Closing the Carbon-Pricing Certainty Gap

The report identifies a 'carbon-pricing certainty gap' that inhibits private investment in Canada's industrial decarbonization. It proposes three primary recommendations: introducing carbon contracts for difference (CCfDs) to guarantee the carbon-price schedule, preventing carbon-credit oversupply through strengthened federal benchmarks and public registries, and offering policy-contingent loans via the Canada Infrastructure Bank. The authors suggest that a successful CCfD program could accelerate up to 40 Mt of emissions reductions by 2030 with limited contingent liabilities for the government.

• The 'carbon-pricing certainty gap' consists of two primary risks: a lack of private-sector confidence that the federal carbon price will increase as scheduled to $170 per tonne by 2030, and uncertainty regarding the future value of tradable carbon credits.
• Carbon contracts for difference (CCfDs) are recommended as the primary tool to guarantee the carbon price. These contracts would pay firms the difference if the actual carbon price is lower than the scheduled price, and could be structured to provide a financial upside to the government if the contract price is set below the scheduled price.
• A successful CCfD program could directly accelerate up to 40 million tonnes (Mt) of emissions reductions by 2030, targeting the oil and gas, electricity, and heavy industry sectors, as well as light manufacturing, transport, and commercial buildings.
• The government's financial liability for CCfDs would be contingent on whether the carbon-price schedule is maintained. If the price were frozen at $95 per tonne in 2025, annual liabilities would peak at approximately $3 billion in 2030; if cancelled entirely in 2026, the maximum annual liability would reach $6.8 billion in 2030.
• To prevent carbon-credit oversupply, the federal government should only approve provincial and territorial pricing systems that strictly meet federal benchmark criteria, require a public registry of all credit and offset transactions, and mandate increased stringency if credit prices fall more than 30% below the prevailing carbon price.
• Analysis of Alberta's Technology Innovation and Emissions Reduction (TIER) system indicates that to avoid credit oversupply in a scenario consistent with the 2030 Emissions Reduction Plan, the share of emissions facing a carbon price would need to increase by 5% per year, significantly higher than the 2% rate proposed by the Alberta government.
• Policy-contingent loans are proposed as a complementary tool to CCfDs, where loan terms (such as interest rates) improve if the carbon price or credit prices fall below specific thresholds. The Canada Infrastructure Bank (CIB) is identified as the ideal entity to deliver these loans.
• The report recommends that Export Development Canada (EDC) and the Business Development Bank of Canada (BDC) collaboratively offer CCfDs due to their investment experience and established business networks.

APA

Clark, J., Bernstein, M., Beugin, D., Shaffer, B., & Wadland, J. (2022). Closing the Carbon-Pricing Certainty Gap. Canadian Climate Institute. https://climateinstitute.ca/wp-content/uploads/2022/10/Closing_the_Carbon-Pricing_Certainty_Gap.pdf

Chicago

Clark, Jason, Michael Bernstein, Dale Beugin, Blake Shaffer, and Jake Wadland. Closing the Carbon-Pricing Certainty Gap. Canadian Climate Institute, 2022. https://climateinstitute.ca/wp-content/uploads/2022/10/Closing_the_Carbon-Pricing_Certainty_Gap.pdf.

Wikipedia

{{cite report |last1=Clark |first1=Jason |last2=Bernstein |first2=Michael |last3=Beugin |first3=Dale |last4=Shaffer |first4=Blake |last5=Wadland |first5=Jake |title=Closing the Carbon-Pricing Certainty Gap |publisher=Canadian Climate Institute |date=October 2022 |url=https://climateinstitute.ca/wp-content/uploads/2022/10/Closing_the_Carbon-Pricing_Certainty_Gap.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{clark2022closing, author = {Clark, Jason and Bernstein, Michael and Beugin, Dale and Shaffer, Blake and Wadland, Jake}, title = {{Closing the Carbon-Pricing Certainty Gap}}, institution = {Canadian Climate Institute}, year = {2022}, month = oct, url = {https://climateinstitute.ca/wp-content/uploads/2022/10/Closing_the_Carbon-Pricing_Certainty_Gap.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }