The Sustainable Finance Taxonomy: An Important Opportunity for Canada

Today, Possible by Design submitted our public comment on Canada's draft Sustainable Finance Taxonomy. Taxonomies are one of several tools in the climate policy architecture - alongside regulation that puts every sector on a decline curve (Regulate All Emissions) and standards that recognize the full toolkit of climate-science-aligned pathways (Abatement Pathway Standards). Each tool does part of the job. The taxonomy's job is to help investors and lenders position capital for durable returns by pointing it toward the activities that will remain viable as the transition to Geological Net Zero completes. And Canada is deciding right now whether the criteria that will eventually guide hundreds of billions of dollars in capital allocation will point that capital toward the cheapest, fastest path to Geological Net Zero, or toward a more expensive path that leaves the hardest work for later.

The cost stakes are real, and they're big

For instance, global marginal abatement cost analysis (Goldman Sachs Carbonomics, 2023) shows that without permanent carbon dioxide removal available across every sector, the annual cost of reaching Geological Net Zero is approximately 7% of global GDP - over US$7 trillion per year. With permanent CDR available at roughly US$200 per tonne, that drops to about 4.5% of global GDP, saving the world on the order of US$2.5 trillion per year.

These aren't marginal numbers. They're the difference between an affordable transition and an unaffordable one.

The pattern shows up in immediate, concrete decisions. Federal governments in mandated aviation markets are currently paying over US$1,000 per tonne for abatement through Sustainable Aviation Fuel purchases. SAF is part of the answer, but not the whole answer. Aircraft are required to have a minimum of 50% fossil jet fuel in the wing for safety reasons, and in practice today's SAF blends are typically capped at 5-10% before jet fuel goes off-spec. SAF itself also has a lifecycle footprint - feedstock, processing, transport - that isn't zero. To actually get to zero aviation emissions, SAF needs to be paired with permanent CDR to cover the fossil jet emissions, the SAF lifecycle emissions, and the substantial share of emissions that SAF blends can't reach today or in the foreseeable future. Permanent CDR is available today at roughly half the per-tonne cost of SAF. Extrapolated across hard-to-abate Canadian federal operations, deploying the full toolkit - SAF plus CDR - rather than SAF alone represents over CAD$1 billion per year in avoidable overspending. Across the Canadian economy, over CAD$100 billion per year. The taxonomy is the instrument that determines whether Canadian capital flows toward the complete solutions or the partial ones.

The precedent already exists in Canada

Some good news: since the draft Methodology Report was written, the Government of Canada has established the engineering precedent that aligns with climate science. PSPC Solicitation 24062-250403 (March 2026) is the first sovereign procurement instrument anywhere in the world to operationalize 1,000-year permanence for federal operational emissions. The European Union's Carbon Removals and Carbon Farming framework adopted the world's first government-backed permanent CDR methodologies in February 2026. Switzerland, Denmark, and Sweden have all anchored their national climate strategies to permanent geological removal as the compliance answer for residual emissions.

The international policy conversation is converging on the specification. The procurement pathway exists. The cost savings from a full toolkit of "do our best" and "remove the rest" solutions is documented. Canada already led on the procurement side. Now the taxonomy has an opportunity to align with what Canada is already doing rather than lag it.

PbD's three recommendations

The Council's decision to add a third category for abatement measures - a genuinely differentiated contribution to the global taxonomy landscape - is an important innovation. PbD's submission supports that structure and offers three recommendations for making it work:

One: Every activity's criteria must place it on a clear ramp to Geological Net Zero. Taxonomy alignment should mean more than meeting a point-in-time emissions threshold. It should require that the activity is on a defined trajectory to the endpoint, with interim milestones the criteria can test against. The endpoint is Geological Net Zero - residual CO₂ balanced by removals with geological permanence. GNZ resolves the definitional gaps in the current draft where "near-zero," "pathway to net zero," and "residual emissions" would otherwise be undefined.

Two: Emissions must be evaluated on a net basis, with standards recognition for all climate-science-aligned pathways. The current draft implicitly recognizes some emission-reduction pathways (efficiency, electrification, fuel switching, carbon capture at the point of emission) but confines permanent removal to a deferred abatement category. The result is that the taxonomy is being built against an incomplete toolkit. The taxonomy should recognize the full toolkit - all science-aligned "do our best" emission reduction and "remove the rest" permanent removal pathways - and make it available across all three categories.

Three: Criteria for the abatement measures category must be developed in parallel with green and transition in 2026-2027, not deferred to 2027+. The world has been working on the easier parts of the taxonomy problem for years. Green and transition criteria have been iterated by dozens of jurisdictions. Canada's differentiated contribution is the third category. Deferring it means Canada spends the 2026-2027 window publishing guidance that largely restates what others have already produced, while the piece the world is actually waiting for Canada to write sits unwritten.

Together, these three changes let Canadian capital skate to where the puck is going.

The demand-side complement

The taxonomy is a supply-side capital-allocation mechanism, and it's well-designed for that. But approximately 61% of global emissions originate in consumption categories - food, products and services, freight and packaging, waste - where the point of decision is a household purchase rather than a capital allocation. Supply-side capital allocation without a corresponding demand-side signal misses out on accelerating the market pull that would reinforce smart capital deployment.

Climate Footprint Labels are the demand-side complement to the taxonomy. Mandatory climate footprint disclosure on products and services makes embedded emissions visible at the point of purchase, triggers supply-chain cleanup by producers competing on the visible metric, and generates market pull for the taxonomy-aligned activities that supply-side capital is being directed toward. Approximately 3 GtCO₂e per year in global reductions - equivalent to eliminating the annual emissions of the European Union.

80% of Canadians say they are concerned about climate change. They want to help. Mandatory Climate Footprint Labels give them the information they need to act at the point of purchase.

Where this leaves us

This is an exciting moment. Not because the challenge is small - it's enormous - but because the pieces exist. Permanent CDR is real and available at scale. The procurement precedent exists in Canada. The engineering pathway from where we are today to Geological Net Zero is specifiable, sector by sector. The demand-side complement has documented methodology and 80% of the Canadian public already onside. The pieces click into place.

The taxonomy is one important input among many. But if the Council picks up these three recommendations, Canada moves materially closer to a financial architecture that's aligned with the climate science and provides an accelerated, lowest-cost path to Geological Net Zero. That's worth working for.

If you haven't yet, please sign federal e-petition e-7510 calling for mandatory Climate Footprint Labels in Canada. The petition closes October 9, 2026. It takes about 90 seconds.

And if you'd like to read PbD's full submission to the Sustainable Finance Taxonomy consultation, it's available here.

Let's get this done.