Accelerating Investment in Emerging Net-Zero Aligned Energy Industries a Clear Priority
Budget 2023 offered a much-needed response to legislation in both the US (Inflation Reduction Act) and Europe (the Green Deal Industrial Plan), increasing investment in Canadian industry and new value chains emerging in a global drive to decarbonize energy systems and shore up energy security.
With numerous reactions to the budget and informative explainers already in circulation, we approached the budget with a lens on what we feel matters most for Alberta’s energy transition and how the proposed funding, credits and incentives can help the province focus in more sharply on the areas in which we’re best positioned to compete, mobilize our existing and emerging ecosystems and industries, and make the most of what’s on offer.
With it all on the table, now feels like the moment for us to collectively lean into this work. The budget has provided some of the foundational financial tools required to maintain competitiveness and gain market share within the rapidly evolving global economy.
The budget orients priorities towards industrial strategy and value chain development, along with the announcement of numerous Investment Tax Credits (ITC) aimed at closing the gap between the bankability of investments in Canadian net-zero aligned industries and their US competition. The Energy Futures Lab sees a central role for our function as trusted convenors and enablers of collaboration in helping forge a shared understanding of Alberta’s most strategic opportunities in emerging value chains, and informing supportive policy and investment conditions tailored to the unique needs of the province.
This budget also recognizes the necessity to provide long-term certainty for investors, businesses and innovators to be able to integrate sustainability measures into their long-term plans and goals as new, net-zero energy system aligned markets that are now only at a nascent stage begin to mature.
The budget’s focus on cleantech innovation may for some suggest limited relevance for Alberta. Yet in actuality, for businesses here, there are many place-based opportunities to be leveraged. Here’s a breakdown of the ITCs and the opportunities they represent for Alberta:
- Clean Electricity ITC – will help Alberta modernize its grid and unlock the abundant, affordable, reliable energy we will need to power Alberta’s economy. It now extends to abated natural gas, batteries and other forms of energy storage, and applies to both new projects and facility retrofits.
- Critical Mineral Exploration ITC – expands the eligibility criteria and empowers innovative companies seeking to utilize existing well infrastructure in Alberta to produce lithium-from-brine, which has been much anticipated. Additionally, enabling these producers to issue flow-through shares will increase the attractiveness of lithium-from-brine projects as investments.
- Clean Hydrogen ITC – acknowledges the potential of being able to transport Alberta-produced clean fuel to global markets via ammonia.
- CCUS ITC – an enhanced CCUS ITC expands eligible projects and will allow the province’s energy sector to repurpose its abundant subsurface data, expertise, and engineering know-how to decouple industrial development and growth (e.g. the refinement of battery materials) from increasing emissions, not to mention drastically reducing existing emissions from heavy emitters.
- Clean Technology Manufacturing ITC – rather than extracting minerals and metals for export, and buying back batteries for EVs, home, and grid storage from the US at a markup, this ITC enables us to leverage Alberta’s chemical processing expertise to refine and produce the base materials that are necessary to unlock the exponential value in the creation of a Canadian battery value chain.
What does this mean for the Energy Futures Lab’s work and our community?
First, we’re pleased to see the recognition of the need for grid modernization and the announcement of a clean electricity tax credit. With eligibility extending to publicly-owned utilities as well as Indigenous-owned corporations coupled with a commitment to deliver clean energy to northern, rural and remote communities there is a commitment to ensuring that all Canadians will have access to safe, reliable and clean electricity. With our newest Innovation Challenge, Alberta’s Electricity Future, focused on modernizing Alberta’s grid we’re hopeful that making this a clear national priority and utilizing the accompanying budget mechanisms will help bolster the system’s capacity to successfully engage in and make headway on the important work of electrification that’s central to so many net-zero aligned energy solutions.
Building from our previous work on CCUS, our recent initiative seeks to establish a CCUS ecosystem that will identify and address the barriers to implementation currently faced by industry. The budget recognizes that many investments involve high upfront costs and will stretch over decades, but doesn’t directly address the urgency (and long timeframes) to get CCUS projects online and brought to scale.
