Canada: Environmental Measures In The Federal Budget 2008

Last Updated: June 4 2008
Article by Florence Dagicour

On February 26, 2008, the federal Minister of Finance tabled Budget Plan 2008: Responsible Leadership ("Budget 2008") in the House of Commons.

Budget 2008 highlights regarding the environment are:

a) a determination by the federal government to set up a greenhouse gas ("GHG") emissions trading system by providing $66 million to set up a regulatory regime by 2010;

b) strong support for research on carbon capture and storage with an investment of $250 million;

c) support for Canada's nuclear energy industry, including Atomic Energy of Canada Limited ("AECL"), through an additional investment of $300 million, and

d) support for research in the automotive sector in developing greener and more fuel-efficient vehicles by providing $250 million over five years.

Other than these investments, Budget 2008 does not set up new programs to support Canadian industry in general and the renewable energy industry in particular, or to help Canadians increase their energy efficiency or encourage them to reduce their environmental impact. Tax incentives are only provided for:

e) specific renewable energy applications through the application of a 50% accelerated capital cost allowance treatment; and

f) research on biofuel and accessibility to renewable E85 fuels.

1. The Carbon Market: an Investment in Research

With respect to the carbon market, Budget 2008 mostly provides funding for research on carbon capture and storage technology, while also supporting the creation of an emissions trading system starting in 2010.

Support for an emissions trading system beginning in 2010

Budget 2008 supports the creation of a GHG emission trading system in 2010 by providing $66 million over two years to set up such a system.

The Harper Government announced the creation of a trading system on April 26, 2007 in the Regulatory Framework for Air Emissions (the "Regulatory Framework"). The Regulatory Framework sets out the business sectors that will be required to reduce their GHG emissions beginning in 2010. The GHG reduction requirement will be based on the intensity of emissions compared to 2006 emissions. Five compliance measures focussed on market-based mechanisms will help companies comply with their reduction requirements: i) internal reductions of their own GHG emissions, ii) contributions to a "technology fund" that invests in GHG reduction projects, iii) participation in a national carbon trading system, iv) obtaining offset credits resulting from the offset system, and v) obtaining emission credits under the Kyoto Protocol.

The $66 million in funding provided in Budget 2008 is intended to develop and adopt proposed regulations respecting the GHG emission reduction requirements and set up an emissions trading system. More specifically, the $66 million is designed to set up i) an electronic tracking system for units traded in the carbon market, which is necessary for the proper and transparent management of such a trading system, ii) a single-window reporting system so companies will not have to report their GHG emissions both federally and provincially, iii) a "technology fund", which constitutes one of the five compliance measures under the Regulatory Framework, iv) an offset system to finance emission reduction projects in non-regulated sectors, and v) better modelling of air quality.

This federal government support for setting up an emissions trading system in 2010 strengthens the Montreal Climate Exchange's decision to launch a futures contract on CO2 equivalents in spring 2008. Regulatory approval for such a futures contract was filed with the relevant Quebec authorities in fall 2007.

Strong support for carbon capture and storage research

Budget 2008 strongly supports research and demonstration of carbon capture and storage projects by providing $250 million to three specific entities. Most of the budget ($240 million) will be invested in trust in Saskatchewan in 2007-2008 for a full-scale commercial demonstration of carbon capture and storage in the coal-fired electricity sector. The remaining $10 million will be distributed equally to Nova Scotia in 2007-2008 to support geological research examining the potential for carbon storage in the province and to the Institute for Sustainable Energy, Environment and Economy at the University of Calgary to analyze regulatory, economic, and technological issues that need to be resolved to accelerate deployment of carbon capture and storage technologies.

Budget 2008 also sets up new capital cost allowance rates applicable to CO2 pipelines, which are a component of carbon capture and storage systems. These new rates are:

g) 8% for CO2 pipelines (rather than the current rate of 4%), and

h) 15% for pumping and compression equipment on CO2 pipelines.

