Carney’s climate competitiveness budget

What happened: The Carney government released its first budget last week, promising a “generational” investment strategy that integrates economic, national, and energy security.

The new “climate competitiveness” strategy is a cornerstone of the budget, aiming to lower Canada’s emissions in order to secure access to global markets that prioritize sustainability. It combines stronger industrial carbon pricing with investments in critical mineral supply chains and abundant clean energy to power and attract industry.

The details: The Budget focused critical minerals, previously-announced tax credits and carbon pricing. Key climate line items include:

• Strengthening industrial carbon pricing: Fix and apply the federal backstop where it’s not being met. Explore improvements to and linkages between credit markets across Canada. Develop a multi-decade price trajectory to 2050 for investment certainty.

• Clean electricity: Advance the Trudeau-era Clean Electricity Regulations. Funding to promote nuclear energy exports.

• Emissions: The oil and gas cap will “no longer be needed” if other provisions go forward, but no further details. Enhanced methane regulations for oil and gas and landfills. Targeted updates to Clean Fuel Regulations.

• Critical minerals: A $2B Critical Minerals Sovereign Fund at NRCan to support projects and companies with equity, loans, and offtakes. $371M First and Last Mile Fund to develop critical mineral projects and supply chains. Expand exploration tax credits to more minerals. $443M to support critical minerals processing technologies, stockpiling, and joint investments with Allies.

• Clean economy tax credits: Implement the Clean Electricity credits and removes conditions for utilities. Extend CCUS rates to 2035, expand eligible inputs for Clean Technology Manufacturing, and consult on domestic content requirements.

• Sustainable finance taxonomy: An arms-length group will define green and transition investments, a potential reset from past work by the Sustainable Finance Action Council. Exploring Sustainable Bond frameworks for industry and agriculture and improve climate disclosures across the economy with provinces.

• Greenwashing: Remove the requirement for companies to back up claims with internationally recognized standards, and the ability of third parties to bring cases.

• Innovation: Increased SR&ED credit limits to $6M, expanded eligibility to some public companies, and inclusion of capital expenses. $1B for a Venture and Growth Capital Catalyst Initiative to incentivize institutional investor participation, and $750M strategy to close early growth-stage funding gaps in 2026.

Taken together, the budget offers some significant boosts for Canada’s clean economy and brings climate policy firmly into an economic competitiveness frame.

It also underpins Carney’s “grand bargain” with the provinces: supporting oil and gas project development in exchange for driving down emissions. The most notable example is the oil and gas emissions cap, which “would no longer be required” if the provinces tighten their industrial carbon price.

Yes, but: Despite the positive movement on climate and integrating it into industrial policy, Budget 2025 left a few key opportunities on the table.

• NRCan will wind down the Greener Homes program, creating a headwind for home electrification and heat pump adoption. The Carney government may not have seen the economic impact they’d want from this program despite its emissions potential.

• Finance gaps remain, from missing guarantee mechanisms for the ITCs and no update on the EV Supply Chain credit

• Major supports for liquified natural gas risk locking in higher-emitting infrastructure.

• Early-stage innovation support remains thin. The Canada Cleantech Alliance called out the need for a dedicated first-of-a-kind financing facility, and uncertainty around SDTC’s IRAP replacement. There’s a risk that incumbents get incumbent-ier while startups building next-gen tech can’t cross the commercial valley of death.

Why it matters: The budget shifts the centre of gravity in Canadian climate policy, positioning climate action as industrial economic strategy rather than an environmental goal to reduce emissions. Few measures were framed around specific emissions reductions.

That also means a shift from government-led project delivery (e.g. the 2 billion trees initiative or Greener Homes Program) to government catalyzing private capital.

The bottom line: Carney’s budget ushers in a new phase in Canada’s climate strategy, one that trades concrete emissions targets for long-term economic positioning. The success of this shift will hinge on whether Canada can back home-grown solutions and build domestic capacity - without losing sight of the bigger climate picture.

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