Climate Change Regulation 2026

Definitive global law guides offering comparative analysis from top-ranked lawyers

CHAMBERS GLOBAL PRACTICE GUIDES

Definitive global law guides offering comparative analysis from top-ranked lawyers

Contributing Editor Ruth Knox Paul Hastings

Global Practice Guides

Climate Change Regulation Contributing Editor Ruth Knox Paul Hastings (Europe) LLP

2026

Chambers Global Practice Guides For more than 20 years, Chambers Global Guides have ranked lawyers and law firms across the world. Chambers now offer clients a new series of Global Practice Guides, which contain practical guidance on doing legal business in key jurisdictions. We use our knowledge of the world’s best lawyers to select leading law firms in each jurisdiction to write the ‘Law & Practice’ sections. In addition, the ‘Trends & Developments’ sections analyse trends and developments in local legal markets. Disclaimer: The information in this guide is provided for general reference only, not as specific legal advice. Views expressed by the authors are not necessarily the views of the law firms in which they practise. For specific legal advice, a lawyer should be consulted. Content Management Director Claire Oxborrow Content Manager Jonathan Mendelowitz Senior Content Reviewers Sally McGonigal, Ethne Withers, Deborah Sinclair, Stephen Dinkeldein, Vivienne Button and Sean Marshall Content Reviewers Lawrence Garrett, Marianne Page, Heather Palomino, Alison Moore, Adrian Ciechacki and Michael Irvine Content Coordination Manager Nancy Tsang Senior Content Coordinators Carla Cagnina and Delicia Tasinda Content Coordinator Joanna Chivers Head of Production Jasper John Production Coordinator Genevieve Sibayan

Published by Chambers and Partners 165 Fleet Street London EC4A 2AE Tel +44 20 7606 8844 Fax +44 20 7831 5662 Web www.chambers.com

Contents

INTRODUCTION Contributed by Ruth Knox and Julian Wolfgramm-King, Paul Hastings LLP p.4

CANADA Law and Practice p.8 Contributed by McCarthy Tétrault LLP

GERMANY Law and Practice p.20 Contributed by ARQIS Partnerschaftsgesellschaft mbB ITALY Law and Practice p.36 Contributed by Ambientalex Studio Legale Trends and Developments p.49 Contributed by EY Società tra Avvocati NETHERLANDS Trends and Developments p.57 Contributed by De Brauw Blackstone Westbroek

NEW ZEALAND Law and Practice p.64 Contributed by Anderson Lloyd PORTUGAL Law and Practice p.77 Contributed by VdA Trends and Developments p.92 Contributed by VdA UK Law and Practice p.97 Contributed by Paul Hastings LLP

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INTRODUCTION

Contributed by: Ruth Knox and Julian Wolfgramm-King, Paul Hastings LLP

Paul Hastings LLP has an interdisciplinary team which offers a strategic, comprehensive approach to pressing sustainability issues. It helps clients as - sess their needs, as well as the relevant facts and applicable law, to forge creative business and legal strategies that are both profitable and responsible. It

is committed to ensuring its clients and its practice exceed the expectations of the marketplace. Its glob - al platform enables it to creatively address sustain - ability concerns and emerging regulatory schemes across the EU, Latin America, North America, Asia and the Middle East.

Contributing Editor

Co-Author

Ruth Knox is the Global Chair of the ESG & Sustainable Finance practice at Paul Hastings. Ruth advises clients across the full breadth of the firm’s corporate department, including private equity and finance, investment

Julian Wolfgramm-King is an associate in the ESG & Sustainable Finance practice of Paul Hastings and is based in the firm’s London office. Julian advises sophisticated fund managers, investors, corporates and

funds and M&A, as well as the firm’s energy and infrastructure clients. Ruth brings over a decade of environment and climate change experience advising some of the world’s most sophisticated investment funds, private equity firms and corporations across the full range of ESG legal services, including in relation to fund formation, corporate/M&A and sustainable finance transactions, and the application of ESG, environmental and climate-related regulatory requirements.

project developers on complex and evolving legal issues relating to carbon markets, natural capital and broader ESG matters. He has a particular focus on environmental market mechanisms, sustainability reporting and environmental liability in transactions. Julian has a decade of experience advising on transactional, regulatory and contentious ESG matters for clients across the energy, resources, property development and heavy industry sectors, bringing a commercial, solutions-oriented approach to complex cross-border work.

Paul Hastings (Europe) LLP 100 Bishopsgate London EC2N 4AG United Kingdom Tel: +44 20 3023 5100 Fax: +44 20 3321 1185 Email: ruthknox@paulhastings.com Web: www.paulhastings.com

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INTRODUCTION Contributed by: Ruth Knox and Julian Wolfgramm-King, Paul Hastings LLP

An Unsettled Year It has been an unsettled year for climate law. Every jurisdiction covered by this year’s edition of the Guide now has binding emissions commitments, and, with one exception, none has weakened its headline goal in the past 12 months. New Zealand is that exception, having reduced its 2050 target for biogenic methane in December 2025. The harder task of meeting those targets has arrived at a difficult moment, with energy costs high, defence budgets rising and industry press - ing for relief from carbon costs its competitors do not face. Against the backdrop of a growing challenge to the necessity of climate regulation at the state and fed - eral level in the United States and more jurisprudence articulating the role played by climate change in the legal duties of nation states and public authorities, we are beginning to see the gradual evaluation of the form and substance of climate disclosure regulation and the principles governing the voluntary carbon mar - ket. The unanimous advisory opinion of the Interna - tional Court of Justice (ICJ) on states’ legal duties to address climate change affirmed that a clean, healthy and sustainable environment is fundamental to all human rights and that a failure to meet those duties through inaction, fossil fuel subsidies or lack of regula - tion may expose those states to legal accountability including claims from affected states and potentially individuals. While this opinion may support the grow - ing volume of global climate litigation, it remains to be seen whether the ICJ will influence nation states in their evaluation of existing and developing national climate regulation. We have however begun to see the opinion being cited in national jurisprudence; eg, in Canada. The story isn’t simply one of fracturing standards and expectations. There is also a strong countervailing pull towards harmonisation. The standards issued by the International Sustainability Standards Board appear to be becoming a reference point for certain juris - dictions. The United Kingdom and European Union have agreed in principle to link their emissions trading systems and to exempt goods moving between them from each other’s border levies.

