North American carbon markets are entering 2026 with a clear pivot toward industrial pricing and more robust compliance structures as long-term climate strategies take shape. For entities, this means navigating new compliance periods, strengthened benchmarks, and evolving investment pathways across Canada and the Western Climate Initiative (WCI).
Alberta TIER
Alberta’s Technology Innovation and Emissions Reduction (TIER) system enters its 2026 compliance period on January 1, 2026. The year will explore the implications of the Canada–Alberta Memorandum of Understanding (MOU), which sets April 1, 2026 as a deadline for a new industrial carbon pricing agreement. This agreement will strengthen TIER, committing to a minimum effective credit price of CAD 130 per tonne and bringing large electricity generation emitters under TIER’s direct regulation.
The MOU also includes agreements on methane regulation and carbon capture projects, with April 1, 2026 as a target for finalizing equivalency and trilateral agreements that are prerequisites for major infrastructure projects. Alberta’s Direct Investment Pathway (DIP) is set to launch in 2026, allowing regulated entities to meet compliance obligations by contributing to approved decarbonization projects rather than solely relying on credits or offsets. This pathway is an important new option for entities to channel compliance costs into emissions reductions within Alberta, with guidance on eligibility and valuation expected to be released in early 2026.
2026 Interim Review and Canada’s Climate Competitiveness Strategy
The 2026 compliance period for the federal Output-Based Pricing System (OBPS) and equivalent provincial systems begins January 1, 2026. The federal Climate Competitiveness Strategy, unveiled in Budget 2025, is the centerpiece of Canada’s evolving carbon market approach. With the federal fuel charge eliminated in most provinces, the strategy focuses on industrial emitters, aiming to maximize “carbon value for money” by aligning carbon pricing, investment incentives, and industrial policy.
Key points to watch:
- The federal government’s commitment to engage provinces on a multi-decade industrial carbon price trajectory, targeting net-zero by 2050 and providing long-term certainty for investors.
- Stricter enforcement of the federal benchmark: if a provincial system falls below federal standards, the federal backstop will be promptly applied.
- Version 2.0 of the Quantification Methods for the OBPS officially applies in 2026, affecting how emissions are measured and reported for covered facilities.
- Discussion Paper on the Federal Benchmark & Carbon Pricing Systems in Canada: Driving Effective Carbon Markets in Canada
Opt-Out Eligibility
Regulatory changes in 2025 clarified opt-out pathways for voluntary participants in Ontario’s Emissions Performance Standards (EPS), Federal OBPS, and Alberta TIER. These rules are already in effect, allowing some entities to exit systems if they meet specified criteria, such as emissions thresholds or coverage under alternative regulatory programs. Opt-out eligibility is designed to avoid double coverage and ensure entities are only regulated where necessary.
For entities, 2026 is a year to confirm their participation status, assess whether opting out or remaining covered offers strategic advantages (such as access to credits, offsets, or funding programs), and ensure compliance with new administrative requirements.
California Cap-and-Invest
2026 is the final calendar year of Compliance Period 5 (CP5) for California’s Cap-and-Invest program, with entities preparing for the end-of-period “true-up” of obligations and the final deadline coming in 2027. The program has been extended through 2045, rebranded as Cap-and-Invest, and will see tighter rules take effect in 2026.
Key points to watch:
- The offset usage limit increases to 6% of a covered entity’s compliance obligation (up from 4% in previous periods).
- Offsets are now “under the cap,” meaning each offset used requires the retirement of an equivalent number of allowances from the following year’s budget, ensuring net emissions decline.
- The California Air Resources Board (CARB) is mandated to prepare a study on compliance offsets and protocols by December 31, 2026, which may influence future offset rules.
Entities must manage allowance and offset positions to meet CP5 true-up obligations, while also planning for a steeper cap decline and longer-term investment under the extended program.
Québec Cap-and-Trade
Québec entities are also in the final year of the fifth compliance period within the linked Cap-and-Trade system with California. Québec’s system continues to be aligned with California through the WCI, sharing joint auctions and harmonized design elements. The federal Climate Competitiveness Strategy also targets how Québec’s effective price signal aligns with the national industrial trajectory, with potential implications for future benchmarking and investment programs.
Washington Cap-and-Invest
2026 is the final calendar year of the first full compliance period (2023–2026) under Washington’s Cap-and-Invest program. Entities must prepare for the end-of-period true-up, covering emissions across the entire four-year block. Washington has refined its rules to improve market functioning and position the program for potential future linkage with WCI partners, with 2026 serving as a milestone for assessing readiness for linkage and next-period policy choices.
Key Takeaways for Entities
2026 is a year of review of policy for North American carbon markets, with a strong focus on industrial emitters. Alberta’s updated TIER system, Canada’s Climate Competitiveness Strategy, and the final compliance periods in California, Québec, and Washington all point to stronger and more predictable requirements for businesses. Companies should align their compliance planning with investment decisions, confirm whether they are required to participate, and get ready for stricter rules and higher carbon prices as markets mature and support long-term climate targets.
ClearBlue Markets is actively monitoring these developments, for more information about ClearBlue's advisory services or market intelligence coverage, please contact us.