Official Hansard
moved that Bill C‑269, An Act to amend the Income Tax Act (heat recovery tax credit), be read the second time and referred to a committee. He said: Mr. Speaker, first of all, let me acknowledge the help I have received in the conception, analysis and presentation of this bill. Janice Tran, the CEO of Kanin Energy in Calgary, provided me with the inspiration, and numerous alternative energy experts have provided their input to this bill since it was first introduced in the House. I thank them all, and I note the importance of having a channel to bring forth great ideas from Canadians for consideration in Parliament for how we help grow our country and help it prosper. The best way to start this speech about this private member's bill, entitled an act to amend the Income Tax Act, heat recovery tax credit, is to first say what the bill is intended to do. To illustrate that effectively, some context is required. First off, for the sake of those who have little background in tax incentives with which we attempt to motivate business investment in this country, let us illustrate how an investment tax credit works. A non-refundable income tax credit allows a company to deduct the amount of the credit from the taxes it has payable to the federal government in any year. Let me give an example. Let us say that a company earned pre‑tax profits of $10 million in one taxation year. Assuming an effective federal tax rate of 15% on those earnings, that would mean the company would owe the government $1.5 million for that taxation year. Their after‑tax profit, in that case, would be $8.5 million before other taxes payable to other jurisdictions. If we look at an investment tax credit of 30%, and we assume an investment in that equipment equal to $10 million, then the 30% tax credit would mean that the company could take a credit against its taxes equal to $3 million. Note that in this case, this amount would be more than the amount payable in the year's taxes, so a portion of the credit would still be available for credit against future years' taxes payable. For the company's sake, when management makes decisions about how it would invest, it would effectively reduce the capital cost by that 30%, predicated upon the fact that the company would be taxable, and any amount due in tax credits in future years would also be time‑valued. The result is that the cost of the $10‑million equipment, in the company's estimation, would be reduced by 30% or thereabouts, so the investment could meet an “investment cost of capital” analysis. The company could take actual cash flow from the taxes it would have otherwise paid to justify why it would be spending $10 million up front. There are other complications, such as the half‑year rule, that I will not address here, but I hope this illustrates the case. The reason governments allow investment tax credits for selective purposes is because they are trying to motivate investment in sectors or uses that, all other things being equal, would not occur. In the illustration I presented, the government will not be collecting $1.5 million in taxes that year and a similar amount the following year. Governments cannot do that always and everywhere because it would then not have corporate income tax collection as part of its revenues. That tax collection line in 2025 amounted to about $97 billion, 19% of all the revenue the Government of Canada collected. Therefore, we need to be selective about how we apply investment tax credits in order to have a functioning taxation system and in order not to worsen our escalating deficits and unsustainable debt situation that Canadians are facing. That should lead listeners to the next question: Why should we apply an investment tax credit to waste heat recovery? Put differently, what is the problem we need to solve and how does this approach fit the solution? Let me provide some background. In Canada, the industrial sector amounted to 54% of Canada's end‑use energy demand in 2021. The main use of energy in the industrial sector is heat production, which is used in various industrial processes. By application, the sectors with the greatest opportunity are chemicals and primary metals, followed by cement and glass production and pulp and paper. In these industrial processes, approximately 30% to 50% of heat is lost. That is from a study undertaken by Polytechnique Montréal in 2021. According to the American Council for an Energy-Efficient Economy, the equipment available today would capture 13% to 18% of the unused heat resources. The equipment exists to turn waste heat into power. The economics alone are still slightly challenging; however, with a 30% investment tax credit, it would drive the levelized cost of electricity, which is the power derived from the waste heat, down to levels competitive with wind, solar, nuclear and geothermal, most of which receive generous tax incentives to add to our energy supply. In the end, what we are aiming for is energy efficiency. First, Canada needs more electricity. Last month, the Prime Minister announced a national electricity strategy to double electricity production by 2050, which included financial incentives of various sorts. The irony is that electricity production is a provincial jurisdiction and the policy‑makers who are trying to wedge the federal government into Canada's electricity markets are the same people who made an absolute mess of Ontario's electricity system over a decade ago. The problem energy consumers face is that they do not know what their electricity costs, between the various levels of government that are subsidizing power production in many non‑obvious ways. However, what the ratepayer does not see on their electricity bill, they see on their tax bill, or it is added to the fiscal deficits we are passing on to the next generation to pay. Let us accept that, in the modern construct, producing new electricity production facilities is time consuming and expensive. Therefore, getting electricity from power sources that are producing waste heat may be the most efficient source of new electricity. Second, Canada needs to further reduce emissions. The lower our emissions profile per unit of output, the better the outcomes for the environment and society. New electricity would have an emissions profile. Some of that profile would be in the capital equipment and some