Federal budget signals Carney’s new tone on climate policy, but not much substance

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The “climate competitiveness strategy” embedded in the federal budget embraces many of the financial incentives for green investments put in place by former prime minister Justin Trudeau, scraps others – and does little to answer the regulatory questions hovering over Canada’s energy sector.

Tonally, it makes good on expectations that Prime Minister Mark Carney is deprioritizing climate targets – none of which, including Ottawa’s international commitment to reduce greenhouse gas emissions 40 per cent from 2005 levels by 2030, are mentioned – in favour of finding economic advantage in the global energy transition.

But on substance, with the exception of measures aimed at capitalizing on the country’s mineral reserves, the plan does not go far in putting Mr. Carney’s stamp on the intersection of economic and environmental policy. And it could prove disappointing to industry and climate organizations that believed the strategy would be a relatively detailed stand-alone document after Mr. Carney first promised it in September.

On regulations, Ottawa appears to have been hamstrung by continuing negotiations with Alberta aimed at balancing fossil-fuel-sector growth (potentially including new pipelines) and sustainability.

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The clearest instance of that wait-and-see approach is the cap on oil-and-gas emissions, proposed under Mr. Trudeau, but not yet implemented. While Mr. Carney has for months telegraphed a willingness to ditch it, the budget stops short. Instead, it hedges by stating the cap won’t be needed if other measures to cut pollution are taken.

That’s largely a reference to what remains the backbone of federal decarbonization aspirations and a hot topic with Alberta: the industrial carbon pricing system, which is supposed to make companies’ investments in cleantech (including carbon capture) financially viable by enabling them to generate tradeable carbon credits, but which the budget acknowledges isn’t working properly.

The strategy, however, is not entirely clear on how it will fix that problem, which largely has to do with lax rules allowing credits to be generated too easily and suppressing demand for them.

It commits to “promptly” applying a backstop federal industrial-pricing system when provincially administered systems (which exist under equivalency agreements) fall short, even though Ottawa has already let slide substantial provincial weakening. At the same time, it says Ottawa will work with provinces on “improvements” to the federal standards – all ambiguously pointing to potential compromises in the intergovernmental negotiations.

On other fronts, Mr. Carney is not signalling a retreat from Trudeau-era regulations as much as some climate-policy advocates feared. The budget commits to following through on plans to toughen methane-emission limits. And it seemingly endorses the Clean Electricity Regulations, which require phasing out natural gas as a power source starting in 2035, albeit with another reference to working with provinces that could be interpreted as opening up to changes.

In terms of investment incentives, Ottawa’s approach continues to revolve around a suite of tax credits introduced under Mr. Trudeau. That includes keeping (and modestly enhancing) four cleantech credits already in place, and finalizing a fifth for clean-electricity projects, including by provincial utilities. For financing, Ottawa will continue to place faith in the $15-billion Canada Growth Fund, launched in 2023, as well as the Canada Infrastructure Bank.

What Mr. Carney does appear to be moving away from is government grants for industrial decarbonization. Among cost savings listed in the budget is the end of the Net Zero Accelerator, which in recent years was Ottawa’s main vehicle for that purpose, dishing out billions of dollars to the steel, aluminum, automotive and other sectors.

That cut won’t shock industry. A loosely structured program, the NZA is an easy target as Ottawa tries to limit spending while prioritizing funding to respond directly to U.S. tariffs.

What may be more surprising is a shortage of other ideas for attracting green capital.

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The most significant new measure is a $2-billion Critical Minerals Sovereign Fund, for offtake agreements and other financial arrangements to de-risk extraction and processing of natural resources for clean-energy production (and other uses). That sector also gets an additional $372-million for infrastructure near projects, and expanded tax-credit eligibility.

A few other, more broadly aimed policies scattered through the budget, such as expanding the scope of the tax credit for scientific research and experimental development, could provide cleantech boosts.

But, despite the competitiveness framing, the strategy doesn’t give much sense of whether the government aims to expand Canadian innovation and commercialization of particular clean technologies. Or how it will try to use the electric-vehicle transition to get the auto sector back on its feet. Or how trade policies could change as carbon tariffs take hold in Europe and elsewhere.

Not all such questions have been on Ottawa’s front burner this fall, amid geopolitical chaos, and the more pressing ones around domestic energy regulations may be revolved sooner.

But on both carrots and sticks, the strategy for now adds up largely to a holding pattern.

Editor’s note: A previous version of this article incorrectly stated that phase-outs required by the government’s Clean Electricity Regulations will have to begin in 2025. The phase-outs will begin in 2035.