Canada faces an urgent challenge. The global economy is increasingly shaped not by free markets alone, but by active international industrial policy.

Most Canadians are focused on tariffs because they are immediate, visible, and politically contentious. But tariffs are only one aspect of a much broader shift in economic strategy. Governments around the world are increasingly looking beyond traditional trade policy to actively engage in deciding where major infrastructure gets built, how emerging technologies are deployed, and who captures the economic benefits of the resulting investment.

For Canada, the response cannot be limited to defending access to the U.S. market. Trade diversification means selling more goods in existing markets while reaching new markets for Canadian companies and technologies. Doing so requires strategic use of every tool at Canada’s disposal, including the money it invests abroad. Climate finance is one such tool.

Canada will continue to provide public finance to support climate action in developing and emerging economies, both because it is an important international commitment and because mobilizing investment in clean infrastructure is essential for meeting global climate goals.

The question is how to make that spending as strategic as possible. Rather than treating climate finance, trade diversification, and international project development as separate agenda items, Canada can connect the dots between accelerating the global low-carbon transition and supporting Canada’s international economic agenda.

This line of thinking is crucial as climate finance enters a new phase. Around the world, governments are moving beyond traditional development assistance, instead using climate finance to strengthen strategic partnerships, deploy clean technologies, and accelerate implementation of the Paris Agreement.

Canada now has an opportunity to do the same. The federal government’s Spring Economic Update strengthened support for climate action in developing countries at a pivotal moment for global climate diplomacy. In the lead up to the United Nations climate change conference in Türkiye this November, developed countries face mounting pressure to deliver climate capital at scale. Canada’s approach will shape not only its climate credibility but also its broader economic and geopolitical relationships.

The government’s goal is to deliver more than $13 billion in climate-related support over the next five years. This figure includes not just federal spending but private finance catalyzed by public resources. Canada’s public dollars are limited, while the scale of investment needed to meet Paris Agreement goals is enormous. Public finance therefore needs to mobilize much larger pools of private capital. The question, then, is how Canada can make each public dollar work harder.

Climate finance as strategic investment   

At a time when Canada is seeking to diversify trade, strengthen its international position, and navigate a more uncertain global economy, climate finance should aim to generate benefits at home while helping partner countries accelerate their own climate and development priorities. The federal funding commitment is only the starting point. The real challenge is how Canada chooses to deploy it.  

In our view, Canada’s climate finance spending should be judged against three complementary strategic objectives: strengthening Canada’s economic competitiveness by scaling Canadian clean expertise abroad, building strategic partnerships, and  delivering high integrity climate outcomes.

The following three pillars show how climate finance can be deployed as a strategic investment.

1. Scaling Canadian clean expertise abroad 

Canada holds clear competitive strengths in many areas that support host-country clean energy plans—not only in clean technology, but also in project development, infrastructure finance, engineering, construction and professional services.  Canadian companies are already active in developing and operating renewable energy projects around the world.

Our rapidly growing clean technology exports present an opportunity to deploy Canadian innovations internationally while strengthening trade, industrial competitiveness, and economic security. Canada’s clean energy exports to markets outside the United States are already growing faster than those to the U.S., demonstrating that trade diversification is already underway. Expanding that lens, there is an opportunity to support globally competitive Canadian companies to develop, finance, build, and operate clean infrastructure abroad.

Climate finance can help deepen markets for Canadian clean technology, engineering, financing, and professional services by lowering barriers to investment and demonstrating technology feasibility in emerging economies. In return, revenues flow back into the Canadian economy, supporting jobs, innovation, business expansion, and broader supply chains. 

Many clean technologies need early public support to compete internationally. Investing early in fast-growing markets can help establish technology standards that favour Canadian goods, boost domestic exports, and secure valuable supply chains. In a world where clean energy investment is measured in the trillions of dollars, those footholds matter.

