Post-Trudeau Canadian government could roll back carbon, climate policies

Canada's 2025 federal election poses a threat to the Liberal Party's currently unpopular platform, including carbon and climate policies that contributed to higher power prices, a S&P Global Commodity Insights analyst said Jan. 8.

Canadian Prime Minister Justin Trudeau announced plans to resign on Jan. 6. Following his stepping down, someone from the Liberal Party could replace him in the interim or an early election could be called ahead of the 2025 federal election on Oct. 20.

"Canadians are not very happy with Justin Trudeau," Hilary Bao, senior analyst at Commodity Insights, said.

There is a chance that the Conservative Party could win in 2025, but "anything can happen" and the margins are not yet clear, Bao said.

In the case that the conservatives win the federal election, the country's energy transition "big picture" wouldn't change in the power sector, Bao said.

"The whole country is still going to move away from carbon-intensive technologies to cleaner technologies in the energy sector," she said.

However, the party has previously expressed interest in relieving the federal carbon tax imposed under Trudeau. A September 2023 policy outline document also showed preference for provinces and territories to each develop their own climate change policies without federal penalties or incentives. Whether or not that document reflects the party's action plan if elected in 2025 is uncertain.

"[Conservatives] might reverse some of Justin Trudeau's carbon tax, but everything is up in the air," Bao said.

Another area that could see change under conservative rule is the country's net-zero goalpost. Ottawa finalized the federal Clean Energy Regulations in December 2024, showing a pushback of the country's ambitious 2035 net-zero greenhouse gas emissions goal to 2050.

"The proposed Clean Electricity Regulations under the Justin Trudeau government were very ambitious," Bao said.

The original more ambitious goal was protested by more emission-intensive provinces like Alberta, which has a power sector that is significantly less "clean" than hydropower-heavy provinces like British Columbia, Quebec and Manitoba.

In 2018 the Greenhouse Gas Pollution Pricing Act went into effect, setting a federal price for carbon and taxing power plants whose emissions exceed a cap that gets more stringent over time. The effects of the tax are reflected on wholesale power prices and gasoline prices.

"As of April 1, 2024, the cost of fuel charge is $80 per ton of greenhouse gas emissions. For gasoline, this means about 3 cents per litre more than in 2023," the Canadian government said.

2025 supply and reliability

Alberta, as a more fossil fuel-reliant province, saw a sharp spike in annual average power prices in 2021 to CAD$101.93/MWh, or a 118% year-over-year increase. Average power prices peaked in 2022 at CAD$162.46/MWh but have since fallen to CAD$63/MWh on average in 2024, according to Commodity Insights data.

While the carbon tax did play a minor role, the province's coal retirements process was the primary driver of high costs, Bao said. At that time, the market did not have sufficient reliable capacity to replace the coal that was being phased out, she said.

"Sometimes when wind doesn't blow, [Alberta] needed to run the fossil fuels extra hard in order to ensure reliability," Bao said. "This would cause very high price spikes."

Alberta fully phased out coal in 2024, five years ahead of the federal goal. The province also phased in new gas capacity and repowered coal-to-gas conversion units in 2024, putting further downward pressure on prices, Bao said.

The province's new energy market design comes with new reliability and affordability goals. To achieve these goals, in July 2024 the Alberta Electric System Operator introduced two interim reforms that will be in place until a restructured energy market is implemented in 2027, she said.

Canada faced extreme drought in 2024, and its hydropower-dominant provinces saw a significant reduction in output.

Hydropower generation from hydraulic turbines dipped about 0.7% in October to 24.9 TWh. Overall annual hydraulic turbine generation fell 8% year on year from 2022 to 2023.

The British Columbia Hydro and Power Authority reported a record drought in 2023 that caused a significant decline in electricity exports, according to the US Energy Information Administration.

"British Columbia's total electricity exports to the United States, which include exports from BC Hydro, declined by 45% in 2023 from 2022," the EIA said. "From 2022 to 2023, exports from British Columbia to California declined 75%."

British Columbia was pushed to import power from the US after a decade of being a net exporter. However, the province is seeing improved conditions that show signs of relief in 2025, Bao said. In Quebec the drought situation is also expected to improve, she said.

The government's Canadian Drought Outlook showed significant parts of the country still experiencing "abnormally dry" drought conditions, with parts of the Northwest Territories, British Columbia, Alberta, Quebec, and most far eastern provinces facing "severe" drought conditions as of Nov. 30.