Alternative federal budget 2026-27: Climate change and environment

This is from a larger publication, Alternative federal budget 2026-27: Bridge to independence

Introduction

Climate action has fallen off the political agenda in Canada. Over the past year, the federal government has not only failed to advance decarbonization, but it has actively worked to undermine what progress had been made over the previous decade. Yet, on a global scale, climate action continues to accelerate, and Canada is being left behind as one of a shrinking number of petro-states committed to long-term fossil fuel production. In recognition of the escalating climate crisis and of the widespread benefits that climate action offers, the AFB shakes Canada free of its fossil fuel induced malaise and dons the mantle of climate leadership in a global economy that is moving away from coal, oil and gas.

Overview

The costs of climate change are real and rising. Direct insurable losses due to extreme weather events totaled $2.4 billion in Canada in 2025.¹ Overall, the costs of disasters in Canada are rising by nine per cent per year.² However, disasters are only the most visible consequence of a warming planet. For example, increased heat and precipitation is causing roads and other physical infrastructure to deteriorate faster, which is already adding $8.8 billion per year to infrastructure maintenance costs in Canada.³ Crop insurance payments, which are largely a function of droughts and floods, have risen by 18 per cent per year over the past decade.⁴ Smoke from climate-fuelled wildfires is leading to tens of thousands of premature deaths domestically and tens of thousands more around the world.⁵

Altogether, climate change is costing the Canadian economy around $25 billion per year today and it is on track to cost as much as $100 billion per year by mid-century.⁶ Yet even these figures pale in comparison to longer-term estimates, which put the costs of even one degree of warming at 20 per cent of global GDP within a century.⁷ We are currently on track for a catastrophic three degrees of warming by 2100.

Those costs can be significantly reduced through climate action. Fortunately, while tackling the greenhouse gas emissions causing global warming is not easy, the pathways forward are at least well understood. The production and consumption of fossil fuels is overwhelmingly responsible for the global climate crisis, and no more so than in Canada.⁸ Oil and gas production alone accounts for 30 per cent of Canada’s greenhouse gas emissions, with most of the remainder accounted for by the combustion of fuels in vehicles, factories, homes and so on.⁹ Decarbonizing the Canadian economy thus requires an end to the production and consumption of fossil fuels.

Over the past decade, the federal government has implemented a series of climate strategies and a wide variety of specific climate policies that have shifted the economy in this direction. The most successful to date was the accelerated phase-out of coal-fired electricity generation, which is almost single-handedly responsible for Canada’s declining emissions since the early 2000s. Other notable policies include industrial carbon pricing, the clean fuel regulations and the Net-Zero Act, which made economy-wide decarbonization by 2050 a legal target for Canada.

Unfortunately, Canada is not on track to meet that 2050 target—or any emissions target the government has set (see Figure 9.1). Current emissions are not falling fast enough and, even if they were, Canada’s self-selected targets fall short of Canada’s fair share of the global climate effort.

To make matters worse, current projections for declining emissions—insufficient as they may be—now appear optimistic. In the past year alone, the federal government has cancelled or otherwise wound down the consumer carbon pricing system, the Net Zero Accelerator fund, the Two Billion Trees program, the Greener Homes Grant, the regulated sales target for zero emission vehicles, and anti-greenwashing regulations. It has reduced funding for the Permanent Public Transit Fund. It has abandoned a long-promised oil and gas sector emissions cap while bringing in new subsidies for the fossil fuel industry, including the temporary elimination of the federal gas tax. And it has put the Clean Electricity Regulations on the chopping block as part of a negotiated agreement with the Government of Alberta—an agreement that lays the groundwork for increased oil production.

The federal government claims it can still meet its climate commitments through a strengthened industrial carbon pricing system, enhanced methane regulations and the deployment of carbon capture technology in the oil sands. Although stronger carbon pricing and pollution regulations would be welcome, there is little evidence that this approach will reduce domestic greenhouse gas emissions in absolute terms, especially if it is used as political cover to increase oil production. The federal government has more recently signalled that it will weaken—rather than strengthen, as promised—the industrial carbon pricing system.¹⁰

While the outlook for climate action in North America appears bleak, the pace of global climate action continues to accelerate. Canada should choose which path it wants to follow to ensure a prosperous economic future. Global investment in clean electricity now exceeds fossil fuel investment by 50 per cent.¹¹ Global renewable energy generation surpassed coal power generation for the first time last year.¹² Electric vehicles now account for a quarter of global vehicle sales, including more than half in China.¹³ At the policy level, dozens of countries, led by Colombia and the Netherlands, are developing fossil fuel phase-out plans.¹⁴

Canada often considers itself a climate leader, but we lag far behind other countries both in terms of tackling emissions and reaping the benefits of decarbonization. The AFB puts us on a path that ensures a long-term future for our economy over short-term gains for fossil fuel interests.

