Canadian politics create uncertainty over incentives for low-carbon chem projects

TORONTO (ICIS)–Canada’s investment tax credits and its price on carbon emissions have been key in attracting investments in low-carbon projects, led by Dow’s Path2Zero petrochemicals complex under construction in Alberta province.

But will these incentives survive a likely change in government next year, with the Conservatives expected to oust Prime Minister Justin Trudeau’s Liberals?

• Conservatives to scrap carbon tax
• Industrial carbon pricing critical for low-emission investments
• Carbon capture advantage might be lost

The Chemistry Industry Association of Canada (CIAC) highlighted the election and uncertainties surrounding incentives and programs for low-carbon investments as a risk factor for the industry in its 2025 outlook webinar last week.

As the country is moving into the election campaign season, “it is hard to say exactly where we are going politically,” said David Cherniak, CIAC policy manager, Business and Transportation.

Companies were making investment decisions based on the incentive programs, and “we see the programs working, companies are getting ready to spend, and in the case of Dow, already spend real money to lower emissions and raise production here in Canada,” he said.

In 2023 Dow made a final investment decision on Path2Zero and started construction in April 2024. Carbon pricing is seen as critical for the viability of such projects.

CIAC supports industrial pricing and is advocating the importance of the government programs for winning chemistry investments, Cherniak said.

The argument for low-carbon chemical production was clear, he said.

Around the world the chemical industry’s customers were demanding low-carbon solutions and products, “irrespective of what Canada does,” he continued.

As such, the real question is, “Do we want those chemistry products that meet that demand to come from somewhere else or do we want them to come from Canada?”

Carbon pricing and programs offering incentives for low-carbon chemical production plants were “key building blocks” to get those facilities built in Canada, he said.

If the low-carbon projects are not built in Canada they would be built elsewhere and Canada would end up ending importing their products, he said.

“We think it’s way better to utilize Canada’s resources here, and see those investments won, and that is the message we are taking to all parties as we get ready for the election in 2025,” he said.

However, “the political winds are blowing,” not just on the federal level but also with a likely election in Canada’s economically most powerful province, Ontario, he said.

Canada has seen drastic policy reversals after changes in government before, with impacts on the chemical industry:

• In 2011 a Conservative government took Canada out of the Kyoto climate change accord, to which an earlier Liberal government had signed up, making Canada the world’s only country to exit Kyoto.
• On the provincial level, a new Conservative government in 2018 abolished a cap-and-trade carbon trading system a previous Liberal government had set up.

AXE THE TAX
On the federal level, the opposition Conservatives are far ahead of the Trudeau’s Liberals in opinion polls on the election, which must be held by 20 October 2025 but will likely be called earlier.

Under a relentless “Axe the Tax” campaign, the Conservatives have committed to abolishing the Liberals’ consumer carbon tax, which took effect in 2019 and is currently at Canadian dollar (C$) 80/tonne (US$57/tonne), rising to C$170/tonne by 2030.

However, the Conservatives have yet to state what they will do about industrial carbon pricing.

Industrial carbon pricing is implemented by Canada’s provinces, with the federal government providing a “back-stop” with its “Output-Based Pricing System (OBPS)” that sets minimum requirements to ensure that heavy emitters pay for emissions.

Industrial carbon pricing is making a bigger contribution to Canada’s emissions reductions than the consumer carbon tax, according to a study earlier this year.

ANALYSTS
Analysts at Capital Economics said in a recent report that with a likely change in government there is a high chance that Canada’s carbon tax will soon be scrapped.

Positive impacts on inflation from the abolition of the tax would be temporary and any boost to the economy would be small, they said.

However, “removing the carbon tax will remove an important investment incentive, both in reducing emissions in Canada’s high-emitting sectors and in emerging ‘green’ sectors,” the analysts said.

If the future carbon price in Canada is expected to be zero, rather than rising to C$170/tonne by 2030, “that could weigh heavily on investment in Canada’s emergent ‘green’ industries that rely on a price on carbon to justify their development,” they said.

They noted as a key example carbon capture, utilization and storage (CCUS), where Canada has an advantage over other nations, although CCUS is not without critics.

Oil-rich Alberta province, which is home to a large proportion of Canada’s petrochemicals production, sees itself among the leaders in developing CCUS technology. Dow’s project leverages on Alberta’s carbon capture infrastructure.

In June, Shell made a final investment decision (FID) to proceed with a carbon capture project at its refining and chemicals site in the province, where in 2015 it started up a first carbon capture facility.

The Conservative Party of Canada and Dow did not respond to requests for additional comment.

(US$1=C$1.40)

Focus article by Stefan Baumgarten, with additional reporting by Jonathan Lopez

Thumbnail photo of Dow’s manufacturing site in Fort Saskatchewan; photo source: Dow