Canada: Cleantech Remains A Priority During Uncertain Economic Times

Recent news focused on Canada's economy has largely centred on inflation and rising interest rates, which is unsettling to say the least. While much of the Government of Canada's attention is directed at resolving (what will hopefully only be short-term) economic uncertainty, government officials also remain committed to investing in the future, including cleantech.

In this regard, the 2022 Canadian Federal Budget allocated $28.2B to a variety of cleantech endeavours. The figure represents a sizeable increase over the 2021 Federal Budget, and is a promising step towards meeting Canada's 2050 net-zero targets. The Budget provides funding for several key cleantech areas, such as modular nuclear reactors, which can provide clean energy to Canada's remote communities; extraction of minerals critical to the development of electric vehicles and other clean technologies; and several initiatives focused on hydrogen-based technologies.

Other key cleantech funding initiatives outlined by the Budget are as follows:

Greener housing

• $183.2M over seven years to conduct research and development on innovative construction materials, with hopes of creating low-carbon housing solutions.
• $150M towards building code reform, with an emphasis on promoting the adoption of low carbon materials.

A greener economy

• Launching the $15B Canada Growth Fund, which aims to attract private sector investment to help Canada meets its economic policy goals in a greener manner. The Fund "will accelerate the investment of private capital into decarbonization and clean technology projects; help to promote the diversification of Canada's economy; play a key role in helping to meet Canada's climate targets; and strengthen both Canada's economic resilience and capacity."

Agricultural innovation

• $329M to triple the size of Canada's Agriculture Clean Technology Program, with the goal of prompting the creation of clean agriculture technologies.
• $469.5M over six years to expand Agriculture Climate Solutions' On-Farm Climate Action Fund.

Green tax credits

• New tax credits (up to 30%), with a focus on net-zero technologies, battery storage solutions, and clean hydrogen. The full details of the tax credit program will be released in the 2022 fall economic and fiscal update.

Green procurement

• The federal government has more than $20B in purchasing requirements each year. The 2022 Budget proposes the Development of new tools, guidelines and targets to facilitate "green procurement" for Public Services and Procurement Canada.

Next steps

Even with significant government investment, it remains incumbent on Canadian private enterprise to develop and commercialize cleantech. Doing this requires Canadian businesses to implement an intellectual property (IP) strategy that will enable them to successfully compete on national and international stages. We discussed high-level strategic IP concerns and various funding sources available for scaling Canadian businesses in an earlier article, which can be found here. In particular, Canadian businesses should consider the following when developing an IP strategy:

• An IP audit to assess their current inventory of IP, as well as identify IP best management practices;
• A landscape search to determine how active competing businesses are in patenting their own technology;
• A freedom-to-operate search to lower the likelihood that cleantech commercialization will result in getting sued for patent infringement; and
• Patentability searches to determine the likelihood that inventions they may wish to protect will be found patentable.

Apart from the 2022 Federal Budget, government funding for scaling Canadian cleantech businesses, such as through NRC IRAP, may be available for IP strategy development. Please contact a Gowling WLG professional for more information.

CLEANTECH HIGHLIGHTS AND FUNDING SUPPORT PROGRAMS FROM THE 2022 FEDERAL BUDGET

2022 Federal Budget highlights concerning cleantech

The corresponding page numbers and highlights from this section can be found on the PDF version of Budget 2022.

Page number 42

Greener buildings and homes

• "$150 million over five years, starting 2022-23, to Natural Resources Canada to develop the Canada Green Buildings Strategy. The strategy will include initiatives to further drive building code reform; to accelerate the adoption and implementation of performance-based national building codes; to promote the use of lower carbon construction materials; and to increase the climate resilience of existing buildings."

Establishing a greener neighborhood pilot program

• "$33.2 million over five years, starting 2022-23, to Natural Resources Canada, including $6 million from the Green Infrastructure - Energy Efficient Buildings Program to implement a Greener Neighbourhoods Pilot Program in up to six community housing neighbourhoods to pilot "Energiesprong" model in Canada."

