Insights

We are living through tumultuous times, to say the least. Canada is faced with continued pandemic uncertainty, the Russian invasion of Ukraine and the impact not only on human lives in the region, but also on surging commodity prices and inflationary pressures, supply chain disruptions—all set against the backdrop of rising global temperatures.

And in the midst of this rapidly evolving state of affairs, Canada is expected to table Budget 2022 on April 7.

Against such uncertainties, being concerned about the budget almost seems inconsequential. But on the contrary, times of crisis require clarity about what the government cares about most. As the adage goes, where your treasure is, there your heart will be also. In the same vein, a government’s spending priorities indicate what it cares about most. When times are tough, having clarity about government priorities is vital.

The government’s priorities in last year’s budget were clear: providing COVID-19 relief spending to those disproportionately impacted; funding more affordable childcare; and helping spur an inclusive, more environmentally sustainable long-term economic recovery. The government spent into a $155 billion deficit in support of these goals, a figure that has since decreased by about $10 billion; a stronger-than-expected economic recovery padded government revenues and even though Ottawa chose to spend most of that money, the deficit is still likely to come in below expectations.

At the Business Council of Alberta (BCA), we were happy to see robust childcare spending and improvements to the innovation agenda but felt there were missed opportunities to support Alberta’s industrial base in rapid decarbonization, commit to a long-term plan for fiscal sustainability, and drive forward a vision to improve Canada’s lagging productivity and create long-term growth.

Budget 2022 will be released in a few short days. Here are the five things we want to see in it to make life better for Albertans and all Canadians.

Environment: Enabling businesses to make long-term climate investments now

It is inescapable that the road to Canada’s net zero Paris Agreement commitment runs through Alberta. Alberta’s concentration of Canada’s largest emitting and most difficult-to-decarbonize industries—largely a result of products exported and consumed beyond our borders—requires significant flows of capital toward major decarbonization projects.

Make no mistake—the imperative to reduce emissions in Alberta is going to be pricey, and most of this will be funded by the private sector. But Canada needs to have a policy foundation in place that can help the private sector make major decarbonization project development economical now while maintaining business competitiveness.

First, we are looking for Budget 2022 to ensure market signals and policy mechanisms have long-term clarity and help efficiently allocate capital towards decarbonization efforts in Alberta. This means creating carbon pricing certainty well beyond 2030, indexing long-term price increases to a predictable escalator such as the consumer price index (CPI) or GDP growth, and, where possible, replacing opaque and inefficient climate regulation with carbon pricing. We also hope to see the federal government work with the provinces at integrating carbon markets for compliance purposes across the country and internationally.

Second, as carbon pricing becomes more stringent, we are looking for the budget to indicate the government’s intention to reduce emissions, not production—especially for energy-intensive, trade-exposed businesses. Global energy security and affordability are once again in the spotlight, and Alberta should be positioned as a secure, low-carbon energy provider for as long as there is global demand (more on this in section #2 below). This means that a balance must be struck between carbon pricing and other emissions-reduction policies on the one hand, and business competitiveness, energy costs, carbon leakage, and geopolitical considerations on the other. This is not an easy needle to thread, but climate action cannot come at the expense of these other, critically important, considerations.  

Third, we are looking for Budget 2022 to commit to improving regulatory processes. Existing regulatory timelines are not capable of enabling the infrastructure buildout at the speed and scale for Canada to achieve its climate targets. Suggestions for improved regulatory processes are included in section #4 below.

Environment: Supporting Alberta as a secure global supplier of low-carbon energy; and of the globally-relevant clean tech solutions researched, developed, and deployed (RD&D) at home

Shifting energy market dynamics and the illegal invasion of Ukraine have elevated global energy security and affordability concerns, causing rapidly increasing energy prices and an over-reliance on hostile geopolitical adversaries for energy supply. These issues have come to a head in Europe but are beginning to impact the world. An orderly transition to a low-carbon future requires these issues to be addressed in tandem with decarbonization efforts—and Canada can help lead the way.

