New oil and gas and renewable energy projects could be derailed unless Ottawa quickly provides details on proposed tax changes and spending in the federal budget, Alberta industry players say.

High-technology firms in Alberta, meanwhile, see little in Finance Minister John Manley’s first budget to help them bring innovative new products to the market.

“This is not a budget that was oriented towards the private- sector business community,” says John Masters, president and CEO of advanced technology incubator Calgary Technologies Inc.

“Clearly the priorities were on the social side versus the business and private-sector side,” he adds.

Adrian Banica, president and CEO of Synodon Inc., an Edmonton firm building a high-tech, airborne emissions-detection system, says “it’s a pretty poor budget in terms of business . . . it’s very heavily slated towards social aspects of the Liberal agenda.”

For the oil and gas industry, the budget announced last week did commit to reducing the resource sector’s corporate tax rate from 28 per cent to 21 per cent over five years.

Resource firms were initially excluded when the tax break – now being phased in over four years – was first offered in 2000. At the time, Ottawa said the sector already enjoyed special tax treatment for mineral exploration and development expenses, depletion allowances and other tax-deductible expenses.

Pierre Alvarez, president of the Canadian Association of Petroleum Producers (CAPP), says it is unclear when the move toward the 21-per-cent corporate tax rate for the petroleum industry will start. “There is some question about whether it will apply to the 2003 tax year or not.”

The industry wants the rate to move lower starting this fiscal year, and to reach the 21-per-cent level before the five years has elapsed, Alvarez says.

Pierre Alvarez

The budget indicates that most of the tax advantages the oil and gas industry now receives “will not be touched. So that’s an important signal,” he adds.

On the other hand, Ottawa plans to eliminate the industry’s resource allowance, which helps reduce royalty payments owing to government. Instead, companies will be able to deduct provincial and Crown royalties from federal taxes.

This change could affect the economic viability of large projects, such as new oilsands developments, Alvarez says.

The potential impact won’t be known until the federal government releases a technical paper on the proposal, which is expected in early March.

Alberta’s renewable energy industry welcomed the budget’s commitment to spend $2 billion over five years on reducing greenhouse gas emissions, as part of Ottawa’s commitment to the Kyoto accord.

The funding is to go to the areas of renewable energy, energy efficiency, sustainable transportation, new alternative fuels such as ethanol and fuel cells, and building retrofits.

However, the budget’s absence of detailed funding allocations leaves renewable energy developers wondering when the money will flow for projects that are ready to proceed.

“We have no idea what it (the funding) is intended or targeted for,” says Jason Edworthy, executive director of Calgary-based Vision Quest Windelectric Inc.

Last year, the federal government committed $265 million over five years to a wind- energy incentive, expecting that provinces would match the funding. That hasn’t happened, leaving Canada’s wind developers with half the amount of a similar incentive offered in the U.S. to American competitors. An additional investment by Ottawa “would have helped to bring Canada’s support for wind energy more in line with measures being taken by other Western nations to support the development of clean energy,” says Glen Estill, president of the Canadian Wind Energy Association.

Edworthy says Canadian wind-energy developers have acquired much of the land they need and attracted some private investment in planned new projects. “We’re ready to make a contribution,” providing there is sufficient government policy support, he adds. The budget included $250 million for Sustainable Development Technology Canada (SDTC), on top of an initial $100 million for developing and commercializing new climate change and air quality technologies.

However, it took nine months in a highly competitive process for the independent funding organization to award just $6.6 million to eight projects, out of more than 500 proposals.

John Keating, president and CEO of Canadian Hydro Developers Inc., a Calgary-based renewable energies developer, predicts that with no detailed funding allocations in the budget, there’ll be “a considerable amount of lobbying over the coming months, and hopefully money will be allocated to the right initiatives.”

Keating says he was not only disappointed there was no boost for the wind-energy incentive, he had hoped for tax incentives to encourage consumers to be more energy efficient.

The budget contained no measures such as subsidies for public transit, or tax breaks for people buying fuel-efficient vehicles and doing energy efficiency retrofits to their homes.

Allan Amey

Allan Amey, president and CEO of Alberta’s Climate Change Central, says the $2 billion to reduce greenhouse gas emissions sounds promising.

But the concern is that companies with new technologies or projects may have to wait for months before learning whether they’ll obtain some financial support, he says. “If they end up in a competition with multiple hundreds of proposals for funding, there’s going to be this ‘bun fight’ over who gets the money.”

Ottawa, the provinces and the granting agencies now need to quickly get the new funding to local program providers and innovators so they can actually start reducing emissions, Amey says.

Bliss Baker, president of the Canadian Renewable Fuels Association, says the ethanol industry is urging Ottawa to translate its budget commitments into action. “We have projects ready to go, business plans developed and investors waiting for the green light.”

The budget included a $125-million increase annually for three federal research-granting councils.

Universities, colleges and research hospitals will also get $225 million per year to offset the indirect costs of federally supported research.

The Canada Foundation for Innovation will receive an additional $500 million for state-of-the-art health research facilities.

Calgary Technologies’ John Masters says while all that new money is needed, the budget didn’t balance its support for primary research with similar new funding to actually get the projects out of laboratories and into the marketplace.

“The innovation agenda has been one of the major thrusts of the federal government. The budget didn’t reflect it,” Masters says.

Michael Carten, president and CEO of Sustainable Energy Technologies Ltd., a Calgary-based firm with an innovative power converter for renewable energies, says it’s positive the budget did include $25 million more annually for two years for the National Research Council’s Industrial Research and Assistance Program.

Ottawa also plans to phase out the business capital tax over five years to encourage new investment. Small businesses will also get a break. The limit on which the special, 12-per-cent, small business tax rate applies will be raised over the next four years, to $300,000 from $200,000.

However, Carten says that Ottawa still hasn’t recognized the need to provide more tax incentives to public technology companies that are seeking investment while struggling with limited revenues and trying to market new products. Ottawa could have offered a flow-through share program whereby companies could pass along tax deductions to shareholders, Carten suggests. “Just doing that for technology, for particularly the commercialization process, could make a huge difference in terms of our competitiveness.”

Mark Kryzan, director of corporate affairs at fuel-cell developer Global Thermoelectric Inc., says the new money for sustainable development technologies should help contribute to the industry’s momentum.

“If there’s government funding, it’s great,” Kryzan says. “But fundamentally, our business plan doesn’t depend on whether or not the government’s going to support our venture.”