Summer 2024 Federal Legislative Update: Carbon Capture Tax Credits, Greenwashing & Environmental Racism

24 Sep Summer 2024 Federal Legislative Update: Carbon Capture Tax Credits, Greenwashing & Environmental Racism

On June 20th, two federal bills addressing a variety of environmental matters were passed into law.  Bill C-59 amends several pieces of legislation in order to implement a number of measures that were introduced in the 2023 budget and fall economic statement, including the creation of a carbon capture, utilization and storage investment credit and the addition of greenwashing provisions into the Competition Act. Bill C-226 – a private member’s bill – creates new legislation that requires the development of a national strategy to assess and address environmental racism and to advance environmental justice.

Bill C-59: Fall Economic Statement Implementation Act, 2023

As mentioned, several pieces of legislation are amended by Bill C-59 but for our purposes we are concerned with amendments to the Income Tax Act (ITA) and the Income Tax Regulations, and to the Competition Act. The amendments to the ITA enable investment tax credits for carbon capture, utilization and storage projects, and for clean technology in Canada. The amendments to the Competition Act implement provisions designed to combat greenwashing (i.e. unsubstantiated claims of environmental benefits or performance).

Carbon Capture, Utilization and Storage Tax Credit, and Clean Technology Tax Credit

The amendments to the Income Tax Act and its regulations enable tax credits for carbon capture, utilization, and storage (CCUS) and for clean technology investments. Section 127.44(15) states that the tax credit is meant to encourage the investment of capital in the development and operation of CCUS in Canada. Similarly, section 127.45(19) states that the tax credit is meant to encourage the investment of capital in the adoption and operation of clean technology property in Canada.

Relevant definitions for the CCUS tax credits are found in sections 127.44 of the ITA with a CCUS project being defined as:

a project that is intended to support a CCUS process by

(a)   capturing carbon dioxide

1. that would otherwise be released into the atmosphere, or
2. directly from the ambient air;

(b)   transporting captured carbon; or

(c)   storing or using captured carbon

Use of CCUS for the storage or use of captured carbon for enhanced oil recovery does not qualify for the CCUS investment credit, nor do projects undertaken for the purpose of complying with emission standards under the Reduction of Carbon Dioxide Emissions from Coal-fired Generation of Electricity Regulations.

Relevant definitions for the clean technology investment credit are found in section 127.45 of the ITA.  Clean technology includes:

• equipment used to generate electricity from solar, wind and water energy;
• stationary electricity storage equipment (but not equipment that uses any fossil fuel in operation);
• active solar heating equipment, air-source heat pumps and ground-source heat pumps;
• non-road zero-emission vehicles, and charging or refuelling equipment used for such vehicles;
• equipment used exclusively for generating electrical energy or heat energy (or a combination thereof) from geothermal energy;
• concentrated solar energy equipment (like thermal receivers, reflectors, heat transfer fluid systems); or
• small modular nuclear reactors.

The clean technology investment credit only applies to new projects or equipment located in Canada. Auxiliary heating or electrical generating equipment that uses fossil fuels does not qualify for the tax credit.

Greenwashing graphic by The Wall Street Journal 2022 https://www.wsj.com/

Greenwashing Provisions in the Competition Act

The Competition Act amendments implement provisions prohibiting greenwashing claims as a deceptive marketing practice. Specifically, section 74.01 of the act is amended to add that a person engages in reviewable conduct if they:

for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest…

(b.1) make a representation to the public in the form of a statement, warranty or guarantee of a product’s benefits for protecting or restoring the environment or mitigating the environmental, social and ecological causes or effects of climate change that is not based on an adequate and proper test, the proof of which lies on the person making the representation;

(b.2) make a representation to the public with respect to the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change that is not based on adequate and proper substantiation in accordance with internationally recognized methodology, the proof of which lies on the person making the representation

if the form of the purported warranty or guarantee or promise is materially misleading or if there is no reasonable prospect that it will be carried out. 

In determining whether or not a person engaged in reviewable conduct, the “general impression conveyed by a representation as well as its literal meaning shall be taken into account” (section 74.03(5)). 

Under section 74.1, the Commissioner of Competition may apply for a review of potentially deceptive marketing practices by the court.  As well, the amendment of section 103.1 made by Bill C-59 allows any person to apply to the Competition Tribunal for leave to make an application under section 74.1. The Tribunal may grant leave to make such an application on the grounds that it is in the public interest to do so.  If the leave application is successful, the application is heard by the Tribunal (not the court).  It should be noted that the provisions regarding private actions on greenwashing will not be enforced until June 20, 2025.

If a court or the Tribunal, as the case may be, determines that a person engaged in a deceptive marketing practice under section 74.01 (i.e. greenwashing), the court or Tribunal, as the case may be, may order that practice to be discontinued, publish a description of the deception, and payment of an administrative penalty.  Administrative penalties for a corporation may be ordered to a maximum of $10 million or 3 times the value of the benefit derived from the deceptive conduct (if that cannot be determined then 3% of corporation’s annual worldwide gross revenues), whichever is the greater amount.   For subsequent orders, the maximum increases to the greater of $15 million and 3 times the value of the benefit derived from the deceptive conduct (if that cannot be determined then 3% of corporation’s annual worldwide gross revenues), 

Aside from the greenwashing provisions, there are other amendments made to the Competition Act relevant to environmental matters. For instance, section 75 is amended to create a right to repair which means that product end-users have access to means to diagnosis or repair that product.  Upon application by the Commissioner of Competition or by a person under section 103.1, the Competition Tribunal may order one or more suppliers of a product to make the means of diagnosis or repair available to a person for a specified period of time if the Tribunal finds that:

• the person is substantially affected in their business due to the inability to obtain adequate supplies of the product;
• the person is unable to obtain supplies of the product because of insufficient competition among suppliers of the product;
• the person is willing and able to meet the usual trade terms of the supplier;
• the product is in ample supply or, in the case of diagnosis or repair, can be readily supplied; and
• the refusal to deal is having or is likely to have an adverse effect on market competition.

A new provision – section 124.3 – enables the Commissioner of Competition to issue a certificate indicating that they are satisfied that parties may enter into an agreement and arrangement for the purpose of protecting the environment and that such agreement/arrangement is not likely to prevent or lessen competition.  This certificate protects against potential actions for competition offences such as conspiracies, bid-rigging and the like.  The Commissioner may specify any terms they consider appropriate, including a period of validity which cannot exceed 10 years (although that may be extended for one or more additional periods not exceeding 10 years).

Bill C-226: An Act Respecting the Development of a National Strategy to Assess, Prevent and Address Environmental Racism and to Advance Environmental Justice

Bill C-226 was a private member’s bill introduced by Elizabeth May, M.P. which received royal assent on June 20th. This piece of legislation places an obligation on the Minister of Environment to develop a national strategy to advance environmental justice and to assess, prevent and address environmental racism within 2 years. Once the strategy has been developed, there is a requirement to report on its effectiveness every 5 years.

Under the legislation, the strategy must include a study that examines the link between race, socio-economic status and environmental risk, and provides information and statistics relating to the location of environmental hazards.  The strategy must also include measures that can be taken to advance environmental justice and assess, prevent and address environmental racism. These measures could consist of legislative or policy amendments, involvement of community groups in environmental policy-making, compensation for individuals or communities, and collection of information and statistics relating to health outcomes in communities located in proximity to environmental hazards.

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