The successful development and growth of an industry requires not only capital investment, but supportive government regulation that will ensure its ongoing evolution. Recently, both the US and Canadian governments, respectively, have implemented new policies aimed at supporting clean energy development within their economies. Additionally, Tesla (NASDAQ:TSLA) has forged a new partnership with existing rivals that will support electric vehicle adoption. This article will highlight the impacts of these policies and partnerships; and how investors can gain exposure to these developments.
US Government Introduces Tax Credits to Further the Clean Energy Transition
In 2022, the Inflation Reductions Act was introduced, raising $738 billion and authorizing $391 billion in spending on energy and climate change. The law represents the largest investment into addressing climate change in United States history. As part of the Biden-Harris Administration’s Investing in America agenda, the US Department of the Treasury and the Internal Revenue Service recently issued a much-anticipated guidance on tax credits in the Inflation Reduction Act, giving access to tax credits to local governments and non-profits to join the clean energy transition.
As outlined in the release, available here, the Biden Administration is giving – for the first time – tax-exempt entities such as states, territories, tribes, local governments, and nonprofits direct pay for building or participating in clean energy projects eligible for tax credits. Under this provision, a school district, or a local government, for example, could buy electric vehicles for their fleets or add solar panels to city and school buildings. Furthermore, these new provisions allow businesses not using direct pay for the tax credits to sell all or a part of any clean energy credits to a third-party in exchange for tax-free immediate funds (i.e., referred to as transferability). With this type of tax credit, businesses can take advantage of tax incentives if they do not have sufficient tax liability to fully utilize the credits themselves.
Under these new provisions, direct pay and transferability expand the reach of tax credits to tax-exempt entities to implement clean energy projects and opens a potentially large market for tax credits transfers among companies. Ultimately, these new provisions could help simplify financing for clean energy projects, additionally boosting clean energy expansion in the United States.
Canada’s Clean Investment Tax Credits in Budget 2023
In the most recent budget announcement, the Canadian government has made provisions for clean energy development, by introducing five new clean investments tax credits. These clean investment tax credits, which total over $60 billion over the coming ten years, will support green innovation in the private sector and grow our economy. The five new clean tax credits are:
- A 15 percent refundable Clean Electricity Investment Tax Credit for eligible investments in technologies that are required for the generation and storage of clean electricity and its transmission between provinces and territories, which is available to taxable and tax-exempt entities.
- A refundable Clean Technology Manufacturing Tax Credit to cover 30 percent of costs in new machinery and equipment used to manufacture or process clean technologies and extract, process or recycle critical minerals.
- The Clean Hydrogen Investment Tax Credit first introduced in the 2022 Fall Economic Statement to support between 15 and 40 percent of eligible projects’ costs to produce clean hydrogen in Canada will continue to be available going forward.
- The Carbon Capture, Utilization, and Storage Investment Tax Credit will be expanded to additional types of equipment used to capture carbon dioxide emissions for storage or other uses in industrial processes.
- Eligibility for the refundable Clean Technology Investment Tax Credit was expanded to include geothermal energy systems, further supporting the growth of Canada’s clean technology sector.
General Motors (NYSE:GM) and Ford Motor (NYSE:F) to use Tesla’s Charging Network
Announced earlier this month, General Motors (GM) will follow a similar action employed by Ford Motor and partner with Tesla to use their North American charging network and technologies. This partnership will allow GM to access Tesla’s 12,000 fast chargers using an adapter and GM’s EV charging app, starting in 2024.
GM, like Ford, will also begin installing a charging port used by Tesla known as NACS, or the North American Charging Standard, instead of the current industry-standard CCS, in its EVs starting in 2025.
The partnership among the auto manufacturers is a major win for Tesla, as it solidifies their charging technology as the preeminent leader within the EV space. This deal is also beneficial for consumers, particularly those that may have range anxiety regarding the use of an electric vehicle, as they now have the confidence that they will be able to charge their vehicles within Tesla’s expansive network. As a result of this deal, GM expects to save up to $400 million of a previously announced $750 million investment to build out an EV charging network.
Clean Energy Landscape: Takeaways
Both public policy and private investments with clean energy initiatives allow for the continual development of the industry. As both the US and Canadian governments provide incentives within their respective economies to spur renewable energy development, it's expected that capital investment into this industry will continue to grow in the years to come, making it an investment arena for individuals to truly grow their wealth over time. As evidenced by the partnership between Tesla, General Motors, & Ford Motors – electric vehicles are the most ‘top of mind’ area that is receiving capital investments, however, the investment opportunities present within the renewable space are truly vast in nature.
Investing in Clean Energy
The CIBC (TSX:CM) Clean Energy Index ETF (CCLN) is a pure-play solution that provides investors with direct exposure to US and Canadian companies involved in the clean energy sector, including renewables and clean technology. The ETF’s focus on renewable energy includes solar, wind, hydro, geothermal and bioenergy. Whereas its clean technology focus centers on electric vehicles, energy management & storage, fuel cell and hydrogen.
To avoid companies that may engage in greenwashing, the fund has strict criteria for holdings, chief of them being a company must derive a majority (>40%) of its value from clean energy businesses. Based on said holdings criteria, the ETF has a strong tilt toward the Technology and Utilities sectors, industries that have shown great progress in finding innovative waves to generate and efficiently distribute electricity or develop needed components for energy-efficient instruments.
As the world transitions to a low-carbon economy, investors are presented with an opportunity to participate in innovations that will usher in a new energy ecosystem. The CIBC Clean Energy Index ETF, which provides comprehensive exposure to the companies that are anticipated to be the energy leader of the future, offers investors a convenient and cost-effective way to access this potential.
This content was originally published by our partners at the Canadian ETF Marketplace.