CIBC’s Deputy Chair, Roman Dubczak, and Vice-Chair for Energy and Climate Finance, Tom Heintzman, discuss Canada’s 2025 federal budget and the Climate Competitiveness Strategy, and its aim to catalyze investment in clean energy, critical minerals, and green innovation. They highlight key incentives, regulatory updates, and the strategy’s broad impact across industries, as well as the key takeaways for our clients.
Roman Dubczak
Deputy Chair, CIBC
Hello, everyone. I'm Roman Dubczak, Deputy Chair at CIBC. Canada's Budget 2025 recognizes the urgency of the global energy transition, yet also the need to secure long-term prosperity for Canada in a rapidly changing world. Central to this effort is the Canadian federal government's Climate Competitiveness Strategy, aiming to position Canada as a global leader in clean energy, critical minerals and green innovation by driving investment into sectors that will define economic growth in the coming decades. The strategy also represents a significant shift in focus, both recognizing Canada's endowment of fossil fuels while also reframing climate action and energy transition as a major economic opportunity. Today, we'll explore this strategy in more detail – what it means, who it will impact, and how it will deliver the long-term trajectory that businesses need to invest confidently and plan for a future low carbon growth. Joining me today is Tom Heintzman, Vice-Chair for Energy and Climate Finance here at CIBC. Tom, thanks and welcome. Lots to unpack in this federal budget. You know, just the other day, Lisa, Avery and I went through the top line items on the economic basis. But within the budget, there was a very significant component called the Climate Competitiveness Strategy, which emphasizes, on the one hand, competitiveness as relates to economic growth. Yet recognizing what the world is facing vis-a-vis, climate strategy. Perhaps just recap for us what that strategy is, and then we'll do some deep dives from there.
Tom Heintzman
Vice-Chair for Energy and Climate Finance, CIBC
Roman, as you say, it was a fascinating, budget. So, Canada's climate competitiveness strategy is embedded within the Budget 2025, and it's a national plan that aims to integrate climate action with economic growth. And that's the key challenge throughout, to combine these two things, economic growth with the climate side, the climate action. Notably, it emphasizes creating the conditions, and here I'm quoting, “for the investment needed to build an affordable net-zero future.” So, that's one in which Canadian businesses are well positioned to compete and succeed in the global economy. At a high level, it's expected to drive significant investment in the clean economy sectors, including clean energy, technology, AI, carbon capture and critical minerals and more. In totality, and we'll get into this more, but the budget consists of over $1 trillion in total investment over five years, with a substantial portion directly supporting the Climate Competitiveness Strategy. One of the more notable elements is $110 billion, allocated over five years for productivity and competitiveness, much of which is climate aligned. Examples include funding for clean electricity generation, grid modernization and transmission infrastructure, and investments in mining, processing and recycling of minerals essential for batteries and renewable energy technologies. Overall, the strategy's key intentions are five things. First of all, integrating climate action directly within industrial strategy. So, embedding climate in our industrial strategy, trade and competitiveness rather than treating climate and the economy as separate. Second, shifting from a regulatory prohibitive ‘slap on the wrist’ type approach to one centered on large scale public and private investment. Third, focusing on market access to explicitly address global trade shifts, tariffs and the need for Canadian exports to remain competitive in low carbon markets. Fourth, prioritizing partnerships and collaboration with provinces, indigenous peoples and industry to deliver major projects, and I'm sure we'll get into that in more detail. And finally, providing long-term certainty through carbon pricing and regulatory signals to unlock private sector investment. The strategy is certainly a response to the profound global trade shifts, such as protectionism rising throughout the world, disrupted supply chains and the global race towards net-zero economies, which means that without a clear plan for action, businesses risk losing market access and competitiveness, while the impacts of climate change could erode economic stability. It also represents a departure, or certainly a market shift, from the previous federal government's climate plans, which focused mostly on legislative or regulatory interventions on emissions reductions, essentially caps or restraints, and now relying more on industry and private sector investment incentives through tax credits. More carrot, perhaps less stick.
Roman Dubczak
Yeah, no. Look, you and I have been watching this for many years, and we've seen the the genesis of this initial movement to climate oriented legislation. So, it feels as though this is a bit of a game changer moment. And I like your analogy more carrot than stick, which appears to be the way the global trend is, is going to have industry shift. You mentioned carbon pricing and regulatory signals. I want to touch on that a little bit more. So, back in April, following the other change in the federal government, Prime Minister Carney terminated the retail price on carbon. Big news. Such a sudden shift in policy created a lot of uncertainty for investors. So, in this budget, the federal government's committed to strengthening Canada's industrial carbon pricing and taking actions to improve its effectiveness. So, what are they doing and why now?
