As we enter 2025, political shifts in the United States and Canada are poised to reshape the landscape of climate and energy policies across North America. The return of Donald Trump to the presidency and the potential rise of Pierre Poilievre’s Conservative Party in Canada set the tone for a period of uncertainty and transition. At the time of writing, there are unconfirmed rumours regarding the possible resignation of Canadian Prime Minister Justin Trudeau this week. ClearBlue will monitor this closely and will provide updates as needed.
With Donald Trump returning to office, a complete repeal of the Inflation Reduction Act (IRA) is unlikely, but modifications to its scope are probable. Despite Trump's criticism of the IRA as the “Green New Scam,” the economic reality is that many of the clean energy tax incentives have triggered substantial investment and job creation in swing and Republican-leaning states.
The Trump administration will likely refocus on maximizing domestic energy production, withdrawing from the Paris Agreement, and reducing the social cost of carbon, which underpins many climate policies. Federal climate ambitions are expected to decline, with state-level initiatives likely taking the lead. Efforts to repeal parts of the IRA, dismantle environmental regulations on electric vehicles and power sectors, and revoke California’s waiver to set stricter emission standards are on the horizon. With regards to fuels, Trump’s administration will attempt to balance the interests of refiners and farmers by pushing for small refinery exemptions from the federal Renewable Fuel Standard (RFS) and implementing tariffs on Chinese Used Cooking Oil to support domestic farmers.
In Canada, the withdrawal of the NDP’s Supply-and-Confidence Agreement with the Liberal government increases the likelihood of a non-confidence vote and an early federal election. Polls suggest that Pierre Poilievre’s Conservative Party is poised to win, potentially ushering in a government with a markedly different climate policy approach. The general conservative approach to climate policy is to leverage the power of markets and free enterprise, focus on carrot rather than stick policies, and minimize the reach of the federal government while respecting provincial autonomy.
A Poilievre-led government would likely repeal the consumer-facing carbon fuel charge, framing it as a cost-of-living issue. However, industrial carbon pricing programs are expected to remain, albeit with changes to the federal benchmark, stringency requirements, and other design elements. Complementary policies like the Clean Electricity Regulations and the Oil and Gas Cap may face dismantling. Meanwhile, incentives such as Investment Tax Credits (ITCs) could be maintained to ensure Canada’s competitiveness with the U.S. and EU.
Uncertainty clouds the Clean Fuel Regulations (CFR), which imposes compliance obligations on fuel producers. While this aspect takes a “stick” approach, organizations that are not regulated under the program are eligible to be credit-generators. This can spur investments in credit-generating activities, including carbon capture activities, fuel switching and EVs, which aligns with a carrot-approach to incentivize a clean economy. Additionally, the CFR may provide favourable margins for Canadian farmers due to the role that corn and soy can play as feedstocks biofuels, which is an important group for a ruling government party.
The interplay between Trump’s policies and Canada’s evolving political climate creates a dynamic regulatory environment for carbon markets and energy investments. Trump’s withdrawal from the Paris Agreement and deregulatory agenda may embolden Canada’s Conservatives to scale back climate targets and policies. However, global pressures and economic incentives to maintain competitive carbon pricing frameworks will likely temper drastic policy shifts.
The impact of potential tariffs on Canada’s energy sector is uncertain. Some stakeholders of Canada's energy industry do not expect Trump's broad plans for protectionist trade measures to include tariffs on Canadian oil imports, because many U.S. refineries rely on Canadian energy imports. However, some say any increase in U.S. domestic production could raise competition for Canadian exports to other parts of the world.
In conclusion, the political transitions in the U.S. and Canada set the stage for a pivotal year in climate and energy policy. Trump’s deregulatory agenda and Canada’s potential shift to Conservative leadership underscore the tension between economic growth, energy independence, and climate commitments. As 2025 unfolds, stakeholders must remain vigilant and adaptable to seize opportunities and mitigate risks in this transformative period.
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