FACT SHEET: Five things to know about Canada’s industrial carbon pricing systems

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Industrial carbon pricing is Canada’s most important policy for cutting carbon pollution and creating a competitive clean economy. According to research from the Canadian Climate Institute, Canada’s carbon pricing systems—also called large-emitter trading systems (LETS)—will do more than any other policy to cut greenhouse gas emissions between now and 2030.  

Under federal law, every province and territory in Canada can develop their own carbon pricing system for large emitters, or have a federal system put in place, known as the backstop. Binding these systems together is a set of minimum national standards for carbon pricing, known as the federal benchmark.

Industrial carbon pricing supports competitiveness. It helps Canadian firms attract investment for emissions-reduction projects. Firms that reduce emissions can generate credits they can trade for cash, helping them compete for international capital at lower cost to governments than subsidies, such as those provided under the Inflation Reduction Act in the United States. 

Here are five things to know about industrial carbon pricing systems in Canada: 

  1. Industrial carbon pricing systems are the single biggest driver of emissions reductions in Canada by 2030. 
  2. Industrial carbon pricing costs Canadian consumers next to nothing.
    • The Institute’s research shows that Canada’s industrial carbon pricing systems have essentially no impact on households. 
    • Specifically, the Institute’s research found that industrial carbon pricing systems have an average impact of around zero per cent on household consumption in 2025 (with even small net benefits for some consumers) and are projected to reach just a tenth of a per cent in 2030.
      • This is because these systems have been designed to keep costs low for industry and largely apply to export products that are purchased by consumers in other countries.
  1. Industrial carbon pricing can deliver big emissions cuts at a low cost to industry—and some can even profit.
    • Industrial carbon pricing is designed to contain costs: industries only pay for emissions that exceed a specified limit, and if they outperform the limit they earn credits that they can sell for cash.
    • On average, industries pay around $8.40 or less per tonne of emissions, even with a carbon price of $80 per tonne). 
    • That works out to roughly 30 cents per barrel—or the cost of a Timbit—on average, which is the highest-impact scenario. Average costs for other industries are even lower, and some can profit from industrial carbon pricing. 
    • Industrial carbon pricing also helps protect Canadian firms from carbon tariffs that some regions impose on countries without carbon pricing systems, as the European Union and the UK are doing.
  1. Cancelling industrial carbon pricing would destroy billions in assets.
    • Companies hold credits that would lose their value if the systems were removed or weakened: in Alberta alone, these credits are worth $5 billion at 2024 carbon prices.
    • Companies have also made investments banking on the existence of industrial carbon pricing. Around $4.3 billion in annual clean energy investment is linked directly to the existence of these systems.
    • The cancellation of large-emitter trading systems would mean emissions-reducing projects that were counting on being able to generate saleable performance credits would be at risk.
      • Among the projects that would generate these credits are a $9 billion carbon-neutral petrochemicals facility outside Edmonton, $2.7 billion worth of upgrades to Ontario steel mills in Algoma and Hamilton, and a $1.4 billion low-carbon cement plant in Alberta.
  2. Provinces and territories have their own systems, but federal standards have made the systems work better together
    • Most provinces have their own industrial carbon pricing systems, but they all have to follow minimum standards set by the federal government
    • The Institute’s research shows that those standards have made the various industrial carbon pricing systems across Canada more effective and better aligned with each other.
    • Greater harmonization between industrial pricing systems helps reduce costs for industry and avoids creating additional interprovincial trade barriers.

Additional Resources

Eliminating industrial carbon pricing would undermine competitiveness and Canada’s climate progress

TORONTO—Rick Smith, President of the Canadian Climate Institute, made the following statement on the critical importance of industrial carbon pricing: 

“Industrial carbon pricing is the most important policy Canada has for cutting carbon pollution and creating a competitive clean economy. Research from the Canadian Climate Institute finds Canada’s industrial carbon pricing systems—if maintained—would do more than any other policy to cut emissions between now and 2030. 

“Industrial carbon pricing (also known as large-emitter trading systems) differs from the consumer carbon price in important ways. It contributes at least three times as many emissions reductions as the consumer carbon tax. And it does not increase costs for consumers. 

“Industrial carbon pricing has been explicitly designed to protect the competitiveness of trade-exposed companies with big carbon footprints, while also giving them economic incentives to invest in cleaner technologies, energy efficiency and pollution-reducing measures. 

