Budget 2021 and natural resources

From R&D to low emission fuels and national trade corridors, Budget 2021 means big things for natural resources, says Margareta Dovgal.

Following the release of the federal budget, Resource Works published a thread of analysis on points relating to natural resources, edited below.

Resource Works is pleased to see many items relating to recommendations provided by the Task Force for Real Jobs, Real Recovery, which Resource Works convened to help guide economic recovery after COVID-19.

Developing the Canada Water Agency

There was little discussion of the potential impacts the Canada Water Agency (CWA) may have on regulatory processes for resource development. While provincial-federal coordination can mitigate competitivity risks, without effort from various levels of government to harmonize regulations, the creation of a federal water agency risks adding an unnecessary layer of regulation and jurisdictional overlap. Resource Works wrote about this issue here.

From the budget speech: “Budget 2021 proposes to provide $17.4 million over two years, starting in 2021-22, to Environment and Climate Change Canada to support work with the provinces, territories, Indigenous peoples, and key stakeholders on the scope of the agency’s mandate, including identifying opportunities to build and support more resilient water and irrigation infrastructure. The agency would be headquartered outside the National Capital Region.”

Strengthening public climate-related disclosures

The budget speech confirms that ESG standards in investment are unavoidable, as even the federal government embraces climate-risk disclosures for its Crown corporations.

From the budget speech: “The government will engage with provinces and territories, with the objective of making climate disclosures, consistent with the Task Force on Climate-related Financial Disclosures, part of regular disclosure practices for a broad spectrum of the Canadian economy.”

Border carbon adjustments

It’s unfortunate how buried this was. Natural resource industries should be excited about more details. BCAs are not without their challenges, but this may effectively improve the competitiveness of Canadian resource goods produced under the carbon price.

“The government intends to launch a consultation process on border carbon adjustments in the coming weeks,” said the government. “This consultation process will begin in the summer with targeted discussions, including with provinces and territories, importers, and exporters—especially those who deal in emissions-intensive goods. The broader public will be engaged this fall.”

Integrating climate into federal decisions

Previous promises have largely covered this part of the budget speech. Still, it’s interesting to see this facilitated through additional funding.

“Budget 2021 proposes to provide $36.2 million over five years, starting in 2021-22, to Environment and Climate Change Canada to develop and apply a climate lens that ensures climate considerations are integrated throughout federal government decision-making,” read the speech.

Accelerating investment in clean energy technologies

It’s good to see green hydrogen mentioned, but so we wish blue hydrogen was included (produced using natural gas with carbon capture applied). As Marty Reed and Chris Reid told the Resource Innovation Forumgreen hydrogen can play an important part in providing decarbonized energy alongside other forms. Canada will need all forms of hydrogen to reach climate goals effectively. See here for a more detailed look at hydrogen energy and the federal government’s hydrogen strategy.

Budget 2021 proposes “to expand the list of eligible equipment to include equipment used in pumped hydroelectric energy storage, renewable fuel production, hydrogen production by electrolysis of water, and hydrogen refuelling. Certain existing restrictions related to investments in water-current, wave and tidal energy, active solar heating, and geothermal energy technologies would also be removed.”

Investing in the forest-based bio-economy

Another recommendation from our Task Force for Real Jobs, Real Recovery, this announcement is excellent news for the forestry sector.

From the budget speech: “Budget 2021 proposes to provide $54.8 million over two years, starting in 2021-22, to Natural Resources Canada, to enhance the capacity of the Investments in Forest Industry Transformation program, including working with municipalities and community organizations ready for new forest-based economic opportunities.”

Accelerating Canada’s net-zero transformation through innovation

Canadian expertise in clean technology, much coming from natural resource industries, is already world-leading. This is a good initiative to promote domestic uptake of clean technology across industries.

The budget reads: “Budget 2021 proposes to provide $5 billion over seven years (cash basis), starting in 2021-22, to the Net Zero Accelerator. Building on the support for the Net Zero Accelerator announced in the strengthened climate plan, this funding would allow the government to provide up to $8 billion of support for projects that will help reduce domestic greenhouse gas emissions across the Canadian economy.”

Renewing our national trade corridors

It was clear to the Task Force that rural and remote communities continue to struggle to get resource goods to market. This is an obvious barrier to economic recovery, requiring investment and action from the federal government. The government’s budgetary commitment is a promising and exciting step in the right direction.

Budget 2021 proposes to “invest $1.9 billion over four years, starting in 2021-22, to recapitalize the National Trade Corridors Fund. This funding could attract approximately $2.7 billion from private and other public sector partners, resulting in total investments of $4.6 billion. This would spur investments in much-needed enhancements to our roads, rail, and shipping routes. (And) of this total funding, 15% would be dedicated to building and improving transportation networks in Canada’s North.”

Supporting the production and use of clean fuels

As previously promised, hydrogen is getting a big boost. Canada has an incredible opportunity to develop hydrogen production for domestic use and export, transforming our energy production sector.

The budget “proposes to provide $1.5 billion over five years, starting in 2021-22 . . . to Natural Resources Canada to establish a Clean Fuels Fund to support the production and distribution of low-carbon and zero-emission fuels, including hydrogen and biomass, across Canada, and around the world. . . . The fund would position Canada as a global hydrogen leader and deliver on the Hydrogen Strategy for Canada.”

Regulatory competitiveness

We are looking forward to more details on what this means for natural resources. Depending on the scope, this could be very promising. Reducing regulatory complexity and shortening approval timelines can have a significant positive impact on investment.

“To maintain momentum on strengthening Canada’s regulatory systems, Budget 2021 proposes to provide up to $6.1 million over two years, starting in 2021-22, to renew the External Advisory Committee on Regulatory Competitiveness and to continue targeted regulatory reviews,” read the speech.

Expanding the industrial research assistance program

Along with the Strategic Innovation Fund (see below), IRAP is a critical resource for improving Canada's innovation performance. This is what we need to reduce emissions intensity and keep businesses competitive.

The budget “proposes to provide $500 million over five years, starting in 2021-22, and $100 million per year ongoing, to expand the Industrial Research Assistance Program to support up to 2,500 additional innovative small and medium-sized firms.”

Supporting innovation and industrial transformation

The section on the Strategic Innovation Fund can be best described as comprehensive. It is clear that the shift to direct supports for R&D under this government continues.

“Budget 2021 proposes to provide the Strategic Innovation Fund with an incremental $7.2 billion over seven years on a cash basis, starting in 2021-22, and $511.4 million ongoing,” reads the speech. “This funding will be directed as follows: $2.2 billion over seven years, and $511.4 million ongoing to support innovative projects across the economy—including in the life sciences, automotive, aerospace, and agriculture sectors. $5 billion over seven years to increase funding for the Strategic Innovation Fund’s Net Zero Accelerator, as detailed in Chapter 5. Through the Net Zero Accelerator, the fund would scale up its support for projects that will help decarbonize heavy industry, support clean technologies and help meaningfully accelerate domestic greenhouse gas emissions reductions by 2030.”

The full budget speech can be found here.

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