He may be dubbed “Carbon Tax Carney” by his political rivals, but upon becoming Canada’s prime minister last Friday, Mark Carney cancelled the unpopular carbon levy on consumers.
The former governor of the central banks of England and Canada, who has never before held elected office, will lead the world’s second-largest country amid a punishing trade war with Washington and threats from US President Donald Trump to annex Canada.
His first order of business? With the cameras clicking, Carney slashed the carbon tax rate to zero for consumers, effectively ending what had been the governing Liberal Party’s signature climate change policy since its national launch in 2019.
“This will make a difference to hard-pressed Canadians, but it is part of a much bigger set of measures that this government is taking to ensure that we fight against climate change, that our companies are competitive, and the country moves forward,” Carney, 60, said on his first day in office after replacing Justin Trudeau.
The move signals an about-face for Carney, a former UN Special Envoy for Climate Action and Finance, raising broader questions about the best policy tools for cutting greenhouse gas emissions in today’s tricky geopolitical environment.
“Meaningful carbon prices are a cornerstone of any effective policy framework,” the former investment banker wrote in his 2021 book Value(s): Building a Better World for All. “To meet the 1.5C [global warming] target, more than 80 per cent of current fossil fuel reserves (including three-quarters of coal, half of gas, one-third of oil) would need to stay in the ground, stranding these assets.”
Analysts said Carney’s backpedalling on the carbon tax highlights the success of political attacks by the opposition Conservatives. But, they added, it does not undermine a broader strategy of asking large polluters to pay for their climate-damaging behaviour.
Industrial carbon price remains
While individuals, farmers and small businesses will no longer pay a carbon tax at the gas pump, industrial emitters will still be charged for their carbon footprint under national regulations launched in 2019.
“When it comes to reducing emissions, Canada’s industrial carbon pricing system has done most of the heavy lifting,” said Colleen Kaiser, program director of governance and policy innovation with the Smart Prosperity Institute, a Canadian research group. “It makes sense to continue this program.”
To get voters onside, Carney’s team ditched carbon levies on gasoline and heating oil for consumers – some of whom previously got rebates according to their income – in favour of increased support to go green by retrofitting homes or installing heat pumps.
Experts say using a carrot rather than a stick to catalyse energy-saving behaviour still needs to be funded somehow.
“My sense is the money to pay for that, instead of coming from a consumer carbon price, will come from large heavy emitters,” Chris Severson-Baker, executive director of the Pembina Institute, a clean energy think-tank, told Climate Home. “Something will need to be done to replace what the consumer carbon price was designed to do.”
Popular attitudes on who should pay for climate action have shifted since the carbon tax was announced. In 2020, when asked to choose between protecting the environment and creating jobs, 50 percent of Canadians said jobs should come first, according to polling data from the Consortium on Electoral Democracy, a research group.
Today, amid a cost-of-living crisis, 60 percent prioritise jobs over climate action.
Election politics in play
Against this backdrop, the opposition Conservative Party has rallied around the slogan “axe the tax,” suggesting Carney isn’t serious about doing that beyond a national election expected in the next few months.
“Carbon Tax Carney is pausing the carbon tax until after the election when he no longer needs your vote but still needs your money,” Conservative leader Pierre Poilievre posted on social media on March 14, when Carney became PM. “He’s flip-flopping on his beliefs to trick Canadians into a 4th Liberal government.”
The Conservatives had been far ahead in opinion polls prior to Carney coming onto the national scene and Trump’s tariffs. However, polling data released by Angus Reid this week, indicates a major shift in the political landscape.
“With the Liberals at 42 percent in vote intention, what was a tired, discardable brand just three months ago would be on its way to a fourth term, this time with a majority,” the pollster said.
Aside from ending the consumer carbon tax, specifics on Carney’s green policies remain sketchy. In his first speech after being sworn in as prime minister, he did not mention climate change or carbon taxes.
A spokesperson for Carney referred Climate Home to his official website but did not immediately provide responses to detailed questions about his proposals.
A spokesperson for Environment and Climate Change Canada, the national government department responsible for climate policy, said it “is currently in a period of transition”.
The oil lobby
In his acceptance speech to lead the Liberal Party, Carney said he wants to make Canada “an energy superpower in both clean and conventional energy”, echoing phrasing from a former Conservative prime minister who had close ties to the oil patch.
Canada is the largest foreign oil exporter to the US and fossil fuels are its most valuable export by far, worth $152 billion CAD in 2023, according to the Canadian Association of Petroleum Producers (CAPP), the main oil industry lobby group.
Much of this crude comes from the Alberta tar sands, which environmentalists consider some of the world’s dirtiest oil for carbon dioxide emissions. Expanded tar sands production stands in direct opposition to Canada’s pledge to hit net-zero carbon emissions by 2050, analysts say.
But public discussions around building new pipelines from western Canada’s tar sands to consumers in the country’s east have intensified amid Trump’s annexation threats.
The Pembina Institute’s Severson-Baker expects “lots of talk” about new pipelines in the coming months, even though he said “there is no actual economic case behind them”.
“The government truly has failed to reduce emissions from the oil sands sector,” he said. “That highlights how difficult it is for any government in Canada to regulate that sector.”
The CAPP did not respond to specific questions on Carney’s record and Canada’s shifting climate policies, but provided a statement.
“Canada is in a precarious position partly because for too long the federal government neglected the importance of our own energy and economic security,” said the group’s president and CEO, Lisa Baiton. “Following the imminent federal election, the next Government of Canada will need to address these critical issues with urgency, both for Canadians and for the oil and natural gas industry.”
Shifting business priorities
In what analysts consider an olive branch to the oil sector, Carney has removed carbon tax supporter Steven Guilbeault from the environment ministry, shuffling the former Greenpeace activist who regularly drew ire from Alberta politicians to culture minister and other roles.
The new environment minister is Terry Duguid, a lawmaker from Manitoba province who had not previously held a cabinet role.
Carney may also feel the need to appease members of the financial elite he once courted, as they jettison their support for net-zero investment goals.
Back in 2021, the central banker helped spearhead the the Glasgow Financial Alliance for Net Zero, an initiative of major investors that pledged to support companies with clear climate goals.
After the election of Trump, US stalwarts including J.P. Morgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo, Goldman Sachs and BlackRock quit the initiative. Most of Canada’s big banks followed later in another sign of shifting commercial priorities.
Back in 2021, making the financial case for investing in net-zero, Carney told an interviewer at the UN: “Don’t assume that your politician cares about this issue as much as you do.”
How much Canada’s new prime minister cares about the climate today – and the amount of political capital he’s willing to invest in protecting it – will be tested in the coming months by electoral pressures and businesses emboldened by the US dumping its climate promises.
