Reading time: 7 minutes.
The business of clean technology is entering a new stage. Spanning sectors from fintech to mining, cleantech companies operate anywhere there’s waste. From the production of clean hydrogen to technology like solar panels or electric cars, the cleantech industry is unique in its applicability and scale. It’s unsurprising that the global cleantech market is predicted to be worth as much as 650 billion in the coming years.
In Canada, this growth is just beginning. This is especially true in light of the federal budget, which has been called Canada’s ‘cleanest’ budget to date. Due in part to advocacy by groups like OCTIA and CleanTech North, as well as political factors and tax competition from the United States, Budget 2023 announced an expansion of existing cleantech tax credits and put several new offerings in play. This broadens the scope of the programs and fills gaps from previous years.
Now cleantech tax incentives are available for nearly every stage of the business process. From technology development to electricity generation and manufacturing, these programs take the sector into a new frontier.
What is cleantech?
Clean technologies refer to the functional capacity to operate better, smarter, and without generating as much waste. Opportunities for clean technology exist in almost every industry, from fintech companies using micropayments to charge electric vehicles to agtech businesses refining soil and crops. Players in the cleantech industry generally fall into one of two categories:
- Cleantech adapters include existing industries like mining, utilities, oil and gas, building owners, or manufacturing operations. These adapters can upgrade or retrofit existing technology to make it greener and more efficient.
- Cleantech companies are the organizations and entrepreneurs who develop the clean technologies used to fight climate change. These could be new ways of harnessing solar power, capturing geothermal energy, or reducing emissions of greenhouse gas. Cleantech technologies span many sectors, covering everything from microbes that make plastics from organic waste to heat capture technologies generating energy from wastewater.
The credits announced in Budget 2023 affect both categories and can be applied at almost every stage of the business process. This makes the potential impact of these tax credits immense, depending on how they are ultimately rolled out and brought into play.
Cleantech tax credits 2023
Cleantech tax credits first appeared in a federal budget in 2017. In the six years since they’ve not only expanded in scale but in notoriety as well. “Clean technology or a variant of clean was probably the most used word in this budget,” says Bryan Watson, Venbridge SVP and Managing Director of CleanTech North. “It’s a real sea change.”
This change included expanded benefits to three existing tax credits, as well as the introduction of two more, which is why Budget 2023 has been dubbed the ‘cleanest’ budget to date. Credits include:
Expansion of Carbon Capture, Utilization and Storage (CCUS) Credit
Direct air capture technologies pull or prevent CO2 from entering the atmosphere and store it permanently in concrete or another geological material. The 2023 CCUS credit provides an income tax credit of 18.75-60% for capital expenditures related to this carbon capture and storage, depending on the year and the type of expense.
Purchasing capital equipment for direct air capture will allow companies to collect the full 60% incentive, which means a company investing in a $10 million direct air capture plant will get $6 million back in cash. This year’s budget was expanded to include additional types of equipment, as well as geological storage in BC.
Expansion of Clean Hydrogen Tax Credit
Similar to the CCUS credit, the Clean Hydrogen credit funds the purchase of capital equipment used to produce low-emission hydrogen. The credit offers businesses up to 40% for meeting the lowest carbon intensity tier, and the 2023 expansion includes an extended period for credit and the addition of ammonia storage and transportation technology.
Having a tax incentive for producing low-emission hydrogen is intended to induce the development of new technologies that drop emissions in carbon-heavy industries, including shipping and aviation.
Expansion of Clean Technology Tax Credit
The Clean Technology Tax Credit can be used when investing in machinery or equipment related to clean tech. It refunds businesses 30% of the eligible capital cost for equipment that doesn’t use fossil fuels, such as batteries, windmills, solar panels, and electric vehicles. In 2023, the tax credit was expanded to include geothermal and nuclear technologies like pipes, pumps, and heat exchangers.
Introduction of Clean Technology Manufacturing Tax Credit
While the Clean Technology tax credit incentivizes businesses to purchase cleaner tech, the Clean Technology Manufacturing credit encourages those who make it. This credit provides a 30% refund for eligible machinery and equipment relating to the production of clean technologies. These include businesses producing nuclear fuel rods, renewable energy, zero-emission vehicles, sustainable extraction of critical minerals, solar panels, and more.
Clean Electricity Tax Credit
The Clean Electricity Tax Credit is new in 2023. It encourages the use of non-emitting electricity generation, non-fossil fuel storage, and the purchase of equipment for transmitting electricity between provinces. It covers both new projects and the refurbishment of existing facilities.
The Clean Electricity credit is 15% and applies to both taxable and non-taxable entities, as well as Crown corporations, public utilities, Indigenous-owned corporations, and pension funds. Geared towards large-scale generation and transmission of electricity, the credit would encompass projects like power lines in Northern Ontario built to get remote communities off of diesel.
Not only was Budget 2023 the cleanest budget to date, the new cleantech tax credits also have the widest scope so far. In addition to Canadian Controlled Private Companies, these credits allow non-CCPCs to take advantage of the initiatives as well. This means even businesses operating outside of Canada can take advantage.
“The government has really structured it to say, everyone go out and get this done,” says Bryan, “Let’s green our industry, whether you’re Canadian or not. That’s good.”
The budget also offers plenty of opportunity for synergy between cleantech companies and cleantech adapters. Companies creating eco-friendly products can take advantage of credits for manufacturing, while adapters using the products are incentivized to upgrade, retrofit, or implement greener solutions at a lower cost.
For example, a company making zinc-based batteries could take advantage of the manufacturing tax credit while an adapter organization like a grocery store could upgrade their equipment and claim a tax credit themselves. A concrete company capturing carbon can access the CCUS credit, while the company using the concrete benefits from carbon sequestration as well.
Although industry experts are still waiting on details, the new credits could be worth as much as $83 billion in the decade to come. Compared to SR&ED, which is around $2B per year, the new cleantech tax credits could offer Canadian businesses more opportunities than ever before. With more information likely to be released soon, the cleantech sector is certainly one investors should watch.
With the 2023 Canadian Federal Budget’s focus on cleantech tax credits, it’s clear that now is the time to explore the opportunities available in the cleantech sector. To support your business in taking advantage of these incentives and propelling your innovation further, consider Venbridge’s SR&ED financing services.
At Venbridge, we understand the value of innovation and the importance of clean technology for a sustainable future. Our SR&ED financing services are designed to help you unlock funds more quickly, providing you with the cash flow necessary to invest in groundbreaking cleantech solutions and stay ahead of the competition.
Don’t let financial constraints hold you back from making a positive impact on the environment and the economy. Reach out to our team of experts today to discover how Venbridge can support your business in harnessing the full potential of cleantech tax credits and SR&ED financing.
Ready to accelerate your cleantech innovation? Contact our team today to learn more about our tailored SR&ED financing solutions.