Canada's 2023 budget targets critical mineral production with new tax credit

Canada launched a new 30% refundable tax credit for equipment and machinery investments used in green manufacturing and critical minerals extraction and processing, according to the country's 2023 federal budget announced March 28.

The federal budget focused heavily on energy transition investments, including plans to bolster renewable electricity transmission and supply chains for electric vehicles and batteries, as Canada looks to spur growth and stay competitive in the wake of the US Inflation Reduction Act.

"We are building big things here in Canada, from a Volkswagen AG battery plant in Ontario, to the Galaxy lithium mine in Quebec," said Chrystia Freeland, Canada's deputy prime minister and minister of finance, speaking to parliament on March 28.

The new incentive, called the Clean Technology Manufacturing Investment Tax Credit, would cover 30% of the cost of new equipment and machinery needed in manufacturing and processing clean technologies as well as extracting, processing and recycling critical minerals, namely lithium, cobalt, nickel, graphite, copper and rare earth elements, according to the budget.

The tax credit is also aimed at nuclear energy, grid-scale energy storage, zero-emission vehicles and manufacturing upstream components and materials required for these technologies, such as battery cathodes used in EVs.

The Canadian government said in the budget that it expects the tax credit to cost $4.5 billion over five years, starting in 2023-2024, and an additional $6.6 billion from 2028-2029 to 2034-2035.

The budget builds on Canada's push to bolster critical mineral supply chains. In December 2022, the country outlined a C$3.8 billion critical minerals strategy that targets research and development and project funding. On March 7, Canada earmarked C$344.2 million of the funding for five new programs, including C$144.4 million for the development of critical minerals processing technologies.

The 2023 budget also comes in part as a response to the Inflation Reduction Act, which included US$370 billion in climate and clean energy spending. The budget directly references the US law, stating that the Inflation Reduction Act "poses a major challenge to our ability to compete in the industries that will drive Canada's clean economy."

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