Making the most of green tax and incentive programs

The federal budget included new supports for organizations. How can you navigate a growing list of initiatives to advance your ESG and broader business goals?

Climate change is one of the most pressing issues facing Canadian businesses today. According to our 2022 CEO Survey, more than half of Canadian CEOs concerned about climate change threats believe these risks could threaten their ability to sell products or services. But while the importance of taking action on environmental, social and governance (ESG) matters like climate change is growing, there’s a gap between the level of concern and the actions taken so far.

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According to our survey, only 12% of Canadian CEOs say their organization has committed to reducing greenhouse gas emissions to net zero, compared to 22% of global respondents.

The survey results highlight the urgency for Canadian organizations to raise their ESG maturity by developing a credible and robust approach to decarbonization. But taking action doesn’t have to mean choosing between doing good and achieving financial results. By factoring in the growing list of green tax and incentive programs as well as other innovation supports into your criteria for evaluating your investment options, you can strengthen your ability to incorporate financial metrics and ESG objectives into your decisions about the future.

Navigating an evolving landscape for green tax and incentive programs

Making ESG and climate change goals a reality is a major undertaking for organizations, but Canadian governments have recognized the need to do more to help businesses accelerate decarbonization. We’ve identified almost 150 incentive programs available in Canada, and the number continues to grow quickly. The 2022 federal budget alone included more than 30 new and upgraded initiatives and programs, not to mention the many provincial incentives available.

Many of the green incentives and programs currently offered or proposed target particular sectors, including some of the industries highlighted in the Government of Canada’s recent Emissions Reduction Plan.

Explore below to learn about some of the sector-specific measures and initiatives in Canada:

Manufacturing

Canadian manufacturers can benefit from a number of programs aimed at streamlining the supply chain through automation, adopting clean technologies and increasing energy efficiency. For manufacturers of zero-emission technologies, such as solar, wind and water energy conversion equipment, incentives include reduced general corporate and small-business tax rates on technology manufacturing and processing income. Another incentive is the Low Carbon Economy Fund, which the government has expanded and extended as part of efforts to support projects dedicated to clean growth and emissions reductions.

Mining

Part of the government’s goal of achieving net-zero emissions by 2050 involves developing a Canadian battery ecosystem, with a strong focus on supplying materials, such as critical minerals, essential to low-carbon technologies. To that end, the recent federal budget included a 30% critical mineral exploration tax credit to support the exploration of eligible minerals, including copper, nickel, cobalt and uranium, used to produce certain parts for zero-emission vehicles, advanced materials, clean technology and semiconductors.

The government is also offering significant incentives for mining companies to reduce their own emissions. They include the Strategic Innovation Fund’s call to action for high-emitting sectors, which provides up to 50% interest-free repayable contributions. Some mining companies could be good candidates to participate in demonstration studies on carbon capture, utilization and storage technologies.

Financial services

As part of the 2022 budget, the government announced plans to develop requirements for federally regulated financial institutions to publish or disclose ESG considerations, including climate-related risks.

Financial institutions, like Canadian banks, will see their customers' projects better supported by incentive programs, in particular those aimed at energy efficiency, sustainable construction and other environmental initiatives. One example is the Zero-Emission Vehicle Infrastructure program, which offers up to $5 million per project to develop electric or hydrogen refuelling infrastructure primarily used by employees.

Transportation and logistics

The government has announced a number of incentive programs to help owners of vehicle fleets and the freight and heavy-vehicle transportation industry transition to electric alternatives. Initiatives at the federal level include a new purchase incentive program for medium- and heavy-duty zero-emission vehicles for businesses.

Key steps to maximizing outcomes from green incentives

While identifying and understanding the range of incentives available can be a complex undertaking, a strategic and considered approach is key to making the most of the opportunities and maximizing the outcomes of your ESG efforts. As a place to start, consider the following steps:

Define your ESG strategy and investment options

If you haven’t already developed an ESG vision and strategy, this is key to making sure you take the right path from the start. Based on your business strategy and ESG objectives (e.g., lowering emissions, manufacturing a zero-emissions product, reducing energy costs), you can then identify options for achieving them. If you want to take advantage of incentive programs, it’s critical at this stage not to limit your options based on your existing financial means. Besides looking at more cost-effective options, think about what you could do if you had more capital to invest with extra funding from government incentives.

Investigate and prioritize green tax implications and incentives

Once you outline your investment options, identify the potential tax implications and availability of incentives related to each of them. A useful starting point is our green taxes and incentives tracker. It offers high-level insights on the green taxes and incentives available in different jurisdictions, including Canada. This can help you focus a more detailed investigation to follow.

Explore opportunities to maximize value by combining incentives

There are many different kinds of green incentives available in Canada—including both tax benefits and cash grants at both the federal and provincial level—in addition to general innovation programs. You can combine many of these incentives together to make a specific project more viable. By considering all angles, you can make sure you don’t miss out on any opportunities when evaluating your investment options and deciding which incentives to apply for.

Determine the path forward

Based on the incentives available, you can weigh the true cost of each investment option against the benefits you expect. This will help you develop a more complete picture of the path forward and how you can advance both your financial and ESG objectives.

Accelerating your ESG transformation journey

Green tax and incentive programs can be an excellent way to help your organization do more with the resources available to you. But if you want to use green incentive programs effectively, you need to start thinking about your options early. By imagining what’s possible as part of your strategic planning process, you can identify the potential mix of incentives associated with different options and then prioritize projects based on the final net cost and the impact on your ESG and broader business goals.