“Our analysis shows industrial carbon pricing adds next to nothing to the operating costs of large emitters—for example, it drives low-carbon innovation in the oil and gas sector at less than the cost of a Timbit a barrel. Large-emitter trading systems also create lucrative credit markets that help attract investment to Canada for new, low-carbon projects—from carbon capture and storage to clean steel to low-carbon chemical manufacturing.

“Cancelling large-emitter trading systems would ultimately hurt more than it would help. It would create profound uncertainty for businesses and investors at the worst possible time, and jeopardize upwards of $5 billion in credit values in Alberta alone. It would also undermine Canadian exports to priority trading partners such as the UK and EU, which are introducing carbon tariffs that give low-carbon producers a competitive advantage. 

“Without the signal industrial pricing systems send, other types of incentives—like tax credits for investing in clean technology and manufacturing—will not be enough to meaningfully drive down carbon pollution from big industry or deliver on Canada’s climate goals. Eliminating the federal industrial carbon pricing requirement would ultimately leave Canada without a credible climate plan, making the 2030 climate target impossible to reach, and undermining rather than enhancing Canada’s reputation internationally.

“The Canadian Climate Institute is committed to working with all governments and stakeholders across the country to continue to advance Canada’s climate progress and accelerate evidence-based solutions for low-carbon competitiveness.”

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Resources

Canadian Climate Institute supports strong, united response to U.S. tariffs

TORONTO—Rick Smith, President of the Canadian Climate Institute, made the following statement in response to U.S. tariffs on Canadian exports: 

“The Canadian Climate Institute is in full support of efforts taken by the federal and provincial governments to retaliate against the unprovoked and illegal tariffs imposed by the United States on Canada. 

“Since its launch five years ago, the Institute’s mission has been a fundamentally patriotic one—to develop strong policy research and analysis that builds a cleaner, more secure, and more prosperous future for all Canadians. 

“The Institute’s network is composed of leaders from industry, trade unions, retailers, manufacturers, Indigenous peoples, governments, and many other groups threatened by this U.S. economic aggression. We stand shoulder to shoulder with them, and with all Canadians, in the months ahead.”

Canada sets evidence-based and achievable 2035 climate target

OTTAWA— Ross Linden-Fraser, Research Lead at 440 Megatonnes, a project of the Canadian Climate Institute, made the following statement in response to the formalization of Canada’s 2035 emissions reduction target: 

“Canada has officially submitted its 2035 emissions target range to the United Nations, setting a critical milestone to guide the country’s progress toward a lower-carbon, more competitive economy. The new, evidence-based target balances the goals of reducing emissions, maintaining competitiveness, and ensuring affordability.

“Canada has made significant strides reversing the trend of rising climate pollution—national emissions were 8.5 per cent below 2005 levels in 2023. Without the policies put in place by all orders of government, emissions would be even higher today and increasing steadily. Our analysis has shown that, by 2030, climate policies could prevent 226 million tonnes (Mt) of emissions—roughly the same as the annual emissions from Quebec and Ontario combined.

“Accelerating progress with additional policy action could close the gap to the 2030 target and make it easier to meet the 2035 target while supporting competitiveness and affordability.

“Ultimately, ambitious targets are important, but taking strong, sustained action at all levels of government will determine whether Canada can make meaningful cuts to emissions and drive long-term growth towards a net zero economy.”

RESOURCES

CONTACT 

Claudine Brulé (Eastern Time)
Lead, Communications and External Affairs
Canadian Climate Institute
(226) 212-9883

Krystal Northey (Pacific Time)
Public Affairs Lead
Canadian Climate Institute
(250)-818-3748

About the Canadian Climate Institute 

The Canadian Climate Institute is Canada’s leading climate change policy research organization. The Institute produces rigorous analysis, economic modelling, and in-depth research focused on incentivizing clean economic growth and low-carbon competitiveness, reducing emissions and accelerating Canada’s net zero energy transition, and making our economy and infrastructure more resilient to a warming climate.

Building new homes in the path of floods and wildfires could cost billions, threaten affordability: report

TORONTO—Governments across Canada are racing to build more housing to improve affordability. Yet a new study has found those efforts risk putting hundreds of thousands of homes in harm’s way, and adding billions of dollars in costs each year, unless policy is improved to direct development away from the threat of wildfires and floods.