To be sure, with the previously announced investment tax credit coupled with a commitment in this budget to begin consultation on a broad-based approach to using contracts for difference, there’s a path for large investments in CCUS to be less risky for many Alberta-based companies striving for net-zero. And with the role of CCUS in the hydrogen economy, abating hard to decarbonize sectors and the emerging utilization industries, CCUS continues to be a critical opportunity for the province that is in need of more immediate acceleration.
The Government of Canada has expressed a strong desire to lean into the formation of a value chain for battery materials and manufacturing. In our June 2022 report, A Roadmap for Canada’s Battery Value Chain, along with our partners we identified that battery metals and critical minerals processing presented a significant opportunity for Canada in an emerging and exponentially growing global market, through the creation of a domestic battery value chain with a focus on midstream manufacturing. It’s gratifying to see recognition for the Lab’s early work in bringing together system players and formalizing disparate industries into a cohesive value chain now being recognized with strong incentives, and we are confident that we’ll see Alberta companies continuing to step forward with innovative technologies.
Having championed the potential for a lithium industry for years and worked closely with the Battery Metals Association of Canada, we are also pleased to see the expansion of the Critical Mineral Exploration Tax Credit eligibility to lithium-from-brine (a potential boon for Alberta), something which has been long advocated for and was excluded from the previous budget.
We’re also encouraged to see a commitment to support the development of an Indigenous Economic Reconciliation Framework that can be used to increase Indigenous economic participation in the energy transition. It feels like Indigenous communities and businesses are finally starting to have access to economic supports for infrastructure, cleantech and resource development projects – a barrier that has been in place for too long. One nod to this is the mechanism of using the Canada Infrastructure Bank to provide loans to Indigenous communities for purchasing equity in infrastructure projects, albeit only those in which the Bank is also investing. Coupled with the $3 billion earmarked for Natural Resources Canada to “Recapitalize funding for the Smart Renewables and Electrification Pathways Program to support critical regional priorities and Indigenous-led projects”, we hope to see meaningful action towards economic reconciliation along with continued recognition of Rights and Title, and equity partnerships with Indigenous Peoples.
All in all, the budget makes strategic efforts to spur Canadian competitiveness in net-zero aligned industries and even the playing field with the US for critical minerals, hydrogen, carbon capture, utilization and storage, electric vehicles, and sustainable aviation fuels (by way of biofuels investment).
Perhaps what’s most promising is the recognition of the need to provide long-term certainty for investors, businesses and innovators. With many of the ITCs and incentives extending past 2030, there’s now breathing room to integrate sustainability into long-term planning as emerging, net-zero aligned industries begin to de-risk and reach the tipping point of commercial viability.
As others have pointed out, some of the budget’s mechanisms for distribution are novel, but importantly offer a chance to sidestep the mistakes of the past. Decentralizing decisions and the rollout of programs to regionally-situated departments who have a clearer, more in-depth understanding of the context and knowledge of regional ecosystems and players would benefit regions of the country further removed from Ottawa’s sphere, Alberta included.
By leveraging the financial tools laid out in Budget 2023, Alberta has an unmistakable opportunity to chart a course to a thriving and prosperous position as a global player in a net-zero aligned energy economy. But the hardest work to realize the potential of this moment still lies ahead. As stakeholders and Rights Holders in this sector, we must be ready to collaborate towards developing a shared understanding of Alberta’s most strategic opportunities in emerging value chains, and utilize it to inform supportive policy and investment conditions tailored to the province’s unique context.
Only with some alignment and mobilization can we quickly and efficiently capitalize on the momentum created by the convergence of these top economic opportunities, energy security, and the acknowledgement of the need for sustainable Albertan jobs. This is work in which the Energy Futures Lab is highly-experienced and well-positioned to do effectively and we are actively pursuing opportunities to partner with other organizations to ensure both Albertans and Canadians can seize this moment to their greatest advantage.
Author: Alison Cretney is the Managing Director of the Energy Futures Lab.
