New investment tax credit missing a tool in its emission reduction toolbox: CBA

On November 3rd, 2022, the federal government released the 2022 Fall Economic Statement (FES). The statement outlines the state of the Canadian economy and provided key details on promises made in Budget 2022.

Specifically, the FES provided details on programs designed to spur investment in Canada’s clean fuels sector which has needed support to attract investment after the passage of the American Inflation Reduction Act (IRA) which was signed into law by President Joe Biden in August of this year. The IRA contains massive investments and tax credits designed to spur growth in the green economy in the U.S.

The Canadian Biogas Association (CBA) applauds Finance Canada’s efforts to close the competitiveness gap with the potential for Budget 2023 to provide a more level investment playing field for Canadian biogas and renewable natural gas (RNG) projects. The following measures outlined in Canada’s 2022 FES and Budget 2022 provide opportunities for clean growth, such as:

• Canada Growth Fund: Public investment vehicle fund capitalized at $15 billion over the next five years to make investments to meet important national economic policy goals, such as reducing emissions and achieving Canada’s climate targets.
• Investment Tax Credit for Clean Technologies: Refundable tax credit equal to 30 per cent of the capital cost of investments in eligible technologies (biogas and RNG not listed).
• Investment Tax Credit for Hydrogen: Eligible low-carbon hydrogen projects can receive a tax credit of at least 40 per cent.

Experts and industry associations had been communicating the need to keep pace with the incentives offered in the U.S. under the IRA to retain investments and development in Canada. However, Canada’s statement misses the mark when it comes to mirroring incentives in the IRA for biogas and RNG.  These IRA incentives include:

• Investment Tax Credit: Expanded the investment tax credit (up to 50 per cent) under section 48 of the internal revenue code (IRC) to include qualified biogas facilities.
• Production tax credit: Production tax credit under section 45 of the IRC expanded from biogas to electricity to include the sale of RNG.
• Alternative Fuel Credit: Fuel credit extended under IRC Section 6426 through the end of 2024 provides a tax credit of 50 cents per gallon of alternative fuel used to produce an alternative transportation fuel mixture for sale or us, which includes the use of RNG as transportation fuel.
• Renewable Energy for America Program: $1.965 billion in grants and loans for farmers and small rural businesses, including eligible biogas technologies.

The measures that were fleshed out in the FES as an attempt to close the gap created by the IRA have a biogas and RNG-sized hole. This is in spite of multiple organizations, including the CBA, advising the government about the importance of biogas and RNG as a low-carbon, readily available solution. The time is now for Canada to implement all the tools at its disposal to hit our climate targets, including biogas and RNG which are proven technologies in Canada already achieving 8Mt of emission reductions.

Learn how much more potential is available for biogas and RNG in the CBA’s report Hitting Canada’s Climate Targets with Biogas & RNG.

“Time is not on our side, and Canada needs to support all opportunities within the clean growth portfolio to hit our national emissions reduction targets”, says Jennifer Green, CBA executive director. The CBA and its members will continue discussions with the Department of Finance to ensure biogas and RNG is recognized and included as eligible technologies under the Clean Technology Investment Tax Credit.