Prime Minister Carney on climate: what Canada’s 45th federal election means for climate policy

This piece was first published by Institute of Corporate Directors. View the original publication: Carney on Climate: What Canada’s 45th Federal Election Means for Climate Policy.

On April 28, the Liberal Party of Canada secured its fourth consecutive mandate—and its first under new leader Mark Carney—winning 169 seats in the House of Commons. While falling three seats short of a majority, the Liberals now begin their third straight term in a minority government, buoyed by their strongest showing since 2015.

Though U.S. relations and economic stewardship dominated the campaign and initial governing agenda, climate policy remains a defining issue. With Prime Minister Carney and Conservative leader Pierre Poilievre offering contrasting climate strategies, the election outcome sets the course for how Canada navigates its climate transition. Carney’s win signals continuity, but also renewal—and a sharpened focus on investment-driven climate action. Corporate directors should consider how such an investment-driven approach may affect capital availability and government support for new climate-aligned projects, as well as the risks and opportunities of the broader climate transition.

Governing without a majority: tools and tensions

While majority governments command legislative freedom, minority mandates can still yield significant policy progress. The Liberal government retains two key tools:

1. Strategic collaboration. Former NDP allies or other MPs may offer sufficient support to pass legislation. The NDP provided the Liberals this support through the Supply and Confidence Agreement between 2022 and 2024. The NDP lost its official party status, yet the Liberals only need three additional votes to pass legislation.
2. Executive and regulatory power. Even without these additional votes, a minority government has the authority to pass and amend regulation and issue Orders in Council, which in some cases can amend existing legislation. This was exemplified in March 2025, when the government—via regulation—reduced the federal fuel charge to zero under the Greenhouse Gas Pollution Pricing Act, effectively suspending the consumer carbon tax. The move was politically significant, revealing how regulatory levers can reshape policy without parliamentary votes.

This same toolkit could be used for climate policy action in the months ahead. Boards should not assume legislative gridlock. Regulatory tools can rapidly reshape market conditions. Directors should ensure management maintains a real-time understanding of emerging federal policy—especially in emissions-intensive sectors.

Carney’s climate agenda: policy anchors and priorities

Prime Minister Carney’s platform emphasized a clean economy vision driven by investment, innovation, and industrial competitiveness. Below are three key climate-facing policy directions that are likely to be a focus of this government:

1. Strengthening Canada’s carbon markets

Despite scrapping the federal consumer carbon tax, Carney’s platform commits to enhancing the Output-Based Pricing System (OBPS)—Canada’s industrial carbon pricing regime, which applies in provinces and territories that do not have equivalently stringent regimes. The goal: improve functionality, promote provincial linkage, and harmonize national standards.

A federally mandated interim review of industrial carbon pricing programs is scheduled for 2026 to ensure that stringency is aligned across jurisdictions. This stringency review will likely focus on the stringency of compliance costs. Currently, the effective carbon price can vary significantly depending on the provincial scheme. For example, offset credits issued under Alberta’s Technology Innovation and Emissions Reduction (TIER) regulation have recently traded at less than $40/tonne, less than half of the federal backstop price of $95/tonne in 2025. In contrast, the price of allowances traded in Québec’s cap-and-trade system, which is linked with California’s, is highly sensitive to rulemaking in that state and political attacks from the U.S. federal government.

Premier Danielle Smith of Alberta has also signaled support for a letter written by many of the country’s largest oil and gas companies, which argues that the federal government should leave industrial carbon pricing entirely to the provinces. The stringency review will bring this issue to the fore.

Given that industrial carbon pricing now applies to over 40% of Canadian emissions, its evolution will shape the future of national decarbonization. For directors in high-emitting sectors, evolving carbon pricing frameworks represent both cost risk and arbitrage opportunity. Board committees should consider the sensitivity of their companies to evolving carbon pricing regimes, and the risks and opportunities that evolution presents.

