Kpekou Tossou, Rolande; Nahornick, Nora; Scholz, Tim

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Long-Term Fiscal Cost of Major Economic Investment Tax Credits

Rolande Kpekou Tossou ; Nora Nahornick ; Tim Scholz

Published on July 3, 2024 PDF

The PBO recently published the five-year costs of five of the new federal investment tax credits (ITC) which target investments in the clean energy and technology sectors. Following these publications, we received requests from parliamentarians to analyze the long-term cost of these ITCs. This report presents a long-term analysis of the six tax credits using the Canada Energy Regulator’s 2023 Canada Net-Zero Scenario as the baseline for our projections.

Highlights

The Parliamentary Budget Officer (PBO) projects total fiscal costs of $103 billion over 2022-23 to 2034-35 for the six investment tax credits (ITC) in the clean energy and technology sectors: 1) carbon, capture, utilization, and storage (CCUS); 2) clean technology; 3) clean electricity; 4) clean hydrogen; 5) clean technology manufacturing; and, 6) electric vehicle (EV) supply chain.
PBO estimates that almost half a trillion dollars in investment could be eligible for these six ITCs. This is equivalent to an average annual investment of $40 billion from 2023-24 to 2034-35. We estimate that most of this investment will be used to increase electricity production from renewable sources.
PBO cost estimates are $10 billion higher compared to Budget 2024 estimates. The difference is mostly attributable to higher projected eligible investments in the electricity generation sector as it aims to achieve decarbonization by 2035.
According to data received by the PBO, hydrogen production could reach 5.9 megatonnes (MT) by 2035, which exceeds the estimated production under the Canada Net-Zero scenario as published by the Canada Energy Regulator. Similarly, based on data provided by Natural Resources Canada and Finance Canada, carbon capture could reach up to 240 MT per year by 2050, if all projects become operational. This would put Canada on track to meet the Net-zero scenario targets for CCUS.

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