Is the US stealing Canada’s cleantech edge?

Is the US stealing Canada’s cleantech edge?

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A combination of aggressive funding incentives by the United States and heel-dragging by regulators in Ottawa have dimmed the shine on Canada’s once bright cleantech leadership prospects. 

While the country still boasts 12 of the top 100 cleantech businesses in the world, only 17 percent of cleantech investment dollars remain in Canada, according to research from Boston Consulting Group. This news lands even as Canada has made strides in recent years carving out a leadership niche in the areas of carbon capture, sustainable fuels and climate intelligence, the report shows.

Instead, the vast majority—upwards of 80 percent—of investments go south to the United States, where the Biden Administration’s recent Inflation Reduction Act (IRA) and Chips and Science Act (CHIPS) have essentially redrawn the playing field for innovation investments. Combined, both programs push more than $400 billion in the US’s clean technology supply chain—far exceeding what’s on offer in other countries.

“We’re not going to compete on a dollar-for-dollar basis against a country with a population 10 times our size,” Canadian MP and Conservative Party Deputy Leader Melissa Lantsman explained during a Q&A session at Collision Conference 2023 in Toronto back in June. Lantsman was specifically referencing the sheer size of these direct investments—outside of tax credits or incentives—and the unique advantage the US has in ‘shifting the global innovation paradigm’ with the passage of two major acts.

But it’s not just dollar totals that are dinging Canada’s cleantech reputation. 

As Lantsman went on to explain during her Collision Conference Q&A, “[Canada has] 16 projects on the Prime Minister’s desk, not one of them approved, and we’ve got the resources countries would dream of having, but an inability to get products out the door.”

Federal holdup hurting cleantech prospects

The languishing efforts of the Canadian federal government to sign off on additional cleantech investments has been frustrating tech leaders throughout the year. This comes as details surrounding an overhauled IRAP program remain to be finalized, and debates continue regarding Canada’s Budget 2023 and whether cleantech allocations went far enough.

The passage of IRA and CHIPS may have been a force function for Canada to step up, however, as Budget 2023’s announcement led with a $60 billion suite of incentives of innovation incentives that appeared to address recent US legislation directly. These include:

  • a 15 percent Clean Electricity Investment Tax Credit;
  • a 30 percent Clean Technology Manufacturing Tax Credit;
  • a Clean Hydrogen Investment Tax Credit of Between 15 and 40 percent;
  • and expansions of the Carbon Capture, Utilization, and Storage Investment Tax Credit, and the Clean Technology Investment Credit.

Still, while a huge bump, $60 billion is a far cry from the more than $400 billion unleashed into the innovation ecosystem by the United States. 

Specifically, the IRA includes $369 billion in tax credits for clean technologies, while CHIPS allocates roughly $24 billion toward manufacturing tax credits, as well as an additional $39 billion toward semiconductor production.

The CRA still also needs to finalize where exactly new funding will land—and to make decisions regarding those 16 projects referenced by Lantsman at Collision Conference 2023. But Canada has a bevy of other considerations to contend with as the country aims to retain its competitive edge in the global cleantech economy. 

For instance, Immigration Minister Sean Fraser announced a new policy during Collision aimed at making Canada a friendlier home for international tech talent. This includes a new “digital nomad” strategy that lowers the barrier-to-entry for international tech talent to work with Canadian businesses, as well as 13 other programs aimed at attracting global brain power to the country. 

Helping startups focused on R&D

Despite facing headwinds when it comes to maintaining a leading edge in the cleantech sector, Canada still holds advantages over the US and other nations when it comes to supporting startups. This is especially true for businesses focused heavily on R&D and driving innovation, with the goal of overcoming “technological uncertainty” through systematic investigation.

SR&ED—which is pronounced colloquially as just ‘SHRED’—is a federal tax incentive program that gives Canadian businesses of all sizes—regardless of sector—access to both refundable and non-refundable tax credits to help cover R&D costs. It’s also the largest single source of government funding for industrial R&D offered in Canada

To qualify for SR&ED, organizations must aim to create new (or improve existing) products, processes, principles, methodologies or materials. From there, claimants can recover up to 64 percent of qualifying expenditures, including:

  • Salaries for those directly involved in R&D
  • Subcontractor costs for individuals directly involved in R&D
  • Material costs required to achieve technological advancement(s)

To learn more about how government funding can be used to help extend your product runway, reach out to a member of the team from Boast AI. Our goal at Boast is to amplify and accelerate the success of innovative businesses in Canada and across the globe. 

With a platform that integrates financial, payroll, and engineering data into a single platform of R&D intelligence, Boast AI’s in-house tax pros offer unmatched expertise in navigating R&D tax credit and SR&ED eligibility requirements. Get in touch to learn more about how we work to ensure startups have access to all eligible sources of non-dilutive funding.

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