Turning Towards Adaptation The most significant shift of the year concerns the balance between reducing emissions and prepar - ing for the consequences of climate change-related events. At the climate conference in Belém in Novem - ber 2025 (COP30), governments were unable to agree a pathway away from fossil fuels despite the support of more than 80 countries and reached no conclusion on deforestation. They did agree to call for a tripling of adaptation finance by 2035 and adopted a set of indicators for measuring progress under the Global Goal on Adaptation. COP30 also produced an acknowledgement no previ - ous meeting had made: that temperature rise above pre-industrial levels is likely to exceed 1.5°C, and that the task is now to limit the extent and duration of that overshoot. This is a meaningful change as expendi - ture on resilience appears less as a concession and more as a necessity. This narrative has seen support across the political spectrum, particularly in the UK. This matters because almost all existing climate law addresses emissions. Very little addresses their con - sequences. Carbon pricing, emissions trading, dis - closure standards, border measures and credit mar - kets all address emissions. There is no established equivalent for resilience. Germany’s Federal Climate Adaptation Act, in force since July 2024, remains one of very few dedicated adaptation statutes anywhere, creating measurable goals for climate adaptation for 2030 and/or 2050. What About All the Targets? The 2035 round of national commitments under the Paris Agreement has now been submitted, with the United Kingdom pledging a reduction of at least 81% against 1990 levels and Canada 45 to 50% against 2005. No jurisdiction covered by this Guide has revised its headline target downward. However, that is a nar - rower claim than it may first appear: an unchanged target and an achievable one are not the same thing, and in several cases the mechanisms meant to deliver the target have been eased while the target itself has stayed fixed. Canada removed its federal consumer fuel charge in April 2025 and suspended federal clean electric - ity rules in Alberta, while proposed securities disclo -

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INTRODUCTION Contributed by: Ruth Knox and Julian Wolfgramm-King, Paul Hastings LLP

Court-Watching The ICJ’s opinion joins a series of recent international judicial decisions on climate obligations, including opinions from the Inter-American Court of Human Rights in July 2025 and the International Tribunal for the Law of the Sea in May 2024, signalling a growing convergence in the interpretation of climate-related duties under international law. Across our surveyed jurisdictions, the constitutional starting points differ sharply. Germany’s Federal Constitutional Court held in 2021 that inadequate planning beyond 2030 unlaw - fully shifted the burden of reduction onto future gen - erations (triggering a tightening of emission reduction targets for 2030 and 2045), and Italy amended its con - stitution in 2022 to protect the environment and eco - systems in the interests of those generations. Cana - da has no equivalent provision and resolves climate questions through the division of powers between federal and provincial governments. New Zealand’s climate statutes sit outside its unwritten constitution and are not entrenched, so they can be amended by ordinary parliamentary majority. The United Kingdom relies on the Climate Change Act 2008 rather than constitutional protection, though courts have enforced specific duties under it. In Germany, Saul v RWE has given rise to more litiga - tion seeking to enforce or expand legal obligations for emission reductions and push for greater transpar - ency and accountability. While Italian climate litigation is at an early but rapidly developing stage, the courts are beginning to affirm the potential jurisdiction of the courts over climate-related claims and consider Euro - pean human rights jurisprudence. Meanwhile, Dutch jurisprudence continues to fascinate climate change legal experts. A Dutch court held in January 2026 that national climate policy breached human rights obliga - tions owed to residents of Bonaire. The Dutch state will appeal the decision. Further, in May 2026 a Dutch environmental organisation began a second claim against Shell, this time arguing that because climate harm occurs throughout the Netherlands, any Dutch court may hear it. If that argument is accepted, com - panies anywhere could be sued and become a hub for private enforcement of climate obligations glob - ally. New Zealand’s Supreme Court recently declined to strike out claims in respect of a proposed novel

sure requirements were paused. Across the European Union, sustainability reporting was first delayed and then, in March 2026, the number of in-scope reporting entities was narrowed considerably. Italy has legis - lated for a compensation mechanism for companies facing emissions trading costs and has asked the European Commission to suspend the Carbon Border Adjustment Mechanism in certain sectors. New Zea - land has gone further than most, removing the require - ment for its emissions trading scheme settings to align with its international commitments and directing the scheme instead at domestic budgets. At the same time, Germany has designated renewable projects as being in the overriding public interest, with onshore wind permits rising by 90% in 2024 and a further 48% in 2025, and has reformed its carbon storage legisla - tion to permit offshore pipelines and storage. In carbon markets, regulatory infrastructure is begin - ning to mature in certain jurisdictions in respect of vol - untary carbon markets without merging into regulated compliance carbon markets. The European Union’s certification framework for carbon removals took effect in December 2024, with detailed implementing rules following in November 2025. Portugal now oper - ates a statutory voluntary market with a public registry, qualified verifiers and approved methodologies, and allows credits carrying wider environmental benefits, opening a route towards biodiversity credits that few other jurisdictions have taken. New Zealand is extend - ing recognition beyond forestry to wetland restoration, peatland rewetting and nature-based or technological removals. Among the jurisdictions in this Guide, none has yet authorised a single project or issued a letter of authorisation under Article 6 of the Paris Agreement, despite the rules being finalised nearly two years ago. Border measures have proved the most influential. The European Union’s Carbon Border Adjustment Mechanism entered full operation on 1 January 2026, and its effects are already visible across EU member states and beyond. Canada retained industrial carbon pricing in part because carbon costs paid domestical - ly reduce the liability of its exporters at the European border. The United Kingdom’s equivalent regime will apply from January 2027.

