Canada's 2025 Budget Makes Piecemeal Progress on Climate

Today's federal budget, which arrives at a moment of deep geopolitical uncertainty, takes welcome steps to link climate ambition with economic competitiveness and pledges key investments in critical minerals to accelerate the clean energy transition. Yet the sparse Climate Competitiveness Strategy falls short on commitments needed to ensure Canada leads the way on the global stage.

"Climate competitiveness is essential to economic prosperity," says Patricia Fuller, President and CEO of IISD. "Canada has taken a step forward today, pledging investments to ensure it leads in some priority areas. But to truly prosper, it must do more to advance clean energy and clean technology in a rapidly decarbonizing world."

Positively, the budget recommits to more stringent methane regulations for the oil and gas sector, and the government's commitment to strengthen industrial carbon pricing provides a cornerstone for the strategy. This will provide much-needed certainty to drive low-carbon investment. This must be implemented urgently along with complementary policies like the carbon border adjustment included in the Liberal platform.  

These positive signals are offset, however, by the decision to direct more tax dollars to oil and gas, further fuelling climate change. The budget increases fossil fuel production subsidies by offering tax breaks for constructing new liquefied natural gas (LNG) facilities while at the same time extending an existing investment tax credit for carbon capture and storage. These subsidies lock-in new and expanded fossil fuel production and, in the case of LNG, violate the government's own policy to avoid new inefficient fossil fuel subsidies. This diverts scarce resources away from low-carbon innovation in a world where rapidly expanding renewable energy is driving down global demand for oil and gas.

"Committing to build a low-carbon economy while at the same time subsidizing a growing fossil fuel industry is like trying to drive forward while the gearshift is in reverse," says Nichole Dusyk, Senior Policy Advisor and Lead, Canada Energy team. "By funding and relying on carbon capture and storage and LNG as 'climate solutions,' the federal government is sapping resources from real, globally competitive climate solutions."

Critical Minerals

IISD commends Canada's global leadership in responsible critical minerals development, reflected in the new Critical Minerals Sovereign Fund along with strategic partnerships through the Critical Minerals Production Alliance. These measures reaffirm a much-needed commitment to build domestic resilience and collective security both here and abroad through sustainable supply chains. The success of these investments will hinge on embedding strong sustainability, transparency, and community inclusion standards.  

Climate Adaptation

While the budget recognizes the economic opportunities associated with mitigating climate change, it leaves unanswered the question of what resources will be allocated to protect Canadians from its impacts. The new Build Communities Strong Fund contains a stream of funding for which climate adaptation projects will be eligible, as well as support for more reliable weather forecasting, but no mention of any renewal of dedicated funding for disaster risk reduction and management or climate adaptation.  

International Development Assistance

In a context where Canada is seeking to diversify its trade globally, the planned CAD 2.7 billion cut to international development assistance threatens to diminish Canada's international standing with partners around the globe.