It is often said, correctly, that industrial carbon pricing is Canada’s most important climate policy—with the potential to reduce emissions by 20 per cent to 50 per cent by 2030. Well, it’s also one of the most important tools we have to drive private investment toward the industries of the future.
First, it is a market mechanism: companies choose how to reduce emissions, rather than governments picking winners.
While industry often focuses on costs, the point of pricing pollution is to encourage companies to avoid that price. The system financially rewards those who reduce their emissions by more than the minimum.
It also protects Canadians from a longstanding market failure: that pollution is free for emitters. In reality, pollution is extremely costly for taxpayers, from damaged infrastructure to health impacts. Industrial pricing ensures major polluters either pay their fair share in a predictable, manageable way—or reduce their emissions.
This is why, for close to two decades in Alberta, industrial pricing has enjoyed the support of oilsands executives, successive governments, energy economists, and climate groups alike.
I live in Edmonton and had the privilege of working for the Alberta government on Alberta’s industrial carbon pricing system a decade ago, which in many ways became the model for the federal system. Alberta’s framework has survived seven premiers and three political parties, but recent changes are undermining its effectiveness. Provincial changes have caused carbon credit oversupplies that have dramatically depressed the effective price, undermining investments—including the viability of carbon capture in the oilsands. Left unchecked, this threatens both Canada’s climate goals and Alberta’s future economy.
Alberta has a high concentration of heavy, high‑emitting industries, and while these sectors remain important, as the global energy transition accelerates, they must adapt. Industrial carbon pricing has already helped Alberta do exactly that. It was central to phasing out coal‑fired power, played a major role in quadrupling wind and solar capacity over the past five years, and supported the economics of some of the world’s first carbon‑capture pilot projects. Notably, all this progress occurred while Alberta’s oil production continued to grow almost every year since the carbon price was introduced.
To ensure our economic resilience in a changing world, it’s more important than ever that Canada keeps pushing the development and scaling of more low-carbon industries and supply chains. As Alberta has proven, any government looking to build a climate competitive economy should have strong industrial carbon pricing as the bedrock of its policy framework.
To this end, let’s dispel a couple of key industrial carbon-pricing myths:
Myth #1: Industrial carbon pricing undermines industrial competitiveness.
Rather, the opposite is true.
Some pundits have claimed that a $130 effective price (as is agreed upon in the Canada-Alberta MOU) could cost industry up to $20 a barrel. That number fundamentally misunderstands that the vast majority of each facility’s emissions are not priced at all. The Canadian Climate Institute’s latest analysis finds that a $130 effective price translates, on average, to about 50 cents—roughly the cost of a Timbit—on the barrel. And this assumes, of course, that the facility chooses to pay the effective price, rather than reduce its emissions.
In return, Canadians get a system that underpins investment in new, futureproofed industries, while preparing existing ones from import carbon tariffs. Rather than undermining competitiveness or chasing away investment, industrial carbon pricing supports and facilitates both.
Myth #2: Industrial carbon pricing makes your groceries more expensive.
Also not true.
Industrial carbon pricing has been found to increase food costs by less than one per cent, with recent Canadian Climate Institute analysis estimating a mere 0.1 per cent.
Unfortunately, we don’t talk enough about the real drivers of grocery inflation—like the price shocks that come from volatile oil and gas markets, or how climate change is making food more expensive—but these are issues for another day.
For today, it is critical that Canada and Alberta remain focused on industrial carbon pricing as the foundational economic driver and climate policy it is.
Fortunately, Prime Minister Mark Carney and Alberta Premier Danielle Smith agreed in last year’s MOU to address this issue and achieve a minimum effective price of $130 per tonne. Doing this in short order—by 2030—will go a long way to giving investors the confidence to start deploying capital. Canada and Alberta must also work toward a 2050 price schedule, to ensure industrial carbon pricing systems across the country can continue to predictably catalyze billions in investment for decades.
With the April 1 MOU negotiations come and gone, we’re eager for good news.
