October 31, 2022

The role of fossil fuels in taxonomies: Canada case study

While the debate over the future content of the Canadian Taxonomy continues in the press, the main stumbling block remains the inclusion of fossil fuels, particularly fossil gas where Canada is the world’s fifth-largest producer. The controversy centers on whether fossil gas should contribute to a decarbonization pathway as an interim or a transitional fuel, or be phased out completely.

This document provides guidance on how to structure the future taxonomy to make it consistent with global best practices, and define its principles and objectives. The authors estimate that the country needs CAD115bn per year to implement the decarbonization policy, and a taxonomy is a proven means of attracting private capital to this task, including foreign direct investment. This also requires definitions in the future Canadian Taxonomy to be compatible with internationally recognized definitions and criteria for classifying various activities as green, transitional and sustainable.