OTTAWA -- As the federal government readies its spring budget, a climate group is urging Ottawa to pursue a "made-in-Canada" response to U.S. clean energy incentives.

The Canadian Climate Institute published a report on Tuesday with recommendations for the federal government on how to respond to the U.S. Inflation Reduction Act passed last summer.

The institute says the federal government shouldn't try to match the incentives and subsidies offered by the U.S. and instead tailor its measures for Canada.

The Inflation Reduction Act, signed into law last August by U.S. President Joe Biden, invests nearly US$400 billion in everything from critical minerals to battery manufacturing, electric vehicles, and clean electricity, including hydrogen.

"To compete with the Inflation Reduction Act, Canada should not try and replicate it," Marisa Beck, the institute's clean growth director, told reporters on Tuesday.

Finance Minister Chrystia Freeland has signalled the March 28 budget will include ways to keep Canada competitive as countries transition their economies to cleaner energy and technologies.

"Our friends and partners around the world, chief among them the United States, are investing heavily to build clean economies," Freeland said in Oshawa, Ont. on Monday.

"Today and in the years to come, Canada will either capitalize on this historic moment … or we'll be left behind as the world's democracies build the clean economy of the 21st century."

The federal government took the first step in its push to keep Canada competitive by introducing new federal tax credits for clean technology and low-emitting hydrogen production in its fall economic statement last November.

The budget is expected to outline how Canada plans to grow and transition to a clean economy.

The institute says Canada should pursue targeted policies that don't over-subsidize industry but instead support projects to benefit society that the private sector wouldn't pursue on its own.

It also says the Canada Growth Fund, which will invest in clean energy projects using public dollars, should strive to to balance risk and return.

Once projects achieve profitability, the report says the government should pull its support.

"Long-term commitments over 10 (to) 15 years, of course, provide a lot of certainty for investors. But they can become really costly if it ends up that the projects are being over-subsidized," Beck said.

This report by The Canadian Press was first published March 21, 2023.