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INTRODUCTION Contributed by: Ruth Knox and Julian Wolfgramm-King, Paul Hastings LLP

tort of “climate system damage” against corporate defendants. A Clear Steer In a period of some divergence and mostly stocktak - ing for the covered jurisdictions, this Guide aims to set out what is required in each jurisdiction that it covers, and to allow readers to see where approaches are converging and where they are not. We are grateful to the contributing authors for the time and expertise they have given to this edition.

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CANADA

Greenland

Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey McCarthy Tétrault LLP

Canada

Ottawa

USA

Contents 1. Multilateral and Regional Regimes p.10 1.1 Multilateral Climate Change Legal Regime p.10 1.2 Regional Climate Change Legal Regimes p.10 2. National Policy and Legal Regime (Overview) p.11 2.1 National Climate Change Policy p.11 2.2 Constitutional Framework for the National Legal Regime for Climate Change p.11 2.3 National Legal Regime p.12 2.4 Key Policy/Regulatory Authorities p.14 2.5 Bilateral/Multilateral Co-Operation Under the Paris Agreement p.14 2.6 Climate Litigation p.15 3. Responses to International Developments p.16 3.1 Voluntary Carbon Markets p.16 3.2 Carbon Pricing and Trade Impacts p.16 4. Liability for Climate Change and ESG Reporting p.17 4.1 Liability for Climate Change and ESG Reporting p.17 4.2 Directors’ Climate Change Liability p.17 4.3 Shareholder or Parent Company Liability p.18

4.4 Social Context p.18 5. Transactions p.18 5.1 Due Diligence p.18 6. Climate-Friendly Investment Support p.19 6.1 Renewable Energy p.19 6.2 Other Support p.19

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CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP

McCarthy Tétrault LLP is a leading Canadian law firm delivering strategic, innovative solutions to cli - ents in Canada and around the world. With offices in Canada’s major commercial centres, New York City and London, its lawyers work seamlessly across practice areas and regions. It advises on all aspects of business law, litigation, tax, real estate, labour and employment law. It also works with all levels of gov -

ernment to develop laws and regulations that shape the Canadian market and the industries driving the Canadian and global economies. Through its focus on delivering innovative client services and solutions, McCarthy Tétrault is leading advancements in the le - gal profession and driving value for clients through project management, creative staffing solutions and providing alternative fee arrangements.

Authors

Thomas McInerney is a partner in McCarthy Tétrault’s business law and energy and resources groups in Calgary, advising clients on strategic growth across power and energy sectors in Canada and internationally.

Sonia J. Struthers is a partner in McCarthy Tétrault’s business law group in Montréal and co-lead of the firm’s ESG and sustainability strategic issues group. Her practice focuses on capital markets, mergers and

His practice focuses on commercial transactions, project development, and regulatory matters in traditional and renewable-energy industries. Thomas has particular expertise in climate change and emissions legislation, emissions trading, and renewable energy projects involving solar, wind, biomass, biomethane and hydrogen. He regularly advises on mergers and acquisitions, corporate reorganisations, joint ventures, licensing arrangements and major infrastructure projects, with extensive experience in the oil sands, pipeline, power generation and transmission sectors.

acquisitions, securities regulation, financial services, governance, compliance and investment products. She advises public companies, financial institutions, fund managers, and regulated entities on complex transactions and regulatory matters. Sonia serves on the Québec Autorité des marchés financiers’ derivatives consultative committee, teaches at leading law schools, and chairs The Prosperity Project. Called to the Québec and Ontario bars, she holds a certificate in Climate Change Policy & Practice from the University of Toronto. Calgary, with a practice focused on energy regulation, environmental, administrative and Indigenous law. She advises clients on major energy, power and infrastructure projects across Canada, developing regulatory strategies, supporting Indigenous engagement and securing project approvals. Her experience spans renewable and conventional energy, oil and gas, pipelines, LNG, hydrogen, mining and carbon capture projects. Elyse regularly appears before regulatory tribunals and Alberta courts and has represented clients in several of the largest energy developments in Canada. Elyse Bouey is a partner in McCarthy Tétrault’s business law group in

Selina Lee-Andersen is a partner at McCarthy Tétrault’s Vancouver office, advising clients on environmental, Indigenous, regulatory and corporate/ commercial matters across industries including mining, energy,

infrastructure, transportation and emerging technologies. With over 20 years of experience, she helps clients navigate complex operational and regulatory risks by delivering practical, business- focused solutions tailored to their objectives and risk tolerance. Her hands-on approach, deep industry knowledge, and extensive advisory experience have earned her a reputation as a trusted legal advisor and valued partner to her clients.

