Ottawa proposed $15-billion incentive plan to get pension fund investment in AI green data centres, sources say

The federal government has considered making up to $15-billion of federal money available as an incentive to encourage major Canadian pension funds to invest in data centres for artificial intelligence that are powered by green energy, sources said.

Ottawa floated the proposal in private consultations with pension funds as part of a suite of potential measures in consideration to be included in the fall economic statement on Monday, according to three sources with knowledge of the discussions.

It is not certain that the proposal will make the final cut to be part of the government’s statement, and its key details could change – including the size of Ottawa’s potential financial commitment – as discussions have been fluid and ideas have fallen in and out of favour.

The Globe and Mail is not identifying the sources because they were not authorized to discuss confidential government proposals that have not been released.

The investment incentives being considered stem from the federal government’s months-long push to entice the country’s largest pension funds, which collectively manage more than $2.4-trillion in assets, to make more investments in Canada as a way to boost economic growth.

For much of this year there has been a national debate about whether Canada’s pension funds invest enough in Canada, spurred in part by dozens of senior business leaders who urged Ottawa to change rules governing pension funds to encourage more domestic investment. Pension fund leaders pushed back, arguing against any heavy-handed measure that would mandate more domestic investment and seeking to protect their independence from governments, and the freedom to invest anywhere in the world to earn the best returns for members and beneficiaries without taking undue risks.

When combined with measures to remove barriers to investment, and a push for more transparency and disclosure on where funds invest their members’ money, the government’s end goal is to attract capital to Canada by inviting pension funds to make more big-ticket investments in the country, according to a fourth source familiar with the discussions.

In a draft proposal discussed with pension fund leaders, the government proposed making money available for both loans and equity investments in large-scale, green-powered AI data centre projects to be built in Canada. To access that money, Canadian pension funds would need to invest at least two dollars for each dollar provided by Ottawa and become controlling shareholders in the data centre projects, which would have to be powered by clean energy, two of the sources said.

That could add up to total investments of as much as $45-billion, should the government move forward with the proposal, and if pension funds choose to take full advantage of the government’s incentives, the two sources said. Ottawa has considered designating the development of green-powered AI data centres as a national priority, one of the sources said.

A spokesperson for Finance Minister Chrystia Freeland, Katherine Cuplinskas, declined to comment.

Last week, the federal government announced a $2-billion AI plan to boost data centre development and subsidize costs for Canadian companies and academics to access “compute” – the expensive graphics processing units (GPUs) and other infrastructure that are required to build and run advanced AI models.

The government’s efforts to accelerate the build-out of AI data centres is rooted in its conviction that Canada has advantages that can make it a global player in developing innovative new AI-based technologies. Those include abundant sources of clean energy, including hydroelectric and nuclear power, and a colder climate that is well-suited to playing host to the power-hungry infrastructure needed to run ever more sophisticated AI models. The government is also hoping that accelerating the build-out of data centres in Canada would create jobs, two of the sources said.

In April, Ms. Freeland appointed former Bank of Canada governor Stephen Poloz to lead a working group with a mandate to look for ways to expand the range of domestic investment opportunities available to Canadian pension funds. At times, the biggest pension funds that routinely write billion-dollar checks to invest in major infrastructure, real estate, private equity and credit transactions have lamented that large-scale investments that meet their investment parameters can be hard to come by in Canada.

Mr. Poloz’s work has largely avoided proposing prescriptive measures that would encroach on the funds’ autonomy. Nearly all the new measures being considered to include in the fall economic statement would not be mandatory for pension funds, the three sources said.

Ms. Freeland and Mr. Poloz have briefed some pension-fund leaders in recent weeks on the government’s tentative ideas, which have evolved over time. Discussions have been constructive, and multiple pension fund leaders are comfortable with the government’s approach, the sources said.

Another proposal Ottawa has considered including in Monday’s economic statement is to hold consultations on requiring federally regulated pension funds with more than $500-million of assets to disclose a more detailed breakdown of their investments by jurisdiction and asset class, the three sources said. That data would be published periodically by Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, though most of Canada’s large pension funds are provincially regulated, and might not be bound by the federal requirement.

The government has also raised the idea of removing the “30-per-cent rule” that restricts pension funds from holding more than 30 per cent of the voting shares in a company, according to the sources. The current restriction is considered by some to be unnecessarily cumbersome, and some large funds have already found legal structures to work around when making investments.

Ottawa floated both of those proposals in the last federal budget in April, and they were still under discussion as recently as late November.

Furthermore, the government has considered relaxing regulations or creating incentives to spur more pension-fund investment in areas such as municipal infrastructure or airports. It is unclear whether Ottawa will act on those ideas.