OTTAWA — The federal government’s latest proposal to strengthen Canada’s industrial carbon pricing systems falls short of what is needed to ensure the policy works to reduce emissions, drive low-carbon investment, and maintain competitiveness, according to new research from the nation’s leading independent climate policy think tank. 

The Canadian Climate Institute’s formal submission to the federal call for feedback on the proposal—titled Outcomes Not Optics: Canadian carbon markets need bold reform to be effective—includes detailed new modelling to assess whether proposed provincial and territorial changes to industrial carbon pricing would deliver the investment signals federal policy is aiming for. 

The government’s proposed changes would update the minimum national standards that provincial and territorial industrial carbon pricing systems must meet, also known as the federal benchmark. Getting the proposed changes right will be critical for the proper functioning of industrial carbon pricing systems: the benchmark sets the conditions used to assess whether provincial and territorial systems are equivalent to the federal system, including which large emitters are covered and whether system rules deliver incentives consistent with the federal standard.  

Industrial carbon pricing is Canada’s most important policy lever to reduce climate pollution and maintain economic competitiveness, all while having virtually no impact on consumers. Central to these systems are carbon credit markets, which help incentivize billions of dollars in low-carbon investment. 

Yet the future of the policy is uncertain: Alberta’s provincial system is the most significant in the country, covering roughly a quarter of national emissions, and is currently tied up in negotiations as part of the recent Canada-Alberta Memorandum of Understanding (MOU), which agreed to increase the minimum effective carbon credit price to $130 per tonne of emissions. 

According to the Climate Institute’s modelling, the federal government’s proposed changes to the benchmark could allow industrial carbon pricing systems to pass federal tests but fail to deliver on the emissions and investment outcomes the federal government is counting on. 

To improve the federal proposal, the Climate Institute provided four recommendations. 

• The federal benchmark should ensure systems deliver a minimum effective carbon credit price of $130 per tonne by 2030 consistent with the Canada-Alberta MOU. This carbon credit price reflects the incentives firms actually face in practice, rather than the current federal headline price of $170 that applies only in limited circumstances. 
• Provinces and territories should retain flexibility in how they reach the minimum price, subject to non-negotiable conditions such as tightening performance standards, a carbon price floor and ceiling that increase over time, and limits on compliance pathways that dilute incentives for emission-reducing technologies.
• To determine whether systems deliver on an effective $130 per tonne carbon price, federal assessments should be based on transparent and credible data on how emitters comply, which compliance paths they have used, and the carbon prices they have paid. 
• The federal government should require ongoing performance tracking using transparent data on compliance outcomes and costs including credit market activity to assess whether systems continue to conform with minimum national standards.

Industrial carbon pricing is a critically important policy lever, but on its own is not a silver bullet and needs to be complemented with other policies as part of a comprehensive climate and low-carbon competitiveness plan.

QUICK FACTS

• Industrial carbon pricing only applies to industrial facilities with large emissions that rely on international trade for a substantial part of their profitability.
• Under federal law, every province and territory can choose to develop their own carbon pricing system, or to have a federal system, known as the backstop.
• Each of these systems create carbon credit markets for facilities to buy and sell credits for their excess emissions above a defined limit.
• Industrial carbon pricing systems are very low-cost for businesses, with oil and gas emitters paying roughly 30 cents per barrel of oil in compliance costs—the cost of a Timbit.
• Research from the Canadian Climate Institute shows industrial carbon pricing systems have an impact of around zero per cent on household consumption in 2025. These costs are projected to remain very low and reduce consumption by just a tenth of one per cent by 2030.

QUOTES

“Industrial carbon pricing can be a magnet for investment in technologies that reduce emissions, and an important policy tool to help businesses remain competitive in a rapidly changing world. But those outcomes require the policy to work as intended. The federal government’s proposal needs substantial improvement—and our research points to clear actions government can take to make that happen.”
— Dale Beugin, Executive Vice President, Canadian Climate Institute

“Canada has a critical opportunity to modernize industrial carbon pricing to ensure that it’s working to its full potential moving forward. This policy can drive huge investments in low-carbon technologies, but only if the government gets the design details rights. Our submission to the government lays out exactly what needs to be done and is backed up by detailed modelling and analysis to ensure this policy is evidence-based.”
— Dave Sawyer, Principal Economist, Canadian Climate Institute

RESOURCES

• Federal submission | Outcomes Not Optics: Canadian carbon markets need bold reform to be effective
• Resource page | Industrial carbon pricing
• Fact sheet | Why industrial carbon pricing costs consumers next to nothing
• Op-ed | The federal government should act decisively to modernize industrial carbon pricing 
• Op-ed | One simple fix for Canada’s industrial carbon pricing systems
• Explainer | Five characteristics of effective industrial carbon pricing

MEDIA CONTACTS

Claudine Brulé (Eastern Time)
(226) 212-9883
cbrule@climateinstitute.ca

Krystal Northey (Mountain Time)
(226) 212-9883
knorthey@climateinstitute.ca

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.