What would Mark Carney as finance minister mean for Canada's climate ambitions?

As rumours mount that Prime Minister Justin Trudeau wants to recruit former Bank of Canada governor Mark Carney as the next finance minister, climate advocates say finance has long been a missing piece of the country’s climate strategy.

The Globe and Mail reported last week that the Prime Minister’s Office is frustrated with Finance Minister Chrystia Freeland’s inability to communicate the government’s economic message, and has spoken with Carney to bring him on board as a replacement.

Speaking at the NATO Summit in Washington Thursday, Trudeau conceded he has “for years now” tried to recruit Carney as a ringer for the Liberal Party, saying “he would be an outstanding addition at a time Canadians need good people to step up on politics.”

Trudeau added he has “full confidence” in Freeland, but that may be cold comfort given he had “full confidence” in former finance minister Bill Morneau in 2020 before he resigned about a week later amid policy clashes with the PMO. He also said he had “full confidence” in Jody Wilson-Raybould the day before she stepped down during the SNC-Lavalin scandal.

Carney comes with pedigree. As the former governor of both the Bank of Canada and the Bank of England, and currently chairing Brookfield Asset Management and the Glasgow Financial Alliance for Net Zero (GFANZ), Carney has fashioned himself a champion of the financial sector’s role in getting to net-zero.

Given his role at the Bank of Canada during the 2008 recession, when he was largely credited with a strong handling of the crisis and even named as the only central banker on TIME’s “most influential” list, the logic for recruiting him now is clear. For supporters, having Carney’s steady hand join the team would be a way to counter Conservative attacks that Liberals are reckless with the economy. Although, to skeptics, recruiting a central banker is a risky tactic for a government floundering for support during a cost-of-living crisis.

Carney did not return a request for comment. But in recent years, he has sketched out a few priorities for Canada’s approach to the energy transition in various platforms.

In his capacity as the United Nations special envoy for climate action and finance, he’s called climate change “an existential threat,” that will reward businesses playing their part to cut emissions and punish those that don’t.

“Low carbon is becoming the driver of competitiveness as the clean revolution takes shape from Melbourne to Mumbai, from New York to Nairobi,” he wrote last year in an opinion piece published in The Globe and Mail. He emphasized the challenge ahead is change “on the scale of the Industrial Revolution at the speed of the Digital Transformation.”

“Now is not the time for laissez faire. We need the engagement of all levels of government, industry and finance,” Carney wrote. “Walls of private money are now chasing opportunities and turning them into jobs.”

Carney says climate change is a pressing threat and monumental opportunity for businesses to rake in huge profits, but it’s not clear how significantly different his views are from Trudeau’s government. Carney has endorsed uncontroversial climate positions, including the importance of net-zero transition plans and setting interim emission reduction targets. He’s also spoken of the important role carbon capture technology and hydrogen will play in Canada’s economic future, all shared priorities with Trudeau’s government.

Bay Street’s view

For years now, Carney’s view of the energy transition has focused on attracting private investment into the process. Whether through public-private partnerships, “blended finance” with private capital and multilateral development banks, or tax credits, his goal is clear: make investing in the energy transition more profitable for the private sector to encourage more investment.

In that way, he sees finance playing a vital role in the transition, but fundamentally doesn’t see banks, asset managers, pension funds and other financial institutions in the driver’s seat. It’s a position shared by some bank CEOs who speak of the importance of the energy transition, but say they require the government to take the lead.

“Finance cannot drive this transition on its own,” he told the Senate’s banking committee in May. “Finance is an enabler, a catalyst that will speed what governments and companies initiate.”

Carney has echoed the government’s concerns over greenwashing — of course, from a finance and market-based perspective. Carney told the Senate committee that he supports requiring better disclosure of climate risks and transition plans from financial institutions, creating guidelines for investors to determine what counts as green and what doesn’t, and having regulators run various warming scenarios to stress test company plans to better understand the climate risks to the economy.

After this year’s federal budget was presented, Carney took a swipe at the plan presented by Trudeau and Freeland, warning of “constant spending” and government subsidies. That raised eyebrows for some, given he has previously spoken of the need for governments to play a major role in the energy transition by providing funding.

Caroline Brouillette, executive director of Climate Action Network Canada told Canada’s National Observer that this kind of criticism of spending and subsidies carries a “sense of fiscal conservatism,” that is ill-prepared for the moment we’re in, which will require tremendous spending to slash emissions and adapt to warming already locked in. “What we need is actually for the [financial] sector to be regulated,” she said.

One critical regulation for climate advocates, that Carney disagrees with, is requiring financial institutions to hold more capital in reserve when investing in fossil fuel projects. Putting aside more money creates a shock absorber for banks in case a fossil fuel company cannot pay back its loans. But setting aside more money means the bank has less money to invest and generate profits.

“I think that for a couple of years now, we've seen the finance ministry being underutilized in terms of using its full power, capacity and tools to meet the climate crisis at the scale and speed needed,” Brouillette said. “So there's definitely some opportunities at [the ministry of] finance... to contribute fully to climate action in Canada.”

Carney vs Freeland

While it remains unclear how exactly Carney would steer the finance department if he was put in charge, he has publicly taken shots at Freeland’s handling of the file.

At a sustainable finance conference hosted in Ottawa last November, Carney said Canada could be a clean-energy superpower, but it needs a sustainable financial system. He pointed to the Sustainable Finance Action Council (SFAC) taxonomy roadmap published in 2022 that recommended ways to help align the Canadian financial sector with sustainable finance goals.

“As yet, those recommendations have not been answered,” Carney said. “My point: the world is moving forward on a transition [and] Canada has a good — I'd suggest, great — roadmap.

“We need someone to drive the car.”

A top priority in the SFAC roadmap was developing a “sustainable finance taxonomy” to define sustainability terms — to make it clear to investors what counts and what doesn’t, if you’re going to claim investments are sustainable.

As previously reported by Canada’s National Observer, the chief reason the taxonomy has been delayed is because of persistent efforts from Freeland’s office to include fossil fuels in it.

Would Carney help turn Liberal fortunes?

If Carney is interested in becoming finance minister, there are a few ways he could be looped into cabinet. He could potentially be the candidate in the upcoming LaSalle—Émard—Verdun byelection in Montreal where Liberals expect to win, or he could be appointed to the Senate and added to cabinet from there.

Trudeau could take a page from former prime minister Stephen Harper who tapped unelected party insider Michael Fortier to be his public works minister in 2006.

Don Desserud, a University of Prince Edward Island political science professor, said if Carney joins the Liberals, “it will certainly help the rank-and-file Liberals feel better about their party, but I wouldn’t take it much further than that.”

For Desserud, supporters that have jumped ship to Pierre Poilievre’s Conservatives aren’t coming back to the Liberals just because they could grab a big name like Carney. Rather, the task for Trudeau’s team is to figure out how to hold onto what support remains. A vote of confidence from Carney, and a demonstration to caucus the party hasn’t grown stale under Trudeau’s tenure, could help.

“But that's what we're talking about — morale boosts — as opposed to a brilliant strategy that's going to turn the fortunes of that party around and win the next election,” he said.

Andrew Enns, executive vice president of the polling firm Leger, agrees it’s unlikely that Carney joining cabinet would translate into thunderous public support.

“The benefit of a [cabinet] shuffle, and even bringing in a Mark Carney into cabinet, will only go so far because there's a significant amount of animosity directed at the leader himself,” Enns said. “If [Trudeau] stays, there is always going to be a limitation of how much bump you're going to get.”

A recent poll from Leger found 63 per cent of Canadians disapprove of Trudeau’s performance as prime minister.