historic opportunity,” Freeland said at a March 22 event in Quebec City, “or we will be left behind as the world’s democracies build the clean economy of the 21st century.”

But Freeland’s budget provides only token funding for Canada’s clean-tech transformation. At just over $4 billion a year over five years, the budget’s funding of green projects is negligible in a $2-trillion Canadian economy.

It doesn’t come close to matching the more than $370 billion (U.S.) that America will spend on its clean-tech revolution over the next 10 years.

And Freeland’s use of tax credits in the budget’s investment incentives could be a problem.

A great deal of the clean-tech transformation will be conducted by governments and state agencies, among which provincial power utilities are especially prominent.

But governments and state agencies are non-profit entities that, as a rule, don’t qualify for tax credits.

So, why the disparity between Freeland’s bold talk and her underwhelming budget?

This government has adopted fiscal restraint as a mantra. Freeland warned that her budget would not “pour fuel on the flames of inflation.” That rules out truly bold initiatives.

And Biden’s largesse is an epic splurge on corporate welfare spending that would not sit well with most Canadians.

The U.S. also is engaged in a highstakes bid to reclaim tech leadership it has lost to China, South Korea and Taiwan.

Meanwhile, the Trudeau government has already made what it regards as an impressive start on funding a clean-tech economy.

Freeland’s last budget, in 2022, created the $15-billion Canada Growth Fund and the $2.5-billion Canada Innovation Corp.

Both agencies are tasked with promoting more private sector investment in clean-tech innovations and to commercializing them.

Ottawa and Ontario have heavily subsidized the Detroit Three automakers’ commitment to make electric vehicles (EVs) in Canada.

Ottawa and provincial governments have also spent heavily in subsidizing new EV battery factories that play a major role in the clean-tech transformation, located in Quebec and Ontario.

The gigafactory that Volkswagen AG recently announced for St. Thomas, Ont., is VW’s first battery plant outside of Europe.

All that said, Canada does not have as robust an innovation infrastructure as countries like the U.S., China and Israel. As Ottawa learned with its vaunted Canada Infrastructure Bank, there aren’t many “shovel ready” projects, with a myriad of approvals in place, for Ottawa to fund.

But the budget at least signals among clean-tech players that their work is a priority for a federal government that for now is fiscally constrained in the support it can provide.

A hopeful sign is that the Canada Growth Fund is to be managed independently by the Public Sector Pensions Investment Board, which manages more than $225 billion on behalf of current and former government employees.

As an experienced investor, the board can be expected to be more successful than governments in wise allocations of public investments, and monitoring their progress against promises and deadlines.

That would be an improvement over the long-standing Ottawa model of scattershot funding, derided by critics as “spray and pray.”