While the world’s eyes were elsewhere, the European Union has made a quiet but consequential shift in climate policy. As part of setting a highly ambitious target—a 90 per cent reduction in emissions by 2040 from 1990 levels—it agreed that a small share of that goal can be met using international carbon credits, with a pilot phase beginning in 2031.
The EU Council formally adopted the amended Climate Law this March, making the target—and its 5 per cent international credit flexibility—legally binding.
The takeaway? After years of hesitation rooted in Kyoto-era failures, the EU is moving ahead with international carbon markets—recognizing improvements in environmental integrity and market design. Today’s carbon credits increasingly draw on stronger standards and a deep well of globally sourced expertise.
Canada should take note.
As we published a few months back, looking beyond our borders to carbon markets provides an opportunity to direct finance where emissions can be reduced most cost-effectively—while supporting technology deployment and market development. Canada can use its climate finance to draw in global capital, channel it to high-impact projects, and deploy Canadian technologies abroad—opening new trade channels in the process.
From vision to practice with global carbon markets
Canada played a key role in the architecture of the Paris Agreement’s Article 6, the global framework that allows countries to trade verified emissions reductions. These internationally transferred mitigation outcomes (ITMOs) are meant to channel finance to where emissions can be reduced most efficiently.
But despite its leadership in building the system, Canada has yet to define how we will use it.
That hesitation is increasingly hard to justify.
Demand for international credits could channel financing to developing economies, where emissions reductions—especially in sectors like power—can often be achieved at significantly lower cost. At the same time, financing, technology, and expertise are urgently needed for clean growth in those jurisdictions.
International climate finance for the win
Canada faces not just a mitigation gap, but an international climate finance gap. Its $5.3 billion commitment for 2021–2026—while doubling previous efforts—expired this year. A new commitment should be expected from the federal government.
There is a clear opportunity to do things differently.
As we have noted previously (see this earlier blog), Japan’s Joint Crediting Mechanism offers a compelling model. By structuring international investments to count as both climate finance and ITMOs, Japan achieves three things at once: it contributes finance to developing and vulnerable countries, deploys its technologies and expertise in partner countries, and generates credits toward its own emissions targets.
This approach combines public finance with deploying made-in-Japan clean technologies abroad—creating verified credits and opening new markets for Japanese firms. The result is a virtuous cycle: lower-cost emissions reductions, expanded exports, and deeper bilateral partnerships.
Robust accounting rules—known as corresponding adjustments—help ensure environmental integrity by preventing double counting.
Canada can do the same, shifting from traditional funding approaches toward models that deliver measurable outcomes, greater strategic control, and expanded opportunities in global markets.
It is a strategic approach to climate finance that maximizes impact per dollar spent.
Moving Canada’s climate finance focus from spending to results
Canada’s international climate finance has long supported clean transitions—through multilateral funds, bilateral programs, and development finance. Contributions to initiatives such as the Powering Past Coal Alliance and Just Energy Transition Partnerships are also helping to build the broader enabling architecture.
But too often, success is measured in dollars disbursed rather than technology deployed or emissions reduced—and that should change.
Future public-sector investments should instead be tied directly to measurable outcomes, supporting tools that deliver real, verifiable, and additional emissions reductions. Emerging tools, including blended finance via institutions like FinDev Canada, offer a path to shift toward results.
Canada’s support for reducing methane emissions in Chile offers an early model for how climate finance can generate measurable emissions reductions while strengthening partnerships abroad.
Climate finance can serve as a launchpad for Canadian technologies abroad—crowding in private capital and increasing the scale of impact. In doing so, it can help ensure Canadian engineering and technical standards become the local benchmark in fast-growing markets.
A strategic rethink on clean tech exports and trade is needed
It’s time for Canada to shift from conceptual leadership to operational precision. This is needed to maintain our international reputation as a reliable climate actor on the global stage. That will require coordination across climate finance, trade, and foreign policy, including targeted cooperation with international partners.
Canada would not be alone. The EU, Japan, Switzerland, Sweden, Singapore, and South Korea are all moving—either actively acquiring ITMOs or signalling clear intent to do so.
Canada is already a meaningful player in global clean energy and technology trade, with over $100 billion in exports and growing diversification beyond the U.S. The opportunity now is to accelerate that shift using carbon markets and climate finance to open new markets and deepen Canada’s role in global supply chains.
As a middle power, in the midst of rapidly shifting international trade dynamics, Canada cannot afford to ignore the tools that others are already beginning to use.
