Canada 2.0 for Carbon Removal: What’s Already Law, What’s Next and Why It Matters for CCUS Project Developers

Prime Minister Mark Carney, sworn in on March 14, 2025, entered office promising to swap “sticks” for “carrots” in federal climate policy. Since then, his government has scrapped two high-profile taxes and introduced a package of new incentives. If these are passed in this fall’s Budget 2025, Canada could take a global lead in carbon dioxide removal (CDR) policy.

Below is a snapshot of what’s in place, what’s being proposed and what it means for CCUS project developers building a Direct Air Capture (DAC) park in Canada, regardless of whether the captured CO₂ is reused in renewable fuels or stored permanently.

What’s already law

These enacted changes support confidence and consumer adoption, signaling a shift toward incentive-driven climate policy:

• Repeal of Consumer Carbon Tax (fuel levy): The federal fuel levy has been removed and replaced with subsidies for lower-emission choices, like EVs and retrofits. The industrial carbon pricing system (OBPS) remains unchanged.

• Cancelled increase of capital-gains inclusion-rate: The planned rise in the capital gains inclusion rate to above 50% has been withdrawn. This improves returns for investors and encourages project financing.

What’s proposed in Budget 2025

These proposed measures aim to extend investment incentives, improve project cash flow and create stronger long-term signals for CDR deployment. They are not yet law:

• Extend 60% CCUS Investment Tax Credit through 2035: Currently, the 60% ITC drops to 30% after 2030. The proposal would keep the 60% rate for DAC equipment placed in service 2031 and 2040, providing more certainty for long-term projects.

• Enable full first-year expensing for DAC and CCUS equipment (Classes 57 and 58) through 2030: Mark Carney supports immediate expensing for clean technologies, but DAC systems (Classes 57 and 58) haven’t been formally included yet. Today, they fall under the Accelerated Investment Incentive (AII), which allows 75% of the normal deduction in 2024–2025 and 55% in 2026–2027. After that, the slower half-year rule applies.

• Set 2035 and 2040 national CDR targets and scale the $10M federal procurement pilot: The Treasury Board has committed to buy at least C$10M in carbon removal credits by 2030. National CDR targets for 2035 and 2040 are still being finalized.

• Introduce a Carbon Border Adjustment Mechanism (CBAM): This would place a carbon fee on imports from countries without carbon pricing, leveling the playing field for Canadian producers. The policy is still in consultation and hasn’t been drafted into law.

• Broaden and extend the 30% Clean Technology (CT) ITC and the 30% Clean Technology Manufacturing (CTM) ITCs: The proposal would keep both credits at 30% through 2035. Under current law, the Clean Tech credit falls to 15% in 2034, and Clean Manufacturing phases down to 20% in 2032.

What this means for DAC parks

The proposed changes could help DAC developers recover capital faster. The table below models three scenarios for a Skytree Stratus machine installed in Alberta in 2030. The unit costs $1 million, is used for permanent CO₂ storage and qualifies under Class 57 with an 8% Capital Cost Allowance (CCA). The corporate tax rate is 25%.

• Current law: 60% federal CCUS Investment Tax Credit (ITC) with standard CCA treatment
• Upside Scenario 1: Federal immediate expensing (100%) for Class 57 equipment
• Upside Scenario 2: Federal immediate expensing plus Alberta’s proposed 12% Carbon Capture Incentive Program (CCIP)

¹ Upside 1 assumes 100% first-year expensing is introduced, though CCA classes for DAC have not yet been confirmed.

² CCIP assumption: Alberta’s 12 % Carbon Capture Incentive Program was announced in Budget 2024 but is still in regulation-drafting; model it as provincial upside, not law.

More viable DAC projects, lower upfront risk

Under current law, a 2030 Stratus machine already recovers about 60% of CAPEX upfront. If Budget 2025 measures are passed, that could increase to 70%. With Alberta’s proposed 12% Carbon Capture Incentive Program (CCIP), the figure could reach nearly 80%. 

Combined with rising industrial carbon prices, Ottawa’s CDR-procurement pilot and a proposed carbon border adjustment, the outlook for DAC parks in Canada is more competitive than ever. 

Translate policy into project economics

Companies evaluating DAC opportunities can run a levelized cost of CO₂ (LCoCO₂) model to assess project-specific economics. Simply book a 30 minute session with our team to explore site scenarios: https://www.skytree.eu/contact-us

Want to stay ahead of upcoming policy changes? Follow Skytree on LinkedIn for real-time updates as Budget 2025 approaches.