A climate competitiveness strategy that sidesteps emission reduction mandates for fossil fuel producers and sets the stage to repeal a hard-fought cap on the industry’s carbon pollution is a centrepiece of the federal budget released this week by Finance Minister François-Philippe Champagne.

The budget, titled Canada Strong, is the first produced by the government of Prime Minister Mark Carney. It reprises past promises to fast-track controversial new infrastructure projects, speed up new housing construction, and diversify the country’s trading relationships, increases military spending by $81.8 billion over five years, puts limits on the government’s commitments to sustainable finance and anti-greenwashing rules, and curtails the Trudeau government’s 2 Billion Trees program. It also lays out the broad lines of public service cutbacks that will slash $60 billion in federal spending and 40,000 jobs over five years, according to a memo issued Wednesday by the country’s top bureaucrat, Clerk of the Privy Council Michael Sabia.

Related: Nearly two dozen climate champions react to the budget in a live chat Tuesday evening hosted by The Energy Mix.

The budget places those changes in the context of the “profound transformation” sweeping the global economy.

“Industrial policy, once seen as secondary to market forces, is returning to the forefront,” the budget states. “In 2024 alone, governments worldwide introduced more than 2,500 industrial policy measures reflecting a transition in how governments are protecting national security interests and securing long-term competitiveness.”

In the United States, the Trump administration “is fundamentally reshaping all of its trading relationships and putting up trade barriers, with its average tariffs across all countries rising from around 2% at the end of 2024 to 17% today.” While the budget asserts repeatedly that Canada is faring better than other countries in its on-again, now off-again negotiations with the U.S., the impact of Trump’s tariff wars is still “profound—hurting companies, displacing workers, disrupting supply chains, and causing uncertainty that is curbing investment.”

As an antidote, the budget pitches an industrial strategy that pledges new infrastructure projects, public investment in research and development, lighter regulation, and tax deductions to trigger $500 billion in private sector investment over the next five years.

Competitiveness Over Climate?

The government’s climate competitiveness strategy was originally expected in mid- to late October, then delayed and folded into the budget announcement, prompting speculation that it wasn’t as fully defined as Carney had implied in his public statements. The published version cites climate action as an “economic necessity” as well as a “moral obligation”, at a time when “the world economy is undergoing a historic transformation towards low-carbon energy and clean technology.”

The document notes that global clean energy investments hit $2 trillion last year, nearly double the total poured into fossil fuels, and cites the Canadian Climate Institute’s warning that climate change will cut household incomes by nearly 20% by century’s end if it isn’t brought under control.

The strategy acknowledges that “buyers of Canada’s resources—oil and gas, steel, and aluminum—are increasingly looking for low-carbon sourcing.” It adds that “lowering our emissions is critical to protecting the competitiveness of Canada’s oil and gas and steel sectors. Reducing emissions is not only essential for environmental reasons, but also a key factor in securing access to markets that prioritize sustainability.”

But to meet that expectation, it sets sights on limiting the carbon intensity of Canadian industry—the emissions per barrel of oil or tonne of steel—rather than achieving actual reductions in climate pollution. In a sector like Canada’s oil sands, the difference matters—if production rises faster than emissions per barrel fall, the industry’s climate footprint will continue to grow. In September, the Climate Institute reported that the Canada’s progress on emissions flatlined in 2024, largely due to rising oil sands emissions, and the industry is planning on continuing production increases into the next decade.

The budget also:

• Allocates about $1 billion in tax incentives for “low-carbon liquefied natural gas facilities” that go into operation before 2030;

• Finalizes a clean electricity investment tax credit that was first introduced in the 2023 federal budget, but anticipates no spending at all through 2030;

• Extends the existing tax credit for carbon capture and storage by five years, to an end date of 2040 instead of 2035, but schedules no spending through 2030;

• Meets longstanding calls to expand the existing Scientific Research and Experimental Development (SR&ED) tax incentive system in ways that may disproportionately benefit early-stage clean technology companies;

• Cites the Darlington nuclear project outside Toronto, which will rely on uranium from the United States, as an example of “investing where it counts” in a new Buy Canada policy.