To support global efforts to advance energy security, affordability, and decarbonization, BCA wants to see Canada maximize our ability to produce the lowest carbon globally-in-demand fossil fuels possible while at the same time developing our capacity to research, develop, deploy (RD&D), and export low-cost, clean alternative energy solutions and technologies to help reduce global emissions.

In this vein, we would like Budget 2022 to contribute significantly more investment into scaling carbon capture, utilization, and storage (CCUS) technologies, helping bridge projects from being uneconomical now to being economical in the future. This should include implementing near-term project supports modeled after best practices in the Netherlands, and helping create value for carbon captured through an investment tax credit competitive with the United States’ 45Q. We also believe Budget 2022 should help support Canadian businesses export lower-carbon energy (such as liquefied natural gas) to not only (verifiably) displace higher-emission energy sources like coal, but also to reduce global reliance on production from hostile regimes like Russia.

Similarly, the global energy mix is expected to contain a lot more hydrogen in the future. The federal government should be investing significantly more to establish Edmonton and its surrounding industrial clusters as Canada’s first major hydrogen hub, using it as a proof of concept for a broader hydrogen economy and, eventually, setting up Canada as a major exporter of low-carbon hydrogen.

But low-carbon energy exports are only part of Alberta’s potential to address global climate solutions. While Alberta’s industrial and economic bases are distinct in Canada, they are by no means unique around the world. As such, global climate solutions should be developed and deployed in, and exported from, Alberta. Developing Alberta into a “living lab” for cleantech RD&D is a once-in-a-lifetime opportunity. We can’t afford to miss the boat.

Accordingly, we hope to see the federal government lean into supporting Alberta’s opportunity to provide global emissions reduction solutions through cleantech exports. This includes providing stable, long-term funding for a world-class cleantech innovation hub in Alberta for technologies such as biofuels, battery storage, bitumen beyond combustion, geothermal, direct air capture, CCUS, critical minerals extraction, and small modular nuclear reactors.

Similarly, BCA will be looking for the federal government to help de-risk investment into game-changing cleantech opportunities by expanding the class of assets eligible for 100% immediate capital cost deductions to include technologies across the entire decarbonization value chain. Alongside the cleantech opportunities noted above, this class of assets should include major decarbonization retrofits of existing facilities, and renewables and energy storage.

Pandemic recovery: Balancing economic recovery with continued uncertainty

The pandemic has taken a devastating toll on people’s health, wellbeing, and ability to conduct business for much of the last two years, particularly for individuals in people-facing jobs and for sectors disproportionately impacted by public health measures. Given that the pandemic remains a fluid situation, the government must strike a balance between protecting those at risk from COVID without causing excess economic and mental health hardship to the broader population. Where this balance lies is a difficult question to answer, and the appropriate balance may change as time passes.

However, widespread vaccination; new and advanced treatments for fighting COVID infections; and the decreased severity of the Omicron variant provide reasons to believe that the time has come for Canadians to learn to live with the virus while maintaining vigilance about the possibility of new or unforeseen threats. BCA and its members believe that Budget 2022 can strike an appropriate policy balance through several measures.

First, while we are pleased to see the federal government’s announcement that it is scaling back its pre-arrival COVID testing for vaccinated travelers to Canada, we hope Budget 2022 will redeploy these resources towards more effective measures of protecting the broader population such as creating safer schools, workplaces, and healthcare facilities.

Second, it is critical that the government continues to make available targeted support to Canadians and businesses if future waves risk healthcare capacity and restrictions become unavoidably necessary. Government supports should target Canadians who are disproportionately impacted by public health measures.

And finally, we believe that the government’s pandemic spending and policy priorities should promote national unity built firmly on the values of mutual respect, understanding, and tolerance. The pandemic has exposed many new and pre-existing societal divisions. We implore the federal government to use every tool at its disposal—including Budget 2022—to build bridges across these divides.

Long-term growth strategy: Creating an innovative, sustainable, and growing economy to support vital services

Even before the pandemic, Canadian productivity and competitiveness had been lagging many of our OECD peers, and the forecast looks grim. This concerning trend undermines business confidence; stagnates wage and income growth; discourages innovative, entrepreneurial Canadians from scaling their ideas in Canada; and undermines the nation’s fiscal standing and ability to pay for vital public services. While a focus on inclusive economic growth is important, it should not come at the expense of growth itself. In short, Budget 2022 needs to drive forward a credible long-term economic growth agenda.

