Budget 2025 and the Canada Alberta Memorandum of Understanding Reaffirm Canada’s Clean Economy Commitment

On November 4, 2025, the Government of Canada released the Federal Budget 2025 (Budget 2025), which reaffirmed their commitment to clean economy investment tax credits (Clean Economy ITCs) aimed at supporting the decarbonization of the Canadian economy. Key components of this reaffirmation included the confirmation that the Canadian government will be proceeding with enacting the Clean Electricity investment tax credit (Clean Electricity ITC), as previously announced in Budget 2023. Further, the Canadian government confirmed they will also be proceeding with certain technical amendments to the Clean Economy ITCs, including the expansion of the Clean Hydrogen investment tax credit (Clean Hydrogen ITC) to include hydrogen created through methane pyrolysis.

The Notice of Ways and Means Motion implementing the Clean Electricity ITC and other technical amendments described above was tabled in the House of Commons as Bill C-15 on November 17, 2025.

On November 27, 2025, the Government of Canada and the Alberta Government came to a memorandum of understanding (MOU), which provided further insight into the Government of Canada's plans with respect to some of the Clean Economy ITCs. In particular, one item of significance included in the MOU was the Government of Canada's "commitment" to extend federal ITCs to include enhanced oil recovery. Viewed optimistically, this may signal a potential amendment of the CCUS tax credit (CCUS Tax Credit) to include enhanced oil recovery as an "eligible use" or other similar amendments. The MOU also included other commitments by each of the Alberta Government and the Government of Canada, which provide further insight into the policy of the Government of Canada in respect of incentivizing clean energy production in Canada.

Update for Clean Economy ITCs

Budget 2025's confirmations regarding Clean Economy ITCs presents a clearly articulated roadmap for Canada's global climate competitiveness strategy and facilitates Canadian investment into clean energy infrastructure by providing attractive tax incentives to prospective investors. This picture is further illustrated by the MOU, which helps provide some further context for some of the amendments provided for in Budget 2025, and which further affirms the priority of the policy goals being pursued by the Government of Canada in their reaffirmation of the Clean Economy ITCs.

Clean Electricity ITC

As discussed in a previous blog post, the Clean Electricity ITC is a proposed refundable 15% tax credit for the capital cost of eligible investments in equipment used in relation to clean electricity generation, electricity storage and electricity transmission between provinces and territories. Budget 2025 confirmed the Canadian government's intention to proceed with the Clean Electricity ITC and this intention materialized in the form of Bill C-15, which includes legislation that would enact the Clean Electricity ITC, which was tabled in the House of Commons on November 17, 2025. 

The Clean Electricity ITC will retain its eligibility proposed in Budget 2024, which will ensure that it is available for eligible clean electricity property that is available for use as of April 16, 2024 for projects that have not started construction prior to March 28, 2023. Budget 2025 also proposes to eliminate the proposed restrictions imposed on provincial and territorial governments' Crown corporations to be able to access this tax credit as "eligible Canadian corporations" that were proposed in the 2024 Fall Economic Statement. This is a welcome change for these Crown corporations, as it removes a political obstacle that would have required Provinces to outline publicly an "energy roadmap" aimed at achieving net-zero emissions by 2050, among other requirements (see our discussion on these restrictions here).

Further, Budget 2025 confirms the proposal made in the 2024 Fall Economic Statement to include the Canada Infrastructure Bank (CIB) as an eligible entity for the Clean Electricity ITC, which will allow the CIB to claim the Clean Electricity ITC on eligible clean electricity property for equity investments it makes. Budget 2025 also proposes to make the Canada Growth Fund an eligible entity, which would also allow the Canada Growth Fund to claim the Clean Electricity ITC. The Canadian Government also proposes to provide for an exception to ensure that any financing provided by the Canada Growth Fund and CIB does not reduce the eligible property cost when determining the applicable Clean Electricity ITC (as otherwise, as funding from these entities would be considered "government assistance", it would reduce the eligible capital cost of the clean electricity property, thus reducing the Clean Electricity ITC available on that equipment). Each of these proposals are included in Bill C-15.

The MOU further shows the Government of Canada's commitment to the Clean Electricity ITC, as one of the commitments of the Alberta government is to further collaborate with the Government of Canada in significantly increasing the inter-tie capability between the western provinces, and one of the Projects contemplated by the MOU is the construction of large transmission interties with British Columbia and Saskatchewan.

One of the unique aspects of the Clean Electricity ITC as compared with the clean technology investment tax credit (CT ITC) (which otherwise covers largely similar equipment) is the applicability of the Clean Electricity ITC to these large inter-tie projects, which shows the Government of Canada's commitment to connecting the electricity grids of the western provinces. As stated in the MOU, this policy is aimed to: "strengthen the ability of the western power markets to supply low carbon power to oil, LNG, critical minerals, agriculture, data centres and CCUS industries in support of their sustainability goals."

Waste Biomass Energy Equipment

Budget 2025 further confirmed the previously proposed inclusion of equipment that generates heat and/or electricity from waste biomass equipment into the CT ITC. As discussed previously, the CT ITC is a 30% refundable tax credit, which applies to clean energy generation and storage equipment. Budget 2025 confirmed that the CT ITC will be available for eligible waste biomass equipment that is available use as of November 21, 2023 pursuant to their original announcement in the 2023 Fall Economic Statement. Legislation implementing these proposals has now been tabled in the House of Commons in the form of Bill C-15. This legislation confirms that waste biomass electricity generating equipment will also be eligible for the Clean Electricity ITC.

Clean Technology Manufacturing Investment Tax Credit

The CTM ITC is a 30% refundable tax credit generally available for the cost of acquiring new machinery and equipment that are used in clean technology manufacturing activities and in critical mineral mining and processing. Included in the CTM ITC is certain equipment to be used in qualifying mineral activities that produce qualifying materials. Budget 2025 proposes to expand the list of "qualifying materials", to include antimony, indium, gallium, germanium and scandium in the list of qualifying materials. Such critical minerals are commonly found in the extraction, processing and recycling processes of co-product and by-product critical minerals in manufacturing and processing key clean technologies.

These added minerals would apply in relation to property that is acquired and available for use on or after November 4, 2025 (Budget Day). Budget 2025 also provides that qualifying equipment used in certain polymetallic mining projects (related to extraction and processing) will be included in the CTM ITC and available as of January 1, 2024. As previously discussed, these measures will be crucial in ensuring access to the CTM ITC by critical mineral miners in Canada, because as noted by the Prospectors & Developers Association of Canada in their comment to the Government of Canada on the initial draft legislation in Bill C-69, the current "all or substantially all" requirement for output of qualifying material would make the CTM ITC "inaccessible for nearly every domestic known deposit." Legislation implementing these proposals has now been tabled in the House of Commons in the form of Bill C-15.

Clean Hydrogen ITC

The Clean Hydrogen ITC is a refundable tax credit with rates varying from 15%-40% based on the carbon intensity of the hydrogen produced. Budget 2025 confirms the previously proposed expansion of the definition of "eligible pathway" for the Clean Hydrogen ITC to include hydrogen produced from methane pyrolysis and confirmed this expansion will be available as of December 16, 2024 (the date of its original announcement in the 2024 Fall Economic Statement). As discussed previously, the process of methane pyrolysis is an emerging technology in the context of producing clean hydrogen, that separates hydrogen from carbon from natural gas or other hydrocarbon feedstock, without requiring carbon capture, utilization and storage. This process also generates other inputs that can be used for other production processes or safely disposed of. This amendment was not included in Bill C-15.

CCUS Tax Credit

The CCUS Tax Credit is a refundable tax credit that applies to four types of qualified expenditures that are incurred in conducting CCUS operations. Current legislation reduces the CCUS Tax Credit rates beginning in 2031 to half their current rates of 60% for qualified carbon capture equipment used in direct air capture, 50% for other qualified carbon capture equipment, and 37.5% for eligible carbon transportation, storage and use equipment.

