Climate crisis appears to be an afterthought in feds’ fall fiscal update

Following a summer that saw tens of thousands of people evacuated from their homes, 18.5 million hectares burned and more economic damage expected than any previous fire season, Finance Minister Chrystia Freeland unveiled the federal government’s economic plan where climate change appears to be an afterthought.

In Freeland’s speech unveiling the fall economic statement Tuesday, she failed to mention “climate change,” “environment,” or even reference the wildfire crisis that gripped the nation in a state of fear and anxiety for months as smoke drifted as far as Europe. Instead, she emphasized her government’s role in fighting inflation, tackling the deficit and addressing housing affordability.

Freeland acknowledged Canadians are “worn out, frustrated and feeling the squeeze,” and said the public deserves a federal government that addresses “the very real pain that so many are feeling.”

But on the climate measures included in the fall economic statement, Ottawa is doubling down on old plans while trying to make it seem like it’s doing more than it actually is, says Canadian Centre for Policy Alternatives’ senior researcher Hadrian Mertins-Kirkwood.

The federal government’s 2021 goal to develop a sustainable finance taxonomy to help guide green investments has been kicked further down the road after recommendations for the next steps were provided to Freeland over a year ago.

The fall fiscal update contained some minor updates to previously announced investment tax credits aimed at driving investment in the low-carbon economy, including a proposal to expand the eligibility for clean technology and clean electricity. Other steps to curb fossil fuel demand, like the government’s efforts to attract private sector investment to build battery plants and electric vehicle supply chains, were included in the fiscal update but no new measures were announced to directly address climate change.

Based on Tuesday’s economic update, the foundation of Canada’s strategy to address the climate crisis remains the carbon price and an investment tax credit system designed to nudge the private sector into greener decisions.

“It feels like a very status-quo fiscal update, which is only surprising because of the political headwinds [the Liberals are] facing,” Mertins-Kirkwood said. “On climate, they said, ‘We’re going to stick with our climate plan.’ On housing, ‘We’re going to stick with our housing plan’… There’s no big reset here. There’s no turning the page.”

Instead, “there’s a lot of worrying, austerity-like signs where there’s just a turn away from public leadership, public spending, the public service even, and just letting things sit and hope it’s a calm few years,” he added.

On Tuesday, Freeland echoed language Prime Minister Justin Trudeau has recently used in what may be a preview of the Liberals’ re-election strategy. Both officials have described the Liberal approach to the economy as being opposed to right-wing “trickle-down” economics. Mertins-Kirkwood balked at the suggestion, noting that a pillar of the Liberal climate strategy is investment tax credits for clean technologies that “are a textbook example of corporate subsidies.”

“At the end of the day, that’s still counting on the market … to build out these industries and then hoping the benefits trickle down to workers and to communities and to people,” he said. But Mertins-Kirkwood stressed the crux of the issue is time. “If we had 100 years to decarbonize, I’d say it’s better to take it slow and let the market figure it out, but every month counts right now.”

Carbon price poison pill

Reading between the lines of the fall economic statement, it appears the fight over the carbon tax isn’t going anywhere. Finance Canada described the Canada Growth Fund, which only just became operational this year, as a $15-billion arms-length Crown investment vehicle to spur green investments with a priority to earmark $7 billion of its funds to “carbon contracts for difference.”

Carbon contracts for difference is Trudeau’s answer to fears a future government would scrap the carbon price. Essentially, a carbon contract would involve Canada signing a contract with a company guaranteeing the price of the carbon tax in future years to provide the company with certainty as it invests in cutting greenhouse gas emissions. If the carbon price doesn’t reach the level described in the contract, the federal government would be on the hook to compensate the company the difference. In other words, to some, it represents a poison pill for anyone who wants to abolish the carbon tax because if a future government wanted to eliminate the tax, it would then have to pay out potentially billions of dollars.

But carbon contracts are a “defensive” move that is not a guaranteed way to defend the carbon price, explains Mertin-Kirkwood. After watching Ontario Premier Doug Ford and former Conservative prime minister Stephen Harper shred environmental legislation to suit their political agendas, a Pierre Poilievre government “would eat $7 billion if that’s the price tag for getting rid of [the] carbon tax,” he said.

The Canada Growth Fund is already negotiating carbon contracts for difference with “a number of project proponents across a range of sectors,” according to the fiscal update. One of these proponents is the Pathways Alliance, a consortium of five large Canadian oilsands companies (Suncor, Cenovus, Canadian Natural Resources, MEG and Imperial) planning a major carbon capture and storage project it says requires billions of public dollars to come to fruition. The Pathways project is expected to cost more than $15 billion, putting into context the $7 billion disclosed in the fiscal update for carbon contracts.
 

A missed opportunity

At a time when affordability is at the top of Canadians’ minds and perpetually on the lips of federal Conservative Leader Poilievre, the Liberal government missed a clear opportunity to lower Canadians’ energy bills, fight climate change and fight the official Opposition’s narrative, said Mertins-Kirkwood.

“One big opportunity if you’re concerned about both affordability and you want to look good on climate is a much more aggressive home retrofit program,” he said.

After the Liberals announced a three-year carbon price exemption for home heating oil and more money for oil-heating households to install a heat pump, the political backlash was swift and sustained.

At the very least, the Liberals could have used the fiscal update to signal an intention to expand the new measures to include more energy-efficient retrofits for all homes — not just those that burn oil for heat — to fight the dual crises of climate change and affordability, said Mertins-Kirkwood. This was not the case Tuesday.

There were also a few updates on the slew of investment tax credits announced and expanded on in Budget 2023. Legislation for the contentious carbon capture investment tax credit is expected to be tabled this fall, as is legislation for a clean technology tax credit.

Energy generated by burning biomass got a bump in the mini-budget. It proposes expanding two of the investment tax credits to include electricity and heat generated from burning “waste biomass,” like bark, twigs, roots and other lumber and wood product offcuts. The 30 per cent refundable tax credit for clean technology and the 15-per-cent credit for clean electricity are in question. Recently, 27 environmental groups and organizations sent an open letter to the federal government outlining concerns with this type of energy generation many governments tout as a clean alternative to coal and other fossil fuels.

The fiscal update said legislation to cement labour requirements attached to the four tax credits is expected this fall. Trade unions and labour organizations worked to ensure companies could only access the full tax credits if they paid employees prevailing wages and provided apprenticeship training opportunities. These requirements would apply to the Clean Technology, Clean Hydrogen, Clean Electricity, and Carbon Capture, Utilization and Storage investment tax credits.

The next federal budget matters a lot more than Tuesday’s fall economic statement, but “we were hoping for more in light of the overlapping crises we’re facing,” said Mertins-Kirkwood.

The fiscal update also highlighted the three battery manufacturing projects the federal government secured in the last year: Volkswagen and Stellantis-LGES in Ontario and Northvolt in Quebec.