The Canadian government is considering how its agenda to support domestic manufacturers and technology providers could meld with goals to decarbonize the buildings and energy sectors. A public consultation has been launched to seek opinions on the viability of introducing Canadian content requirements for federal investment tax credits tied to clean technology and clean electricity.

Under existing rules, commercial building owners are among the proponents eligible to claim credits for up to 30 per cent of qualifying costs associated with the purchase and installation of various designated clean technologies, including air-source heat pumps, wind and solar energy systems and stationary electricity storage systems. Entities in the electricity generation and transmission sectors can claim tax credits for up to 15 per cent of the eligible costs of low-carbon generating systems, stationary electricity storage systems and inter-provincial transmission equipment.

Contemplated Canadian content rules could complement recently introduced protocol to guide federal government procurement in “strategic” economic sectors. For now, that prioritizes Canadian suppliers and products/materials when contracts with a minimum value of $25 million are awarded, but the rules are slated to apply to contracts with a minimum value of $5 million by springtime this year. Canadian suppliers are promised additional points in the tendering process and all bids are to be assessed for “inclusion of Canadian goods, services and value-added content” in contract delivery.

There are also new rules for procurement for federal buildings, infrastructure and defence spending that mandate the use of domestically produced steel, aluminum and wood products. Those are in effect for contracts valued at a least $25 million that require at least $250,000 worth of any one type of material/product for which there are Canadian suppliers in the marketplace.

The recently launched consultation delves into the potential pros and cons of integrating domestic content requirements with clean tech and clean electricity investment tax credits. Respondents are asked for input on:

• whether such rules could support or undermine their business activities and supply chains;
• what products should be covered or exempted;
• what processes and documentation should be used to verify product origin; and
• what the consequences should be for failing to comply with Canadian content requirements.

“Other countries, including the U.S., have incorporated domestic content requirements in their clean electricity tax credits to encourage the use of domestic materials and equipment. In Canada, stakeholders have called for similar measures to strengthen domestic supply chains and support Canadian manufacturers,” the prelude to the consultation questions states.

Energy management and decarbonization specialists caution that Canadian manufacturers still have a long way to go before they’ll be in a position to forge competitive market share for some of the equipment and systems fundamental to switching away from fossil fuel heating sources. However, the consultation does present an opening for the buildings sector to make a case for broadening the range of technologies that qualify for the investment tax credit.

“Most of the commercial cold climate heat pumps available in Canada are manufactured in the USA, Mexico, Japan, Italy or elsewhere outside the country,” says Eric Chisholm, co-founder and principal with the engineering and sustainability consulting firm, Purpose Building. “Bluntly introducing Canadian content restrictions for investment tax credits will undermine program participation. To meet emissions reduction targets, participation will need to increase, not decrease, and there are already barriers in the existing program.”

“Today, key technologies like heat pumps are not yet manufactured in Canada at the scale needed. Targeted collaboration with manufacturers is essential to avoid increasing construction costs or slowing the green building economy,” concurs Thomas Mueller, president and chief executive officer of the Canada Green Building Council (CAGBC). “Energy efficient and low carbon technologies are increasingly important to investors, and Canadian asset owners and developers need reliable access and competitive pricing to meet project financial goals.”

Chisholm underscores the risk of skewing the market toward monopoly providers and argues content restrictions would be best applied in product categories where there are a number of different Canadian competitors. Enabling more choice for prospective investors could also have flow-through benefits for those feeding the supply chain.

“Heat recovery heat pumps, or heat recovery chillers, are a foundational decarbonization technology that doesn’t qualify for an investment tax credit currently. Including them as eligible technology could quickly accelerate market participation,” he urges.

The public consultation is open for submissions until March 13, 2026.