CHAMBERS.COM

CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP

McCarthy Tétrault LLP 66 Wellington Street West Suite 5300 TD Bank Tower Toronto, ON M5K 1E6 Canada Tel: +1 416 362 1812

Email: info@mccarthy.ca Web: www.mccarthy.ca

1. Multilateral and Regional Regimes 1.1 Multilateral Climate Change Legal Regime United Nations Framework Convention on Climate Change Canada is a long-standing participant in the interna - tional climate change regime. It signed and ratified the United Nations Framework Convention on Cli - mate Change (UNFCCC) in 1992, and the Conven - tion entered into force for Canada in 1994. As a party, Canada works with other UNFCCC parties to advance global efforts to reduce greenhouse gas (GHG) emis - sions and respond to climate-related risks. Canada’s participation includes preparing and sub - mitting annual national GHG inventories, periodic reporting on mitigation and adaptation measures, and participation in the transparency and accountability mechanisms established under the Convention and related agreements. Canada also contributes financial and technical support for climate mitigation, adapta - tion and capacity-building in developing countries, with a particular focus on vulnerable states. Canada contributes to international climate science, monitoring and research, including through the Inter - governmental Panel on Climate Change (IPCC). These activities inform both domestic policy development and Canada’s engagement in multilateral negotiations. Paris Agreement Canada was among the 196 parties that adopted the Paris Agreement on 12 December 2015, signing and ratifying it in 2016. The Agreement is the princi - pal international framework guiding Canada’s climate commitments and domestic policy.

1.2 Regional Climate Change Legal Regimes Canada’s participation in regional initiatives occurs primarily at the provincial rather than federal level, reflecting the constitutional division of powers and the significant role provinces play in environmental and energy regulation. Provinces participate in various regional and cross-border initiatives to reduce GHG emissions, co-ordinate climate policy and facilitate emissions trading. Key examples include the Western Climate Initiative, Inc (WCI), the Pacific Coast Collabo - rative, and the New England Governors and Eastern Canadian Premiers (NEG-ECP) partnership. Western Climate Initiative, Inc (WCI) The non-profit WCI administers the joint auctions, market registry and financial services for the GHG emissions-trading programs of its participating juris - dictions, including Quebec and California. Washington State joined WCI in 2021 to support the implementa - tion of its cap-and-invest program, which started in 2023. Since the fall of 2024, WCI has worked with New York State on planning for platforms that could support a future cap-and-invest program. Pacific Coast Collaborative The Pacific Coast Collaborative comprises British Columbia, Washington, Oregon, California, and the cities of Vancouver, Seattle, Portland, San Francisco, Oakland and Los Angeles. Its members have set a goal of reducing greenhouse gas emissions by at least 80 percent by 2050 through regional action on power grids, transportation and buildings, alongside initia - tives to promote climate resilience.

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CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP

New England Governors and Eastern Canadian Premiers (NEG-ECP) The New England Governors and Eastern Canadian Premiers (NEG-ECP) partnership is a long-standing regional initiative involving the six New England states and the provinces of New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island and Quebec. It promotes cross-border co-operation on climate change, energy and environmental issues, including regional emissions-reduction targets, cli - mate action plans and coordinated policy responses. Though it creates no binding legal obligations, it is an important forum for regional cooperation and informa - tion sharing on climate-related matters. 2. National Policy and Legal Regime (Overview) 2.1 National Climate Change Policy Canada’s national climate policy is informed by both climate science and its international commitments under the UNFCCC and the Paris Agreement. Scien - tific assessments – including IPCC reports, Canada’s Changing Climate Report and national GHG invento - ries – inform the development of federal emissions- reduction targets, climate policy and adaptation plan - ning. Under the Paris Agreement, Canada must prepare, communicate and maintain successive nationally determined contributions (NDCs), and report on its GHG emissions and progress toward its targets within the transparency and accountability framework. Can - ada’s current commitments are to reduce GHG emis - sions by at least 40-45% below 2005 levels by 2030 and by 45-50% below 2005 levels by 2035, with the objective of net-zero emissions by 2050. The net-zero-by-2050 commitment is reflected domestically in the Canadian Net - Zero Emissions Accountability Act (SC 2021, c. 22) (Canadian Net Zero Act), which establishes a framework for setting emissions-reduction targets, preparing emissions- reduction plans and reporting on progress toward those targets. These targets are also reflected in a suite of regulations made under the Canadian Environ-

mental Protection Act , 1999 (SC 1999, c. 33) (CEPA) aimed at achieving federal emissions reduction plans. Role of Carbon Markets and Carbon Pricing Carbon pricing and markets are also central to Can - ada’s climate policy. The federal approach assigns a cost to carbon while allowing flexibility in how compliance obligations are met, supported by emis - sions trading, offset credits and other market-based mechanisms that target reductions where they can be achieved most efficiently. Carbon costs and car - bon-market opportunities have accordingly become important for project development, investment and transactional due diligence in emissions-intensive sectors. 2.2 Constitutional Framework for the National Legal Regime for Climate Change Canada has no express constitutional provision gov - erning environmental protection or climate change. Instead, climate regulation operates within Canada’s federal system, in which legislative authority is divid - ed between the federal Parliament and the provinces under the Constitution Act , 1867 . The Supreme Court of Canada has repeatedly held that the environment falls within overlapping federal and provincial juris - diction. Canada’s climate change regime is therefore grounded in cooperative federalism, with both levels of government regulating different aspects of climate policy. Federal climate legislation may be supported by several heads of power, including the criminal law power and the national concern branch of the peace, order and good government (POGG) power. Most notably, in References re Greenhouse Gas Pollution Pricing Act , 2021 SCC 11, the Supreme Court upheld the Greenhouse Gas Pollution Pricing Act (SC 2018, c. 12, s. 186) (GGPPA), holding that the establishment of minimum national standards of GHG price strin - gency to reduce GHG emissions falls within Parlia - ment’s national concern jurisdiction while preserving substantial provincial flexibility in implementation. The most significant recent constitutional develop - ment is the Supreme Court’s decision in Reference re Impact Assessment Act , 2023 SCC 23, which held that the “designated projects” scheme of the federal Impact Assessment Act (SC 2019, c. 28, s. 1) (IAA) was largely unconstitutional as an overreach into matters