would be in the consumable portion of the equation. We cannot ignore the carbon embedded in the capital equipment and just count the emissions from the variable inputs. That ignores the full carbon costing, which is one of the reasons the world's efforts to reduce carbon emissions are failing. Similarly, there is a footprint to the production of the equipment that would be required to produce power from waste heat. We must recognize that this equipment is an add‑on to an existing system, so its footprint per amount produced is less than any new build. In the case of capturing waste heat and producing electricity from that heat, the new variable emission amounts to zero, so the power profile has a near zero carbon footprint. This policy serves a great environmental purpose, one that gets results with respect to flatlining emissions and produces power with no new emissions. As we need power, the most environmentally friendly power would be that with zero net new emissions. Let us address the competitive landscape, because Canada is not the first country to undertake this exercise. The United States, in particular, instituted a similar 30% investment tax credit for waste heat‑to‑power investment in 2022. By 2023, 63 manufacturers across various industries had installed equipment resulting in the production capacity of 812 megawatts of power. For comparison, Canada's most recently completed hydro dam, Site C, in northern British Columbia, has a capacity of 1,100 megawatts. That dam cost $16 billion and took 11 years to build. If we scale back the U.S. experience by a factor of 10 roughly, therein lies the outcome we can target in Canada: about 80 megawatts of new electricity per year with no new emissions. I will note the importance of timeliness in our approach, because Canada is now a net importer of electricity, so speed matters, execution matters and cost‑effectiveness matters. What is missing in Canada's set of tools is a credit for waste heat‑to‑power, which is available and being deployed effectively in other jurisdictions. This seems like low‑hanging fruit with its cost savings, new electricity production and no new variable emissions profile for that electricity. It is probably the most cost‑effective and feasible way of accomplishing our goals, which is to produce more electricity with a lower emissions profile. Why have we avoided it? I am certain federal officials have seen this approach. The answer is in the mindset of the embedded decision‑makers. In Canada, our energy production system counts on three well‑built and necessary infrastructures. There is the electricity grid, for which various input sources make electricity. There is our natural gas distribution system, which is not just for heating homes, but used for many industrial processes as it is the most efficient source for generating heat, and many industrial processes will always require heat. There is also our mode of fuel distribution network, primarily fossil fuels. Think of each of these distribution systems as representing about a third, give or take, of Canada's power production and consumption. Think of the combination of the three representing an infrastructure asset base that has served as the envy of developing countries. Generations of Canadians have built an infrastructure on which we all depend. Doing away with any of these three power distribution infrastructures would weaken our power profile and increase the risk of an overall system failure. When I mention the embedded decision-makers, I am appealing to the new representatives on the government side of the House to overrule the entrenched ideology that has put our country in the box we are in. The ideological attempt to penalize Canada's hydrocarbon energy systems is misguided. That includes our natural gas distribution system, an essential tool for our continued economic advancement. Perhaps if we approached the most easily accessible solutions, we would get better outcomes. The Liberal government has represented itself to Canadians as having changed from the painful, divisive ideology that defined the former prime minister. Unfortunately, we see that the rot the government brought to our energy systems in Canada runs deeper than just the elected representatives. It is now entrenched in what seems like the actual decision-makers in the government, the embedded ideologues who are still driving the government's aimless policies. Five years ago, the Liberals voted down my last private member's bill to provide an investment tax credit for enhanced oil recovery. This spring, the Liberal government decided to put a form of that credit into the budget. However, the credit it has put forth is uncompetitive with our peers and it has caused confusion as to its stringency requirements. A policy that still leaves Canada as the least competitive among our peers in our approach to this technology is one that will continue to see capital allocated elsewhere. No data is more consistent than that which has shown the great egress of capital from investment opportunities in our country. In that sense, the Prime Minister is accomplishing his objectives. What one cannot get one way, one gets another way, in this case, pretending one has a credit, making a big announcement and ensuring it is functionally unviable. I sense the same approach with the investment tax credits for greener power production. For the ideologues, the perfect is the enemy of the good. The approach I am proposing in the bill would be very good for Canada. Let me appeal to those voices on the Liberal side of the House with whom I have worked to build goodwill in our approach to Canada's energy system. As was our mantra when I embarked on hearings across Canada for the Conservatives' economic growth council, I say to my Liberal friends to take our ideas, please. These are better for the country. In summary, the bill would provide an incentive, an investment tax credit, to motivate industrial power users to invest in equipment that would increase Canada's electricity production with no new emissions. That means more power without more emissions, energy efficiency improvements, productivity enhancements and lower business costs, making Canadian manufacturers more competitive. Let me appeal to all parliamentarians to see the obvious good in all of this.
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