Greener construction in housing and buildings

• "$183.2 million over seven years, starting in 2022-23, with $8.5 million in remaining amortization, and $7.1 million ongoing to the National Research Council to conduct research and development on innovative construction materials and to revitalize national housing and building standards to encourage low-carbon construction solutions."

Page number 60

Launching a world-leading Canada Growth Fund

"Budget 2022 proposes to establish the Canada Growth Fund to attract substantial private sector investment to help meet important national economic policy goals:

1. To reduce emissions and contribute to achieving Canada's climate goals;
2. To diversify our economy and bolster our exports by investing in the growth of low-carbon industries and new technologies across new and traditional sectors of Canada's industrial base; and
3. To support the restructuring of critical supply chains in areas important to Canada's future prosperity-including our natural resources sector."

Page number 82

• Tripling the size of the Agriculture Clean Technology Program with a top-up of $329 Million

Page number 91

New measures to help reduce greenhouse gases:

• Federal government to put in place a sales mandate requiring at least 20 per cent of new light-duty vehicle sales to be zero-emission vehicles by 2026, at least 60 per cent by 2030, and 100 per cent by 2035.
• "reduce emissions from medium- and heavy-duty vehicles (MHDVs), the federal government will aim to achieve 35 per cent of total MHDV sales being ZEVs by 2030"
• "the federal government will develop a medium- and heavy-duty ZEV regulation to require 100 per cent MHDV sales to be ZEVs by 2040 for a subset of vehicle types based on feasibility, with interim 2030 regulated sales requirements that would vary for different vehicle categories based on feasibility, and explore interim targets for the mid-2020s."
• Continuing and expanding the purchase incentive program for electric vehicles. Details to be unveiled in coming weeks.

Page number 92

National network of eclectic vehicle charging stations:

• "Canada Infrastructure Bank will invest $500 million in large-scale urban and commercial ZEV charging and refueling infrastructure. Funding will be sourced from the Canada Infrastructure Bank's existing resources under its green infrastructure investment priority area"
• "provide $400 million over five years, starting in 2022-23, to Natural Resources Canada to fund the deployment of ZEV charging infrastructure in sub-urban and remote communities through the Zero-Emission Vehicle Infrastructure Program (ZEVIP)."
• "to provide $2.2 million over five years, starting in 2022-23, to Natural Resources Canada to renew the Greening Government Operations Fleet Program, which will continue to conduct readiness assessments of federal building"

Helping business switch to medium and heavy duty zero emission vehicles

• "provide $547.5 million over four years, starting in 2022-23, to Transport Canada to launch a new purchase incentive program for medium- and heavy-duty ZEVs"
• "provide $33.8 million over five years, starting in 2022-23, with $42.1 million in remaining amortization, to Transport Canada to work with provinces and territories to develop and harmonize regulations and to conduct safety testing for long-haul zero-emission trucks."
• "to help decarbonize vehicles already on the road, Budget 2022 proposes to provide $199.6 million over five years, starting in 2022-23, and $0.4 million ongoing, to Natural Resources Canada to expand the Green Freight Assessment Program, which will be renamed the Green Freight Program. This will support assessments and retrofits of more vehicles and a greater diversity of fleet and vehicle types."
• Federal government aiming to add 50,000 new ZEV chargers and hydrogen stations across Canada.

Page number 94

• New investment tax credit of up to 30 per cent focused on net-zero technologies, battery storage solutions, and clean hydrogen. Details to come in the fall fiscal update.

Page number 95

Expanding Low Carbon Economy Fund

• "provide $2.2 billion over seven years, starting in 2022-23, to Environment and Climate Change Canada to expand and extend the Low Carbon Economy Fund"

Clean Tech in Yukon

• "$32.2 million over two years, starting in 2022-23, from the expanded Low Carbon Economy Fund to support the Atlin Hydro Expansion project in British Columbia, which will provide clean electricity to the Yukon and help reduce greenhouse gas emissions. The federal government has previously committed $83.9 million to this project."

