Canada elections: can Carney keep up with his climate credentials?

Canadian politics have undergone a dramatic U-turn over the past year. Last year, Conservative leader Pierre Poilievre was comfortably ahead in the polls. Now, former Bank of England governor Mark Carney has won the election by a narrow margin, amid a backdrop of controversial comments from US politician Donald Trump suggesting that Canada should become the 51st American state—remarks which appear to have backfired on Poilievre, who is widely perceived as more closely aligned with Trump. Carney is now likely to enter into a minority government with other parties who have relatively strong climate commitments. 

Carney’s election should be good news for Canada’s climate ambitions and for international decarbonisation efforts, with Canada currently ranked as the 12th largest emitter globally. His leadership could also send a strong policy signal to Canadian and international asset owners looking to make long-term investments in the country’s energy transition.

Canadian pension funds, in particular, tend to allocate comparatively high proportions to private market assets, including substantial exposure to domestic infrastructure. Some larger schemes dedicate between 8% and 20% of their portfolios to the asset class.

While both the Conservatives and Liberals have officially adopted net zero targets, Poilievre has more recently criticised decarbonisation efforts and has advocated for increased oil and gas production.

Macro credentials

Carney’s election has been warmly welcomed by environmental campaigners. Rick Smith, president of the Canadian Climate Institute, said: “Accelerating Canada’s progress on climate change is an economic imperative in this time of global upheaval. Canada has an opportunity to act on climate change in ways that grow our economy, support Canadian innovation, and expand our trade horizons. With continued US aggression and efforts to undermine clean energy innovation, Canadian-made climate solutions are a vital tool to support workers, protect communities, and strengthen our economy.”

His macro credentials are seen as a significant advantage by Gerald Alain P. Chen-Young, CIO at the National Public Pension Fund Association (NPPFA) who argues that in an era increased political  uncertainty, macroeconomic clarity becomes key: "PM Carney’s intellect on all things monetary policy related matters. It does, because monetarism seems to dominate the current global economic agenda. Yield curves & term structures of interest, central bank activism, reserve (currency) & safe haven assets, and so forth are all apparently the apex of concerns, globally" he stresses. 

Richard Brooks, climate finance director at the campaign group Stand.earth, echoed that support: “We hope prime minister Carney’s deep understanding of climate change and practical solutions will guide his policy decisions. He knows that new oil and gas pipelines are not the answer, nor can we rely on voluntary actions from private institutions like banks and asset managers.

“Given his macroeconomic experience, we expect him to use federal powers to implement mandatory regulations on financial institutions and to channel targeted investment into real clean energy solutions—such as renewables, grid expansion, and efficiency programmes. He promised to rein in major industrial polluters, and we expect him to deliver” he added.

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Adam Scott, executive director at Canadian pensions campaign group Shift also welcomed the results, acknowledging that Mark Carney had an "uncommon depth of climate experience for a national leader." But he also warns that his convictions are now being to the test: "To maintain his climate credibility as prime minister, Carney will need to move beyond his calls for voluntary private sector risk disclosures, and adopt new mandatory financial regulations, including requiring climate transition plans, as has become international best-practice. Such measures would mesh with his promise to refocus Canada's economy away from an increasingly hostile United States towards our UK and European allies."

Carbon tax dilemma

While Carney has strong climate credentials—having served as UN Special Envoy for Climate Action and Finance, co-chair of the Glasgow Financial Alliance for Net Zero, and chair of Impact Investing at Brookfield Asset Management—his recent decisions have raised questions.

Since taking over as Prime Minister following Justin Trudeau’s resignation in January, Carney’s track record has been mixed. One of his most prominent and controversial moves has been scrapping Canada’s consumer carbon levy, in an attempt to ease cost-of-living pressures. This policy had been a flagship initiative of the governing Liberals, placing additional charges on consumer use of coal, oil and gas. Poilievre had previously framed the election as a referendum on the tax’s popularity.

However, while the consumer tax has been dropped, industrial emitters are still subject to it—and Carney may even increase rates for industry. If so, this could enhance the relative competitiveness of low-carbon sectors and play a significant role in reducing the nation's emissions without triggering price increases for consumers, as research by the Canadian Climate Institute suggests. 

Infrastructure tensions

With trade pressures mounting, both major parties have shifted their focus from decarbonisation to energy security. The question now is whether Carney will continue to support Canada’s substantial oil and gas industry—currently accounting for around 3% of GDP—or prioritise renewable expansion.

Ahead of the election, the Liberals pledged to support an East-West electricity grid to transport low-carbon power from provinces rich in hydropower—such as Quebec, Manitoba and British Columbia—to regions still reliant on fossil fuels. At the same time, there is growing public support for constructing new oil and gas pipelines, in part to reduce dependence on US energy imports.

The Liberal government has not ruled out new pipeline projects but has stated that any new construction would require approval from First Nations and provincial authorities.

Scott urges the new prime minister to exercise caution when pushing for new infrastructure projects: "Carney will have to clarify his inconsistent rhetoric and abandon his Paris-maligned promises around expanding Canada's fossil fuel exports through oil pipelines or LNG - as they would compromise Canada's net-zero targets, lock in rising climate pollution and deepen exposure to risky stranded assets" he warns.