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CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP

Regulations under CEPA The legal framework under CEPA serves as the foun - dation for a number of key federal GHG reduction regulations administered by ECCC. The first of these regulations to be enacted is the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds ( Upstream Oil and Gas Sector ) (SOR/2018-66), which serve to regulate methane – a potent GHG and the main component of natural gas – and certain vola - tile organic compounds in the upstream oil and gas sector. They impose equipment-level and facility- level requirements – including conservation, destruc - tion, and venting limits, leak detection and repair, and pneumatic-device controls – originally targeting a 40-45% cut in upstream methane below 2012 lev - els by 2025. Amendments introduced in 2025 add, among other things, stricter fugitive-emissions man - agement, venting prohibitions and destruction limits, plus a performance-based compliance option. The Clean Fuel Regulations (SOR/2022-140) (CFR) are also made under CEPA and require producers and importers of gasoline and diesel (“primary suppliers”) to reduce the lifecycle carbon intensity (in gCO₂e/MJ) of those fuels against a 2016 baseline, by a minimum amount that increases each year from 2023. The obli - gation applies company-wide, in aggregate tonnes of CO₂e, subject to exemptions. Suppliers comply by creating or acquiring compliance credits (each one tonne of CO₂e) or by paying into a compliance fund. Both primary suppliers and “voluntary credit creators” may generate tradable credits through three catego - ries – reducing a fuel’s lifecycle emissions, supplying low-carbon fuels, and end-user fuel switching. Credit generation follows government-approved quantifica - tion and third-party verification, and a credit clearance mechanism lets suppliers that fall short buy pledged credits. Finalised in December 2024, the Clean Electricity Reg- ulations (SOR/2024-263) also belong to the suite of emission-reduction regulations made under CEPA and drive the electricity sector toward a net-zero grid by prohibiting excessive CO₂ emissions from fossil-fuel- fired generation. They are technology-neutral, setting an annual emissions limit for covered generating units

whose environmental, social and economic effects are primarily provincial, while upholding the portions of the Act addressing projects carried out or financed by federal authorities on federal lands and outside Canada. Parliament amended the IAA in June 2024 to respond to the Supreme Court’s ruling but ques - tions still remain as to how the amendments will be implemented in practice to provide greater certainty of process, timelines and designation criteria. Prudent investors should therefore treat the federal–provincial regulatory boundary – and its attendant approval time - lines, costs and litigation risk – as a project-specific diligence question at the outset of any Canadian development, rather than a settled matter. 2.3 National Legal Regime Federal Legal Regime GGPPA and the Output-Based Pricing System (OBPS) The GGPPA is the central federal carbon-pricing stat - ute. Part 1 established a fuel charge (administered by the Canada Revenue Agency), and Part 2 establishes the OBPS for large industrial emitters administered by Environment and Climate Change Canada (ECCC) through the Output - Based Pricing System Regula- tions (SOR/2019-266). The Act operates as a “federal backstop” for carbon pricing: it sets minimum nation - al stringency standards that provincial and territorial systems must meet, failing which the federal system applies. Compliance obligations under the OBPS may be met with tradeable compliance units representing GHG reductions or removals, which take three forms: sur - plus credits (created where a covered facility reduces emissions beyond its OBPS requirement); recognized units (issued under a recognized provincial offset regime); and federal offset credits (created by project proponents under government-approved protocols and subject to third-party verification). The Canadian Greenhouse Gas Offset Credit System Regulations (SOR/2022-111) establish the federal mechanism for creating, tracking and using federal offset credits for OBPS compliance. Notably, some but not all provin - cial credits can be traded federally, and not all federal credits can be traded in provincial systems.

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CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP

based on generating capacity. Emissions require - ments are set to begin in 2035 and reach net-zero by 2050, with compliance flexibility through bankable and tradeable compliance credits and offset credits. The federal government recently suspended these rules in Alberta following significant provincial opposition and has announced its intention to adjust the regulations to provide greater flexibility to maintain reliable and affordable energy costs for Canadian families. Provincial Legal Regimes British Columbia British Columbia’s Output-Based Pricing System (BC OBPS), under the Greenhouse Gas Industrial Report- ing and Control Act (SBC 2014, c. 29), took effect April 1, 2024 (replacing the CleanBC Industrial Incen - tive Program) and – following repeal of the consumer carbon tax on 1 April 1 2025 – is the province’s prin - cipal industrial carbon-pricing mechanism. It generally applies to facilities emitting at least 10,000 tonnes of CO₂e annually, assigning emissions limits by product- specific intensity benchmarks; facilities below their benchmark earn credits, and those above meet the shortfall with eligible credits, offset units or payments to the Province, subject to monitoring, reporting and third-party verification. British Columbia also operates a Low Carbon Fuel Standard under the Low Carbon Fuels Act (SBC 2022, c. 21), as amended and modernised from 1 Janu - ary 2024, requiring transportation-fuel suppliers to reduce the lifecycle carbon intensity of the fuels they sell through a market-based credit system rewarding lower-carbon fuels such as renewable diesel, ethanol, renewable natural gas, hydrogen and electricity. Alberta Alberta was the first jurisdiction in North America to implement a binding carbon-emission-reduction regime, which currently takes the form of the Tech- nology Innovation and Emissions Reduction Regu- lation (Alta Reg 133/2019) (TIER). TIER is a facility- specific OBPS regime. Facilities that annually emit more than 100,000 tonnes of CO₂e or import more than 10,000 tonnes of hydrogen, or that voluntarily opt into the TIER regime, must reduce their annual emissions intensity (emissions per unit of production) pursuant to the least stringent of either a High Perfor -

