Developing Canada’s critical minerals for energy transition

As the world transitions to low greenhouse gas (GHG) emission sources of energy, focus is shifting to developing reliable and responsible sources of the resources needed to power our economies. Canada is recognized for its reserves of critical minerals and has been ranked first in mining potential by global companies in the sector. The federal government has also expressed support for developing Canada’s critical minerals resources and value chains.

However, critical minerals development in Canada faces significant challenges. These include environmental and Indigenous rights impacts, as well as time consuming, complex and inherently uncertain regulatory processes. These hurdles have plagued other resource development industries and have driven away investment in Canadian resources over the last decade. More needs to be done to remove barriers to critical minerals development if Canada hopes to capitalize on this generational opportunity in the years to come.

Numerous critical minerals identified in Canada

Critical minerals are those minerals that are essential to producing many products and technologies, and are also viewed as being strategic and vital to national or economic security. Canada first announced its list of critical minerals in 2021, identifying 31. In 2024, three additional minerals were added to the list.

The Canadian Critical Minerals Strategy [PDF] (Strategy) was published in 2022. It envisions increasing “the supply of responsibly sourced critical minerals” and supporting “the development of domestic and global value chains for the green and digital economy”. The Strategy notes that Canada’s current dependence on imports, as well as the geographical concentration of international sources of critical minerals, create risks that geopolitical events could restrict Canada’s supply.

To support domestic development of critical minerals, the Strategy identifies Canadian regions with potential for exploration and development in the near term. Further, the Strategy identifies six strategic areas of focus, including driving exploration, research, development and innovation, and accelerating responsible project development.

Federal government funding programs support critical minerals projects

With the stated objective of stimulating critical minerals projects, the federal government has rolled out targeted programs and funding. These include the Critical Minerals Infrastructure Fund (CMIF), the Critical Minerals Research, Development and Demonstration Program (CMRDD), the Critical Minerals Geoscience and Data Initiative (CMGDI) and the Strategic Innovation Fund (SIF).

The CMIF offered two tranches of program funding. The first tranche was for contribution funding by the government, to be directed towards preconstruction activities and shovel-ready critical minerals infrastructure projects. The second was allocated to Indigenous grants intended to support Indigenous engagement, participation and capacity-building related to infrastructure projects that would enable critical minerals development. While applications are now closed for the first contribution funding tranche of this program, the Indigenous grant tranche remains open for applications until December 31, 2024.

Under the CMRDD, the federal government allocated more than $35 million between 2022 and 2024 to 30 research and development projects undertaken by federal research laboratories. Between 2022 and 2025, a further $22 million in contribution funding was allocated to eight pilot and demonstration projects. These projects were designed to validate the feasibility of emerging processing technologies for materials used in batteries and permanent magnets, among other applications. Successful applicants in the most recent round of this program are expected to be announced soon.

The CMGDI provides funding contributions for one- to two-year projects that are designed to increase the availability of data on the location, quality and economic feasibility of critical minerals resources in Canada.

Finally, under the SIF, $1.5 billion in funding has been allocated to fund critical minerals projects with manufacturing, processing, and recycling applications.

Tax incentives and credits provide further assistance

In addition to the funding programs summarized above, the Government of Canada has implemented the Clean Technology Manufacturing Investment Tax Credit (CTM). The CTM was first announced in the 2023 budget and enacted in June 2024. It is a refundable tax credit equal to 30% of the cost of investments in eligible property used in the extraction, processing, and recycling of certain critical minerals (specifically, lithium, cobalt, nickel, graphite, copper and rare earth elements). The credit is available at the full 30% rate until 2031 and will be phased out over two years, with the credit fully phased out after 2034.

The Government of Canada also supports companies in attracting equity investments from shareholders by maintaining the longstanding flow-through share regime for mining companies and by introducing a non-refundable 30% Critical Mineral Exploration Investment Tax Credit (CMEITC). The CMEITC is available to certain individual investors in flow through shares and is claimed on specified critical mineral exploration expenditures that are renounced under the flow through share to the investors.

