This is a guest blog by Jessica Carradine, lead author of The Taxonomy Fossil Fuel Conflict: Why Oil and Gas Inclusion Would be Counterproductive. 

In partnership with a number of Canadian environmental organizations, experts have been advocating for a credible, science-based investment taxonomy in Canada. Canada’s sustainable finance taxonomy will be the federal government’s official classification system for identifying what counts as a sustainable investment. An effective taxonomy has the potential to support the development of green industries across the entire economy – putting Canada at an advantage as the energy transition progresses. A new report, The Taxonomy Fossil Fuel Conflict: Why Oil and Gas Inclusion Would be Counterproductive, weighs in on one of the most important debates surrounding the taxonomy: whether oil and gas activities should be included. 

Ever since efforts to develop a Canadian taxonomy first began in 2019, there has been pressure from the fossil fuel industry and from the financial sector to include fossil fuel activities in the taxonomy. Environmental experts have warned that inclusion of any oil or gas in the taxonomy would void its credibility. This disconnect has led to the failure of Canada’s previous attempts to develop a taxonomy.

While some argue for including fossil fuels in the taxonomy to help reduce the industry’s high level of emissions, we argue that including fossil fuels in the taxonomy is ‘gameable’, unworkable, and misguided. The downstream emissions from combusting oil and gas are by far the larger share of the sector’s emissions and account for the single largest cause of climate change. Both the production and combustion of oil and gas must decline to ensure a liveable future.

While marginally reducing emissions from the production of oil and gas might be possible, we outline why the taxonomy is not the appropriate tool to advance this goal. Including any oil and gas activities in Canada’s taxonomy contradicts science-based net-zero pathways, and risks undermining the taxonomy’s global credibility. It also compromises its interoperability with global frameworks, opens the door to strategic misuse, and potentially diverts capital away from green and transition-enabling projects towards fossil fuel activities. 

The frameworks that have previously been proposed for how oil and gas would be included in Canada’s taxonomy are complex to the point of being unworkable – relying on overly complex thresholds and creating loopholes for finance to flow towards activities that are fundamentally misaligned with Canada’s climate goals. While trying to reduce emissions arising from Canada’s oil and gas industry is a valid pursuit, using a voluntary taxonomy to accomplish this goal is misguided. The risks outweigh the perceived benefits when it comes to the inclusion of oil or gas-related activities in the taxonomy. 

As Environmental Defence has covered before, the Canadian taxonomy should be reserved for increasing investment in real climate solutions – including things like renewable energy, green building materials, and electric vehicle manufacturing. A fossil fuel free taxonomy, as has been developed in Australia, is the right direction to achieve climate progress in Canada. 

The Taxonomy Council, the governance body for the taxonomy’s development, has announced a month-long consultation starting July 9, during which it will seek feedback on a draft of its methodology documents. These documents will guide decisions about which activities will count as sustainable. This is a critical moment for climate advocates to weigh in on the taxonomy they want to see: one that is credible – and therefore one that does not enable the continued expansion of Canada’s oil and gas industry.

Read more in the full report, The Taxonomy Fossil Fuel Conflict: Why Oil and Gas Inclusion Would be Counterproductive.