Ottawa eyes a carbon market bargain with provinces

What happened: Canada could strike a “grand bargain” on climate by abandoning its oil and gas emissions gap - but only if provinces step up their industrial pricing systems.

The details: A report from the Canadian Climate Institute says a stronger carbon pricing regime for heavy emitters would drive more impact than the oil and gas emissions cap. Modelling shows each policy could cut about 25 MT of emissions annually by 2030 - but together, they’d deliver just 32 MT.

The overlapping policies could flood carbon markets with credits from oil and gas, driving prices lower. Other industries covered by the carbon pricing system - like steel or chemicals - could buy cheap credits instead of investing in emissions reduction tech, undercutting demand for industrial decarbonization solutions.

Why it matters: Carbon pricing is a critical demand signal. Stronger, harmonized markets with higher credit prices and tighter rules would unlock broader industrial investment and adoption of clean technologies - from carbon capture to electrification.

Prices have been falling in Alberta’s market for several years, and the province recently froze credit prices due to tariff threats, making it easier to emitters to buy credits than invest in new projects.

A streamlined approach also reduce regulatory uncertainty. Stable, high-integrity markets lower investment risk, expand markets across provinces (vs only trading credits within Alberta, for example) and improve the bankability of projects.

Yes, but: Industrial carbon pricing has historically seen stronger buy-in from the provinces. That consensus isn’t as strong anymore, and provinces like Alberta and Saskatchewan have resisted federal oversight on carbon pricing and allowed credit prices to drop.

Without provinces on board, scrapping the oil and gas emissions could would just be a step backwards - removing the stick without fixing the carrot.

The bottom line: CCI’s proposal offers a way forward for the feds and provinces to work together on climate. A well designed system could deliver efficient emissions reductions across industries and make Canada a more attractive place for investment - but it requires the political will to seriously upgrade carbon pricing.

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