Tom Heintzman
Well, Roman, great question. So, there's some key actions aimed at increasing investor certainty. And first of all, just to distinguish, this is about the industrial carbon price as opposed to the retail carbon price. So, going forward, the government's intent on developing a post 2030 industrial carbon pricing trajectory. This requires the Feds to engage the provinces and territories in setting a multi-decade industrial carbon price trajectory that targets net-zero by 2050. The trajectory sends important signals, providing businesses with long-term certainty that they need to make major large scale investments in emission reduction projects and clean technologies, which often have high upfront costs. I will say, notably absent, though, was any mention of a Canadian Carbon Border Adjustment (Mechanism), or CBAM. CBAMs generally try to assist domestic industries from higher carbon prices inside the country and lower ones outside the country. In Europe and UK, most notably, has instituted the CBAM. So, it will be interesting to see whether the industrial carbon prices in time, require some sort of CBAM-like feature in order to level the playing field with other countries. The second thing that the government's done regarding industrial carbon pricing is fixing the benchmark and improving the federal backstop. So, those are two jargony type terms. But the benchmark is the standard that the federal government holds Provincial industrial carbon pricing policies to, so includes the prices that provinces charge per tonne of carbon in coverage, what fuels and sectors are included. If the policies of a province did not meet this benchmark, then the federal government applies its own standards in a regime, which is known as the backstop. The government affirmed its intention to apply the federal backstop whenever a provincial or territorial system falls below the benchmark, and may also engage with provincial and territorial governments on other improvements, such as harmonizing or linking carbon credit markets, which can ultimately increase market liquidity and stability, and lower costs for emissions reduction. So, interpret that as a more global rather than provincial carbon pricing system. The third notable thing that the government did in the budget regarding the industrial carbon price is that they affirmed a commitment to continue with carbon contracts for difference. The Canada Growth Fund will continue to issue contracts as a means of further improving carbon price certainty for investors making large, long duration capital investments. Just very quickly, the way that works is that a company will make an investment predicated upon a certain price of carbon, and if the carbon falls below that, then the investor is made whole.
Roman Dubczak
Yeah, that's quite a bit Tom, on carbon pricing in and of itself. But there are other aspects, no less important, I would argue, in the budget that, touched on climate policies that would be impactful for our clients. Perhaps we touched on a couple of those as well.
Tom Heintzman
In this budget, the government's committed to ensuring that regulations would complement industrial pricing. So, it's not just about the industrial pricing, but it's regulations in addition. Some examples include methane. Methane’s a potent greenhouse gas, but it's not effectively covered by carbon pricing, for many reasons, for one of which is carbon pricing is in CO2. And methane’s more powerful but less longevity. So, it's hard to make an equation into carbon. The government announced it will finalize enhanced methane regulations for the oil and gas sector and landfills, which is definitely due. A previously proposed plan by the Trudeau government to cap oil and gas emissions at 35% below 2019 levels by 2030, may now be eliminated. That depends, however, upon how well the feds and the provinces can agree upon industrial carbon pricing. The budget suggests that other measures like strengthened industrial carbon pricing, methane regulations, and the deployment of carbon capture and storage technology would create the circumstances whereby the oil and gas emissions cap would no longer be required. While the conditions would have to be met, the potential for repeal could lead to more interest in investing in oil and gas. Next, after methane, clean fuel. So, clean fuel, there were targeted updates to the clean fuel regulations and they will aspire to help reduce reliance by Canadians on imported fuels, strengthen domestic supply chains and support jobs in agriculture, forestry and waste sectors. There are also some notable announcements supporting critical minerals that are worth highlighting. So first of all, Budget 2025 proposes to provide $2 billion over five years to NRCan (Natural Resources Canada), to create the Critical Minerals Sovereign fund for strategic investments in critical mineral projects and companies. There's also a proposal to create the First and Last Mile Fund to support the development of critical mineral projects and supply chains at the upstream and midstream segments of the value chains, with a focus on getting near-term projects into production. The budget also expands on the eligibility for Critical Mineral Exploration Tax credit, to include an additional 12 critical minerals, including chromium, necessary for defence, semiconductors, energy and clean technology. And the list of critical minerals eligible for the Clean technology manufacturing investment tax credit also expands to include scandium, among others. These last points have a back story, the inside baseball if you wish. While the list of the new minerals included may seem somewhat arbitrary, you can actually tie them back to a lot of the mining projects that are being developed in Canada. Chromium, for example, is considered a critical mineral due to its essential industrial applications, and one of the projects on the purported list, certainly in the Globe and Mail's list of the national projects is the Crawford Mining Project, a proposed open pit nickel-cobalt mine and mill being developed by Canada Nickel north of Timmins, Ontario. It's expected to extract chromium from nickel ore, so you can kind of tie that back to the announcement. The Ontario government designated the Crawford Project as part of its priority nation building initiatives. Canada also recently announced new investments and partnerships with G7 countries to secure critical minerals supply chains. Several projects in Quebec will further develop the supply for graphite, scandium and rare earth elements.