According to new research published by the Canadian Climate Institute, building new homes in areas at a high risk of flood or wildfire could force governments, insurers, and homeowners to spend up to $3 billion more each year in costs for rebuilding and disaster relief.

The Institute’s report, Close to Home: How to build more housing in a changing climate, is a first-of-its-kind analysis in Canada using original modelling of the financial costs of future floods and fires on new housing slated for construction by 2030. 

The report finds that more than 540,000 homes could be built in areas of flood hazard and more than 220,000 homes in locations exposed to high wildfire hazards by 2030. The associated total costs are likely to be highest in British Columbia, which faces $2.2 billion in added annual costs under a worst-case scenario, as well as Manitoba ($360 million), Alberta ($220 million), and Quebec ($214 million). Yukon could see increases in average damages as high as $1,200 for each new home from flooding alone, well beyond the national average. 

Most of the projected new costs are associated with a relatively small number of homes expected to be built in the most hazardous zones—redirecting just three per cent of new homes away from the highest-risk flood areas to safer ground could save nearly 80 per cent of all losses by 2030. 

The report notes that all orders of government have a role to play in reducing the threats of extreme weather disasters to new homes, and offers these policy recommendations: 

  • Federal, provincial, and territorial governments should steer housing and infrastructure investment to low-hazard areas and away from high-hazard zones.
  • Provincial and territorial governments should strengthen land use policy to redirect new construction away from areas at high risk of flood and fire damage, to safer ground. 
  • Federal, provincial, and territorial governments should reform disaster assistance programs to deter risky development—for example, by making new homes built in high-hazard zones ineligible for publicly funded disaster compensation.
  • Governments should create, maintain, and make publicly available maps that show hazardous areas—and mandate the disclosure of such information in real estate transactions—so that homeowners, renters, and developers have access to that knowledge.
  • The federal government should empower and support Indigenous communities to build climate-resilient homes in safer areas within their territories.

Wildfire risk models used in the report were developed by Co-operators (a Canadian financial services co-operative); flood risk modelling was done through Fathom Global and SSG (Sustainability Solutions Group) analyzed future housing risk.

The Climate Institute also commissioned a companion report, Indigenous Housing and Climate Resilience, by Shared Value Solutions to identify unique challenges and barriers faced by Indigenous Nations in developing climate-resilient homes, with a particular focus on housing on First Nations reserves. The report examines successful policies and practices, and presents nine policy recommendations.  

Quotes 

“Building more homes in unsafe places would be an incredibly costly mistake. This landmark report is the first of its kind to show the costs of building new housing in areas prone to wildfires and floods. Fortunately, there are ways to build millions of much-needed homes that avoid these future costs—this report shows the path forward for policymakers.” 

— Rick Smith, President, Canadian Climate Institute 

“The most affordable home is the one you don’t have to rebuild after a disaster. Governments across Canada can save billions of dollars each year and keep people safe from disasters by building just a small percentage of new homes away from the highest-risk areas for wildfires and floods. Our new report outlines the tools policymakers have to steer new housing to safer ground and support affordability in the process.” 

— Ryan Ness, Director of Adaptation, Canadian Climate Institute 

“Solving Canada’s housing crisis requires not just building more homes but ensuring they’re affordable in the long term. This includes building new homes in safe locations that are resilient to increasingly severe floods and wildfires. This new Climate Institute report highlights the financial risks Canada faces if housing policy continues to allow risky development, and offers actionable solutions to protect people and property.” 

— Lisa Raitt, Vice-Chair of Global Investment Banking, CIBC; Co-Chair of the Task Force for Housing and Climate

“Canada faces a critical moment—we urgently need millions of new homes to improve affordability, but outdated policies still allow development in areas prone to climate-fueled disasters like wildfires and floods. This groundbreaking report from the Canadian Climate Institute is the first to quantify these risks and provides a stark wake-up call for policymakers to avoid billions of dollars in future damages.” 

