The federal government should provide new environmentally-focused tax breaks as a way of helping the country’s embattled energy industry get out of its current rut, the chief executive officer of Canadian Imperial Bank of Commerce suggested Friday.
Canada should implement a “tailored” tax credit to encourage investment in carbon capture and sequestration equipment, similar to one already in place in the United States, CIBC CEO Victor Dodig said.
“This would enable companies to both immediately expense the depreciation associated with buying the equipment, and ultimately be rewarded on an ongoing basis for capturing and storing emissions,” the CEO said during a speech to the Economic Club of Canada in Calgary.
Such a move could help bolster the oil and gas industry’s climate-change credentials — which have become increasingly important to international investors, Dodig noted. Canada needs to get its energy to market, he said, but must also earn recognition for the environmental, social and governance factors that these investors value.
The government could help further with “innovative financing techniques” that could support oil and gas exploration and development, Dodig said.
“You know that our industry partially benefitted from flow-through shares that particularly helped upstart companies in spurring exploration,” he added. “I think we need an analogous type of vehicle to spur technology investments so these same smaller companies can benefit from good private-sector investment to continue to green the production of non-renewable resources.”
Dodig’s speech was strongly supportive of Canada’s energy industry, and the CEO has experience with advocating for tax changes. In a Sept. 2018 speech, amid concerns about the competitiveness of the Canadian economy following tax reform in the United States, the CIBC CEO argued the federal government should allow companies to write-off capital investments more quickly, which Ottawa wound up doing.
But Friday’s remarks from the head of Canada’s fifth-biggest bank came a day after Calgary-based energy company Encana Corp. announced it will move its headquarters to the United States in a bid to attract more investment. Encana said it will also drop the link to Canada in its name, which it will change to Ovintiv Inc.
While Encana’s decision is still pending various approvals, it was just the latest bit of bad news for the Canadian oil and gas industry, which has been hammered in recent years by weak commodity prices, troubles in getting new pipelines built and concerns about climate change. Encana is also not the first energy company that’s decided it needed to purge traces of Canada from its name; earlier this year, pipeline company TransCanada Corp. rebranded to TC Energy Corp.
The announcement from Encana only underscores the urgency we should all feel to take positive, productive action
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CIBC is likely well aware of the plight of Canada’s energy sector, as the bank’s results for the quarter ended July 31 were bogged down by more money that had to be set aside for possibly sour loans to the oil and gas industry.
“The announcement from Encana yesterday only underscores the urgency we should all feel to take positive, productive action,” Dodig said Friday. “We need to now start bringing head offices back to Canada.”
Matco Investments Ltd. vice-chairman Michael Tims said he would not necessarily attach too much importance to the decisions of a single company, but rather look at the cumulative effect such moves have on the investment environment, which may still involve more banking business being done in the U.S.
“As businesses become more weighted in a different country, it’s totally logical more of the financing is going to start happening in that other country too,” Tims told the Financial Post.
Both Dodig and Cenovus Energy Inc. CEO Alex Pourbaix, who introduced the bank CEO, likened the energy sector to a “family business,” albeit one that has shed thousands of jobs amid regional rivalries and regulatory uncertainty.
“These are tough times for the family business,” Dodig said. “As with any family, it’s time we came together – and put our backs into finding a solution.”
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