Five choices that are breaking industrial carbon pricing

The analysis identifies five critical design choices in Canadian industrial carbon markets that undermine their effectiveness: overly generous performance standards, uneven playing fields for facilities, strict limits on credit use, allowing 'opt-in' facilities to exit markets, and using revenues to offset price signals. These flaws have led to credit price crashes in provinces like Alberta and reduced the overall incentive for industries to decarbonize.

• Overly generous performance standards in some provinces have created an oversupply of credits, causing market prices to drop significantly below the national carbon price of $95 per tonne. In Alberta's Technology Innovation and Emissions Reduction (TIER) system, prices have fallen to approximately $20 per tonne, and the Institute calculates the average cost of emissions in Canada is around $10 per tonne.
• The use of facility-specific emissions intensities rather than product-based standards creates an uneven playing field where older, more emissions-intensive facilities may receive an advantage over cleaner, newer ones. Additionally, some sectors receive special treatment, such as the lack of published performance standards for liquefied natural gas facilities in British Columbia's Output-Based Pricing System (OBPS).
• Strict limits on the use of credits in British Columbia are expected to create a market bottleneck. The B.C. OBPS cap on performance credits and offsets will fall to 30 per cent by 2026, which, combined with the fact that credits do not expire, will likely lead to an accumulation of excess credits and lower prices.
• Changes in Alberta and Ontario that allow 'opt-in' facilities to leave carbon markets early reduce demand for credits and allow emitters to avoid carbon pricing. These opt-in facilities represent up to 31 megatonnes of emissions, or 9 per cent of Canada's industrial emissions, with the majority located in Alberta due to its high 100 kilotonne participation threshold.
• Certain provincial revenue uses weaken the carbon price signal. Ontario's Emissions Performance Program allows emitters to claim back carbon charges if used for emissions-reducing projects, while Alberta's proposed "direct investment compliance option" allows facilities to claim on-site investments against up to eight years of compliance obligations, potentially counting emissions reductions twice.

APA

Canadian Climate Institute (2025). Five choices that are breaking industrial carbon pricing. https://climateinstitute.ca/five-choices-that-are-breaking-industrial-carbon-pricing/

Chicago

Canadian Climate Institute. Five choices that are breaking industrial carbon pricing. 2025. https://climateinstitute.ca/five-choices-that-are-breaking-industrial-carbon-pricing/.

Wikipedia

{{cite report |author=Canadian Climate Institute |title=Five choices that are breaking industrial carbon pricing |date=3 October 2025 |url=https://climateinstitute.ca/five-choices-that-are-breaking-industrial-carbon-pricing/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{canadianclimateinstitute2025five, author = {{Canadian Climate Institute}}, title = {{Five choices that are breaking industrial carbon pricing}}, institution = {Canadian Climate Institute}, year = {2025}, month = oct, url = {https://climateinstitute.ca/five-choices-that-are-breaking-industrial-carbon-pricing/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }