Canada Moves to Phase Out Tax Break for Tar Sands Producers

Canada announced intentions yesterday to phase out the tax break for oil sands producers that allows them to write off investment costs, setting a final deadline of 2015 for the changes.

Finance Minister Jim Flaherty said the tax break, instituted in 1996, was no longer necessary due to the high price of crude oil. He offered an extension of the accelerated capital cost allowance for energy-efficient equipment as an alternative, intended to promote investment in technologies like carbon capture and storage. That credit was due to expire in 2011; instead it will continue until 2020.

The investment tax break will be grandfathered in for major projects that began construction before yesterday, and the several projects that have been approved but not yet begun construction will be eligible for accelerated write-offs until 2010, with gradual adjustments to the normal capital cost allowance by 2015.

The credit's elimination will generate about C$300 million per year starting no sooner than 2010, the government estimated. Flaherty also announced a C$60 million plan to streamline the approval process for major resource projects by creating a Major Projects Management Office (Shawn McCarthy, Toronto Globe and Mail).

The budget Flaherty unveiled yesterday also includes a rebate of C$1,000 to C$2,000 for new fuel-efficient vehicles like the Toyota Prius, Ford Escape hybrid SUV and flex-fuel Chrysler Sebring. Accompanying the rebate is a tax of C$1,000 to C$4,000 on the sale of new fuel-inefficient vehicles.

The government also allocated C$1.5 billion to spur ethanol and biodiesel generation and C$500 million for next-generation renewables like cellulosic biomass (Randall Palmer, Reuters).

Of the budget's C$4.5 billion in environmental measures, C$1.5 billion will help local and provincial governments increase energy efficiency and cut pollution. Other allocations include C$120 million for endangered species and sensitive lands protection; $93 million for watershed protection; and C$324 million for Coast Guard ships to enforce anti-pollution laws.

Environmental groups said the announcements would not significantly affect Prime Minister Stephen Harper's environmental record. "This budget isn't going to give the Conservatives substantial green credentials, and it won't substantially hurt them either," said World Wildlife Fund's Lorne Johnson. Environmental advocates have been agitating for strict emissions controls for the oil sands sector, which the nonprofit Pembina Institute estimates will account for more than 40 percent of the increase in Canada's greenhouse gas emissions from 2003 to 2010.

The budget did not address industry regulations, which Environment Minister John Baird promised to announce this month (Greg Quinn, Bloomberg). (All cites March 19.) -- DK

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