For starters, we’d like to see Budget 2022 make progress on advancing several key promises made in ministerial mandate letters and the latest Liberal Party election platform, including:

• Establishing a Council of Economic Advisors;
• Increasing the allowable business expense amount for making growth-enhancing investments;
• Making the Scientific Research and Experimental Development (SR&ED) Program more generous to risk-taking companies; and
• Establishing a Canadian Advanced Research Projects Agency modeled after the Defense Advanced Research Projects Agency (DARPA) in the United States.

Second, Budget 2022 should address Canada’s dwindling reputation as a place to do business by tackling the nation’s slow and inefficient regulatory processes. As is, Canada’s processes inhibit our climate policy and economic goals by delaying the investment decisions and infrastructure buildouts necessary to decarbonize. Regulations must adopt an outcomes-based approach that retains their stringent objectives while enabling the speedy deployment of major cleantech investments. We will be looking for Budget 2022 to address these challenges by:

• Creating an independent oversight agency mandated to assess the challenges of, and propose policy solutions to, burdensome business regulation on the economy;
• Committing to outcomes-based permitting and approval regulatory frameworks that can speed up legislated decision-making timelines and align them with top-performing high-income OECD peer countries; and
• Granting a “regulatory Nexus card” that fast-tracks project approval timelines for trusted operators with demonstrated operational and environmental performance, especially for the deployment of innovative clean tech and for facility retrofits that advance decarbonization.

Finally, we will be looking for this budget to complement a long-term growth agenda by winding down its pandemic stimulus spending and committing to a clear fiscal anchor that creates a path toward long-term national fiscal stability. The better prepared Canada is for future headwinds such as major economic shocks, sustained inflationary pressures, and growing levels of household and subnational government debt, the more capable the federal government will be to continue funding important services while maintaining a competitive business environment.

Jobs and training: Workforce development for the economy of tomorrow

The nature and distribution of work are changing. Disruptive forces such as automation, technology integration, and the transition to a low-carbon economy—all magnified by pandemic impacts—have created persistently high long-term unemployment rates in Alberta. While these forces are not unique to the province, they are felt more acutely here and risk imposing economic and social costs if left unaddressed.

As outlined in our recent work on long-term unemployment and workforce transition, the federal government has a large policy role to play. We will be looking for Budget 2022 to include the following workforce retraining initiatives:

• Employment Insurance (EI) reform that rewards unemployed individuals who pursue skills upgrades, including through a direct federal contribution to EI in support of this retraining and upskilling;
• A $30 million annual contribution increase to the Canada-Alberta Workforce Development Agreement;
• Funding a one-stop window for individuals, businesses, and community organizations to access all third-party, federal government, and provincial government upskilling and training supports.

Furthermore, the transition to a low-carbon economy will have significant implications for Alberta’s existing workforce. These disproportionately impacted workers and communities should be supported by public policy—generally referred to as a “just transition.” We will be looking for Budget 2022 to allocate federal just transition supports in proportion to the magnitude of the transition experienced by the people, regions, and communities impacted the most.

For starters, Budget 2022 should resource the Futures Fund for regional economic diversification in Alberta as promised in the Prime Minister’s mandate letters to his ministers. Secondly, we will be looking for the budget to ensure that “just transition” measures incorporate the following considerations:

• The business community must play a central role in informing policies;
• Supports should reflect workers’ preferences, skills, and age;
• Policy design should consider historically disadvantaged groups;
• Just transition should not preclude a vibrant and growing Canadian energy sector;
• Better information is needed about labour market development and skills demand; and
• Programs should incorporate clear, outcomes-based success metrics.

Conclusion

Canada—indeed, the world—is undergoing a period of significant disruption. The federal government rightfully has many pressing priorities worthy of addressing in this budget. If the adage, “Where your treasure is, there your heart will be also,” has merit, BCA believes Budget 2022 can help support a prosperous Alberta within a strong, united Canada by portioning some of its treasure towards the five priorities we’ve outlined above.