Canada Seeks to Steady Mineral Financing in New Budget
A lithium mine in Canada. The 2023 Canadian budget includes provisions intended to facilitate investment in the volatile mining industry. Source for photo: Sayon Mining Company
The 2023 Canadian federal budget, released on March 28th, includes provisions intended to encourage investment in the critical minerals sector. The headline move is a 30% tax rebate for expenses from mining, which also applies to investment activities such as share purchases. This and other budget provisions are geared towards encouraging investment in the controversial mining industry, which is both a major contributor to environmental degradation and a key component of the fight against climate change.
The budget aims to enhance mineral production through a variety of instruments. In addition to the tax rebate, the budget includes a tax credit for electrification projects in the remote, mine-rich northern regions of the country. New federally managed funds for clean energy related projects, equalling billions of Canadian dollars, expand on money established in the 2022 budget for mineral exploration and extraction. The 2023 budget also includes commitments to streamline permitting processes and to develop lending vehicles helping local Indigenous communities invest in mining projects.
Mining is a very important industry in Canada. Roughly half of global mining companies are headquartered in the country, and its markets are popular venues for raising capital flows in the industry. Many of the 31 minerals designated by the government as critical due to their importance to national security or decarbonization are present in Canadian soil. For instance, the country serves as the only recognized Western source for the cobalt, graphite, lithium and nickel used in batteries and solar panel production. Minerals important for wind farms, nuclear energy and transmission lines all come out of the ground in Canada.
Yet the Canadian mining sector faces its share of challenges as well. It is estimated that only 1 in 10,000 mines in Canada actually end up extracting minerals from the ground at commercial scale. For successful operations, the roughly 15-year span from initial exploration to commercial production makes fundraising harder. And the social and environmental effects of mining operations have launched calls for investors to reduce or eliminate their holdings in the sector.
The environmental tradeoffs are perhaps the most stark challenge facing Canadian mining. Though benefitting from provisions geared towards environmental sustainability, mining operations themselves are far from being “green” enterprises. Toxic mining wastes are often held in artificial pits, which can overflow and cause damage to nearby river ecosystems. Mining can harm air and water table quality, with significant negative effects for communities living near mines. And despite an industry-wide push for electrification, mining itself can often contribute to greenhouse gas proliferation. The controversial Ring of Fire critical minerals project in Ontario, for example, will involve ripping up ecologically sensitive peatlands, often lauded for their ability to pull carbon out of the local atmosphere. Intensifying these effects, corporate mining culture has traditionally not included local stakeholders, especially Indigenous groups, in mine planning and discussions. As a result, local Indigenous communities can become sites of popular resistance to mining operations.
The dirty secret of green energy development is that everything has to come from somewhere. In the rush to appease domestic and transnational actors seeking to reduce greenhouse gasses, many Western countries such as Canada are announcing various sorts of initiatives to encourage clean energy investment. Yet poorly designed, hastily developed attempts to appear environmentally sound may in reality lead to worse environmental outcomes in other areas. Tax cuts and investment incentives are not enough to foster green mining. To truly play a role as equitable partners in the clean energy revolution, the Canadian government and mining companies will have to take a broad, inclusive view towards stakeholder involvement in extraction projects and show awareness of the other environmental costs of expanding mining operations.