2. Building strategic partnerships 

Successful partnerships begin with host-country priorities. Climate finance should reinforce national low-carbon energy plans rather than impose external priorities by creating durable relationships built on shared economic and climate objectives.

Targeted funding can also build deep partnerships with other global middle powers, particularly through collaborations on large-scale solutions and energy security. This teamwork creates strong alliances rooted in shared economic goals, building trust while opening new trade pathways.

It is also wise—including from a global security perspective—to support climate-vulnerable nations, such as Small Island Developing States, where resilience is a matter of economic survival.

3. High integrity climate outcomes 

Ultimately, Canada’s climate finance should be judged by the outcomes it delivers, not simply the dollars it disburses. Consultations led by Global Affairs Canada highlight a desire among stakeholders for climate finance with demonstrable impacts and tangible outcomes. That means robust measurement, reporting, and verification (MRV) must sit at the centre of Canada’s strategy.

But MRV is only part of the equation. Canada can also use those outcomes to generate demand for climate action. Outcome-based finance does this by linking public payments to verified results, such as tonnes of greenhouse gas emissions reduced or avoided. Carbon markets can provide a mechanism for translating these verified outcomes into a source of demand and investment, allowing governments and other buyers to direct capital toward projects that deliver real emissions reductions.

Countries such as Japan, Switzerland, Singapore, and South Korea are increasingly incorporating these types of mechanisms into international climate cooperation and financing efforts—not as a substitute for domestic action, but as a complement to it.

A well-executed outcome-based approach can also mobilize significantly more private capital than public funding alone. Transition credits and other market-based instruments can create predictable revenue streams that improve project economics and attract investment into projects that might otherwise struggle to secure financing.

An outcome-based approach also extends the reach of public funds. Rather than providing large upfront subsidies or directly managing project delivery, governments can support projects by committing to purchase verified emissions reductions. Combined with other tools—including project finance, guarantees, development finance, and diplomatic support—the government can reduce risk and create the conditions for the private sector to finance and deliver projects at greater scale.

Building Canada’s international project pipeline

Canada now needs its governance framework to support a more strategic approach to international climate action. This means establishing clear objectives and investment criteria, credible MRV, strong engagement with host countries, and clear institutional responsibilities across Global Affairs Canada, Environment and Climate Change Canada, Finance Canada, and Canada’s development and export finance institutions.

But governance alone is not enough. Canada should incorporate climate finance into a broader international project development toolkit and identify major clean infrastructure opportunities where Canadian technology, finance, engineering, and diplomacy can work together to materially improve the likelihood, scale, or speed of investment.

International carbon markets can be part of that architecture. Canada can draw lessons from countries already building bilateral partnerships and procurement systems, while developing an approach that reflects Canadian priorities on climate, economic, and foreign policy. The objective should be to use these mechanisms strategically—to create demand for high-integrity emissions reductions while advancing Canada’s broader climate, economic, and diplomatic interests. 

That will require clear governance and project selection criteria. Canada will need to determine how Canadian economic interests factor into project selection, how partnerships align with host country priorities, and how Internationally Transferred Mitigation Outcome (ITMO) transfers are authorized, tracked, and independently verified. It also means taking a more strategic approach to where public dollars flow, including resisting the practice of transferring untied funding to international financial institutions where there is little connection to Canadian strategic objectives.

The greatest opportunity will be in projects that combine large emissions reductions, straightforward MRV, host country priorities, Canadian areas of clean technology expertise, and the potential to be replicated at scale.

The bottom line: Climate finance can help diversify Canada’s trade 

Delivering more than $13 billion in international climate finance will require a new approach—one that relies more heavily on strategic investment, risk-sharing, project development, and market creation.

Canada needs new markets, and developing economies need trillions of dollars of clean infrastructure investment. Climate finance provides one way to connect those two needs. Deployed strategically, Canada’s commitment can help reduce global emissions while opening new markets, building long term partnerships, and diversifying Canadian trade.