About 67 critical-minerals projects – which represent about half of all active mining proposals in Canada – are proposed, planned or under construction, according to a federal government inventory. Combined, they’ll need $72.4 billion in investment by 2034.

But as the federal government seeks capital from its allies to develop its mineral riches, some experts are advocating for a more cautious tack to working with the United States amid President Donald Trump’s continued aggressive stance toward allies and repeated musings about annexing Canada.

“From a long-term perspective . . . the best approach is to work together in development of a North American critical-minerals strategy,” says Lawrence Herman, a Toronto-based international trade lawyer and member of the Expert Group on Canada–U.S. Relations. “The challenge for Canada is the aggression of the Trump administration and its desire to control, in different ways, what happens in Canada with regard to critical minerals.”

Western countries are trying to lessen their dependence on China, which currently controls about 90% of refined production of rare-earth elements and 70% of rare-earths mining output, along with about half of the world’s reserves. Rare earths have applications in consumer electronics, advanced weapons systems and electric vehicles. China also has strong control over lithium, graphite and other niche minerals such as germanium and gallium, which have defence applications.

But a wave of new export control measures has exposed the significant vulnerabilities in Western supply chains. Amid deteriorating trade relations with the United States early last year, China instituted a special licence to export 12 rare-earth minerals and derivative products like magnets. Likewise, any product with at least 0.1% of its content coming from Chinese rare-earth metals will be restricted as of November 2026.

I think there’s a strong recognition by the U.S. that they do still need Canada for their critical minerals and mining projects.

– Photinie Koutsavlis, vice president, Mining Association of Canada

China’s dominance has also made it difficult for some Canadian mining projects to get off the ground, says Photinie Koutsavlis, vice president of economic affairs and climate change at the Mining Association of Canada. China can “flood the market with product,” depressing prices and making mine expansion or construction uneconomic.

Canada is on a deal-making spree

The G7 (Group of Seven) Critical Minerals Production Alliance, launched by Canada last summer to drum up public funding for mining and processing projects from allied countries, as well as private capital, has announced 56 investments to date. Canada and the United States have also collaborated directly on critical-minerals investments through their joint task force, established during the first Trump administration.

The United States launched its own critical-minerals buyers club, called Project Vault. The US$12-billion critical-minerals stockpile will establish price floors for various minerals and would give allied countries access to the stores in the event of shortages. To date, Washington has struck deals with more than 50 countries. Foreign Affairs Minister Anita Anand attended an initial meeting, but Canada has so far been noncommittal about its participation.

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Shaz Merwat, director of energy policy at RBC Thought Leadership, sees Project Vault as a strong potential market for Canadian critical minerals and notes that strategic deals under that umbrella would guarantee that Canadian minerals flow into U.S. rules of origin for batteries and electric vehicles. But in a February research paper, Merwat acknowledged that deeper minerals-supply-chain enmeshment with the United States could mean that “Canadian minerals face U.S. export licensing and defence procurement priorities that serve American industrial policy first.”

Herman raises the same concern about equity stakes the U.S. government took in October in two Canadian junior mining companies, Trilogy Metals and Lithium Americas. While both companies have their projects outside Canada, the deals could expose Canada to U.S. government action “that may not always be consistent with Canadian interests,” he says.

Despite tariffs and trade tensions, Koutsavlis says the United States remains an ally and Canada’s biggest trade partner. The mining sector also falls within the Canada-United States-Mexico Agreement (CUSMA), and its products haven’t been hit with any tariffs. “I think there’s a strong recognition by the U.S. that they do still need Canada for their critical minerals and mining projects,” she says.

Shoring up supplies

Canada has announced it will create its own critical-minerals stockpile for defence purposes. Elizabeth Steyn, associate dean of graduate and professional programs in the University of Calgary’s Faculty of Law, says the government could sign long-term contracts with miners to create its own public stockpile, or pay companies to keep a large stock of their commodities on site. But she says it should focus primarily on stockpiling minerals that it’s vulnerable to losing access to, including those that Canada doesn’t produce.

Federal Conservative leader Pierre Poilievre, in a February speech to the Economic Club of Canada, suggested that Canada could use a domestic stockpile of critical minerals as leverage in trade negotiations with the United States; in exchange for access to the stockpile, the United States would need to lift tariffs on Canadian goods.

Having a guaranteed government buyer would also help to de-risk projects for miners and their investors, Koutsavlis says, but stockpiling alone is not a sufficient strategy. She says the government needs to fund infrastructure to remote projects and provide more support for processing and refining. Many critical minerals are not produced at the mine but recovered as co-products through smelting and refining. But Canada’s processing capacity has declined in the past decade. Koutsavlis says a host of factors have played a role: mines with attached processing facilities reached their end of life, and declining mining output generally reduced feedstock that stand-alone smelters and refiners had access to, forcing them to seek out supply elsewhere. With China able to offer processing on the cheap, Western processors have resorted to paying for feedstock to keep their facilities operating.

Merwat says he sees the potential for Canada to create integrated “mineral corridors,” where multiple mines in a region could feed into one processing facility – such as in Sudbury’s nickel belt or the lithium deposits around Thunder Bay, Ontario – and offer economies of scale.