—Don Iveson, Executive Advisor, Climate Investing and Community Resilience, Co-operators; Co-Chair of the Task Force for Housing and Climate; Member of Canadian Climate Institute Expert Panel on Adaptation

“Co-operators has helped thousands navigate and recover after losing their homes and livelihoods to catastrophic weather, wildfire and flooding—a reality that’s increasing both in frequency and severity. We are proud to partner with the Canadian Climate Institute to help millions more by sharing our intelligence and expertise for this analysis in support of reducing risks, influencing policy decisions, increasing affordability, and mitigating damage and losses when the inevitable events do occur.”

— Robert Wesseling, Chief Executive Officer, Co-operators 

“Canada is becoming a riskier place to live, work, and insure due to the substantial risks that severe weather events—exacerbated by climate change—pose to our families, communities, and economy. This new report from the Canadian Climate Institute underscores the need to avoid the unacceptable costs and risks of business-as-usual while providing pragmatic recommendations to maintain insurability and address the housing supply crisis.” 

— Jason Clark, National Director of Climate Change Advocacy, Insurance Bureau of Canada, and Chair, Climate Proof Canada 

“Local governments, at the forefront of both the climate and housing crises, are essential partners in safeguarding Canadians and protecting communities from escalating climate impacts. This report highlights the urgency of coordinating across all orders of government and sectors to keep Canadians and their homes safe from increasingly severe wildfires and floods.”

— Carole Saab, Chief Executive Officer, Federation of Canadian Municipalities

Ressources

Contacts

Claudine Brulé (Eastern Time)
Lead, Communications and External Affairs
Canadian Climate Institute
(226) 212-9883

Krystal Northey (Pacific Time)
Public Affairs Lead
Canadian Climate Institute
(250)-818-3748

About the Canadian Climate Institute 

The Canadian Climate Institute is Canada’s leading climate change policy research organization. The Institute produces rigorous analysis, economic modelling, and in-depth research focused on incentivizing clean economic growth and low-carbon competitiveness, reducing emissions and accelerating Canada’s net zero energy transition, and making our economy and infrastructure more resilient to a warming climate.

Canada’s early emissions numbers are a win for accountability and show progress

OTTAWA— Dave Sawyer, Principal Economist at the Canadian Climate Institute, made the following statement in response to the federal government’s early release of Canada’s official greenhouse gas inventory for 2023: 

“The early release of Canada’s latest greenhouse gas numbers for 2023 is a big win for public accountability in climate policy and shows important progress being made cutting emissions and building a cleaner economy. It gives policymakers and the public an earlier look at how national emissions are trending and provides an opportunity to accelerate policy action if needed. 

“The official numbers for 2023 align closely with our own Early Estimate of National Emissions for 2023 released this September, which showed modest progress reducing national emissions, but uneven results across sectors. Our team at the Canadian Climate Institute has published early estimates of emissions that have aligned with Canada’s official emissions numbers now for each of the past three reporting years. 

“The government’s official 2023 early numbers show emissions dropped slightly in 2023 by about one per cent from the previous year (0.9 per cent) and now sit nearly 9 per cent below 2005 levels, the baseline year for Canada’s official emissions targets. 

“Our research has shown climate policy is working to cut carbon pollution—Canada’s emissions would be higher today without the actions taken to date by all levels of government since 2015. Existing climate policies are expected to prevent 226 Mt of carbon emissions by 2030, equivalent to the current emissions profiles of Quebec and Ontario combined. 

“Governments across the country can build on this progress by following through and finalizing policies that they are developing or have announced to deliver even deeper emissions cuts by 2030.” 

RESOURCES

News release | Experts estimate modest drop in 2023 emissions, with big differences across sectors

Database | Early Estimate of National Emissions 2023

Fact sheet | Early Estimate of National Emissions 2023

440 Megatonnes Insight | 2023 emissions estimate shows modest decline, but oil and gas emissions undermine progress

Report| Independent Assessment of Canada’s Emissions Reduction Plan

CONTACT 

Krystal Northey 
Public Affairs Lead
Canadian Climate Institute
250-818-3748
knorthey@climateinstitute.ca

Clean electricity regulations are a flexible and pragmatic tool to reduce emissions and attract investment

OTTAWA— Jason Dion, Senior Research Director at the Canadian Climate Institute, made the following statement in response to the release of the federal government’s final Clean Electricity Regulations and Investment Tax Credit (ITC) for clean electricity: 

“The federal government’s final Clean Electricity Regulations are pragmatic, flexible, and achievable, and part of a larger package of measures designed to help keep electricity affordable and reliable.

