The federal government may be just weeks away from announcing a sustainable finance taxonomy that excludes new fossil fuel investment and sets strict criteria for attaching a green label to “transition” projects in high-emitting industries, The Energy Mix has learned.
In a July 22 email to members of the Sustainable Finance Advisory Council (SFAC), University Pension Plan President and CEO Barbara Zvan said she has “received positive indications” that Ottawa may announce the long-awaited taxonomy at a responsible investment conference in Toronto in October.
Proponents have long seen a well-crafted taxonomy as a critical step to support clean investment, boost Canada’s economic competitiveness, and help the country meet its net-zero targets. They’ve argued that moving quickly on the taxonomy, with appropriate data and disclosure requirements, is important to support “green and transition” capital investments, especially in high-emitting sectors.
With Finance Minister Chrystia Freeland moving toward a final decision on the taxonomy, Investors for Paris Compliance (IFPC) warned earlier this month that the taxonomy could be either a win or a “train wreck” for the Trudeau government, depending on the guidance it provides for investments in natural gas or carbon capture and storage (CCS) projects.
But now, “the government appears poised to introduce an approach to the Secretariat that aligns with what was proposed in the Taxonomy Roadmap Report,” wrote Zvan, who chaired SFAC’s taxonomy group. That was a reference to a set of recommendations that made some allowance for “transition” technologies like carbon capture and storage (CCS), but sought strict enough limits to help finance professionals assess whether specific proposals actually contribute to decarbonization and emission reductions.
“I am encouraged by the feedback and discussions with the various government departments, with consistent messaging emerging from our interactions,” she told a group of SFAC members and partners.
In a statement to The Mix, Zvan said SFAC was specific about what to include in the “transition” category in the taxonomy, and what to leave out.
“The recommendations, as detailed in the Taxonomy Roadmap Report, provide only for decarbonization activities for high-carbon industries as they transition to net-zero if they meet clear science-based criteria, as well as alignment with 1.5°C pathways and do no significant harm—with specific net-zero targets and transition plans as a minimum standard,” she wrote. “Normal course operations, such as production, would not qualify under the transition category.”
She said SFAC also called for a governance structure for the taxonomy that matches up with global best practices, providing “appropriate oversight from a diverse group of stakeholders, properly resourced to ensure strong technical expertise in setting thresholds, and technical committees to provide input and public consultations.”
In a post earlier this month, IFPC Executive Director Matt Price said the transition category would amount to “a form of carbon lock-in as resources are misallocated away from actual transition.” And he warned that Freeland’s office seemed inclined to go farther still “by giving a stamp of approval to investing in new fossil gas, thereby guaranteeing even more carbon lock-in and delaying the transition.”
Zvan told The Mix that’s not the message she’s getting.
“In all other countries, governments help set up the group. They don’t decide what goes in the taxonomy,” she said in an interview, citing Australia as an example of a jurisdiction that leaves the detailed governance to its four main financial regulators. “That group decides what goes in the taxonomy.”
If Canada “pre-ordained anything, it wouldn’t be how other taxonomies are built globally, which then goes to the credibility of the taxonomy,” she added. But the more encouraging outcome “is what everyone is hopeful for. We all want to get started, and we want it to be inclusive.”
The more top-down approach that Price is predicting would also fly in the face of multiple harsh analyses questioning whether CCS is ready for prime time, the global industry’s poor record of delivering on its targets, and the Canadian industry’s acknowledgement that it won’t be able to deliver at scale before 2035 at the earliest. The list of critiques includes analytics shop Wood Mackenzie’s warning in February that CCS deployment would likely be “scuppered” without permanent taxpayer subsidies.
In her remarks earlier this year, Zvan said that level of technology assessment would be an important part of the taxonomy. “For CCS, it’s absolutely pertinent,” she said. “There’s risk associated with it,” and “that’s where the taxonomy comes in,” providing thresholds that then trigger a risk assessment to help guide investment decisions.
A commitment to new gas infrastructure, meanwhile, would lead toward the risk of delayed emission reductions and stranded assets that the federally-funded Canadian Climate Institute detailed in a recent research report on gas heating.
A spokesperson for Freeland said the taxonomy file is still a work in progress.
“The government is actively working on the taxonomy, in collaboration with independent experts and relevant stakeholders, to complete the process as quickly as possible,” press secretary Katherine Cuplinskas wrotein an email. “We will provide an update on the development of a Canadian taxonomy later this year.”
The government did commit to promote “credible climate investment” and combat greenwashing in the 2024 federal budget.
Last week, Environmental Defence Canada published a mock-up of what government inboxes might have looked like after ministers received more than 50 emails urging them to keep fossil fuels out of the taxonomy.
“The key message was that it would be better to scrap a taxonomy than to publish one which includes oil or gas,” EDC’s senior program manager for climate finance, Julie Segal, wrote in an email of her own.
