Climate Priorities in Budget 2025: Building a Competitive, Low-Carbon Economy

On November 4, 2025, the Honourable François-Philippe Champagne, Minister of Finance and National Revenue, released the highly anticipated Budget 2025: Canada Strong.

Described by the government as an ‘investment budget’, Budget 2025 focuses on reducing government operating costs while channelling resources into workers, businesses, and nation-building infrastructure. It identifies $60 billion in savings and new revenues over five years through a comprehensive expenditure review, enabling generational investments in housing, infrastructure, defence, productivity, and competitiveness.

The budget is guided by two fiscal measures that are expected to support up to $1 trillion in total investments over the next five years through smarter public spending and stronger capital mobilization. Budget 2025: Canada Strong sets out a plan to transform Canada’s economy amid heightened global uncertainty, building greater resilience, competitiveness, and shared prosperity for Canadians.

Canada’s Climate Competitiveness Strategy

Budget 2025 introduces Canada’s Climate Competitiveness Strategy as part of the federal government’s new industrial policy. The strategy positions climate action as both an environmental imperative and an economic necessity. It aims to secure Canada’s leadership in the global transition to a low-carbon economy while driving industrial growth, job creation, and export competitiveness.

Read: Positioning for Canada’s Climate Competitiveness Strategy: What to Expect and Why It Matters

The government recognizes that global markets are increasingly demanding low-carbon products and that Canadian industries must reduce their emissions intensity to remain competitive. The strategy combines strengthened carbon pricing, streamlined regulation, and targeted tax incentives to attract private investment and accelerate the deployment of clean technologies. The following initiatives aim to transform Canada into a clean energy superpower while maintaining affordability and industrial competitiveness.

Strengthening Industrial Carbon Pricing and Market Certainty

A key component of Canada’s Competitiveness Strategy is the modernization of Canada’s industrial carbon pricing framework. The government intends to improve the predictability and effectiveness of the system to support competitiveness and investment through the following actions

• Post-2030 carbon price trajectory: Long-term pricing pathway to 2050 developed with provinces and territories.
• Benchmark reforms: More consistent federal oversight to ensure strong, harmonized price signals across jurisdictions.
• Carbon contracts for difference: Will continue through the Canada Growth Fund to stabilize carbon prices for investors.
• Carbon market improvements: Enhancing liquidity and price confidence to prevent carbon leakage and support clean investment.

Read: Canadian Federal Benchmark Equivalency: Where Canada’s Carbon Systems Stand

Aligning Regulations with Emissions Reduction Goals

Budget 2025 commits to clearer, complementary regulations that work with carbon pricing:

• Electricity: Maintain Clean Electricity Regulations to support the transition to net-zero by 2050 and make legislative amendments to the Canadian Environmental Protection Act (CEPA) to enable long-term agreements with provinces and territories 
• Methane: Stronger oil and gas and landfill methane rules with provincial equivalency agreements.
• Oil and Gas Emissions Cap: No longer required due to existing regulations such as effective carbon markets, enhanced oil and gas methane regulations and the deployment of CCUS technologies 
• EVs: Targeted regulatory updates to support domestic production, supply chains, and competitiveness. In September, the government announced regulatory adjustments to support the automotive sector amid U.S. trade and policy pressures, including removing the 2026 EV Availability Standard target and launching a 60-day review. Next steps will be announced soon.
• Clean Fuel: Targeted updates to the Clean Fuels Regulation

Read: Canada CFR Q1 2025 Compliance Credit Market Report Review

Accelerating Clean Investment through Tax Credits

To accelerate private-sector investment in clean industries, Budget 2025 expands and enhances Canada’s suite of Clean Economy Investment Tax Credits. These refundable credits provide predictable, long-term incentives to de-risk major projects and anchor clean manufacturing in Canada. Available and Proposed Clean Investment Tax Credits include:

• Carbon Capture, Utilization and Storage (CCUS) ITC
  
  • Credit rate: 37.5% to 60%
  • Available since January 1, 2022
  • Extended full-rate availability to 2035, with unchanged rates through 2040.