mance Benchmark or a Facility Specific Benchmark. Compliance can be achieved through physical abate - ment of emissions and/or “trueing up” the obligation by applying emission offsets, emission performance credits (EPCs), fund credits, sequestration credits (an emission offset derived from geological sequestration – stackable with CFR compliance credits), and cap - ture recognition tonnes (converted from a sequestra - tion credit and usable only by a facility that captured and exported the CO2). Emission offsets and EPCs are recorded and tracked in the Alberta Emission Offset Registry and the Alberta Emission Performance Credit Registry, respectively. Transactions are bilaterally negotiated, with no pre - scribed pricing but some practical pricing implica - tions. Saskatchewan Saskatchewan’s climate policy is anchored by Prairie Resilience: A Made-in-Saskatchewan Climate Change Strategy (December 2017), a provincial framework outlining Saskatchewan’s approach to climate change mitigation and adaptation, supported by a Climate Resilience Measurement Framework tracking pro - gress across natural systems, infrastructure, eco - nomic sustainability, community preparedness and measuring, monitoring and reporting. Saskatchewan’s OBPS program, established under The Management and Reduction of Greenhouse Gases Act (SS 2010, c. M-2.01), requires regulated facilities to meet emission-intensity standards. Below- limit emitters earn tradable performance credits, while those above may buy credits or pay into the Saskatch - ewan Technology Fund. The province paused the industrial carbon tax rate under its OBPS program in April 2025 but regulated facilities are still required to submit emissions reports. Ontario Ontario’s Emissions Performance Standards (EPS) program (in force since 1 January 2022) regulates GHG emissions from large industrial facilities in the manufacturing, resource and electricity-generation sectors, assigning each an annual limit under perfor - mance standards that tighten yearly.

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CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP

Registration is mandatory for facilities that meet the definition of an “EPS facility”, which generally includes those engaged in a covered industrial activity that have reported at least 50,000 tonnes of CO₂e emissions in any year since 2014. Smaller facilities emitting at least 10,000 tonnes, newly built facilities, or those com - pleting eligible modifications may voluntarily opt in. A facility with a compliance obligation can meet EPS by reducing emissions or acquiring compliance instru - ments consisting of: excess emissions units (generally non-tradeable units purchased from the Ontario gov - ernment at a rising price) or emissions performance units (tradeable, bankable units awarded to facilities that emit below their limit). Compliance-payment rev - enue is reinvested in emissions-reduction projects at eligible facilities, helping them stay competitive while lowering emissions. Québec Quebec’s cap-and-trade system (C&T System) encourages businesses to reduce their GHG emis - sions by setting a price on carbon. It is made up of three main features. First, it caps emissions: the government sets an annu - ally declining maximum, and emitters must surrender one “emission allowance” per tonne emitted. Second, participants obtain emission rights by free allocation, quarterly government auctions or sec - ondary-market purchases (the system also covers transportation and heating fuels, so fuel prices rise for consumers too). Third, revenues are reinvested to combat climate change in Quebec. The C&T System creates a large amount of revenue, which the province uses to fund part of its climate action. New Brunswick, Nova Scotia and Prince Edward Island (PEI) Under New Brunswick’s OBPS, facilities emitting 50,000 tonnes or more of CO₂e annually must meet the system’s performance standards (those emitting 10,000-50,000 tonnes may opt in), with a compliance obligation for any shortfall, aiming to reduce emis - sions while maintaining competitiveness and limit - ing carbon leakage. Regulated facilities register, set

a product baseline intensity and file annual verified- emissions and compliance reports. Nova Scotia’s OBPS targets a 53% GHG reduction by 2030 and net-zero by 2050, using the federal carbon price to drive reductions among large emitters while preserving competitiveness. Registered facilities meet a manufacturing performance standard: below-stand - ard emitters earn tradable or bankable performance credits, while those above pay the federal price per excess tonne or buy credits. As in New Brunswick, facilities over 50,000 tonnes are mandatory partici - pants and those emitting 10,000-50,000 may opt in. Rather than an output-based pricing system, Prince Edward Island focuses on emissions tracking, using ECCC’s National Inventory Report for official data. Its Net - zero Carbon Act (SPEI 2020, c. 90) targets GHG emissions below 1.2 megatonnes of CO₂e per year from 2030, and carbon neutrality by 2040, a decade ahead of the federal 2050 goal. 2.4 Key Policy/Regulatory Authorities Federally, the GGPPA and OBPS are regulated by the Minister of Environment and Climate Change, sup - ported by ECCC, with carbon-pricing policy and the national benchmark set by the Department of Finance. Each province’s respective regime is generally gov - erned by the provincial department in charge of cli - mate change measures. Assessed against their constitutional and administra - tive mandates and their technical capacity, the current allocation of authority is, on balance, well-matched to the jurisdictionally shared character of climate change while acknowledging regional differences in energy resources and industries. 2.5 Bilateral/Multilateral Co-Operation Under the Paris Agreement 2.5.1 Article 6.2 – Internationally Transferred Mitigation Outcomes Canada is engaged internationally on Paris Agreement implementation but at an early stage on operational - ising Article 6.2. Federal materials acknowledge the potential role of internationally transferred mitigation outcomes (ITMOs) and the need for authorisation under Article 6, but no final decisions have been tak -

