Canada’s Fall Economic Forecast: The economy may be slowing down, but green investments are speeding up 

By The Delphi Group’s Sarah Todgham, Policy Consultant, Climate Change, and Matt Beck, Senior Director, Carbon Management & Sustainability 

It’s a strange time. Inflation is high and interest rates are rising, but unemployment is low (at least for now). Change and disruptions are everywhere: the war in Ukraine, the accelerating effects of climate change, and a Republican-led House in the US, among others. And at COP27, while there was some progress made – particularly around addressing climate change-driven loss and damage in poorer countries – it’s not enough. More ambition, more accountability, and more action are needed if we stand a chance of getting to net zero by 2050. 

These signals can be challenging to interpret if you’re a Canadian business. We’re here to help: these are our top takeaways for fall 2022, based on our analysis of (1) the Government of Canada’s 2022 Fall Economic Statement, which was released on November 4, 2022, (2) the US’ Inflation Reduction Act and associated Greenhouse Gas Fund, and (3) the outcomes of COP27.  

1) Canada is invested and investing in a net-zero economy. The economic statement does not paint a rosy picture, and there are strong signals that a global economic slowdown is on the horizon. However, the Canadian government is proposing a number of incentives and investments to support recovery over the long term – and to ensure we remain competitive in a zero-carbon economy. The Fall Economic Statement includes: 

• Investing in Skills for a Net-Zero Economy: $250 million over five years, starting in 2023-24, to Employment and Social Development Canada.   
• Tax Credit for Clean Technology: Refundable tax credit equal to 30% of the capital cost of investments in: 
  • Electricity generation systems 
  • Stationary electricity storage systems 
  • Low-carbon heat equipment 
  • Industrial zero-emission vehicles and related charging or refueling equipment. 

• Tax Credit for Clean Hydrogen: Investment tax credit of at least 40% to support projects in clean hydrogen production.   
• Launch of Canada Growth Fund (estimated $15 billion), which will fund initiatives that support a net-zero economy, including reducing emissions, deploying clean technologies, creating jobs, and strengthening supply chains. The fund will be established by the end of 2022 and finalized in the first half of 2023. 

2) Building a resilient supply chain is a top priority. The Fall Economic Statement mentions the critical role Canada’s supply chain plays in the economy and Canadians’ quality of life. Over the past several years, the Canadian supply chain has experienced unprecedented shocks due to the COVID-19 pandemic and extreme weather events. To prevent further disruptions and promote a more resilient supply chain, the federal government is proposing to invest in infrastructure, support digitization efforts, and reduce red tape – which is in line with the National Supply Chain Strategy.

3) Shovel-ready projects are in a good position to benefit from government funding. The Inflation Reduction Act outlines $370 billion worth of tax credits, incentives, and other provisions that can be leveraged to increase investment in clean energy and GHG-reducing projects south of the border. The Canadian government is not in a position to invest on that scale, so instead is strategically focusing investment on shovel-ready projects, such as: 

• Emerging technologies and processes to reduce emissions across the Canadian economy, including but not limited to CCUS, hydrogen, and biofuels.    
• Mature technologies in demonstration or commercialization stages of development.   
• Low-carbon or climate-tech value chains. 

Despite the doom and gloom associated with the economic forecast, net zero does not seem to be disappearing off the radar. Both the US and Canada are backing clean energy and technologies that will reduce emissions. While Canada won’t agree to add language calling for the phase-out of all fossil fuels – including oil and gas – to the final agreement at COP27, Canada and the US did announce their joint commitment to reducing methane emissions in the oil-and-gas sector by at least 75% by 2030. 

In order to get to net zero in North America, we’ll need to build on these incentives and regulations. We will also need to align trade policies. There is already acknowledgement of this within the automotive industry, as the US federal government expanded eligibility requirements associated with the Clean Vehicle Credit under the Inflation Reduction Act to include suppliers outside the US (where there is a free trade agreement established). There is a huge opportunity to consider a similar approach in other sectors so that we level the playing field and help both countries address one of the most – if not the most – important environmental and economic issues of our lifetimes. 

Sarah Todgham is a Policy Consultant, Climate Change, and Matt Beck is Senior Director, Carbon Management & Sustainability. For more information on how we can help you meet your corporate sustainability, net-zero, and ESG goals, reach out to Sarah at stodgham@delphi.ca or Matt at mbeck@delphi.ca.