Ottawa, Ontario – – The Canadian government today launched consultations regarding a potential domestic content requirement for the Clean Technology and Clean Electricity Investment Tax Credits (ITCs). The move, foreshadowed in Budget 2025, aims to bolster Canadian supply chains and support domestic manufacturers as the country transitions to a carbon-neutral economy.
The ITCs are designed to incentivize investment in clean energy technologies and systems, attracting projects and creating well-paying jobs. However, the government acknowledges that other nations, notably the United States, have already implemented domestic content provisions within their own clean energy tax credit schemes. This has prompted calls from Canadian stakeholders for similar measures to ensure a level playing field and maximize benefits for Canadian businesses.
The consultation, detailed on the Department of Finance Canada’s website, focuses on key considerations surrounding the design of a domestic content requirement. These include potential complexities, administrative burdens, and challenges related to existing supply chains. The government is specifically seeking input on how such a requirement could be structured effectively without hindering the overall goals of the ITCs – namely, accelerating the adoption of clean technologies and reducing greenhouse gas emissions.
The introduction of domestic content requirements is a complex issue with potential ramifications for the cost and speed of the clean energy transition. While proponents argue it will stimulate domestic manufacturing and create jobs, critics express concern that it could increase project costs, limit competition, and potentially violate international trade agreements. The US experience, while offering a model, is not without its own challenges and has faced scrutiny regarding its compliance with World Trade Organization (WTO) rules.
Currently, six major clean economy investment tax credits are in place or nearing implementation in Canada: the Clean Technology ITC, the Clean Hydrogen ITC, the Clean Technology Manufacturing ITC, the Carbon, Capture, Utilization, and Storage ITC, the Clean Electricity ITC, and the Electric Vehicle Supply Chain ITC. Bills C-59 and C-69, enacted in June 2024, have already enshrined the first four of these into law. Draft legislation for the Clean Electricity ITC was released in August 2024, with potential parliamentary introduction anticipated in 2025.
Budget 2025 also confirmed the government’s intention to proceed with measures previously announced in the Fall Economic Statement 2024, which included updates to three of the six ITCs. These updates focused on the Clean Electricity ITC, the Carbon Capture, Utilization, and Storage ITC, and the Clean Technology ITC. However, the Electric Vehicle Supply Chain ITC, for which public consultations closed in March 2025, received no specific mention in Budget 2025, suggesting a possible delay or shift in prioritization.
The Fall Economic Statement 2024 brought significant updates to the ITCs and related accelerated depreciation deduction regimes. These changes are designed to refine the incentives and ensure they effectively drive investment in key areas of the clean economy. The government’s approach reflects a broader trend of governments worldwide using industrial policy to encourage domestic manufacturing and secure supply chains in strategically important sectors.
The consultation document poses several key questions to stakeholders. These include exploring different approaches to defining “domestic content,” assessing the feasibility of tracking and verifying the origin of materials and equipment, and evaluating the potential impact on project costs and timelines. The government is also seeking feedback on how to minimize administrative burdens and ensure the requirement is applied consistently across different projects and technologies.
The Canadian government’s move to consider domestic content requirements for clean energy tax credits aligns with a growing global trend. The US Inflation Reduction Act, for example, includes significant tax credits for clean energy projects, but also stipulates that projects must meet certain domestic content requirements to qualify for the full credit amount. This has spurred debate about the potential for protectionism and the impact on international trade.
The consultation period is open until . Interested parties are invited to submit their comments to cleangrowthitc-ciicroissancepropre@fin.gc.ca. The outcome of the consultation will likely shape the final design of the domestic content requirement, which could have a significant impact on the Canadian clean technology sector and the country’s ability to meet its climate goals.
The success of these ITCs, and the potential addition of a domestic content requirement, will be crucial in attracting the substantial private investment needed to decarbonize the Canadian economy. The government faces the challenge of balancing the desire to support domestic industries with the need to maintain a competitive investment climate and ensure the efficient deployment of clean energy technologies.