2. Advancing carbon dioxide removal technologies

Carbon dioxide removal (CDR) technologies involve the removal of carbon dioxide from the atmosphere (rather than industrial sources) for long-term storage in geological, terrestrial or oceanic reservoirs, or in products like concrete. CDR technologies like Direct Air Capture (DAC) and ocean-based carbon removal are emerging as essential tools in global net-zero pathways. Estimates indicate the market for CDR credits could grow to between 150-725 megatonnes by 2050. With abundant forests, coastlines and promising geology for carbon sequestration, Canada is well-positioned to host a growing CDR sector.

Prior to the election, Ottawa had begun to incentivize certain CDR technologies, particularly DAC. In early 2025, Ottawa released an initial draft protocol to allow voluntary DAC projects to generate carbon offset credits—complementing their eligibility for the federal Carbon Capture, Utilization and Storage (CCUS) Investment Tax Credit (ITC). Carney has since pledged to make Canada a world leader in CDR, suggesting expanded support for both engineered and nature-based carbon removal solutions, including through Canadian CDR targets for 2035 and 2040 and a commitment to extend the full value of the current CCUS ITC through 2035.

Boards should evaluate whether CDR could form part of their companies’ net-zero strategies. For industries with hard-to-abate emissions, early partnerships with CDR projects may offer reputational, financial and regulatory advantages.

3. Exploring Carbon Border Adjustment Mechanisms

Prime Minister Carney’s platform marked Canada’s first formal signal toward implementing Carbon Border Adjustment Mechanisms (CBAMs). To date, CBAMs have featured more prominently in Europe, where the European Union (EU) has enacted legislation that will introduce tariffs on importers of certain carbon-intensive products as soon as 2026, with a view to leveling the playing field for the same products produced in Europe that are subject to an industrial carbon pricing regime. The EU’s drive to implement CBAMs has prompted policy discussion internationally—and now here in Canada.

Carney’s platform promised the development of CBAMs as a protective measure for Canada’s energy-intensive and trade-exposed sectors, which would function by imposing a tax or tariff on goods produced in those sectors and imported into Canada. However, CBAMs are diplomatically delicate. Without coordination among major trading partners, they risk sparking protectionist backlash. While the EU, UK, Japan and Australia are exploring similar tools, Canada’s near-term implementation is unlikely. Still, the inclusion of CBAMs in the platform signals a maturing climate-trade agenda.

Directors of export-intensive businesses should assess trade exposure risk from future Canadian or foreign CBAMs. This includes considering whether supply chain partners in high-carbon jurisdictions may soon face cost disadvantages—and whether to shift procurement or footprint accordingly.

Two additional flashpoints to watch

1. Clean Investment Tax Credits

Prime Minister Carney supports finalizing and continuing the six major Clean Economy ITCs introduced by the previous Liberal government, covering CCUS, hydrogen, clean electricity and more. These credits will be pivotal in crowding in private capital.

2. The oil sector emissions cap

Tensions over the proposed cap on oil and gas emissions—strongly opposed by Premier Smith—could reignite federal-provincial conflict. On April 30, 2025, the Province of Alberta filed a reference case with its Court of Appeal regarding the constitutionality of the Clean Electricity Regulations, which would set stringent emissions performance limits on fossil fired power generation. A similar reference case would unquestionably follow if the Liberals enacted the proposed oil and gas sector emissions cap regulations, which it published in November 2024. The Liberals will need to navigate carefully, especially as Poilievre's Conservatives and provinces like Alberta and Saskatchewan framed the cap as overreach during the campaign.

Conclusion: clarity amid constraint

Despite leading a minority government, Carney’s Liberals have a wide range of tools to advance climate policy. From industrial carbon pricing and CDR incentives to ITCs and border adjustments, Canada is poised to move from ambition to implementation. However, progress will depend on finding win-win opportunities for the federal and provincial governments, and perhaps the greatest opportunity will be in finding a mix of regulatory incentives that can combine to drive investments in new and innovative CCUS and CDR projects across the country. Corporate directors will play an important role in guiding their companies toward these opportunities and mitigating potential risks of the broader transition to a low-carbon economy.