• Clean Technology ITC
  
  • Credit rate: 30%
  • Available since March 28, 2023
  • Expanded eligibility to include waste biomass systems and small modular nuclear technologies (retroactive to 2023).
    
    
• Clean Hydrogen ITC
  
  • Credit rate: 15% to 40%, depending on lifecycle emissions intensity.
  • Available since March 28, 2023, with new eligibility for hydrogen from methane pyrolysis (from December 16, 2024).
    
    
• Clean Technology Manufacturing ITC
  • Credit rate: 30%
  • Available since January 1, 2024
  • Expanded to include critical mineral mining equipment and new eligible minerals such as antimony, indium, gallium, germanium, and scandium.
    
    
• Clean Electricity ITC (new)
  • Credit rate: 15%
  • Available retroactively from April 16, 2024, for projects not started before March 28, 2023.
  • Eligibility extended to provincial and territorial Crown corporations, with conditions for access removed to reduce administrative burden.

These measures aim to provide the investment certainty needed for final project decisions and aim to crowd in private capital at a time of global competition for clean investment.

Expanding Critical Minerals Development 

Recognizing their role in clean energy supply chains, Budget 2025 introduces:

• A $2 billion Critical Minerals Sovereign Fund for strategic investments, guarantees, and offtake agreements.
• A First and Last Mile Fund ($372 million + $1.5 billion leveraged) to accelerate near-term mining projects.
• Expansion of the Critical Minerals Exploration Tax Credit to 12 additional minerals essential to defence, semiconductors, and clean tech.

Mobilizing Capital for the Transition to Net-Zero

To mobilize private capital for the transition to net-zero, the federal government will support the development of a Canadian sustainable investment taxonomy by 2026. This taxonomy will define what qualifies as “green” and “transition” investments, providing clarity for investors and lenders. The government also plans to explore a Sustainable Bond Framework that would enable the issuance of both green and transition bonds aligned with the taxonomy.

In parallel, Canada will work with provinces and territories to harmonize climate disclosure requirements across jurisdictions and align them with international standards. These measures are designed to deepen capital market engagement in the low-carbon transition and attract global investment to Canadian projects.

Updating Greenwashing Legislation

The Competition Act was recently amended to introduce new enforcement provisions targeting false claims of environmental benefit. While designed to curb “greenwashing,” these provisions have inadvertently created investment uncertainty, with some businesses slowing or reversing efforts to adopt environmentally responsible practices.

In recognition of these unintended consequences, Budget 2025 announces the government’s intention to propose legislative amendments to modify certain aspects of the greenwashing provisions, providing greater clarity and certainty to the marketplace while continuing to protect against false environmental claims.

The federal government will also develop new performance metrics to track progress under the Climate Competitiveness Strategy. These will measure emission intensity reductions, clean economy growth, and the competitiveness of low-carbon exports, providing transparent reporting on Canada’s transition progress.

Next Steps

Budget 2025 reframes Canada’s climate agenda around competitiveness, investment, and clean growth. By combining long-term carbon pricing certainty, enhanced clean technology incentives, regulatory modernization, and critical mineral development, the federal government seeks to position Canada as a global leader in sustainable industry. The plan marks a shift from consumer carbon pricing toward an industrial strategy that centres emissions reductions in innovation, clean production, and resilient economic growth.

Notably absent from the strategy is any mention of a Canadian Carbon Border Adjustment Mechanism (CBAM),  a policy that featured prominently in Minister Carney’s election platform and early climate priorities. Such a measure was expected to support the competitiveness of Canadian industry, particularly as the EU’s CBAM enters its compliance phase starting in 2026. From this strategy, it remains unclear whether a Canadian CBAM will resurface as part of future climate or trade policy discussions.

With details of Canada’s Climate Competitiveness Strategy now released, industry is closely awaiting further information on the upcoming federal carbon pollution pricing benchmark review.

As a next step, the budget will be debated in the House of Commons, usually over four days, and vote on the budget motion. If approved, the government’s fiscal plan is endorsed, but legal changes require separate Budget Implementation Acts (BIAs), which pass through readings, committee review, the Senate, and receive Royal Assent to become law. 

ClearBlue will continue to monitor developments and provide updates as they become available.
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