Canada's budget 2025, released on November 4th, outlines the federal government's "Climate Competitiveness Strategy" as part of the government's new vision for climate-change policy. This is the liberal government's first budget since being elected in April and follows consistent messaging from the last several months: the government is focused on creating conditions that will attract investment into Canada, while building an affordable net-zero future in which Canadian businesses are well-positioned to compete and succeed in the global economy.
The Climate Competitiveness Strategy appears to be a central pillar of the government's plan to strengthen Canada's economy; however, a number of important questions were left unanswered. Most notably, the federal government did not eliminate plans for a cap on emissions from the oil and gas sector. The federal government is early in its tenure but has focused on rebalancing its environmental and energy priorities in a global economy that poses serious challenges to Canada's long-term prosperity.
The confidence vote on the budget passed on November 17, 2025.
An Energy Superpower
Prime Minister Carney has repeatedly spoken about Canada becoming a global energy superpower. To that end, the budget included Canada's Climate Competitiveness Strategy (the Strategy) as part of the federal government's vision for Canada's role in the clean energy economy.
Industrial Carbon Pricing and Emissions Trading
Carbon pricing trajectory: The current price on carbon is set to increase by C$15 per tonne of CO2 equivalent on an annual basis, ultimately settling at C$170 in 2030. The Strategy states that the federal government will engage provincial and territorial governments in setting a carbon price trajectory that targets net-zero by 2050. This initiative should provide investors with long-term certainty as it relates to the price of carbon in Canada. The government acknowledges that Canada's carbon markets are not functioning as well as they should be and pledges to improve them.
Benchmark and backstop: Currently, provinces and territories are permitted to enact their own carbon pricing regime, so long as that regime is as stringent as the federal equivalent. If the provincial or territorial regime is less stringent, the federal government imposes the "backstop" to ensure that carbon pricing across the country is consistent. The Strategy states that the government will improve its application of the benchmark—the tool that is used to assess a provincial or territorial regime's stringency. The government will apply the federal backstop whenever a system falls below the benchmark, stating it will do so "promptly and transparently".
Contracts for difference: Canada Growth Fund, a government initiative, will continue to enter into agreements with entities that will incentivize clean-technology projects by providing certainty as to the carbon price. Should the carbon price change, these contracts ensure signatory investors will receive consistent revenues for their carbon emission reductions, providing certainty to support investment. The Strategy reiterates the government's commitment to this initiative.
Greenhouse Gas Regulations
Oil and gas emissions cap: The Strategy is ambiguous as to whether the oil and gas emissions cap will be eliminated. With effective carbon markets, enhanced oil and gas methane regulations and the deployment at scale of technologies, such as carbon capture and storage, the Strategy states that "the oil and gas emissions cap would no longer be required as it would have marginal value in reducing emissions."
Methane: Working with provinces and territories, the government will finalize enhanced methane regulations for the oil and gas sector and landfills. Currently, the application of methane regulations across Canada is unclear, and further certainty on this point would be welcomed by investors.
Electric vehicles: The Strategy indicates that the government will announce next steps with respect to Canada's electric vehicle policy in the coming weeks
Electricity: The Strategy outlines that the federal government will work with provinces and territories to advance the goals of the Clean Electricity Regulations with the aim of a clean Canadian grid as electricity demand grows. In the Budget, the federal government confirmed it would be amending the Canadian Environmental Protection Act to allow for long-term equivalency agreements with provinces and territories reflecting the net zero by 2050 focus of the Clean Electricity Regulations. Provincial challenges to the constitutionality of the Clean Electricity Regulations are ongoing. Alberta's reference to the Alberta Court of Appeal on the matter is scheduled to be heard in June 2026 (2025 ABCA 233).
Clean fuel: Targeted updates to the Clean Fuel Regulations are expected to come. For example, in September 2025, Prime Minister Carney indicated that amendments to the Clean Fuel Regulations will address Canadian biofuel facilities.
Clean Economy Investment Tax Credits
The government reannounced its four clean economy investment tax credits in Budget 2025. It also announced further changes to the credits by:
- Confirming the government's intention to proceed with the implementation of the Clean Electricity investment tax credit and proposes to remove the conditions imposed on provincial and territorial governments for their Crown corporations to be eligible
- Proposing to extend, by five years, the availability of the full credit rates for the Carbon Capture, Utilization, and Storage (CCUS) investment tax credit, that would apply from 2031 to 2035. Credit rates would remain unchanged from 2036 to 2040.
- Proposing to expand the list of critical minerals eligible for the Clean Technology Manufacturing investment tax credit to include antimony, indium, gallium, germanium and scandium, in order to support investments in the extraction, processing and recycling of co-product and by-product critical minerals.
The government announced it will consult on the possibility of introducing a domestic content requirement under the Clean Technology and Clean Electricity investment tax credits.
Support for Manufacturing and Energy Diversification
The budget introduced immediate expensing for certain manufacturing and processing assets acquired after November 2025, which may be welcome news for Alberta’s growing industrial and clean-tech sectors. The accelerated capital cost allowances for low-carbon LNG facilities appear to signal cautious federal support for energy diversification in the West.
Critical Mineral Projects
Budget 2025 proposes to:
- Provide C$2 billion over five years, starting in 2026-27, to create the Critical Minerals Sovereign Fund. The fund will make strategic investments in critical minerals projects and companies, including equity investments, loan guarantees and offtake agreements.
- Provide C$371.8 million over four years, starting in 2026-27, to create the First and Last Mile Fund. This new fund would support the development of critical minerals projects and supply chains at the upstream and midstream segments of value chains, with a focus on getting near-term projects into production.
- Expand eligibility for the Critical Mineral Exploration Tax Credit (CMETC) to include an additional 12 critical minerals necessary for defence, semiconductors, energy and clean technologies: bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin and tungsten.
Additional Measures
Greenwashing
In an acknowledgement that the greenwashing provisions in the recently amended Competition Act "are having the opposite of the desired effect," Budget 2025 announces the government's intention to propose legislative amendments to remove some aspects of the provisions. Protections against false claims would be maintained. This may mean that the requirement for representations to be made "on an adequate and proper test" and "based on adequate and proper substantiation in accordance with internationally recognized methodology" will be maintained, with amendments to provide further clarity as to how such greenwashing provisions may apply to various industries.
Investments and Exports
Major investments in trade infrastructure and manufacturing incentives will be aimed at encouraging trade diversification and export capacity, and public and community infrastructure. The Major Projects Office has been created and an extensive list of projects have been identified which includes LNG, mining and ports but does not include any pipelines or carbon capture projects at this time. We previously published a blog on this topic, which can be accessed here. The Federal Minister of Finance and National Revenue stated in recent public remarks that the federal government had established a trade diversification strategy and trade diversification corridors fund in order to double non-US exports over the next decade. Funding is expected to focus on ports, ports of entry and railways to reduce bottlenecks and open faster export routes.
What the Strategy Means for Business
Budget 2025, and the Strategy, aim to further Prime Minister Carney's goal to make Canada an "energy superpower". The Budget and the government's messaging since taking office is a significant shift in Canada's major projects and energy policies from the past liberal government. There is cautious optimism that these positive signals to investors will accelerate the inflow of capital for Canadian energy and infrastructure projects.
We anticipate further announcements in the near future will continue to provide enhanced certainty to investors and the energy industry.
If you have any questions about the recently-announced budget or the Strategy, we invite you to contact one of the authors of this blog post.