But that should be accompanied by price floors, similar to what the United States offers, and limits on importing feedstock from China, which would help improve the economics for Western “pure-play” refiners that are otherwise at a competitive disadvantage because, unlike larger mining and energy companies, they aren’t diversified. Otherwise, Merwat says, with public market players largely unwilling to get involved in these more risky projects, Western supply chains will remain vulnerable.

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This stark warning was issued by the U.K.-based financial think tank Carbon Tracker in two new reports, Fading Fortunes and Petro-Provinces at Risk. The authors found that the fast pace of renewable-energy adoption worldwide and the high costs of oil-sands operations put domestic producers at “heightened financial risk.”

The reports come as Ottawa and Alberta embark on a new partnership to build a pipeline from Alberta’s tar sands to the British Columbia coast. On November 27, Prime Minister Mark Carney and Alberta Premier Danielle Smith signed a memorandum of understanding (MOU) that will see the province accept a firmer industrial-carbon-pricing regime in exchange for federal support for the pipeline and some exemptions from federal greenhouse gas regulations. The MOU stipulates that the pipeline would be financed and constructed by the private sector and that Indigenous Peoples would be co-owners, though B.C. Coastal First Nations have already vowed it “will never happen.” 

Carbon Tracker modelled Canadian producers’ stated upstream investments against three potential scenarios: an accelerated energy transition consistent with the Paris Agreement, a moderate transition and a slow transition. In the most aggressive transition, “business as usual” investments of both new developments and new exploration would put up to 30% of Canadian oil and gas value at risk – about triple the size of any potential upside under the slowest transition scenario.

“We can’t predict exactly what the future will look like; we have an idea of a range of possible scenarios . . . and investors should be considering that range of realistic scenarios as part of their decision-making and risk-management,” says Olivia Bisel, an analyst with Carbon Tracker and the lead author of one of the reports. “A three-to-one ratio of risk to reward should stand out to investors,” she adds.

She points out that while her analysis found that more modest investments, including some new developments and limited exploration, led to a greater likelihood for producers to benefit in the moderate and slow transition scenarios, those gains were still minor compared to the significant risk if the energy transition happens quickly.

In almost all transition scenarios, Bisel says, Canadian producers are likely to fare worse than national oil companies like Saudi Aramco or Petrobras, and integrated oil companies like ExxonMobil and Chevron, which can produce more cheaply.

Layers of risk

Adam Scott, executive director at Shift Action for Pension Wealth and Planet Health, says there’s growing consensus among economists and other experts that there could be “broader market impacts to the stability of the financial system” if the financial sector doesn’t begin to price in the likelihood of declining oil and gas valuations. Shift advocates for pension funds to rapidly transition away from oil investments; not doing so, Scott says, could hit the retirement savings of millions of Canadians.

Bisel notes that 18% of Canada’s “Big Five” banks’ financing in 2024 went to oil and gas, two-thirds of which went to domestic producers. That kind of concentration could depress the amount of lending to other sectors of the economy if the transition unfolds more quickly than expected, she says.

Jobs, GDP (gross domestic product) growth and tax revenues are also at risk, Bisel says. The second Carbon Tracker report estimates that the energy transition could eliminate more than 80% of Canadian provincial governments’ expected revenue from upstream oil and gas in the 2030s.

Conflicting narratives

While oil and gas producers have allocated less of their free cash flow to new development in recent years, all Canadian producers shared guidance this year with plans to grow production (most of those guidances were specific to 2025).

The reports also come in a year when the country’s oil output has hit record highs and the trade war with the United States has made federal and provincial governments open to new pipelines and capacity-expansion projects.

“The market is saying very different things right now,” says Heather Exner-Pirot, senior fellow and director of natural resources, energy and environment at the Macdonald-Laurier Institute. The Carbon Tracker reports are expressing “a narrative [from] two years ago,” she says, but the mood is changing, and the energy transition now seems expected to be a slower one. “The market is looking to Canada for growth . . . because American shale is peaking, and there’s a demand for heavy [oil] that’s not being met.”

Scott, however, calls the report’s modelling “quite conservative” relative to others he’s seen. Despite an assumption among investors and others that the energy transition will be “incredibly slow or non-existent” if the world carries on with business as usual, “the economics of the transition have advanced so far that the transition is now self-reinforcing,” he says.

Renewable energy accounted for 90% of total power expansion globally in 2024, according to the International Renewable Energy Agency. The International Energy Agency also said in 2023 that oil and gas demand could peak by the end of the decade; BloombergNEF and oil giant BP estimated the peak even earlier, at 2029 and 2025, respectively.

Scott says that federal and provincial governments are “blindly and dangerously” looking to new energy production to steel the economy against the loss of a reliable trading partner. “A lot of the [energy transition] provides better opportunities for long-term growth and value creation at far lower risk.”

Kelsey Rolfe is a Toronto-based freelance business journalist with bylines in The Globe and Mail, Canadian Business, The Logic and the Financial Post, among others.

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