Abstract. The Arctic is warming more rapidly than other regions of the world leading to ecosystem change including shifts in vegetation communities, permafrost degradation and alteration of tundra surface-atmosphere energy and carbon (C) fluxes, among others. However, year-round C and energy flux measurements at high-latitude sites remain rare. This poses a challenge for evaluating the impacts of climate change on Arctic tundra ecosystems and for developing and evaluating process-based models, which may be used to predict regional and global energy and C feedbacks to the climate system. Our study used 14 years of seasonal eddy covariance (EC) measurements of carbon dioxide (CO2), water and energy fluxes and winter soil chamber CO2 flux measurements at a dwarf-shrub tundra site underlain by continuous permafrost in Canada's Southern Arctic ecozone to evaluate the incorporation of shrub plant functional types (PFTs) in the Canadian Land Surface Scheme Including biogeochemical Cycles (CLASSIC), the land surface component of the Canadian Earth System Model. In addition to new PFTs, a modification of the efficiency with which water evaporates from the ground surface was applied. This modification addressed a high ground evaporation bias that reduced model performance when soils became very dry, limited heat flow into the ground and reduced plant productivity through water stress effects. Compared to the grass and tree PFTs previously used by CLASSIC to represent the vegetation in Arctic permafrost-affected regions, simulations with the new shrub PFTs better capture the physical and biogeochemical impact of shrubs on the magnitude and seasonality of energy and CO2 fluxes at the dwarf-shrub tundra evaluation site. The revised model, however, tends to overestimate gross primary productivity, particularly in spring, and overestimated late winter CO2 emissions. On average, annual net ecosystem CO2 exchange was positive for all simulations, suggesting this site was a net CO2 source of 18 ± 4 g C m−2 year−1 using shrub PFTs, 15 ± 6 g C m−2 year−1 using grass PFTs, and 25 ± 5 g C m−2 year−1 using tree PFTs. These results highlight the importance of using appropriate PFTs in process-based models to simulate current and future Arctic surface-atmosphere interactions.