What Budget 2025 means for energy efficiency

The federal government missed a crucial opportunity to make energy efficiency a nation-building project through Budget 2025. Energy efficiency is Canada’s fastest, cheapest, and most productivity-enhancing climate and affordability solution. Yet Prime Minister Mark Carney’s highly anticipated fiscal plan failed to reverse the abrupt shutdown of the Canada Greener Homes Loan or fix the bias that clean electricity tax credits create for energy supply over demand-side solutions. The result will be higher costs for consumers and a less productive economy. 

However, some budget measures have direct or indirect implications for energy efficiency. Here are some highlights, including areas of opportunity for energy solution providers.

Building retrofits in the Build Communities Strong Fund 

The newly announced Build Communities Strong Fund will provide $51 billion over 10 years to support community and regional infrastructure. The Canada Community-Building Fund, which has supported energy retrofits, will be rebranded as the Community Stream of this initiative. The Direct Delivery Stream will support regionally significant projects, including “large building retrofits, climate adaptation and community infrastructure.” With the right business cases, some of those funds could be directed toward energy efficiency.

Accelerated capital cost allowance

The government is continuing to allow companies to claim larger up-front tax deductions for machinery and equipment. This includes immediate expensing of energy conservation equipment, which traditionally includes heat pumps, solar PV, heat recovery, battery storage and electric vehicle charging.

Modernizing the Energy Efficiency Act

The budget proposes legislative action to modernize the Energy Efficiency Act and enable regulatory sandboxes, new statistical powers, coverage for online retailers and updated fines.

Efficiency Canada’s Sarah Riddell outlined concrete suggestions in a detailed report on how the federal government could modernize the Energy Efficiency Act to enable digital solutions, recognize the higher efficiency performance of electric equipment and more.

One aspect of the proposed modernization is “incorporation by reference to simplify and streamline regulatory development,” which likely means automatically recognizing efficiency standards developed in other jurisdictions or standard-setting organizations. The Act already enables harmonization with the U.S., provinces and other jurisdictions. This suggested change could be related to a proposal under the Free Trade and Labour Mobility Act to recognize provincial standards that may be outdated and lower performance. 

Such a change would undermine the Energy Efficiency Act and needlessly complicate equipment and appliance efficiency standards, given uniform federal standards for products crossing borders already exist. There is no reason to create unnecessary confusion over which standards apply in Canada or invite gaming of provincial standards that would reduce energy productivity.

Workforce development

The budget expands the Union Training and Innovation Program and proposes a new fund to help recognize foreign credentials. There is also funding to launch a Youth Climate Corps.

Retrofit Defence facilities with Energy Performance Contracts

The Department of National Defence expenditure review includes a plan to use an Energy Performance Contract model to retrofit defence facilities for energy efficiency, where companies are “repaid directly from guaranteed utility cost savings.” The departmental plan notes this as a scalable and low-risk solution while ensuring fiscal discipline.

Canada Infrastructure Bank 

The government will amend the Canada Infrastructure Bank (CIB) Act to increase its statutory appropriation limit from $35 billion to $45 billion. CIB has a mandate to support both large building retrofits and new buildings. However, there is no guiding energy productivity agenda that would direct this capital toward building retrofits. This additional money appears to target support for artificial intelligence infrastructure and large megaprojects that will be fast-tracked by the new Major Projects Office. The CIB’s building retrofit mandate is restricted to large buildings, and its high minimum project size acts as a barrier to building retrofits. The federal government could mandate the CIB to follow other public banks by also financing retrofits in the residential sector.

What’s missing 

Budget 2025 did not recapitalize the Greener Homes Loan program. Natural Resources Canada’s plans include “winding down” the Canada Greener Homes Grant. The language used suggests Ottawa could cancel several energy efficiency-related programs when existing funding envelopes are exhausted. 

The loan supported over 120,000 households with $2.9 billion in funding, while the grant provided $1.78 billion to over 401,000 households. Programs like these were among the few accessible options for households to pursue retrofits. For further thoughts on a future agenda for residential retrofits, you can read this blog.

The Climate Competitiveness Strategy heavily focuses on carbon pricing and tax credits.

During the election and Carney’s leadership campaign, the current government proposed replacing the customer carbon tax with a plan that would direct industrial carbon pricing revenues toward heat pumps, home upgrades and other measures to help Canadians reduce their carbon footprint. There is no mention of this in the budget.

Tax credits favour large corporations and energy supply initiatives over demand-side solutions. The budget did not extend the Clean Technology Investment tax credit toward non-profits, cooperatives or condominiums that could benefit from the incentives.

The planned Clean Electricity investment tax credit will be available retroactive to April 2024, and the Clean Electricity Regulations are maintained. Efficiency Canada and the Canada Electricity Advisory Council critiqued the tax credit policy for its supply-side bias and recommended rebalancing federal funding to also support demand-side management. 

Previous budgets and fiscal statements sought to attach conditions to the tax credit to support net-zero emissions and affordability. Crown corporations were to publish an energy roadmap to achieve net-zero emissions by 2050. This at least offered the promise of a planning framework that could prioritize energy efficiency over more expensive and risky supply-side options, but this year’s budget removes these conditions.

The Build Canada Homes agency includes a rental protection fund, yet it remains unclear if funding will be available for building retrofits that ensure existing units are maintained, safe, energy efficient and climate-ready.

Build Canada Homes also has no energy performance requirements for federally supported housing projects, such as basing minimum performance on the tiers published in Canada’s national building codes. The budget states that modern construction methods have the “potential to” lower emissions and costs. This appears to be a hope instead of a policy. Efficiency Canada’s Policy Strategies to Support Innovation in New Housing Construction report discussed how innovation needs to be directed toward achieving better energy performance, which would enable modernized construction to demonstrate its value and start achieving economies of scale.

Finally, productivity is a major theme in the budget. A missing element was an agenda to improve energy productivity. For example, there was no expansion of energy management programs that can provide tariff-proof and quick cost reductions for industry and support smart machinery and equipment investment planning.

Budget 2025 creates opportunities that energy efficiency solution providers can capitalize on, even if the potential for building a more self-reliant and productive economy is largely overlooked. Efficiency Canada will keep working so all governments recognize energy efficiency as a “made in Canada” energy resource that helps people and businesses.