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CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP

en. Cooperation with other parties to the Paris Agree - ment continues through NDC submissions (including the 2035 NDC) and advocacy for robust international accounting rules that ensure environmental integrity and avoid double-counting. There are currently no formal bilateral Article 6.2 agreements concluded by Canada, likely because the country is still developing its ITMO policy. Should Canada conclude bilateral agreements and establish authorisation and tracking arrangements, opportu - nities could arise for Canadian project developers, investors and credit purchasers in originating, financ - ing and transacting mitigation activities authorised for international transfer, and in leveraging Canadian clean-technology expertise. 2.5.2 Article 6.4 – The Paris Agreement Crediting Mechanism Canada has not established a Designated National Authority (DNA) for the Article 6.4 mechanism – the prerequisite body for authorising participation – and is not among those countries the UNFCCC records as having made such designation. There is accordingly no Canada-specific Article 6.4 process at present, nor are there any Canada-hosted Article 6.4 projects. 2.5.3 Article 6.8 – Non-Market Approaches On Article 6.8 (non-market approaches), Canada is engaged internationally – participating in UNF - CCC guidance development, maintaining a national focal point, and recording at least one non-market approach on the UNFCCC platform – but has no domestic implementing legislation. 2.6 Climate Litigation Climate-focused and climate-related litigation is a growing and significant, though still developing, fea - ture of Canada’s legal landscape. The principal catego - ries include constitutional and public-law challenges to government climate action or inaction; federalism litigation over carbon pricing and regulatory authority; and a growing body of regulatory-disclosure, ESG and greenwashing claims. Litigants typically include youth and public-interest claimants, Indigenous peoples, governments, regulators and enforcement bodies.

Youth and public-interest claimants have driven some of the leading constitutional cases in Canada. In Mathur v Ontario , 2024 ONCA 762, the Ontario Court of Appeal set aside the dismissal of a Charter chal - lenge to Ontario’s weakened 2030 emissions target and remitted the matter for reconsideration, holding that Ontario had voluntarily assumed a positive obli - gation to address climate change consistent with the Charter. In La Rose v Canada , 2023 FCA 241, the Fed - eral Court of Appeal allowed the youth plaintiffs’ sec - tion 7 Charter claims to proceed, with an eight-week trial now set to begin in October 2026. La Rose was heard and decided together with a parallel challenge advanced by Indigenous claimants in Misdzi Yikh v Canada , but that claim remains at an earlier proce - dural stage following a further motion to strike. Indigenous peoples are a distinct and increasingly influential category of litigant in the climate-related legal landscape, advancing claims through two chan - nels. First, Indigenous groups – such as the Misdzi Yikh claimants – may bring constitutional claims to press for more ambitious federal climate action. Second, and of greater day-to-day significance for investors and industry, Indigenous rights-holders are central parties in litigation over the resource, ener - gy, transmission and infrastructure projects through which the climate transition is delivered. Section 35 of the Constitution Act , 1982 protects Aboriginal and treaty rights, and the Crown’s duty to consult and, where appropriate, accommodate those rights – root - ed in the honour of the Crown and triggered whenever the Crown contemplates conduct that may adversely affect asserted or established rights. Section 35 rights may provide a basis for challenging project authorisa - tions and, where consultation is found wanting, delay - ing or quashing them. This same rights framework is, however, as much an opportunity as a risk: Indigenous equity ownership in major energy and infrastructure projects – supported by federal and provincial loan- guarantee programs – has made early engagement and partnership a core project-de-risking and value- creation strategy. Greenwashing claims in Canada have also been mate - rially impacted by amendments to the Competition Act (RSC 1985, c. C-34) enacted through Bill C-59 (the Fall Economic Statement Implementation Act ,

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CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP

2023), which became law in June 2024 and introduced express provisions requiring environmental claims about products and businesses to be adequately substantiated. The Competition Bureau issued final guidelines on environmental claims in June 2025.

comes from official Canadian government sources, guidance on legal and regulatory risk, and independ - ent market resources. 3.2 Carbon Pricing and Trade Impacts A central trade consideration of carbon pricing for Canada is maintaining the competitiveness of Cana - dian businesses while reducing emissions. This rationale was decisive in the April 2025 removal of the consumer fuel charge: the Part 1 fuel-charge rates in Schedule 2 of the GGPPA were set to zero, while industrial carbon pricing under the OBPS was retained. The stated objective was to refocus the federal sys - tem on industrial pricing – identified in the regulatory rationale (citing independent research) as the main driver of carbon-pricing-related emissions reductions to 2030 – while protecting emissions-intensive, trade- exposed industry against the competitiveness and carbon-leakage impacts of a domestic carbon price. The OBPS keeps a price signal on large emitters and encourages the transition to low-carbon technologies without exposing those sectors to leakage risk. The most significant external driver of this com - petitiveness calculus is now the EU Carbon Border Adjustment Mechanism (CBAM). CBAM places a carbon price on imports into the EU of certain car - bon-intensive goods (iron, steel, cement, fertilisers, aluminium, electricity and hydrogen) so that non- EU producers face carbon costs comparable to EU producers, addressing carbon leakage. After a tran - sitional reporting phase that began on 1 October 2023, the definitive regime started on1 January 2026. Critically for Canadian exporters of these products, where a carbon price has already been paid in the country of production, the corresponding amount may be deducted from the CBAM obligation. A credible domestic carbon price therefore reduces the CBAM cost borne by Canadian goods entering the EU, rein - forcing the rationale for retaining industrial carbon pricing even after the consumer charge was removed. Canada has itself examined border carbon adjust - ments (BCAs) but consultation on that issue has been archived, and there does not appear to be a live fed - eral BCA workstream.