Actions

The AFB will impose a moratorium on all new fossil fuel infrastructure, including oil sands expansions, offshore oil wells, liquified natural gas facilities, oil and gas pipelines and gas power plants. Building new infrastructure locks in decades of additional fossil fuel dependency at a time when we must be actively phasing out the production of fossil fuels. A moratorium does not mean existing projects will shut down overnight, but it provides the necessary certainty—to industry, workers and other levels of government—to proceed with a managed transition away from coal, oil and gas.

The AFB will reintroduce the federal consumer carbon pricing backstop at its previous schedule. It will also eliminate loopholes in the industrial carbon pricing system, such as free credits, that allow the most polluting industries in the country to pay a fraction of the headline carbon price. Achieving a $130 per tonne floor for the industrial system, as the federal government originally promised, is only a first step toward the unification of the consumer and industrial carbon pricing systems at the same high level.

The AFB will introduce climate and biodiversity conditions, also known as “green strings,” on all federal spending, including programs, tax policies, and procurement. Not all public money must be allocated toward decarbonization, but these conditions will ensure that no new federal money is spent to entrench fossil fuel production or consumption.

The AFB will allocate $295 million over five years toward the creation of an Environmental Justice Secretariat to study environmental racism in Canada and deliver on the federal government’s obligations under the National Strategy Respecting Environmental Racism and Environmental Justice Act. The impacts of climate change are experienced disproportionately by Indigenous, racialized and other marginalized communities, and Canada lacks a plan for responding to those impacts or for redressing structural inequalities exacerbated by climate change.

The AFB will create a new national Oil and Gas Cleanup Fund to fill in the gaps left by inadequate provincial programs. In the absence of new requirements to set aside money for cleanup, abandoned oil and gas infrastructure is liable to leave behind tens of billions of dollars in environmental damages. The new fund will be fully funded through mandatory contributions by active oil and gas producers, and it will be used exclusively for cleanup needs, so there is no net fiscal cost to the federal government.

The AFB will allocate $32 billion over five years toward a national clean electricity grid, including interprovincial transmission infrastructure and demand-side management programs to improve the efficiency of the grid. Public investment in electricity infrastructure is essential for decarbonization, and the federal government alone has jurisdiction over interregional transmission. Building out the grid makes electricity cheaper and more reliable, and it facilitates additional investment by public utilities and the private sector in new clean electricity generating capacity.

The AFB will allocate $325 million over three years for a national public charging network for electric vehicles. Inadequate charging infrastructure is a major barrier to EV adoption at a moment when Canadian households would most benefit from transitioning away from internal combustion engines. A public network can prioritize new chargers where they are most needed, including in rural areas and lower-income neighbourhoods, rather than focusing on the most lucrative corridors where private chargers are likely to be built anyway.

The AFB will allocate $65 billion over 10 years to expand and accelerate the implementation of the National Adaptation Strategy. As discussed above, Canada is already facing tens of billions of dollars in climate-related damages every year. For every dollar invested in adaptation, more than $10 in future costs can be avoided.¹⁵ These investments include climate-proofed water infrastructure, disaster management funding, and mapping of fire and flood zones.

The AFB will allocate $8.75 billion over five years to recapitalize programs for home energy efficiency retrofits, including the Canadian Greener Homes Affordability Program for low-income households. Reducing energy consumption reduces pollution and utility bills for households and businesses. One third of this funding will be allocated specifically toward energy efficiency upgrades in Indigenous communities.

The AFB will allocate $4 billion over five years for nature and biodiversity conservation. Although the federal government recently allocated $3.7 billion over five years toward a new nature strategy, some of that money was reallocated from other programs, and it still falls short of the $7.5 billion necessary in that time frame to protect sensitive lands and waters and to accelerate ecosystem restoration.

The AFB will allocate $15 billion over five years toward Canada’s international climate finance envelope. As with nature conservation, the federal government’s recent announcement of $5.9 billion in climate-related support is welcome, but much of the money was repurposed from other programs and it still falls short of the more than $20 billion over five years that represents Canada’s fair share in the global context. The AFB makes up the difference with a focus on accessible, grant-based finance rather than exploitative loans.

Tackling climate change requires an all-of-government approach. Other climate-related measures can be found in the following AFB chapters.

Agriculture: transition to organic/no-till agriculture
Artificial intelligence: data centres
Infrastructure, cities and transit: public transit funding
International trade: eliminate ISDS
International cooperation: climate finance
Industrial strategy and sector development: green investment, just transition
Taxation: excess profits tax on oil and gas industry, elimination of fossil fuel subsidies

The Monitor

Our Schools/Our Selves

Alternative federal budget 2026-27: Climate change and environment

Introduction

Overview

Actions

About the author

Alternative Federal Budget Working Group

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