Strengthening carbon markets
Backgrounder
To compete globally, Canada must lower its carbon intensity to meet growing demand for low-emission products. This means using tools and incentives to grow our low-carbon economy. Clear and predictable industrial carbon markets and targeted investments will help fight climate change while maintaining industry competitiveness and protecting Canadian jobs.
About industrial carbon markets in Canada
Canada’s approach to industrial carbon markets ensures large emitters have a strong financial incentive to innovate to reduce pollution. This works by putting a clear price on carbon pollution and creating a market where companies that reduce emissions earn credits. Companies can then sell credits to regain costs on low carbon technology or reinvest in new projects that will further reduce emissions and earn more credits.
An effective industrial carbon pricing system, supported by a long-term price trajectory, creates certainty for businesses about the benefits of reducing emissions, as well as driving investment in the fast-growing clean economy, creating good jobs across the country.
Affordability and competitiveness
The key advantage of industrial carbon pricing is that it can maximize emissions reductions while minimizing the overall cost of achieving these reductions and protecting the competitiveness of Canadian industry.
The Canadian Climate Institute recently published an independent assessment of Canada’s large-emitter trading systems, with detailed modelling that examines the impact of these systems on emissions and the economy. It finds that industrial carbon pricing has almost zero impact on household costs.
As Canada looks to expand its trading relationships around the world, including with Europe and the United Kingdom, it is more important than ever to maintain strong carbon markets as those partners move forward with their own carbon pricing mechanisms and border measures, so we remain attractive to buyers of Canadian goods and resources.
Strengthening federal carbon pollution pricing standards
The federal carbon pollution pricing standards (known as the federal ‘benchmark’) is focused on industry. Provinces and territories must maintain industrial carbon pricing systems that meet the federal stringency standards. Industrial carbon markets reward innovation and spur investment in cleaner technologies, helping Canada’s industry to grow and compete.
To improve the effectiveness of Canada’s industrial carbon markets, the Government of Canada will:
- Develop a post-2030 carbon pricing trajectory that supports the achievement of a net-zero economy by 2050.
- Strengthen the federal carbon pollution pricing benchmark standards to ensure that all markets deliver a strong, predictable, long-term price signal.
- Promptly and transparently apply the federal backstop pricing system whenever a provincial or territorial system falls below the updated benchmark.
Our efforts to strengthen industrial carbon markets will focus on giving industry and investors more certainty and confidence that markets will keep credit prices high, supporting the business case for their low carbon investments.
The Government will collaborate with provinces and territories, Indigenous peoples, industry, investors, and other stakeholders to get these changes right.
Provincial and territorial industrial pricing systems
Provinces and territories can continue to choose the carbon pricing system that best fits their situation, as long as it meets the minimum federal stringency standards: the ‘benchmark’.
Once the Government finishes updating the benchmark, it will engage with provinces and territories to understand how they plan to update their systems to align with the updated rules. Where a province or territory decides not to implement a system that meets the updated benchmark, the Government will implement the federal backstop carbon pricing system to ensure that carbon pricing is stringent across the country.
Carbon pricing systems for industry are designed to keep costs low to support Canadian businesses, create favourable investment conditions, and protect international competitiveness. A price on pollution for large emitters is expected to deliver more emission reductions than any other policy and will continue to be a pillar of Canada’s Climate Competitiveness Strategy, helping to build a strong economy and cleaner future.