Canada needs a taxonomy, not a fossil fuel exception
Eight years of talk. Five years of drafting a taxonomy meant to steer capital toward a net-zero economy. Since 2018, governments have convened expert panels, working groups, and consultations—yet as peers move from planning to implementation, Canada still debates whether fossil fuels deserve a special exception. These arguments draw on my submission to the federal consultation. Every year of delay costs investors certainty, costs Canada transition capital, and costs us competitiveness in the global net-zero economy.
Not a technical disagreement—a defining choice about Canada's economic future.
A sustainable finance taxonomy is not simply another reporting framework; it is an economic strategy that helps investors distinguish activities genuinely compatible with a net-zero economy from those that are not, directing capital toward the industries, technologies, and infrastructure that will define Canada's competitiveness for decades.
That objective becomes impossible if the taxonomy tries to satisfy two contradictory goals: accelerating the transition while protecting the industries that must transform.
The proposal to create a third "abatement" category for declining sectors—principally oil and gas—would fundamentally weaken the taxonomy's credibility.
Reducing emissions from existing operations matters, and every tonne counts, but that is not the same as financing the transition to a net-zero economy.
Those are two different policy objectives requiring different instruments: environmental regulation, carbon pricing, methane rules, emissions caps, and performance standards should drive reductions within existing operations, while a sustainable finance taxonomy serves a different purpose.
The International Energy Agency, the Intergovernmental Panel on Climate Change, and virtually every credible net-zero pathway reach the same conclusion: achieving the Paris Agreement requires a rapid decline in global fossil fuel use alongside unprecedented investment in clean technologies. A taxonomy should reflect that scientific reality and not attempt to redefine it.
Supporters of an abatement category argue Canada is different because it is a major energy producer. Australia offers a lesson.
Like Canada, Australia is a major exporter of coal, liquefied natural gas, and mineral resources. Yet Australia recently adopted one of the world's most credible sustainable finance taxonomies without creating a sustainable finance category for fossil fuel production. Its Green and Transition categories are firmly anchored in scientific pathways compatible with net zero. Fossil fuel extraction remains outside the taxonomy because activities expected to decline over time are fundamentally different from those that will power tomorrow's economy.
Australia understood a truth: investor confidence depends upon clarity. Canada should learn from that example, not invent an exception that risks international isolation.
Global capital is flowing toward jurisdictions with credible climate policies and clear investment frameworks. Pension funds, insurers, and institutional investors want consistency, transparency, and scientific integrity. A taxonomy perceived as accommodating incumbent industries rather than guiding economic transformation will reduce investor confidence precisely when Canada needs to attract unprecedented private investment. This country already faces a competitiveness challenge.
Our greenhouse gas emissions remain among the highest in the G7. Progress toward our climate targets has been slower than promised, even as Canadians continue to face volatile energy prices. Meanwhile, governments have committed tens of billions of dollars in public support to the oil and gas sector through direct subsidies, tax measures, and public financing.
Continuing to direct scarce capital toward carbon-intensive assets risks delaying investment in the industries that will define future growth: renewable electricity, clean manufacturing, critical minerals, and climate-resilient infrastructure. This is also a question of financial stability.
Climate change is no longer simply an environmental issue; it is a financial one. Wildfires, floods, droughts, and extreme weather already cost billions of dollars every year, even as the shift to cleaner energy reshapes markets, technologies, and demand. Investments that look profitable today may be stranded tomorrow, built on fossil fuel demand that science says cannot continue. Wildfires are setting new records, yet the government is moving ahead with a new flammable liquid pipeline through these same fire-prone regions—one the private sector isn't competing to build. Isn't that a risk to our economy, environment, public health, safety, and security all at once? A credible taxonomy would help investors manage that risk, not obscure it.
The purpose of sustainable finance is not to reward incremental improvements within yesterday's economy, but to accelerate the creation of tomorrow's economy.
A decade of work is at stake, and Canada should not undermine this framework's credibility just as it nears completion. The choice is straightforward: build a taxonomy that commands international confidence, attracts investment, and aligns Canada's financial system with its climate commitments, or settle for a compromise that addresses every interest, satisfies none, and leaves Canada further behind its competitors.
History will not judge the taxonomy by how many sectors it accommodated, but by whether it helped Canada build the resilient, innovative, competitive economy the 21st century demands—an outcome still being decided, sector by sector, over the next two years. Canadians should be watching closely.
Rosa Galvez is a civil-environmental engineer and an Independent Senator for the province of Quebec.
The Hill Times