The Inflation Reduction Act, or IRA, is the United States’ most ambitious piece of climate legislation ever. It offers about $375 billion in new and extended tax credits — for everything from renewable electricity generation to hydrogen production to sustainable jet fuel usage — to help the U.S. clean energy industry get off the ground.
The Pathways Alliance, an oilsands industry group, has also argued that its proposed $16.5-billion carbon capture and storage transportation line project is currently at a competitive disadvantage to U.S. carbon capture projects.
“An investment tax credit subsidizes upfront capital spending,” Belenkie said, adding that because of the IRA, Entropy Inc. recently made the decision to focus all of its future carbon capture growth plans in the U.S.
Dan Woynillowicz, a B.C.-based climate and energy policy consultant, said companies have a point when they say the U.S. is right now offering more “carrots” for emissions reduction projects.
But he added Canada has a national price on carbon, which the U.S. does not, as well as a federal clean fuel regulation and an expected mandated cap on emissions from the oil and gas sector.
“We have a lot more on the pollution pricing and regulatory side here,” Woynillowicz said, adding he believes a combination of carrots and sticks is the best approach when it comes to reaching Canada’s climate goals.
The federal government, for its part, has made clear that it intends to respond to the IRA and ensure Canada isn’t left behind. Finance Minister Chrystia Freeland’s fall economic statement pledged the creation of tax credits for areas including renewable power, green hydrogen, and industrial zero-emission vehicles.
Freeland has indicated more incentives are on the way, saying there is a “historic window” right now to invest in what will be the industrial economy of the 21st century.
“To really take advantage of that opportunity at a time when the U.S. is driving very, very hard to seize that opportunity for itself, I recognize that the government will have to make some additional investments,” Freeland told reporters earlier this month.
That would ease industry and investor fears that a future federal government could freeze or cancel the carbon price, making investments in things like carbon capture and storage less risky, said Jan Gorski, oil and gas director with the Pembina Institute, a clean energy think-tank.
He added that while there’s no shortage of sectors and projects pleading for funding, the challenge for Canada will be deciding which areas it wants to lead in as the global energy transition unfolds.
“It’s important to recognize that Canada is smaller than the U.S. We’re a tenth of the economy,” Gorski said.
“We can’t compete on everything, so we need to be more strategic on the areas we choose to compete into.”
This report by The Canadian Press was first published March 13, 2023.