Budget 2025 proposes a 5-year extension on full credit rates availability for the CCUS Tax Credit so that such full rates apply to eligible expenditures from January 1, 2022 to 2035. This responds to criticism of the current CCUS Tax Credit legislation that was levelled by Pathways Alliance (five of Canada's largest oil sands producers) (Pathways), in their comment to the Canadian government in the 2025 Federal Budget consultation process.

As discussed above, the MOU further signals that the Government of Canada may review their policy in respect of expressly not considering "enhanced oil recovery" as an eligible use under the CCUS Tax Credit. Under the current legislation, any captured carbon in a CCUS project which is used for enhanced oil recovery is expressly considered to be put to an "ineligible use", such that the CCUS Tax Credit cannot be claimed for the proportion of captured carbon put towards enhanced oil recovery as compared to the proportion of captured carbon put to an "eligible use" (which includes storing such captured carbon underground in dedicated geological storage or using the captured carbon in certain concrete making applications). This approach of excluding captured carbon used in enhanced oil recovery operations directly contrasts with the approach taken in the United States, for example. The MOU expressly states that the Government of Canada commits to "[e]xtend federal ITCs and other policy supports to encourage large scale CCUS investments, including Pathways and enhanced oil recovery in order to provide the certainty needed to attract large additional sources of domestic and foreign capital."

The MOU may signal a significant shift in the Canadian Government's approach to the use of captured carbon for enhanced oil recovery. The MOU also makes clear that ensuring that the Pathways carbon capture project commences is a precondition for the commencement of the bitumen pipeline that is referenced in the MOU, and notes that a trilateral MOU will be entered into by the Alberta government, the Government of Canada and Pathways on or before April 1, 2026, to ensure that the Pathways project gets built, which further shows the priority the Government of Canada is placing on the Pathways project and on carbon capture, storage and utilization generally as a valuable tool in their decarbonization toolkit.

EV Supply Chain ITC

The previously proposed EV Supply Chain ITC was not discussed in Budget 2025, or included in Bill C-15. It remains to be seen whether there will be further efforts in establishing this particular Clean Economy ITC.

Expansion of the Critical Mineral Exploration Tax Credit (CMETC)

The CMETC is a 30% tax credit available to individuals who invest in flow-through shares issued by principal business corporations in respect of the exploration of certain eligible "critical minerals". Budget 2025 proposes to add twelve additional minerals to the existing list of eligible critical minerals. These additional critical minerals are essential for developing defence, semiconductor, energy and clean technologies—all of which are industries imperative to Canada's global economic competitiveness strategies. Specifically, Budget 2025 proposes that bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin and tungsten be added to the list of eligible critical minerals. This is also reflected in Bill C-15.

This proposed expansion of the CMETC's eligible critical minerals list would be applicable to specified mineral exploration expenditures related to these newly added minerals which are renounced through flow-through share agreements entered into after Budget Day 2025 and on, or before, March 31, 2027.

Conclusion

Budget 2025 and the MOU each demonstrate the commitment of the Government of Canada to the Clean Economy ITCs as a tool to assist in the decarbonization of the Canadian economy. The enactment of the Clean Electricity ITC in particular, and the extension of the full rates for the CCUS Tax Credit until 2035 show that the Government of Canada is prioritizing CCUS and clean electricity projects as a mechanism to meet their climate policy goals of decarbonizing the Canadian economy.

Bennett Jones has experience in energy, carbon capture, storage and utilization, infrastructure, mining and manufacturing project development, including in power, renewables, clean technologyand developing strategies for industries to capitalize on current and upcoming initiatives of a low-carbon economy.

To discuss the potential opportunities and implications of the Clean Electricity ITC, the CCUS Tax Credit, the CMETC, the Clean Hydrogen ITC or the CTM ITC, please contact any member of the Bennett Jones Tax or Energy practice groups.