A newly formed, independent council and the organizations collaborating with it are seeking the Canadian public’s feedback on a draft voluntary guidebook, called a taxonomy, that will\u00a0foster sustainable, climate-friendly investments, support net-zero emission goals and curb greenwashing.<\/p>\n
A taxonomy \u2014 also referred to as a classification or \u201clabeling\u201d system \u2014 provides credible, science-based categories for economic activities.\u00a0This particular taxonomy, a draft of which was published earlier this month, is open to public response<\/a> until August 13.<\/p>\n Released on July 9,\u00a0the\u00a0newer version of the taxonomy<\/a> and its addition of natural gas and nuclear energy draws on the previous roadmap, covering six sectors: electricity, buildings, transportation, mining, manufacturing and agriculture\/forestry.\u00a0<\/p>\n A controversial process<\/p>\n Efforts to develop a green taxonomy in Canada have been slow and controversial. In 2022, the government published a\u00a0Taxonomy Roadmap Report<\/a>, but progress on it was halted after former prime minister Justin Trudeau left office.\u00a0<\/p>\n At the time, the roadmap\u00a0drew criticism<\/a> for its potential inclusion of nuclear and natural gas projects under a sustainability label \u2014 a practice\u00a0first introduced by the EU i<\/a>n its own green taxonomy.\u00a0<\/p>\n The International Institute for Sustainable Development\u00a0has stated<\/a> that liquefied natural gas (LNG) projects in Canada are incompatible with its climate targets and only lead to greater domestic emissions.<\/p>\n This updated version\u00a0of the taxonomy is the result of a collaboration between the newly formed Taxonomy and Transition Planning Council<\/a> (TTPC), the Canadian Climate Institute<\/a> and\u00a0Business Future Pathways<\/a>.\u00a0<\/p>\n A closer look<\/p>\n In its first phase, the taxonomy will focus on investments that reduce greenhouse gas (GHG) emissions, to support Canada\u2019s\u00a0transition to net-zero emissions\u00a0<\/a>by 2050.<\/p>\n Although taxonomies are used by\u00a0more than 50\u00a0<\/a>countries globally, this guide\u00a0is a first for Canada.\u00a0<\/p>\n \u201cAs investors aim to commit capital into sustainable investments, they’re faced with a wide variety of classification systems. Some they make themselves, some are made by others, but there’s nothing that in Canada is used widely at all,\u201d said\u00a0Marlene Puffer<\/a>, chair of the TTPC, in an interview with\u00a0Canada\u2019s National Observer.<\/p>\n The draft proposes three main categories for economic activities: green, transition and abatement.\u00a0<\/p>\n The \u2018green\u2019 category refers to climate solutions that will produce zero or near-zero greenhouse gas (GHG) emissions, such as renewable energy or storage technologies.<\/p>\n The \u2018transition\u2019 category applies to GHG emissions-intensive activities, such as steel, cement or chemicals manufacturing, that can achieve substantial GHG reductions and are expected to have stable or growing demand in a net-zero economy.<\/p>\n The \u2018abatement\u2019 category covers activities that drive significant emission reductions in the short-term in sectors like upstream oil and gas, which are likely to decline on the path to net-zero. This more controversial category will come with strict guardrails to prevent long-term dependency on fossil fuels.<\/p>\n Pipeline projects that use leak detection and repair technology to reduce methane emissions are an example under the ‘abatement’ category. Despite supporting fossil fuel infrastructure, such technology still reduces overall emissions from operations, its proponents argue. Natural gas extraction will also be addressed here, though at a later stage.<\/p>\n While the green and transition categories are common in\u00a0sustainable finance taxonomies worldwide<\/a>, abatement is unique to Canada. Most international taxonomies typically exclude investments in high-emitting sectors, but the abatement category recognizes investments that lead to short-term emission reductions in support of climate goals,\u00a0according to the draft report.<\/a><\/p>\n Because of its novelty, Puffer said the guidebook’s authors are \u201cespecially keen\u201d for feedback on the category. The draft report specifically asks for input on its proposed guardrails.<\/p>\n The group is also looking for input on other aspects of the draft report, such as its climate adaptation measures and social safeguards, including the protection of Indigenous rights.<\/p>\n \u201cWe want to make sure that projects and activities that achieve a substantial contribution on climate mitigation don’t do harm against other social and environmental objectives,\u201d said\u00a0Jonathan Arnold<\/a>, head of sustainable finance at the Canadian Climate Institute and lead researcher on the report, said in an interview with\u00a0Canada\u2019s National Observer.<\/p>\n Arnold and other members of the institute conducted most of the technical work required for the report, drawing\u00a0on existing taxonomies from other jurisdictions, particularly\u00a0Australia<\/a>.\u00a0<\/p>\n Their work was later reviewed by technical, financial and international advisory groups before coming to the TTPC for final approval.<\/p>\n In a webinar hosted by the TTPC, Puffer stressed the group was \u201can independent body,\u201d despite being underwritten by Finance Canada.\u00a0<\/p>\n \u201cThere’s no direct influence or participation of the government in our work,\u201d she said. \u201cIndependence from other industrial policy-making is important here. We’re just trying to set a labelling system, and we’re trying to maintain that narrow focus.\u201d<\/p>\n Next steps<\/p>\n After this first round of consultations\u00a0\u2014 which also includes webinars and communication with Indigenous parties\u00a0\u2014 is complete, the technical team from the Climate Institute will consolidate the responses into an additional publication, to be reviewed by the TTPC and published later this fall.\u00a0<\/p>\n The TTPC is expected to finalize taxonomy guidelines for all six sectors by the end of 2027, as\u00a0mandated by the federal government.<\/a>\u00a0<\/p>\n Puffer said the taxonomy will \u201cneed to live and breathe.\u201d In the future, the group will review and revise it as needed, though they have not yet decided at what frequency.\u00a0<\/p>\n As in most other countries, the use of the taxonomy will be voluntary in Canada, though Puffer said she was confident that it would be successfully implemented because of growing demand from asset managers, banks and other institutional investors.<\/p>\n \u201cThey have demand from their investors who want to invest in sustainable activities, and they want to have credible labelling to be sure that what they’re investing in is actually credibly designated as green or transition investing,\u201d she said.<\/p>\n