“Producing and using more clean electricity is foundational to meeting Canada’s climate goals, attracting investment and remaining competitive. The final regulations will help provinces and territories make the necessary investments  in bigger, cleaner, and smarter electricity systems, while allowing some flexibility when it comes to limited use of gas generation in the interim. This added flexibility in design—combined with the billions of dollars in support for provinces and territories through the Investment Tax Credit for clean electricity—will make the regulations more achievable. 

“The final ITC for clean electricity includes a newly-announced requirement for province-led energy roadmaps that detail how a jurisdiction intends to develop its energy system in line with Canada’s 2050 climate goals. This kind of simple condition, as recommended by the Canada Electricity Advisory Council and other experts, helps provide needed policy clarity for provincial utilities and regulators—while respecting provinces’ jurisdiction over electricity. 

“Demand for electricity is only going to grow in the decades ahead. As it does, governments need to prioritize keeping electricity affordable and reliable. Done right, the transition to clean electricity can save people money and reduce energy bills. Our research has shown that, by switching from fossil fuels to clean electricity, Canadian households could spend 12 per cent less on energy, on average, by 2050. 

“Many provinces and territories are already making big progress building bigger, cleaner, and smarter electricity systems, and these policy announcements will help accelerate that progress. Those governments have the tools and authorities necessary to drive a cost-effective transition that prioritizes electricity affordability and reliability for households and businesses across Canada—and the ball is now in their court.”

RESOURCES

CONTACT 

Krystal Northey (Pacific Time)
Public Affairs Lead
Canadian Climate Institute
(226) 212-9883
knorthey@climateinstitute.ca

Canada adopts balanced approach to 2035 climate target

TORONTO — Anna Kanduth, Director of the Canadian Climate Institute’s 440 Megatonnes project, made the following statement in response to the announcement of Canada’s 2035 emissions reduction target: 

“Canada’s new 2035 climate target range is achievable and balances the need for sustained progress cutting emissions, while also factoring in important considerations like affordability, competitiveness, and economic growth. 

“At the high end, the official target range of a 45 to 50 per cent reduction from 2005 levels overlaps with the range the Canadian Climate Institute recommended based on our independent analysis of options for Canada’s 2035 target. 

“The Institute’s 2035 target analysis was commissioned by the independent Net-Zero Advisory Body to help inform their advice to the federal government. Our analysis examined the trade-offs of more or less ambition by 2035. We evaluated six potential targets against a set of criteria, including affordability, the economy, competitiveness, emissions reductions, and feasibility, and found that a target within the 49 to 52 per cent range would provide the best balance across these objectives. 

“Ultimately, climate action is not a pass or fail test. Ambitious targets matter, but even more important is having strong and stable policies in place to reduce emissions while driving low-carbon growth and ensuring Canada remains competitive. To that end, governments at all levels should implement and strengthen existing policy commitments this decade to get emissions on track to Canada’s 2030 target, and build on those to drive further progress by 2035.

“While the low-end of the new target range is more achievable in the short term, it may affect Canada’s long-term competitiveness, largely by delaying some clean investment decisions and increasing the risk of stranded fossil fuel assets in the future. 

“In the months ahead, our global peers and trading partners will announce their 2035 climate goals, and many nations, including the UK, Japan and Brazil, are leveling-up their ambition. Canada can’t risk falling behind in an expanding global market for clean energy solutions and an international marketplace where carbon tariffs and competition are heating up.”   

RESOURCES

CONTACT 

Claudine Brulé (Eastern Time)
Lead, Communications and External Affairs
Canadian Climate Institute
(226) 212-9883

Krystal Northey (Pacific Time)
Public Affairs Lead
Canadian Climate Institute
(226) 212-9883

New research: modernizing industrial carbon pricing systems is necessary to deliver big emissions cuts

OTTAWA—New research shows that the single-biggest policy driver of emissions reductions in Canada is at risk of becoming significantly less effective unless governments make changes to the way they are designed. 

The research from 440 Megatonnes, a project of the Canadian Climate Institute, finds that improving industrial carbon pricing systems—also known as large-emitter trading systems (LETS)—across the country could double their emissions impact. Without policy changes, Canada could miss out on between 18 and 48 megatonnes of emissions cuts in 2030, equivalent to three quarters of British Columbia’s total emissions, at the high end.

