Carney sets stage to scrap oil and gas cap, doubles-down on industrial carbon tax
OTTAWA — Prime Minister Mark Carney’s government is setting the stage to end the proposed oil and gas emissions cap and promising to do away with certain rules aimed at penalizing companies accused of “greenwashing.”
At the same time, Tuesday’s federal budget committed his government to strengthening its industrial carbon tax, not only by working with provinces, but by enforcing it on jurisdictions without systems that meet federal requirements.
Such a give-and-take approach is how Carney seeks to reduce emissions while attracting more private-sector dollars, a key pledge of his government outlined in its new “Climate Competitiveness Strategy.”
Presented as part of his 2025-26 spending plan, Carney campaigned during the April federal election campaign on coming up with a strategy directed at helping industries reduce emissions and keep pace with the development of clean technologies.
While U.S. President Donald Trump has pushed for more oil production, the Carney government’s new strategy instead emphasizes the global expansion towards clean technologies, saying those looking for Canadian resources, including oil and gas, want lower-carbon products.
Besides continuing with a slew of tax credits aimed at developing clean technologies, from carbon capture and storage and hydrogen, which were ushered in under former prime minister Justin Trudeau, Carney’s strategy places a major focus on strengthening its industrial carbon pricing system, which targets large emitters.
Under the existing system, the federal Liberal government has said provinces and territories could operate their own systems, so long as they meet a minimum set of requirements outlined by Ottawa for charging a price per tonne of emissions that companies would have to pay, should they fail to keep their emissions below a certain level.
Those levies must rise annually until 2030.
Failure to comply would open the door for the federal government to impose its own industrial carbon pricing system, which Ottawa calls its backstop.
Carney’s new plan proposes to do just that, should jurisdictions fail to meet its national requirements, otherwise known as its benchmark.
“The government will improve its application of the benchmark — the tool that ensures all (provincial and territorial) pricing systems are harmonized across the country in providing a common, strong price signal.” “The government will promptly and transparently apply the federal backstop whenever a (provincial and territorial) system falls below the benchmark,” the budget reads.
It added that the government would work with jurisdictions to improve industrial carbon pricing and develop a strategy to see the policy through to 2050, when Canada has set a goal of reaching net-zero emissions.
Heading into Tuesday’s budget, Carney and his ministers did not voice a commitment to meeting Canada’s emission-reduction targets for 2030 and 2035, with the prime minister saying his focus instead would be on achieving “results over objectives.”
Strengthening the industrial carbon tax was a promise Carney made during the April federal election, after zeroing out and eventually tabling legislation that cancelled the consumer carbon tax, which the prime minister said had become too divisive.
Carney’s government has faced calls from climate policy organizations to improve the industrial carbon pricing system as a way to drive down emissions.
At the same time, Opposition Conservative Leader Pierre Poilievre included scrapping it on a list of pre-budget demands.
Earlier this year, Saskatchewan and Alberta announced they were backing away from the system.
Saskatchewan Premier Scott Moe announced back in March that it was pausing its industrial carbon tax, while Alberta Premier Danielle Smith said she did not intend to hike the province’s levy as scheduled for 2026.
Smith, however, has softened her stance, telling reporters last month that she was open to making changes.
It comes as she presses Carney’s government to do away with a suite of Trudeau-era environmental policies, which she and other critics say hamper Alberta’s oil production.
Smith is also seeking Carney to greenlight the construction of a new million-barrel-per-day bitumen pipeline to British Columbia’s coast under a new federal process he ushered in, promising to cut down the timeline for approvals.
While Carney’s government has said it would consider a proposal for that project once it was submitted to its new Major Projects Office, Tuesday’s budget signalled an openness to axing the proposed cap on oil and gas emissions, one of the Trudeau-era policies that Smith has called for Carney to undo, saying it drives away production.
Tuesday’s budget committed to update that policy, but suggested it would depend on a set of other measures.
“Canada is committed to bringing down the emissions associated with the production of oil and gas,” the document read.
“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 required as it would have marginal value in reducing emissions.”
Carney’s government has named a major carbon capture and storage project in Alberta, as one of the projects it wants to see further developed, which Smith has called the “grand bargain,” as she pushes for a new pipeline.
“The message we’re sending is, when the conditions are going to be met, we won’t need the cap anymore,” Finance Minister Francois Philippe-Champagne said on Tuesday when asked about the emissions cap.
“That’s what we say in the budget. There’s technologies, there’s different regulations around methane, and we’re talking also about carbon capture and sequestration. So, what we’re saying is, when the conditions are met, we won’t need the cap anymore.
Carney’s new strategy also listed working with provinces on a set of clean electricity regulations, as well as finalizing methane regulations for the oil and gas sector and updating clean fuel regulations as other commitments.
The Liberals also committed to providing an update on the future of the electric vehicle mandate, which Carney delayed the implementation of for 2026 and placed under review, to be conducted later this year
As part of his new strategy, Carney’s government pledged to revisit recent changes made to the Competition Act, which sought to prevent companies from making false claims about efforts to tackle climate change without providing sufficient evidence.
Those measures, according to the budget, “are creating investment uncertainty and having the opposite of the desired effect with some parties slowing or reversing efforts to protect the environment.”
It pledged that Carney’s government would remove some of those changes while still “maintaining protections against false claims.”
Even before it passed, oilsands companies in Alberta, including those behind the multi-billion-dollar carbon capture and storage project Carney’s government wants to see developed, voiced concerns about how the changes would hamper its efforts at reducing emissions in the oil and gas sector.
Tuesday’s budget also confirmed reports from National Post and other media about the government’s plan to wind down the two-billion-dollar tree planting program, while honouring the existing tree-planting contracts signed.
It was one of the programs identified to be cut under a spending review, the results of which were included in the government’s new spending plan.
While an exhaustive list was not available, other climate-related initiatives identified to be ended included the incentive for medium and heavy duty zero-emission vehicles, a grant program available to homeowners who wanted to upgrade their homes to be more energy efficient, which had been closed to new applicants.
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