Market News

 March 19, 2007
Green initiatives in Budget 2007

 Ottawa, Canada (GLOBE-Net) -- The federal government's 2007 Budget contains few new details on the upcoming climate change plan. But there are a number of spending initiatives which will affect the business of the environment in Canada. These include more support for biofuels; removal of tax breaks for oil sands development; streamlining the regulatory process for large natural resource projects; and more funding for a National Water Strategy.

The largest environmental boost goes to renewable fuels, which will receive $2 billion in support over seven years.

Up to $1.5 billion of that will go towards an operating incentive for producers of renewable fuels such as ethanol and biodiesel. Eligible producers may receive up to $0.10/L for renewable alternatives to gasoline and up to $0.20/L for renewable alternatives to diesel for the first three years, and a declining amount thereafter.

Conditions will be imposed to ensure that the industry does not earn excessive profits, and incentives will not be provided when rates of return exceed 20 per cent, determined annually. Support for individual companies will be capped to ensure that both small players and large oil producers are able to receive funding.

The excise tax exemptions for ethanol and biodiesel will be eliminated as of April 1, 2008. Further support for biofuels will come in the form of an additional $500 million over seven years for Sustainable Development Technology Canada (SDTC) to support the construction of commercial production facilities for "next-generation renewable fuels", or cellulose-based fuels produced from agricultural and wood waste.

The budget makes specific mention of Ottawa-based Iogen, which is planning to build its first commercial cellulose ethanol plant in either Canada, the United States or Germany. The U.S. Department of Energy recently offered the company a loan guarantee to build its plant in Idaho, but Iogen says it is also in talks with Environment Minister John Baird to build a plant in Saskatchewan.

The funding for biofuels will support regulations announced last year which require that as of 2010, all gasoline sold in Canada will have at least five percent annual renewable fuels content. A two percent renewable fuels content will also be in place for diesel fuel and heating oil used in Canada by no later than 2012.

Budget 2007 also includes $1.5 billion in 'ecoTrust' funding to help provinces launch projects to reduce greenhouse gas emissions and air pollution. Specific funding amounts and potential projects for most of the provinces have been announced over the last few weeks.

A tax break for oil sands developers will be phased out, as the accelerated capital cost allowance for general investment in the oil sands will be removed by 2015.

Another incentive for projects that improve energy efficiency or use renewable energy will be extended. The "Accelerated Capital Cost Allowance for Clean Energy Generation (ACCA-CE)", will be extended to equipment acquired before 2020 and expanded to cover additional applications.

Renewable energy producers will also benefit as the accelerated capital cost allowance will be expanded to cover wave and tidal energy, and additional solar energy and waste-to-energy technologies.

The government also pledges to examine possible capital cost allowances and other fiscal measures to promote new environmental technologies, specifying carbon capture and storage as one such technology.

Streamlining regulation

One budget component which will affect many environmental projects is the focus on streamlining regulation, particularly for large natural resource projects.

On April 1, 2007, a new Cabinet Directive on Streamlining Regulation will come into effect. The directive will attempt to focus resources on "larger, more significant regulatory proposals", and will establish service standards for regulatory reviews, along with periodic reviews of the process.

Based in part on a model employed by British Columbia, the budget also includes a plan to reduce the administrative and paper burden on businesses by 20 percent by November 2008, which could mean less regulatory filing requirements related to environmental impacts.

An important budget component is a pledge to streamline the regulatory process for large natural resource projects, which would include the Mackenzie Natural Gas Project and other major energy projects. To shorten regulatory timelines for project proponents, the government will establish a Major Projects Management Office to provide a single window on the federal regulatory process for industry, and "improve overall accountability by monitoring and reporting on the performance of federal regulatory departments".

Funding will also be provided to increase staff in certain regulatory departments and agencies to reduce project review times. According to the government, these measures will cut in half the average regulatory review period for large natural resource projects, from four years to about two years.

The Budget proposes a National Water Strategy which will be supported by $400 million in funding, though the majority ($324 million) will go towards purchasing six new large Coast Guard vessels.

The rest will be pledged to a variety of cleanup and research projects:

  • $12 million over two years to support the clean-up of Lake Simcoe, Ontario, which has been affected by excessive amounts of phosphorus.

  • $11 million over two years to accelerate the clean-up of the Great Lakes and $7 million for the Lake Winnipeg Basin.

  • $19 million to advance the health of the oceans and support greater water pollution prevention, surveillance and enforcement along Canada's coasts.

  • $39 million for fisheries science research programs to strengthen management and conservation.

The budget provides more funding for municipalities, extending the Gas Tax Fund transfer from 2011 to 2014 for a total of $8 billion, and increasing the rebate that municipalities receive on the goods and services tax (GST) they pay from 57.1 percent to 100 percent.

Other budget components of interest include:

  • A new rebate of up to $2,000 for the purchase of a new fuel-efficient vehicle, and a Green Levy on new fuel-inefficient vehicles.

  • $36 million over the next two years for "scrappage" programs to retire older vehicles.

  • Extension of the public transit tax credit to electronic fare cards and weekly passes used on an ongoing basis.

The full Budget 2007 proposal can be found here.

The government has also indicated it will issue its climate change plan, including regulations for industrial greenhouse gas emitters, by the end of the month, with specified targets and compliance mechanisms. Environment Minister John Baird said recently that the strategy will be among the toughest in the world over the next five years.

The plan is expected to include emissions trading, and an environmental technology fund that will be supplied by those who exceed their limits, similar to Alberta's recently announced plan. The regulation will be bolstered by a technical paper and a Science and Technology strategy, some components of which have been seen in the form of support for carbon capture and sequestration, and the support for next generation biofuels.

Environment Canada officials have hinted that a series of tough new regulatory requirements will be announced over the coming weeks, which they hold will be important new drivers for technology development in the sector. Some officials believe the need to meet tougher regulatory requirements is a more powerful motivator of change than are funding incentives or policy declarations.

For More Information: Government of Canada