Support for business investment in air-source heat pumps

• "expand the accelerated tax deductions for business investments in clean energy equipment to include air-source heat pumps"
• "support job creation and growth in clean technology manufacturing in Canada, the government proposes to extend the 50 per cent reduction of the general corporate and small business income tax rates for zero emission technology manufacturers to include manufacturers of air-source heat pumps."

Page number 96

Building capacity to support green procurement

• "the federal government is announcing that Public Services and Procurement Canada (PSPC) will develop new tools, guidelines, and targets to support the adoption of green procurement across the federal government. Additional details will be announced by PSPC in the months ahead."

Industrial Energy Management

• "provide $194 million over five years, starting in 2022-23, to Natural Resources Canada to expand the Industrial Energy Management System program. This will to support ISO 50001 certification, energy managers, cohort-based training, audits, and energy efficiencyfocused retrofits for key small-to-moderate projects that fill a gap in the federal suite of industrial programming."

Page number 97

Investment Tax Credit for Carbon Capture, Utilization, and Storage ("CCUS")

• "proposes a refundable investment tax credit for businesses that incur eligible CCUS expenses, starting in 2022. The investment tax credit would be available to CCUS projects to the extent that they permanently store captured CO2 through an eligible use. Eligible CO2 uses include dedicated geological storage and storage of CO2 in concrete, but does not include enhanced oil recovery."
• From 2022 through 2030, the investment tax credit rates would be set at:
  • 60 per cent for investment in equipment to capture CO2 in direct air capture projects;
  • 50 per cent for investment in equipment to capture CO2 in all other CCUS projects; and
  • 37.5 percent for investment in equipment for transportation, storage and use.

these rates will be reduced by 50 per cent for the period from 2031 through 2040.

Page number 98

Clean electricity

• "$250 million over four years, starting in 2022-23, to Natural Resources Canada to support pre-development activities of clean electricity projects of national significance, such as inter-provincial electricity transmission projects and small modular reactors"
• "$600 million over seven years starting in 2022-2023 to Natural Resources Canada for the Smart Renewables and Electrification Pathways Program to support additional renewable electricity and grid modernization projects."

Page number 99

Small modular reactors

• $120.6 million over five years, starting in 2022-23, and $0.5 million ongoing, as follows:
  • $69.9 million for Natural Resources Canada to undertake research to minimize waste generated from these reactors; support the creation of a fuel supply chain; strengthen international nuclear cooperation agreements; and enhance domestic safety and security policies and practices; and,
  • $50.7 million, and $0.5 million ongoing, for the Canadian Nuclear Safety Commission to build the capacity to regulate small modular reactors and work with international partners on global regulatory harmonization.

Page number 100

Taking more action to eliminate plastic waste

• "$10 million in 2022-23 to Fisheries and Oceans Canada to renew the Ghost Gear Fund for one year to continue to assist projects that retrieve ghost gear, dispose of fishingrelated plastic waste, test new fishing technology, and support international efforts to remove ghost gear from our oceans."

Page number 104

Building Canada's net-zero economy

• "A major component of building Canada's net-zero economy is the Canada Growth Fund-a significant new $15 billion government investment fund that will accelerate the investment of private capital into decarbonization and clean technology projects; help to promote the diversification of Canada's economy; play a key role in helping to meet Canada's climate targets; and strengthen both Canada's economic resilience and capacity."

Page number 105

Increasing the Impact of the Canada Infrastructure Bank ("CIB")

• "Budget 2022 announces a broadened role for the CIB to invest in private sector-led infrastructure projects that will accelerate Canada's transition to a low-carbon economy. This will allow the CIB to invest in small modular reactors; clean fuel production; hydrogen production, transportation and distribution; and carbon capture, utilization and storage. These new areas fall under the CIB's existing clean power and green infrastructure investment areas. The CIB will continue to invest in its public transit, broadband, and trade and transportation investment areas."

Grants, tax incentives and funding programs available to support growing companies across Canada as provided by the 2022 budget

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