Canada’s $7B Pledge: Securing Carbon Price Contracts with Unprecedented Insurance

"Canada's Clean Technology Investments Set to Soar as Half of $15B Growth Fund Allocated for Carbon Contracts"

Canada to Allocate $7 Billion for Carbon Contracts for Difference in Clean Technology Investments

In a recent fall economic update, Finance Minister Chrystia Freeland announced that nearly half of the $15-billion Canada Growth Fund for clean technology investments will be allocated for carbon contracts for difference (CCfD). This move aims to bolster companies’ confidence in making substantial initiatives to reduce their greenhouse gas emissions. CCfDs serve as a financial mechanism to support clean growth projects by offering businesses predictability and mitigating risks associated with emissions reduction initiatives.

Carbon contracts for difference are based on future carbon pricing, providing companies with a clear understanding of the costs associated with emissions reduction over several years. These contracts act as an insurance policy, protecting clean tech investments from potential decreases or eliminations in carbon pricing. This measure is particularly important as major energy firms seek assistance to maintain competitiveness amid substantial subsidies provided by the U.S. Inflation Reduction Act.

The federal government has been engaging in consultations since Budget 2023 to develop an extensive framework for CCfDs, complementing the offerings of the Canada Growth Fund. However, experts have expressed disappointment over the absence of a clear framework for the swift execution of these agreements. Nevertheless, the introduction of carbon contracts for difference may be the final piece needed by major oilsands companies to build large-scale carbon capture and storage projects, which are vital for Canada to achieve its emissions targets.

In addition to the allocation for CCfDs, the Canada Growth Fund also includes investment tax credits for carbon capture and storage projects. The Pathways Alliance, a coalition of major oilsands companies in Canada, has been pursuing these projects and has praised the proposed carbon capture incentives. However, they have highlighted the need for clear policy details. Alberta has expressed concerns over the extended timeline in finalizing the tax incentives, as the tax credits were initially announced two years ago.

Despite the challenges and delays, the announcement of carbon contracts for difference has the potential to drive low-carbon economic growth in Canada. It is believed that CCfDs could launch the best industrial emissions reduction projects and make the country a destination for clean-tech investments.

The Canada Growth Fund, launched in the summer of 2023, aims to reduce risks and enhance private investment in low-carbon projects, technologies, businesses, and supply chains. It has curated a portfolio of projects across crucial sectors within the clean economy, including carbon capture, hydrogen, biofuels, critical minerals, and clean technology. Last month, the federal government announced its inaugural investment of $90 million in Eavor Technologies Inc., a geothermal energy company based in Calgary.

The government will continue to explore avenues to offer businesses assurance regarding the trajectory of carbon pricing. Through Carbon Contracts for Difference, the Canada Growth Fund aims to bolster companies’ confidence in reducing greenhouse gas emissions and sustain a robust carbon credit market in the country, fostering a low-carbon economy.

Matt Lyons

Matt Lyons

Matt Lyons is the founder of Forestry & Carbon. Matt has over 25 years as a forestry consultant and is invoilved in numerous carbon credit offset projects.

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