This article originally appeared in the Globe and Mail.
By Heather Exner-Pirot and Michael Gullo, October 23, 2024
In principle, a green taxonomy, a set of standard investment criteria for projects, should use the power of the markets to hasten climate action. It should complement sustainable finance efforts, which are well established in capital markets, by clarifying which sectors are deemed investment-worthy.
This month’s announcement from Ottawa – which unveiled new green taxonomy guidelines and a plan to introduce mandatory climate disclosure – is helpful in this regard.
The development of this made-in-Canada green taxonomy rightly involved private-sector input to reflect the unique composition of our economy. A Sustainable Finance Action Council composed of the country’s most significant financial institutions and pension funds filed its recommendations with the federal government in March. This month’s announcement, while overdue, came out of that process.
But questions remain about how energy production will be treated under the new framework. For example, the government left the door open to some natural gas, but has gone out of its way to state that new natural gas production will likely not be eligible for financing. It also is silent on how nuclear technology will be treated under the framework. In Canada’s economy, where these two sectors represent our best options for displacing coal-fired electricity production at home and abroad, this is troubling.
Even the European Union, arguably the most progressive political institution for addressing climate change, often at the expense of its own economy, included certain natural gas and nuclear energy projects in its own green taxonomy.
Canada – the world’s fifth-largest producer of natural gas and second-largest producer of uranium – has chosen to omit them.
There should no longer be a question of whether Canadian liquefied natural gas (LNG) is good for the world. The emissions from approved Canadian LNG export facilities are far below global averages, and among the cleanest in the world.
New LNG projects are a proven conduit for advancing economic reconciliation and creating equity opportunities for Indigenous communities. Canada’s allies and trading partners are looking to Canada to step up as a supplier of reliable, safe and low-emitting natural gas.
Previous policy decisions have limited Canadian LNG’s potential to drive economic growth and offset more carbon-intensive forms of energy elsewhere in the world. Discouraging investment into new low-emitting LNG projects will come at a high economic and energy-security cost; but it will also have a net negative environmental impact.
Nuclear technology simply wasn’t referenced in the government’s Oct. 9 announcement, raising questions about how it will be treated under Canada’s taxonomy.
We’ve seen this before. In 2022, when the federal government announced their Green Bond Framework, nuclear was part of a long list of industries ineligible for support. Following pressure, and a return to common sense, nuclear was later added to the list of eligible expenditures.
Canada can be a major player in the global nuclear energy market, thanks to its high-quality uranium reserves, nuclear supply chain, fuel processing capacity, and long record of safe power production. A taxonomy that fails to position nuclear energy for success would be a cause for disbelief.
There’s another issue on top of that: While sparse on details, the government also announced that it will introduce mandatory climate-related disclosure reporting for large, federally incorporated companies. The timing of this announcement is puzzling at best, given the work already underway by the Canadian Sustainability Standards Board and Canadian Securities Administrators: thoughtful processes that are being taken seriously by the country’s largest firms and pension funds.
The lack of details just adds to the uncertainty Canada’s industrial base is already facing on the heels of the new, half-baked, provisions for greenwashing. Meanwhile companies anxiously wait for the government to fulfill its commitments to deliver investment tax credits and a national loan guarantee program for Indigenous peoples.
Accelerating investments through a taxonomy can have benefits that go beyond reducing emissions. It can help achieve Indigenous economic reconciliation through new resource opportunities. It can also enhance Canada’s ability to be a supplier of choice to countries anxious to improve their energy security.
And boosting investments through a taxonomy can help with a long-standing problem: Canada needs a strong response to its productivity crisis, one that seeks to usher in a new era of investment into the country’s natural resource and energy endowment.
We should be laser-focused on growing economic capacity, adding policy certainty and improving the competitiveness of Canadian firms here and abroad. Developing a taxonomy for Canada can be a helpful tool in the country’s toolbox providing it plays to Canada’s strengths. Let’s get this right.
Heather Exner-Pirot is a Macdonald-Laurier Institute Senior Fellow and Director of the Energy and Resources Program.
Michael Gullo is vice-president of policy at the Business Council of Canada