3. Responses to International Developments 3.1 Voluntary Carbon Markets

Participants in Canada are free to transact in voluntary carbon credits issued under independent standards such as Verra’s Verified Carbon Standard or the Gold Standard. Although Canada’s voluntary carbon mar - ket (VCM) is smaller than its compliance counterpart, voluntary frameworks remain a key mechanism for driving innovation and financing GHG emission reduc - tions and removals outside the compliance space. The Canadian VCM encompasses a diverse range of project types, including nature-based solutions (affor - estation, improved forest management and wetland restoration), methane capture and destruction, landfill gas recovery, agricultural practices, carbon capture and storage, and emerging carbon-dioxide-removal technologies. Currently, there is no indication that Canada has plans to introduce legislation to regulate the domestic volun - tary carbon market. To date, Canada has focused on protocol-based compliance and offset infrastructure rather than direct regulation of VCM transactions. It is likely that Canada’s VCM will continue to be guided by compliance market design, climate disclosure require - ments, greenwashing regulations and possible imple - mentation of Article 6 mechanisms. The voluntary market remains distinct from Canada’s federal and provincial compliance carbon-pricing systems, so voluntary carbon credits are not directly fungible into domestic compliance schemes. To be accepted as an eligible offset unit for compliance purposes under a domestic compliance scheme, a carbon credit must be expressly recognised by that scheme. Canada does not have a single public portal dedicated to VCM information, but publicly available information

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CANADA Law and Practice Contributed by: Thomas McInerney, Selina Lee-Andersen, Sonia J. Struthers and Elyse Bouey, McCarthy Tétrault LLP

4. Liability for Climate Change and ESG Reporting 4.1 Liability for Climate Change and ESG Reporting Canada is moving toward a more structured sustaina - bility-reporting regime. Building on IFRS S1 and IFRS S2, which built on the recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD), the Canadian Sustainability Standards Board (CSSB) issued the Canadian Sustainability Disclosure Standards – CSDS 1 (General Requirements for Dis - closure of Sustainability-related Financial Information) and CSDS 2 (Climate-related Disclosures) in Decem - ber 2024, effective for reporting periods beginning after 1 January 2025. These as-yet-voluntary stand - ards for Canadian issuers other than financial institu - tions are closely modelled on the IFRS standards, so companies reporting under them meet substantially similar requirements in the Canadian context. The Office of the Superintendent of Financial Institu - tions (OSFI), Canada’s federal solvency and prudential regulator for banks, insurers and trust companies, has published Guideline B-15: Climate Risk Management (OSFI Guideline), which outlines OSFI’s expectations for federally regulated financial institutions (FRFIs) in managing climate-related risks. The Guideline expects each FRFI to achieve three core outcomes: • understand and mitigate the potential impacts of climate-related risks on its business model and strategy; • maintain governance and risk-management prac - tices to manage climate-related risks; and • remain financially resilient through severe but plausible climate-risk scenarios and operationally resilient in the face of climate-related disasters. The Guideline requires FRFIs to publish climate-relat - ed risk-management reports with prescribed disclo - sure, including information aligned with the CSSB’s final sustainability and climate-related disclosure standards. Canada’s largest financial institutions began reporting under the OSFI Guideline for their 2025 fiscal years.

The Autorité des marchés financiers (AMF), Quebec’s financial-sector regulator, has adopted a climate-risk- management guideline substantially similar to the OSFI Guideline, applying to Quebec financial institu - tions for which the AMF is the principal solvency and prudential regulator. For Canadian listed companies (reporting issuers) generally, the Canadian Securities Administrators paused its proposed mandatory climate-related disclosure rule (NI 51-107) on 23 April 2025, citing recent US and global developments and competitive - ness concerns; issuers nonetheless remain subject to existing continuous-disclosure obligations to dis - close material climate-related risks (CSA Staff Notices 51-333 and 51-358), and are encouraged to use the CSSB standards voluntarily. 4.2 Directors’ Climate Change Liability Directors may face liability for failing to properly manage climate-related risks, principally through their duties to the corporation. Under the CanadaBusiness Corpora- tions Act (RSC 1985, c. C-44), directors must act with a view to the best interests of the corporation, and the statute expressly provides that, in considering those interests, directors may consider the environment. A director who fails to take the environment into account may, in appropriate circumstances, be exposed to a claim that they have not met their duty of care. Liability can also arise under environmental statutes. Under CEPA, a director who directed, authorised, assented to, acquiesced in or participated in the commission of an offence under the Act is liable for that offence. Directors who ignore climate-related and nature-related risks could face personal liability – for example, where they fail to prevent environmental harm, fail to ensure the corporation meets its regula - tory obligations, or fail to act when they know or ought to know of environmental risks. In R v Mossman ,2026 BCCA 75, the British Columbia Court of Appeal confirmed that a director’s knowledge is not required to establish liability for an offence under BC environmental legislation. Directors may therefore be held liable for the climate change impacts of their companies even where they have no knowledge of the offence.

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