Large-emitter trading systems are important tools for reducing emissions from trade-exposed industries while protecting economic competitiveness and avoiding carbon tariffs. Different systems are in place in provinces and territories across the country. In each system, top-performing firms that reduce emissions can generate credits to sell, while lower-performing firms have an incentive to reduce more emissions to avoid paying for them. 

440 Megatonnes worked with Navius Research to model emissions reductions from LETS under current and announced policies. The research shows that the way these systems are currently designed can undercut the incentive for businesses to reduce emissions, largely due to problems with the way credit markets operate. Governments can address these problems by requiring stronger emissions performance standards, reducing overlap between LETS and other climate policies, and improving transparency and the way credit markets operate.  

Unless changes are made to provincial and federal policy, industrial carbon pricing with oversupplied credit markets would push Canada further away from its emissions targets, reducing projected reductions to just 32 to 33 per cent below 2005 levels by 2030, from 36 per cent if system problems were fixed. 

Strengthening system design could close this gap and ensure steady progress toward the country’s 2030 target, while protecting industry’s ability to compete. Previous research from 440 Megatonnes has shown how these systems support business competitiveness and have low compliance costs.

Quotes

“Industrial carbon pricing can slash emissions across Canada and keep industry competitive at the same time—but only if the systems work as intended. That’s even more important as more of Canada’s major trading partners put carbon tariffs in place. Governments have the policy tools they need to fix this problem, they just need to open the toolbox and get to work.”

—Dave Sawyer, Principal Economist, Canadian Climate Institute 

“Industrial carbon pricing is the single-biggest driver of emissions in Canada, but only if it’s designed well. The current patchwork of systems across the country should be monitored and adjusted to deliver big emissions reductions and help keep industries in Canada competitive.”

—Dale Beugin, Executive Vice President, Canadian Climate Institute 

Resources

Contact

Claudine Brulé (Eastern Time)
Communications & Media Relations Specialist
Canadian Climate Institute
(226) 212-9883
cbrule@climateinstitute.ca

New climate taxonomy and disclosure rules set to drive drive long-term investment in Canada

OTTAWA — Jonathan Arnold, Research Lead in Clean Growth at the Canadian Climate Institute, made the following statement in response to the release of the federal government’s climate investment taxonomy framework:  

“The federal government’s commitment today to a credible, science-based climate investment taxonomy sets the stage for a major acceleration of Canada’s clean energy transition. By the federal government’s own estimate, more than $115 billion per year in new clean energy and transition-aligned investments is needed to build Canada’s net zero economy. A Canadian climate investment taxonomy can help unlock the funds that will build those projects.  

“A climate investment taxonomy will establish a standardized language for how investors and capital markets categorize financial investments and assets that are fit for the transition to net zero. Clearly defining those opportunities will help cut emissions from Canada’s most energy-intensive industries, which will increase their global competitiveness. 

“Today’s announcement builds on the blueprint developed by the Sustainable Finance Action Council, which represents the 25 largest financial institutions in the country, and in partnership with the Canadian Climate Institute. The next step, as laid out by Minister Chrystia Freeland today, will see the creation of a new climate investment taxonomy that includes definitions for both “green” and “transition-aligned” investments. This taxonomy will create clarity for capital markets seeking sustainable investment opportunities.

“The government’s proposed framework  aligns with global best practices for “green” taxonomies, while laying the groundwork for a “transition” taxonomy—the “missing middle” in climate finance. Critically, today’s announcement stresses the need to exclude new natural gas projects from the taxonomy framework. It also emphasizes the importance of having a credible, independent governance structure for how the sector-specific criteria and pathways are determined. 

“In addition, the government announced that federally regulated corporations in Canada will be required to disclose how climate change and the global energy transition will impact their business and future profitability. This change is an important step to prepare Canada’s economy for the rising threat of a rapidly changing climate and the profound transformation already underway in international capital markets.  

“Canada is well positioned to take a global leadership role in these areas. Done well, Canada’s climate investment taxonomy and updated risk disclosure requirements will help attract global capital to compete with our neighbours to the south.”  

RESOURCES

CONTACT 

Catharine Tunnacliffe
Communications Director
Canadian Climate Institute
(226) 212-9883
ctunnacliffe@climateinstitute.ca