Climate tax credits not fit for purpose
Image from the Climate Emergency Unit 2021 video here
[This piece was first published by Canada’s National Observer here.]
Earlier this week, Canada’s National Observer business reporter Darius Snieckus published an excellent investigative piece exposing the bottleneck in federal approvals for those seeking “clean economy tax credits.” More specifically, Snieckus uncovered that:
“The vast majority of claims submitted to Ottawa’s flagship clean economy investment tax credit (ITC) scheme remain stuck in the system as the Canada Revenue Agency staffs up the program meant to anchor the country’s low-carbon shift. Of the 1,750 claims worth $1.6 billion filed under the six ITCs designed to help Canada reach net-zero emissions by 2050, between 69 per cent and 87 per cent are currently marked ‘in progress,’ according to newly released CRA data.”
While this is certainly a fascinating finding, the CNO exposé understates what to my mind is the far more significant discovery embedded in what has been unearthed: only $1.6 billion in claims have been submitted! This despite a total budget allocation of $93 billion for the period 2022 to 2034. For goodness’ sake, this package of ITCs is supposed to be the centerpiece of the federal government’s climate spending program. What is revealed by this pitiful take-up rate is a model that is simply not fit for purpose.
The basic idea of these credits is that, if and when a company undertakes a capital expenditure to lower carbon emissions, the government will rebate them with a tax credit worth 15 to 40 per cent of their investment (although the juiciest of the credits are reserved for dubious carbon-capture projects). The federal government is so enamoured by this model that, in its most recent spring economic update, it extended the credits — and stretched credulity — by offering them for LNG investments and even “enhanced oil recovery,” making the credit available to projects that use captured carbon to frack yet more oil.
As Snieckus additionally finds, while some of the claims are for sizeable and noteworthy investments like wind and solar projects that likely make up a majority of the $1.6 billion, a large share of the total number of applications are for piddly little things like “electric forklifts for a factory or electric baggage buggies for an airport.” Nice, but far from transformative.
This finding reinforces my concerns since the launch of the credits in 2021: that these ITCs would be undersubscribed. Two years ago in the National Observer, I wrote the federal government should, “rethink those climate-related business tax credits (the take-up rate is weak and political pay-off even weaker), and redeploy billions towards big-ticket, high-visibility public climate infrastructure investments … that will employ thousands in well-paying jobs.”
To be clear, the government’s chosen market-based approach will have some effect — witness the 1,700+ applications — but not nearly at the speed and scale the energy transition requires. And why is that? First, because the model falsely assumes there are thousands of private-sector firms waiting to make major investments that will launch us into a bold carbon-free future, if only the public were to rebate them 30 per cent of their costs. (There aren’t.) And second, most of the core capital investments we need to transition our economy — renewable energy, inter-provincial electricity grid upgrades, public transit, high-speed rail, etc. — are inherently public. There is no army of private investors waiting in the wings to come to our collective rescue. We’re just going to have to spend what it takes and build this infrastructure ourselves.
The weakness of the ITC model has been further reinforced by federal Environment Commissioner Jerry DeMarco, who, two days after the release of the 2025 federal budget last November, released a report documenting the poor take-up rate of these climate-related tax credits. The commissioner found there has been, “low initial uptake of the tax measures compared with the Department of Finance Canada’s projections. For example, fewer than 30 corporations had claimed the corporate tax cut for manufacturers and producers of zero-emission technologies since 2022, which was 25 per cent of the projected uptake of $61 million.”
The commissioner’s audit revealed further that, for the five clean economy investment tax credits it assessed, the federal Department of Finance had projected that $9.2 billion was expected to be claimed by the end of 2025. “However, we found that, as of July 2025, only the Clean Technology Investment Tax Credit had claims to be paid out, and those claims totalled only $22 million.” The official response of the Department of Finance: “Agreed.”
At this rate, the great energy transition before us will be complete in a distant future inhabited by our grandchildren.
The CRA shared with Snieckus that it is hiring 60 more staff to speed up ITC credit claims, and that it is revising its systems in hopes of expediting approvals. That’s good, I suppose. But it also speaks to another problem with the model. Namely, its reliance on the private sector — and upon public-private partnerships for core renewable energy and transit infrastructure — makes the process inherently ponderous. Ironically, in an effort to privatize the transition, we end up having to hire more public servants and create new public oversight and management systems just to ensure these programs function as intended and minimize graft or corruption. The approach is anathema with rapidity, and everything becomes more complicated. The thing about confronting a crisis is that, sometimes, acting with speed and scale requires just doing it ourselves.
I’ve said it before and I will say it again: we cannot incentivize our way to victory when it comes to confronting the climate crisis — this is no way to prosecute the fight of our lives.