Industrial carbon pricing in Canada
Note
As of May 15, 2026, the federal government is updating the headline price trajectory for all industrial carbon pricing systems in Canada. The headline price trajectory per tonne of CO2 equivalent emissions for all systems is now:
- $95 in 2026
- $100 in 2027
- $100 in 2028
- $100 in 2029
- $115 in 2030
- $118 in 2031
- $121 in 2032
- $124 in 2033
- $127 in 2034
- $130 in 2035; and
- Escalating 1.5% per year inflationary escalator starting in 2036 and ending at $140 in 2040
Taking into account feedback from provinces, territories, industry and other stakeholders, this trajectory advances climate ambition and grows our economy. By extending to 2040, the new trajectory provides the long-term certainty needed to support major decarbonization projects.
This new trajectory will be part of a full, updated federal benchmark that will be published later in 2026.
The Government of Canada will continue to work with our provincial and territorial partners to ensure all industrial carbon pricing systems are predictable, maximize cost-effective greenhouse gas emissions reductions, and support clean growth investments without adversely affecting competitiveness or leading to carbon leakage.
Industrial carbon pricing gives large industrial emitters an incentive to reduce emissions that cause climate change. Canada’s industrial pricing system has two goals: reducing carbon pollution from industry while mitigating competitiveness and carbon leakage risks.
Each province or territory can design its own industrial carbon pricing system as long as it meets minimum national standards (known as the ‘benchmark’). There are three types of industrial carbon pricing systems recognized under these standards:
- an output-based pricing system
- a carbon levy, or a tax on emissions
- a cap-and-trade system
An output-based pricing system applies in most provinces. The Northwest Territories applies a direct tax on emissions from large polluters, and Quebec has a cap-and-trade system.
How output-based pricing systems work
An output-based pricing system sets emissions performance standards for industry. These standards are set on an emissions intensity basis. That is, they set out a level of emissions per unit of output, or production.
Facilities whose emissions intensity is worse than the standard have to pay. Those that perform better than the standard will earn credits that they can sell or save for future use. The amount each facility pays depends on how much carbon pollution it emits to make one unit of product.
If a facility finds a way to pollute less per unit, it will save money or earn credits. This creates a financial incentive for continuous improvement in emissions performance.
How industrial carbon markets work
Some industrial carbon pricing systems create markets where facilities can buy and sell credits. The market helps facilities invest in reducing their pollution. For example, a facility could install low-emission technology to reduce its pollution and earn credits. Then it can sell those credits to recoup the cost of the technology. Output-based pricing systems and cap-and-trade systems both create markets.
Keeping Canadian businesses competitive worldwide
Strong industrial carbon pricing will help maximize emissions reductions and encourage the transition to low carbon technologies. According to government and independent estimates, industrial carbon pricing has the greatest potential to help meet our climate targets.
At the same time, industrial carbon pricing systems limit overall costs to industry and protect Canadian jobs.
This is because they are designed to protect against the risk of industries shifting production from one region to another to avoid paying a price on carbon pollution (known as "carbon leakage"). Enhancing certainty and predictability is essential to building investor confidence.
The federal industrial carbon pricing system
The federal system for industrial carbon pricing is known as the Output-Based Pricing System (OBPS).
For more information on how the system works, visit Output-Based Pricing System.
The federal industrial carbon pricing system: Where the money goes
The money (proceeds) from the federal industrial carbon pricing system is returned to the province or territory where it was collected. Some provinces have moved from the federal industrial carbon pricing system to their own industrial carbon pricing system. In these cases, the money previously collected is still returned.
For Nunavut, Prince Edward Island, and Yukon, the money is returned directly to their governments.
In other regions where the federal industrial carbon pricing system applies or applied in the past, the money is returned through a fund, known as Output-Based Pricing System (OBPS) Proceeds Fund. All money collected from industrial carbon pricing is returned back to local economies to help reduce emissions. This money will help industries improve energy efficiency, use sustainable solutions, and lower their carbon footprint as we work toward a low-carbon future.
The fund has 2 streams: the Decarbonization Incentive Program and the Future Electricity Fund. It is available in Manitoba, New Brunswick, Ontario, and Saskatchewan.
Decarbonization Incentive Program
The Decarbonization Incentive program helps industries transition to lower or non-carbon operations in the long term. The program ran two competitive intakes in 2022 and 2023 resulting in over 80 project applications.
Future Electricity Fund
The Future Electricity Fund (FEF) supports provincially managed large-scale clean electricity initiatives that will advance regional energy priorities, such as reducing electricity demands, improving electrical infrastructure reliability, and promoting clean electricity technologies.