Canada’s latest National Inventory Report highlighted a 7% decline in greenhouse gas emissions, demonstrating progress toward the goal of reducing emissions by at least 40% below 2005 levels by 2030. However the heavy lifting remains to be done. While a growing number of businesses are paying attention to climate impacts on their operations and seeking to implement strategies that are good for business and the climate, decision makers should regularly evaluate how prevailing climate policy is affecting all corporate sectors.

By understanding and capitalizing on the themes below, businesses can navigate the complexities of Canada's climate policy framework and position themselves for success in an evolving landscape.

Here are five areas of Canada’s climate policies where business leaders should pay attention. 

1. Pricing carbon and signalling change

The foundation of Canada's climate policy is a pricing system designed to create incentives,  avoid costs, and innovate across value chains.

Each business will experience the effects of carbon pricing differently, largely as a function of their fuel usage, the elasticity with which they can pass costs downstream, and the ease of implementing actions that reduce their exposure to carbon pricing. Businesses can benefit from examining the impact of rising carbon prices on their operations, cost of inputs, and market access, allowing for informed decision-making regarding fuel switching, enhancing energy efficiencies, generating or purchasing high quality carbon offsets, or any combination of these strategies.

2. Rewarding innovation and emission reductions

Market-based systems at federal and provincial levels provide revenue-generation opportunities for businesses that reduce emissions. Those that innovate will not only lower their compliance burden in regulated carbon pricing systems, but also have the potential to monetize credits through sale.

Businesses can conduct a comprehensive analysis of their operations to identify areas for emission reduction that qualify for carbon offset credit generation. A growing list of opportunities exist, including improved management of forests, grasslands, and agriculture soils, reducing methane from landfills or livestock, fleet vehicle conversion, charging infrastructure installation, hydrogen distribution, or switching chemicals in refrigeration systems and manufacturing processes. These programs seek to channel investment from high emitting to low-emitting companies and technologies. 

3. Setting standards for a greener future

Sector-specific regulations play a growing role in federal efforts to align industries with decarbonization targets. Regulations mandating the phase-in of zero-emission vehicles and a net-zero energy grid by 2035 present opportunity for businesses in vehicle and battery manufacturing, renewables generation, energy storage, and infrastructure development. In the building sector, cascading federal, provincial, and municipal mandates also signal a shift toward net-zero ready new builds by 2030, along with ratcheting up Building Performance Standards for existing real estate.

Businesses can benefit from regularly evaluating the economics of low-carbon building materials, high-efficiency or non-emitting equipment, smart energy management systems, and the opportunity to align capital renewal cycles with evolving regulations in the jurisdictions where they operate. Early investment in technologies and practices that comply with upcoming regulations can save businesses money in the long run and ensure they remain competitive in a low-carbon future

4. A landscape of incentives to drive sustainable growth

Canadian climate policies offer a suite of incentives that businesses can leverage to reduce costs associated with emissions reduction decisions. Investment Tax credits (ITCs) are the primary lever of federal policy to tilt the economics in favour of low-carbon projects by reducing upfront capital outlays that have historically been a barrier to investment. While these commitments are projected to deliver $93 billion in value by 2035, according to federal estimates, the government is still in the implementation phase, having only introduced legislation to enact two of the ITCs.

Once implemented, these tax credits will be available to a wide range of businesses that can benefit from examining how these upcoming incentives influence the business case for clean technologies, products, and markets relative to the cost of business as usual under a rising price on carbon.

Direct funding is also available to businesses, targeting areas where the economics of low-carbon decisions may not be fully realized through ITCs. While the Canada Growth Fund and Canada Infrastructure Bank provide key avenues to access capital for low-carbon projects, many other incentive programs exist at federal and provincial levels.

Understanding available incentives enables businesses to make informed investment decisions and maximize the financial benefit of adopting sustainable practices.

5. Increasing transparency through climate reporting

While climate-related disclosure remains voluntary for Canadian businesses outside of federally regulated financial institutions, the Canadian Sustainability Standards Board has proposed a draft climate disclosure framework, customized to the Canadian economy, that securities regulators could adopt.

A growing number of major corporates, governments, industry associations, and lenders are ahead of this trend and are committing to reduce their emissions, which stimulates demand for greener buildings, technologies, and products as they engage across their value chain to reduce their carbon footprint.

As a result, a strategy that capitalizes on the landscape of incentives is becoming an increasingly important competitive advantage for businesses, in addition to staying attuned to the sustainability ambitions of their stakeholders and B2B customers.

Conclusion

With investment in the low-carbon economy reaching a record US$1.8 trillion globally in 2023 and CA$30 billion in Canada, there is a growing opportunity for Canadian businesses as they navigate the policy landscape. While there are increasingly stringent regulations and pricing systems for businesses to navigate at federal and provincial levels, there are more incentives and opportunities than ever for businesses to reduce costs, to innovate, and to generate revenue through pragmatic actions that align business decisions with broader government targets.