Roman Dubczak
Thanks, Tom. There's quite a bit there and just on the theme of incentives, the carrots, getting back to that. What specific incentives support the climate competitive strategy and encourage investment in the clean technology and industries for our clients? Like, it's kind of new and refreshing to have a list of specific incentives coming our way.
Tom Heintzman
Yeah. So, Roman, Budget 2025 builds on a lot of the incentives that had previously been announced, largely known as the Clean Economy Investment Tax Credits, or ITCs essentially money back from the government for investment in clean energy or associated projects. Changes include the CCUS ITC. CCUS, Carbon Capture Utilization and Storage ITC, so it's for eligible expenditures related to carbon capture, utilization and storage projects, and it will see the term extended by five years through 2035. Expenses incurred from 2036 to 2040 will still apply as previously planned. Overall, this provides greater certainty and incentive for investments in large, complex CCUS projects that require longer timelines. The Clean Technology ITC's, which are for eligible low carbon technology and equipment, will expand eligibility to cover more types of equipment and projects, such as systems that produce electricity, heat, or both from waste, biomass and small modular reactors, SMRs. A third change is the clean electricity ITC. They all have similar names. This is like the clean technology ITC. So, same coverage, but it's for non-taxable entities. The former was for just taxable entities. It covers equipment related to low emitting electricity generation and electricity storage and transmission for instance, The legislation to deliver the clean electricity ITC is long overdue. The ITC has not yet been implemented, despite being announced in 2023. This budget proposes to introduce legislation to finalize it and also removes some limitations on provincial and territorial crown corporations. There are also some key incentives supporting decarbonization of hard to abate sectors. For instance, hydrogen is a potential avenue for decarbonizing heavy industry and transport. Budget 2025 will expand the hydrogen ITC eligibility to include hydrogen produced from pyrolysis of natural gas. And that's one theme you see, throughout the budget is the how the government transitions the resource sector to a cleaner state. So, this pyrolysis of natural gas is particularly important. It's interesting to note the incentive is now allowed to straddle natural gas. Recognizing the importance of blue power for the energy transition. The budget also proposes to reinstate accelerated cost capital allowances, or CCAs, for low carbon LNG facilities, for equipment and related buildings, with eligibility and rates that are based on emissions performance.
Roman Dubczak
Quite a bit there, Tom.
Tom Heintzman
– It’s a lot.
Roman Dubczak
Let's just take a bit of a breather there. But, you know, the this whole the climate competitive strategy clearly isn't specifically targeted for the clean technology sector, or even the energy sector. There's a slew of industries, I think, across Canada that will benefit from these changes. Like this trend has been going on for a while. This recognizes some realities, as you pointed out, but helps extend it into other industries you know, that emit carbon, maybe touch on who some of these other industries, some of the other beneficiaries of the strategy.
Tom Heintzman
The strategy is designed to benefit a wide range of Canadian industries and sectors, for instance, there are a number of provisions to address the oil and gas sector, recognizing its importance to the Canadian economy, while also providing significant incentives and important regulations to encourage it to reduce its emissions. As I mentioned, these provisions include extending the CCUS ITC, accelerated depreciation for low carbon LNG facilities and the creation of hydrogen through pyrolysis being eligible for the hydrogen ITC. On the regulatory side of the coin, I'd list the methane regulations in industrial carbon pricing. The next sector I'd point to is the electricity sector, especially utilities and grid operators. They'll see significant investment in clean generation, storage and transmission, supported by new and enhanced investment tax credits. The Critical Minerals, mining and processing sector is a third area of note, and it will benefit as expanded tax credits and funding encourage exploration and development of minerals essential to clean energy supply chains. The last sector, or group that I would touch on is the Indigenous and First Nations. The Indigenous Loan Guarantee Program, which aims to unlock access to capital and promote economic reconciliation, will be extended to support new projects. It was historically for buying in the more well-established and sometimes built projects, helping to advance indigenous prosperity. One other interesting point to note is the update regarding Canada's anti-greenwashing rules. In this budget, the government proposes legislative amendments to remove some aspects of the greenwashing provisions within the Competition Act while maintaining protections against false claims. Many companies had pointed to these provisions as a reason to limit environmental and emissions disclosure. Hopefully, the changes will remove any debate and encourage emissions disclosure.