Trading Out the Emissions Cap

The budget stops short of eliminating the government’s watered-down, long-delayed cap on oil and gas emissions, but appears to trade it off for a stronger system of industrial carbon pricing and other measures meant to reduce the industry’s climate pollution.

The document says effective industrial carbon pricing is “essential to providing certainty to businesses looking to invest and compete internationally.” Already, it adds, that system “is expected to deliver more emission reductions than any other policy, with negligible impacts on affordability for Canadians.”

The budget pledges to “improve the effectiveness of carbon markets to provide confidence that credit prices will be predictable and sufficient to support clean growth investments without adversely affecting competitiveness or leading to carbon leakage.” Elements of that plan include:

• A multi-decade trajectory for industrial carbon pricing from 2030 through 2050, to be developed through engagement with provincial and territorial governments;

• Better federal benchmarks to ensure a consistent industrial carbon price across the country;

• Contracts for difference to give investors greater certainty about future carbon prices.

And to complement the industrial carbon price:

• Carrying on with the final, delayed version of federal Clean Electricity Regulations;

• Finalizing “enhanced” methane regulations for oil and gas operations and landfill sites, while allowing provincial and territorial governments to negotiate equivalency agreements based on their own control programs, with no reference in the document to serious, persistent problems in monitoring methane emissions;

• Future updates on electric vehicle mandates and clean fuel targets.

“Effective carbon markets, enhanced oil and gas methane regulations, and the deployment at scale of technologies such as carbon capture and storage would create the circumstances whereby the oil and gas emissions cap would no longer be needed as it would have marginal value in reducing emissions,” the budget states.

More New Homes, No Efficiency Target

The budget repeats Carney’s commitment of $13 billion over five years to launch the new Build Canada Homes agency and build up to 45,000 new housing units on existing federal lands. The program is meant to focus primarily on non-market housing and includes $423 million, already announced earlier this year, for eight new co-operative housing buildings.

Build Canada Homes aims to “catalyze maximum investment while mainstreaming advanced methods of construction, with the potential to cut building timelines by up to 50%, reduce costs by as much as 20%, and lower emissions by approximately 20% during construction,” the budget states. With that activity, “Canada can significantly increase its supply of affordable homes and become a global leader in housing innovation, including in construction techniques, sustainable materials, and leading-edge manufacturing.”

The budget makes no mention of energy efficiency or heat pump deployment targets for Build Canada Homes. Within 24 hours of the federal announcement, green building practitioners were worrying that the new units will become part of a huge backlog of homes awaiting energy retrofits to improve their performance and address heating and cooling costs that are an important factor in housing affordability.

Sustainable Finance Taxonomy: Target Date Set, Details Missing

The budget promises to complete its long-awaited sustainable finance taxonomy in 2026 and identify an arm’s length organization to develop sustainable investment guidelines by the end of this year. Canada’s taxonomy is an overdue response to a continuing international effort—in the field of finance, not biology—to set common definitions of sustainable investments that reduce emissions or support climate adaptation, and counter greenwashing around those activities.

“These investment guidelines will become an important, voluntary tool for investors, lenders, and other stakeholders navigating the global race to net-zero, by credibly identifying ‘green’ and ‘transition’ investments,” the budget states.

Those definitions have been the subject of fierce debate over more than three years, with some sustainable finance experts arguing it would be better to have no taxonomy at all than a system that allowed too much latitude for fossil fuel investment. Now, “the reconfirmed sustainable investment taxonomy, in moving forward, has to be fossil-free and centre independent experts outside of the financial sector. That’s foundational for it to be credible,” Julie Segal, senior program manager, climate finance at Environmental Defence Canada, said in an email.

“While it’s good that this government is paying attention to sustainable finance policies as it courts greater private sector investment, advancing solely on a taxonomy remains insufficient,” Segal added. “As Prime Minister Carney has said himself in previous roles, a cohesive package of mandatory transition plans, disclosure, and credible taxonomy is what’s needed. Until the full package of policies is delivered, it remains a missing piece of Canada’s climate plan.”

