The early days of Mark Carney’s government suggest Canada’s once ambitious climate policies are in retreat. The climate commitments of a previous era appear to be unraveling: consumer carbon pricing has been scrapped, the zero-emission vehicle (ZEV) mandate has been delayed, and supportive signals for pipelines have cast a shadow over Canada’s commitment to its 2030 Paris targets. While these high-profile reversals are politically significant, they risk distracting us from the real context. From a broader economic and industrial perspective, the global low-carbon transition is well underway and accelerating, albeit somewhat independent of shifting policy positions here and there. Significantly, Canada has an opportunity to be uniquely positioned to drive toward this new economy through its deepening strategic partnership with the European Union. The Carney government faces a historic choice: to align national policy with current economic directions and leverage the Canada-EU alliance, or to cling to short-term political calculations and give up the road to the clean economy.
The Illusion of Policy Shift
The Carney government’s recent policy reversals are stark and well-documented. Early in the mandate, they repealed the federal consumer carbon price. In September, the government suspended the 2026 ZEV sales targets. There are continued messages about uncertainty around the oil and gas emissions cap. There is also increasingly vocal support for LNG expansion and the potential revival of the Keystone XL pipeline!! These reversals each represent a step back from previous climate commitments, and altogether, they are a bit of a climate disaster. They damage Canada’s international reputation as a climate leader and create genuine uncertainty about our path to 2030. There’s a risk, though, of viewing these actions as the whole story and over-interpreting the political missives as aligning with the economic climate.
Structural Decarbonization
The reality is that outside of this federal hesitation, market and technological forces are well underway, driving decarbonization forward. Clean Energy is dominant. Renewable energy now consistently outcompetes new natural gas power generation on cost in many Canadian provinces. This isn’t a speculative future; it’s the present-day reality for energy investors. Global regulatory pressure consistently points toward less carbon. Heavy industry is being compelled to decarbonize by external forces, notably the European Union’s Carbon Border Adjustment Mechanism (CBAM) and similar proposed measures in the United States. Canadian exports will face tariffs unless they can prove their low-carbon credentials. The financial system will continue to favour lower carbon investments. Canada’s major banks and pension funds have adopted climate disclosures aligned with the International Sustainability Standards Board (ISSB), effectively embedding decarbonization metrics into the core of corporate governance and capital allocation.
The European Connection
In a significant move, Prime Minister Carney recently appointed the Honourable John Hannaford as his Personal Representative to the EU, tasking him with deepening ties across trade, defence, and climate competitiveness. This aligns with the ambitious New EU-Canada Strategic Partnership of the Future launched in June 2025, designed to unlock major opportunities in trade, the digital transition, and climate action. This partnership is a strategic framework that leverages Canada’s inherent strengths against Europe’s pressing needs. Canada has substantial built-in advantages to rely on for the advance toward a low-carbon future. To properly leverage the advantages, we have work to do. The strategic EU partnership is an opportunity to continue to align our regulations and capacity with the emerging demands from the EU. Canada’s clean energy grid (among the cleanest in the whole world) is a foundation for powering a green industrial revolution and exporting clean energy such as green hydrogen. The critical mineral wealth is not going away and will be key to both the US and EU’s green & digital re-industrialization. This advantage is very clear within the EU-Canada Strategic Partnership on Raw Materials’ secure supply chains. An established Trade Framework (such as CETA) will be more and more relevant. With the EU, bilateral trade has risen 65% since 2017, a platform for further regulatory alignment in high-impact sectors like hydrogen and AI. Carney’s approach provides a stable, like-minded partner for the EU at a time of transatlantic uncertainty. In the area of security, the new Security and Defence Partnership (SDP) provides access to the EU’s SAFE fund, bolstering mutual security. CBAM is particularly important. This EU mechanism will require importers of carbon-intensive goods to pay a levy, creating a powerful financial incentive for low-carbon production. For Canadian exporters in sectors like steel and aluminum, this requires immediate attention. Canada’s existing carbon pricing system can be credited against the CBAM cost, providing a potential competitive edge over producers from countries with no carbon price. This makes a robust and predictable domestic industrial carbon policy an example of a direct economic advantage in accessing the EU market.
CCUS and a Fragmented World
The path forward is not without its complexities. The Carney government’s support for Carbon Capture, Utilization, and Storage (CCUS) as a transition tool highlights a central tension. It is likely (according to IPCC) that CCUS may be necessary to decarbonize hard-to-abate industrial sectors. At the same time, it carries the risk of becoming a costly delay tactic, propping up fossil fuel infrastructure – and more subsidies – rather than accelerating the transition to clean energy. Any public funding for CCUS will have to be rigorously tied to verified, permanent emissions reductions. The global trading landscape is presenting an additional difficult challenge. Rising trade conflicts, U.S. protectionism, and resource nationalism demand a sophisticated Canadian response. To thrive, Canada must proactively align its industrial and climate policies, defend the use of tools like a potential Canadian CBAM to protect its own clean producers, and ensure a level playing field.
A Blueprint for Leadership: The Historic Opportunity
While Canada’s climate policy resolution may appear to be softening, the underlying economics of the transition away from fossil fuels are positioned to continue. The global shift to a low-carbon economy is real, structural, and irreversible. The question is who will lead the transition to a low-carbon economy and who will benefit. The European Union has laid down a gauntlet with its Green Deal and CBAM, creating a new set of rules for trade in the 21st century. Canada, with its resources, clean grid, and now strengthened partnerships with the EU, may become well-placed to work toward a dynamic, prosperous, and low-carbon future.