The case for domestic production

Canada’s 34 critical minerals include cobalt, nickel, silicon and rare earth elements, each of which are integral to the manufacture of green energy technologies. They are, for the most part, currently mined in countries with poor records for human rights and environmental protections.

The availability of these critical minerals in Canada, as well as the imperative to secure reliable and responsible sources to facilitate Canada’s energy transition and meet Canada’s climate change commitments, together present a compelling case that critical mineral mining is aligned with the public interest of Canadians.

Significant investment in critical minerals development in Canada will require changes to the permitting processes to allow new mine projects to proceed expeditiously.

The federal government has emphasized that the path to net-zero emissions requires private sector investment in critical minerals. In order to attract this investment, the federal government has acknowledged that Canada’s regulatory system must become more efficient and that it should not take over a decade to open a new mine and secure critical minerals supply chains. The Strategy recognizes that “although responsible regulations are vital, complex regulatory and permitting processes can hinder the economic competitiveness of the sector and increase investment risk for proponents”.

We agree. However, despite the government’s stated intent, lengthy delays due to permitting processes continue to significantly impact Canada’s ability to attract investment in critical minerals development.

One of the most significant permitting processes that applies to critical minerals projects is the environmental impact assessment process. Environmental reviews may be conducted under the federal Impact Assessment Act (IAA) and/or provincial regimes, depending on the nature of the project. The Strategy states that, where both federal and provincial assessments are required, the federal government is committed to streamlining regulatory oversight by reducing duplication and increasing efficiency and certainty in the process. The objective is to adopt a “one project, one assessment” approach to project review. The 2024 federal budget set a target of five years or less to complete federal impact assessments and permitting processes for federally-designated projects. The target for non-federally designated projects is completion of the permitting process within two years or less. Further detail on the IAA is included in our Osler Legal Outlook article.

However, despite these commitments, the federal government recently passed legislation preserving most of the problematic aspects of the IAA. For example, the government maintained the existing substitution provisions under the IAA that allow for “one project, one assessment”, which have only been successfully used to date in one province — British Columbia. In all other provinces, the IAA process has been layered on top of, and, in many cases, is duplicative of provincial permitting regimes.

The current version of the IAA also maintains lengthy statutory timelines that can be extended at the option of the federal Minister of Environment and Climate Change. The federal Minister continues to have discretion to designate provincially-regulated projects for federal assessment. Moreover, uncertainty regarding the criteria that apply to decisions under the IAA persists.

Additionally, regional impact assessment processes commenced under the IAA have failed to achieve their intended efficiencies. These were directed at pre-assessing impacts from potential developments, including critical minerals, across a region, to streamline the assessment process for future individual projects.

The ongoing Regional Assessment (RA) in the Ring of Fire area in northern Ontario, known to be rich in critical minerals, provides a salient example. The RA planning process for the Ring of Fire area was initiated in 2020 and has been ongoing since then in cooperation with local Indigenous groups. More than four years into the RA process, final terms of reference for the RA have yet to be established. Further, although the RA’s objective is to inform and improve the effectiveness and efficiency of future impact assessments, individual mining projects proposed in the Ring of Fire area still require individual assessments under federal and provincial assessment regimes.

Despite the federal government’s aspirations for critical minerals, no meaningful work has been done to date to address the above issues.

The mission ahead

The federal government has identified the significant opportunity that critical mineral development poses for Canada. It has also taken important steps to spark the industry through the various government funding incentives and tax credits proposed to date. However, Canada’s ability to attract investment in critical minerals and realize the opportunity to become a world leader in this important sector will require tangible reforms to the permitting process for new mining projects. To date, no such reforms appear to be forthcoming.

In this policy environment, proponents of critical mineral mining projects can mitigate regulatory risks by engaging early with the Indigenous communities and local stakeholders potentially impacted by their proposed development. Key environmental concerns — such as water quality impacts, air emissions or impacts to species at risk — and appropriate mitigation measures should likewise be identified proactively.

We are optimistic that key reforms to the permitting process will be forthcoming as early as 2025. In the meantime, proponents should lobby the federal and provincial governments to prioritize these reforms, look for opportunities to participate in their formulation, and position themselves to proceed quickly once the changes are in place.