Roman Dubczak
Yeah, all very big changes Tom. Like that last one, Bill C-59 was very, hot topic, so to speak, with many of our clients as we're, you know, other changes. So, I would say to the follower on this, on this subject, quite a bit of a shift and quite a bit of opportunity, I'd say. So, one final question. Like all things, what are the challenges to, you know, getting this over the line? I think, you know, obviously the budget needs to be passed, but it the budget shifts focus, you know, where does this all... what are the challenges?
Tom Heintzman
Let me start with a high level observation that in delivering this budget, Prime Minister Carney is trying to craft a policy tailored to Canada's unique circumstances. Canada has deep roots in the traditional resource sector, as we all know, and large parts of the economy depend upon these sectors. That said, the clean economy is growing quickly. For instance, renewable generation is now attracting twice as much capital globally as fossil fuel fired generation is. Canada needs an approach that respects both of these realities. The main challenges influencing the success of the Climate Competitiveness Strategy will stem from the complexity and scale of this trade off, and Canada's energy and economic transition. I'd start with provincial cooperation as one challenge. In a country like Canada, a broad national change like this will require alignment with the provinces and territories. There are a number of references and allusions throughout the budget to work in collaboration that must be done with the provinces. For instance, the budget notes that if the federal government and the provinces make progress with the industrial carbon pricing, then the carbon cap, which Alberta opposes, may no longer be required. Similarly, the Clean Electricity Regulations, which impose requirements on electricity grids and in particular on emissions from gas fired generation, have been contentious. The budget indicates that the government's intention is to amend these provisions while maintaining the goal of a clean electricity grid. So, the federal government appears to be holding out an olive branch, offering to adjust some of the more controversial positions, so long as the overall goal of decarbonization can be achieved. Another potential obstacle is regulatory uncertainty, and slow project approvals could delay investment in clean energy infrastructure, critical minerals and new technologies. Streamlining, permitting and ensuring coordination among federal, provincial and indigenous stakeholders will be essential. Expediting, permitting and approvals is one of the primary responsibilities of the newly constituted Major Projects Office, led by Dawn Farrell. Previously of TransAlta and TMX. However, it is easier said than done. I would note that I mentioned earlier that the Clean Technology ITCs were announced in 2023, and we're still working on them today. So, despite best intentions, these things can take a while. A third potential challenge to the plan requires not only a great deal of public capital, but also private capital. The public capital is going to have to be structured in a way to encourage or crowd in the private capital. Additionally, the integration of new technologies such as carbon capture or hydrogen advanced grid systems involves technical, financial and operational risk and will require robust support for research, commercialization and deployment. And as we all know, these first of a kind efforts are often more challenging than you expect, first blush. For emissions intensive sectors, balancing the cost of compliance and transition with the need to remain globally competitive is a significant challenge, and we certainly need to keep our eye on the impact of all of these changes to ratepayers for electricity, for instance. Clients should take away that while the strategy presents substantial opportunities and I'd name new tax credits, accelerated depreciation, infrastructure investments leading to market growth, success will depend on proactive engagement with regulatory processes, workforce development and strategic partnerships. So, a lot new going on. And so, everybody's going to have to roll up their sleeves. It certainly would appear that the government is committed to building significant infrastructure in the country over the next at least decade, which will present many financial opportunities and potentially materially reshape our economy.
Roman Dubczak
So Tom, I would say excellent comprehensive strategy. And thanks for walking our clients through all the changes. I mentioned, the webcasts we did the other day with Lisa and Avery talking about sleeper topics in the budget. And I would argue this would be one of the bigger topics that didn't quite get the airplay. It, it should have, but I'm certain that our clients find this all very, very comprehensive and interesting. And I would suggest that, to the extent there are clients who want to pursue some of these opportunities or do a deeper dive, please feel free to reach out to any member of the CIBC team. We'd be more than happy to, participate in a conversation and to kind of do a bit of a deeper dive for you on the topics. Thanks for joining us and hope to see you again soon.