2. Nuclear energy: $300 million for nuclear operations

Budget 2008 also demonstrates the federal government's wish to make AECL a leader in the nuclear market. It is investing an additional $300 million to support nuclear energy, including the development of the next generation of nuclear reactor (Advanced CANDU Reactor) and maintaining the safe, reliable operations of the Chalk River Laboratories.

This investment in the nuclear industry is unprecedented for the Harper Government.

3. Transportation and renewable fuels: investment in automotive research

In terms of the environment, the automotive sector is one of the big winners under Budget 2008.

Increased support for the automotive sector through a $250 million innovation fund

Budget 2008 introduces a new innovation fund for the automotive sector, providing $250 million over five years to support research and development programs for greener and more fuel-efficient vehicles. This investment is in addition to over $1 billion in reduced taxes for the automotive sector by 2012-2013 as well as other investments, such as for highway infrastructure.

The two-year ecoAUTO rebate program (from $1,000 to $2,000) for people who acquire fuel-efficient vehicles is maintained until March 31, 2009 for the purchase of particular vehicles before December 31, 2008. This program will not be renewed after that date.

Moderate support for renewable fuel research

Budget 2008 mostly supports renewable fuel research by providing:

i) $10 million over the next two years for scientific research and analysis on biofuels emissions which will support the development of regulations as well as demonstration projects to verify that new blended renewable diesel is safe and effective; and

j) over $3 million over two years to Natural Resources Canada for a pilot program to demonstrate E85 (85% ethanol and 15% gasoline) fuelling infrastructure and promote the commercialization of this type of fuel. This measure builds on the 2007 budget, which provided $63 million over three years to help remove old, polluting vehicles.

These measures complement the federal initiatives in this area announced in 2007, such as the EcoENERGY for Biofuels program and the NextGen Biofuels Fund.

Improvement of public transit: support for provinces, territories and municipalities

Over $500 million over two years is set aside in Budget 2008 to support capital investments to improve public transit. These funds will be divided among the provinces and the territories according to their population. Provinces and territories wishing to take advantage of these funds must publicly commit, before March 31, 2008, to invest in public transit. Eligible projects include rapid transit, city buses, bicycle paths and lanes for vehicles with more than one occupant.

Budget 2008 also makes the Gas Tax Fund a permanent measure, allowing municipalities to better plan and finance their long-term infrastructure needs (which may be public transit, sewer system and waste water treatment infrastructure and local roads). The value of this fund is increased to $2 billion per year beginning in 2008-2009, until 2013-2014.

4. Renewable energy: tax incentives

Renewable energy was less of a focus in Budget 2008, which only gives the following tax incentives:

k) The accelerated capital cost allowance (the rate is currently 50% per year) is expanded to the following applications: i) ground source heat pump systems used for space heating and hot water; ii) biogas production systems that use animal waste and sewage treatment residue as inputs and those that produce biogas for commercial sale, iii) electrical or thermal generating systems that use purchased biogas and iv) systems that produce bio-oil, or heat from specified waste sources, where the system output is sold to a third party that uses it for specified purposes. The government believes that these measures will reduce federal revenue by $5 million over the next two fiscal years.

l) Extending GST/HST relief as of February 26, 2008 to land leased to situate wind or solar-power equipment for the production of electricity.

Environmental protection: strengthening of environmental law enforcement

Following the hiring of 100 new officers to bolster enforcement capacity in the 2007 budget, Budget 2008 increases the effectiveness of environmental law enforcement by providing, among other things, $21 million over two years to Environment Canada and up to $12 million over two years to Parks Canada.


The highlights of Budget 2008 with respect to the environment include:

  • significant support for the nuclear industry and the automotive sector, which benefit from direct investments,

  • support for the creation of an emissions trading system in 2010,

  • significant support for research relating to carbon capture and storage technology as well as the design of more fuel-efficient vehicles,

  • the absence of programs supporting Canadian industry to encourage the reduction of their impact on the environment, and in particular the reduction of their GHG emissions upstream of the carbon cycle.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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