CALGARY⁠ — The federal government has thus far failed to allocate nearly $412 million of the $1.28 billion it planned to spend on clean-energy and climate programs over the last year, according to The Logic’s analysis, a shortfall that raises questions about Ottawa’s ability to execute on the green spending Finance Minister Chrystia Freeland has promised in this week’s budget.  

Freeland has said there will be “significant” spending measures in Tuesday’s budget, as Ottawa faces widespread calls to dramatically increase the money it funnels to technologies like carbon capture and storage, clean electricity and hydrogen, in response to U.S. President Joe Biden’s Inflation Reduction Act.

Canadian companies have warned that the IRA—brimming with US$369 billion in subsidies and tax credits for American clean-energy developers—could put Canada at a long-term strategic disadvantage if Ottawa doesn’t respond with its own incentives. 

Whatever Freeland announces on Tuesday, the budget will only offer projections of what the government expects to spend, rather than what it actually will spend. In order to get a sharper sense of the federal government’s actual spending on climate-change and clean-energy programs, The Logic used publicly available data from the Parliamentary Budget Office to compare promised versus actual spending from last year’s budget.

The data show sizeable gaps in federal allocations for fiscal year 2022–23 across various programs including electric-vehicle adoption programs, clean-electricity funds and carbon-capture and storage (CCS) incentives. Of the $1.28 billion that Ottawa expected to spend in 2022–23 as laid out in the third chapter of the 2022 budget—the section devoted to “clean air and strong economy”—the government allocated just $872 million, or 66 per cent, to the respective departments. 

The Department of Finance did not respond before deadline to The Logic’s request for comment.

The PBO figures detail how much money the government gave to respective departments in the 11 months from April 2022 to the end of February 2023. Actual spending numbers, which aren’t available in the data, could be lower depending on how departments used those allotments. At the same time, the PBO figures don’t account for the final last-ditch month of government spending—a phenomenon known in Ottawa as March madness. (Following the publication of the PBO’s report, Ottawa allocated another $9 million toward an effort to boost business investment in air-source heat pumps.)

On a spending initiative aimed at “making the switch to zero-emissions vehicles more affordable,” Ottawa planned to spend $421 million in 2022–23, but had thus far allocated only $322.8 million. (The fiscal year officially ends at the end of this month.) A similar program to incentivize adoption of medium and heavy-duty zero-emissions vehicles planned to spend $11 million but allocated only $2.3 million. 

In a budget allocation called “clean electricity”—which includes the $600-million, seven-year Smart Renewables and Electrification Pathways Program and the $2.4-million Pan-Canadian Grid Council, among others—the federal government allocated $65.3 million of a planned $88 million. On the government’s CCS investment-tax credit, which is expected to cover around half of the upfront construction costs for major developments, Ottawa allocated $0 out of a planned $35 million, according to PBO data. 

Out of the $156 million Ottawa expected to spend expanding its $4.7-billion Nature Smart Climate Solutions Fund, the main vehicle for its plans to soak up carbon by planting two billion trees, the government thus far spent $0 in 2022–23. 

Robert Asselin, senior vice-president of policy at the Business Council of Canada and a former advisor to then-Liberal finance minister Bill Morneau, said he has concerns about whether the government is following through on its budget promises.

“This government is really good at announcing things, but are they executing on that stuff for me is a big question mark,” he said. 

Executing on clean-energy spending plans is particularly important now, Asselin said, in the face of Biden’s IRA, which has kicked off something of a cleantech arms race among developed nations. The European Union recently laid out a broad framework for cleantech advancement and a plan for critical materials in a move that many saw as a response to the IRA, while China has continued to plough hundreds of billions into green technology. 

“The IRA brings us into another world,” Asselin said. 

So far, the Canadian government has favoured policies like carbon taxes that disincentivize pollution rather than spending measures or tax credits that would incentivize them, Asselin said. Generous subsidies to CCS projects under the IRA, for example, have set the stage for a carbon-capture boom south of the border, he said. Other big supports under the IRA cover everything from wind turbines to biofuels. 

“Our mentality is all sticks, no carrots, but [the U.S.] is all about carrots, and it’s working way better.” 

Mark Cameron, a lobbyist representing the Pathways Alliance, a group of six major Canadian oil producers, said Ottawa’s CCS investment tax credit is “significantly less generous than the IRA.” 

Pathways represents one of a few industries alongside hydrogen, concrete makers and others, which have been calling for bigger subsidies for CCS development, particularly those that would subsidize operating costs on major sequestration facilities. The IRA offers American developers $85 per tonne of carbon sequestered through the life of the project; Canada does not have a similar guaranteed price. 

Still, it’s unclear how much appetite Ottawa will have to match the IRA’s ambition. Amid calls from many corners to boost spending, Freeland is also facing pressure to show restraint as rising interest rates weaken Canada’s overall fiscal position. 

In a recent report that Asselin co-authored with former Bank of Canada governor David Dodge and Bennett Jones analyst Richard Dion, the trio warned that higher debt obligations could take up a larger and larger share of the public purse if inflation persists. 

The federal government currently spends about 10 cents of every dollar on debt. Persistent inflation in 2023 and 2024 could cause “serious deterioration” in the country’s interest cost-to-revenue ratio and net debt-to-GDP. 

At the same time, the authors said a government failure to spend money at the rate it promises—much like the delays that The Logic found in its analysis—could crimp Canada’s ability to raise the revenues needed to service higher debt costs. 

“There is a high risk that the government will not be able to deliver the services it promised Canadians in Budget 2022,” the report says.