‘More Investor Risk’ with Weakened Greenwash Rules

The budget has also raised alarms by proposing to eliminate provisions in federal greenwashing legislation that require companies to verify environmental claims based on internationally recognized guidelines, and allow third parties to bring complaints to the federal Competition Tribunal.

In June, the Competition Bureau assured firms that the existing legislation, adopted by Parliament in June 2024, allows any marketing claims that aren’t false. But the budget still aims to offer “more certainty to the marketplace” by removing provisions that prompted fossil fuel companies and their lobby groups to not just update their websites, but burn them to the ground when the legislation was first adopted.

“The government’s proposal to weaken greenwashing provisions means more investor risk, particularly given the reluctance of provincial securities regulators to enforce accurate and complete disclosure in climate matters,” Matt Price, executive director of Investors for Paris Compliance, responded in a release.

“Removing the Competition Act amendments lets polluters mislead people in Canada and undermines truly sustainable businesses,” added the Canadian Association of Physicians for the Environment, one of the lead advocates for the legislation.

“Such needless retreat on climate and sustainable finance policy from a government led by Mark Carney is not something many experts would have expected,” said Adam Scott, executive director of Shift Action for Pension Wealth and Planet Health. “With the future stability and competitiveness of Canada’s economy on the line, we need much stronger leadership in the face of relentless industry lobbying. Canada needs credible guardrails in place to ensure the stability of our financial system and the climate.”

Cancelling the 2 Billion Trees Program

The budget signals a decision to wind down the Trudeau government’s commitment to plant two billion trees over 10 years, originally cast as “a significant step forward in Canada’s approach to tackle the dual crises of climate change and biodiversity loss.” Now, with nearly a billion trees committed, “existing contribution agreements and commitments will be honoured, and uncommitted funds will be returned,” the budget says.

With the Clean Economy Investment Tax Credits in place to drive investment, “the government remains committed to sustainable forest management practices,” the document adds.

The Canadian Tree Nursery Association countered that tree planting should receive “major project status, not cuts”, after the country lost an estimated 8% of its forest cover to wildfires between 2023 and 2025.

“This abrupt move not only threatens the long-term environmental recovery of Canada’s forests—which have already been devastated by recent wildfires—but also jeopardizes the livelihoods of workers, critical infrastructure, and the entire forest restoration sector,” Executive Director Rob Keen said in a release.

A Foot in the Door for the Youth Climate Corps

The budget earmarks $40 million over two years to launch a Youth Climate Corps, in which young Canadians “will be trained to quickly respond to climate emergencies, support recovery, and strengthen resilience in communities across the country. The skills training and work experience opportunities created through a Youth Climate Corps support reducing youth unemployment, increasing innovation, and strengthening adaptation and mitigation projects.”

Climate champions received the news as a lone ray of hope after years of coast-to-coast advocacy to get the idea funded.

“This is a win for hundreds of young activists and allies who have pressed hard for this idea, especially in the context of a budget that is significantly retreating on climate and decreasing overall program spending,” Climate Emergency Unit Team Lead Seth Klein said in a release. “But notably, $20 million a year will only produce about 350 full-time jobs for the whole country, which is not terribly consequential for tackling skyrocketing youth unemployment or addressing the climate crisis.”

The budget allocation “is a far cry from the $1 billion annual investment our campaign has called for, but it gets our foot in the door to prove the YCC’s worth,” Klein added. “So we will roll up our sleeves and work with the government to up the ambition for a Youth Climate Corps that matches the generational challenge.”

In November 2023, polling commissioned by the Emergency Unit indicated that even 20,000 spots per year would barely scratch the surface of the potential demand for the program. Some 65% of youth aged 18-35 said they would consider joining, and 15% said they would “definitely” consider. Interest was highest on the Prairies and in Atlantic Canada, followed by Quebec.

With nine million people across the country in the 18-35 age group, the 15% figure added up to 1.3 million potential applicants, Klein noted.

“They’re not saying maybe. They’re saying ‘definitely. I get it. If this exists, sign me up’,” he said. “1.3 million Canadians are saying, ‘where’s my goddamn invitation?’”