Canada commits to historic investments in clean electricity and fresh water in Budget 2023, but leaves loopholes for fossil fuels

Today’s 2023 federal budget is a massive step forward for Canada’s economy and environment, with billions announced for the clean energy transition and nearly CAD 800 million for freshwater protection. IISD also welcomes the confirmation of CAD 1.6 billion previously announced for the implementation of Canada’s National Adaptation Strategy. 

The freshwater funding will be critical in establishing the Canada Water Agency—to be headquartered in Winnipeg, MB—while supporting research and restoration of the Great Lakes, Lake Winnipeg, and other freshwater bodies across the country. 

IISD also welcomes the commitment to modernization of the Disaster Financial Assistance Arrangements, allowing for recovery and rehabilitation efforts to be prioritized as climate change accelerates the frequency and intensity of natural disasters. 

“The funding commitments in this budget for clean electricity and fresh water are unprecedented,” says IISD President and CEO, Richard Florizone. “Taken together with support for climate adaptation, this puts Canada on strong footing in the global race to net-zero while protecting the health of its people and the planet for generations to come.” 

The United States’ Inflation Reduction Act underlined the need for Canada to boost climate investments to compete successfully in the global net-zero economy, and today’s budget shows Canada is starting to step up. Among other measures, the budget announced new clean energy investment tax credits (ITCs) and added CAD 3 billion in direct clean electricity spending.  

IISD applauds the government for attaching labour conditions to ITCs to ensure workers are protected and for setting conditionalities to ensure the clean electricity ITCs align with a net-zero grid by 2035. The federal government also made an important commitment to advance carbon contracts for difference that would guarantee a future carbon price.  

To truly make an impact going forward, today’s historic progress needs to be bolstered by safeguards against continued fossil fuel support, scaled-up investments on just transition and Indigenous inclusion, and robust regulations, including the oil and gas emissions cap and Clean Electricity Regulation. 

Several measures also leave the door open to fund carbon capture and storage (CCS) for oil and gas, including eligibility of abated natural gas under the clean electricity ITC, and an additional CAD 520 million for the CCS investment tax credit. Continued financial support for oil and gas, even if it supports companies’ efforts to cut emissions, detracts from investments in proven renewable energy solutions. If provided, such support could undermine Canada’s commitment to end inefficient fossil fuel subsidies this year. Notably, the budget did not announce the phase-out of existing tax subsidies for fossil fuels.

As last week’s landmark IPCC Synthesis report laid bare, governments’ have so far failed to address the root cause of climate change. Production of fossil fuels must sharply decline in order to limit warming to 1.5°C without over-relying on risky carbon dioxide removal technologies 

To meet the moment, all public funds need robust climate and equity conditions, which should integrate recommendations from the High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities. There also remains a need to increase funding for equitable climate solutions such as public transportation and energy efficiency improvements for low-income Canadians.  

“Amidst recent transformative climate investments in the US and the EU, Canada has taken important steps forward in this budget to scale up support for clean energy,” says Vanessa Corkal, Senior Policy Advisor, Canada Energy Transitions, at IISD. “But if loopholes for ongoing fossil fuel support are not closed, this progress will continue to be stunted, with proven, readily available solutions facing a disadvantage.” 

Experts estimate that Canada needs to spend approximately 2% of GDP on climate investments each year in order to remain globally competitive and avoid the worst impacts of climate change. While much more will be needed in the coming years, this budget takes a significant step in the right direction.