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
- Media backgrounder | Carbon pricing and large-emitter trading systems
- 440 Megatonnes Insight | New research presents the case for modernizing industrial carbon pricing
- 440 Megatonnes Insight | New analysis shows how Canada’s industrial carbon pricing protects competitiveness and profitability
- 440 Megatonnes Insight | Which Canadian climate policies will have the biggest impact by 2030?
Contact
Claudine Brulé (Eastern Time)
Communications & Media Relations Specialist
Canadian Climate Institute
(226) 212-9883
cbrule@climateinstitute.ca
