As Canada’s federal election takes place on 28 April, the country’s next leader will be decided between current Prime Minister Mark Carney and Conservative Party Leader Pierre Poilievre. ClearBlue Markets hosted a webinar on the impact of the election on carbon markets and published answers to key questions. This article summarizes the themes shaping Canada’s climate policy, setting the stage for a decisive election for the country’s climate future. For a deeper dive into any of these topics, refer to ClearBlue’s article here.
Federal Fuel Charge
The federal fuel charge, often called a consumer-facing carbon tax, was a highly politicized volumetric charge applied to fossil fuel distributors who typically passed the cost on to consumers. The federal government set the fuel charge to zero dollars effective 31 March, while the underlying legal framework, the Greenhouse Gas Pollution Pricing Act (GGPPA), remains in place. This means the policy has not been repealed, rather, the government has just set the price to zero dollars for now. A reversal of this move is unlikely as the revenues from the fuel charge were returned to households rather than used for federal funding, therefore, there is no major fiscal incentive to bring it back. Carney, the current frontrunner, has signaled a focus on strengthening industrial carbon pricing rather than reinstating the fuel charge. Poilievre actively campaigned on “axing the tax” before Carney’s move to set the charge to zero.
The absence of the fuel charge reduces the appeal for voluntary participation in industrial emitter programs. Unless a facility is generating surplus compliance credits that can be sold in the market, these programs no longer offer the cost savings they once did compared to paying the fuel charge. However, most jurisdictions have conditions on opting out, except in Alberta, where facilities under the Technology Innovation and Emissions Reduction (TIER) program can opt out by notifying the government by September 1 of the prior year.
Industrial Carbon Pricing
Carney aims to strengthen the Output-Based Pricing System (OBPS) and improve carbon market functionality and integrity. This could be done by adjusting the $15/year carbon price increase schedule, which is set to reach $170 per tonne by 2030. While Carney has not explicitly stated that his government would alter this schedule, it is a possibility as part of the upcoming federal benchmark review, which aims to refine the benchmark. This does not necessarily translate to a price increase, as the federal government can leverage a variety of policy tools to align stringency across markets, such as updates to performance standards, changes to the treatment and flexibility of compliance units, and improvements in transparency and credit fungibility.
A Carney government will also address oversupply in carbon markets, as this reduces the price signal that incentivizes emission reductions. This could be done through greater alignment of performance standards, stringency factors, participation thresholds, and consistency in which sectors are regulated. While provinces have flexibility under Canada’s pan-Canadian carbon pricing framework, the federal government sets minimum standards through the federal benchmark. In this way, the government does not prescribe a specific market price but rather ensures adequate and aligned program stringency and consistency. Therefore, if a Carney-led federal government strengthens the benchmark and addresses oversupply, provinces will have to respond accordingly. Poilievre has signaled removing industrial carbon pricing by repealing the GGPPA, which would grant full agency to the provinces to implement carbon pricing.
Quebec and B.C. maintain strong support for their provincial programs, Alberta has indicated changes to TIER while maintaining overall support for industrial carbon pricing, and Ontario remains quiet, having transitioned from the federal OBPS to the Emissions Performance Standards program (EPS) in 2022, after the Ford Government repealed the province’s Cap-and-Trade in 2018, due to the federal requirement.
ClearBlue believes that a Liberal-led government would keep the CFR in place, though modifications may be considered, particularly now that the federal fuel charge has been removed. The Conservative Party Platform references the removal of the CFR.
Carbon Border Adjustment Mechanisms (CBAM)
A key driver for carbon pricing policy in Canada may come from Europe’s CBAM, which imposes a carbon price on imports from countries with weaker climate regulations. Canada’s version of a border carbon adjustment (BCA) was introduced by the Trudeau government in 2021 and appeared in the 2024 Fall Economic Statement, highlighting a commitment to the policy.
Carney has made a BCA part of his proposed “Made-in-Canada Competitiveness Strategy”. Despite promising to scrap the federal carbon price, Poilievre could still implement a BCA, allowing a Conservative government to maintain industrial competitiveness through a carbon tariff without compromising its anti-tax platform.
Paris Agreement Commitment
Poilievre has not suggested withdrawing from the Paris Agreement, meaning Canada would still need to meet its Nationally Determined Contribution (NDC). While Conservatives are unlikely to keep the current carbon pricing regime, they view emissions as a global issue, which Canada can address by producing and exporting cleaner energy and industrial products. A possible Conservative approach could include expanding investment tax credits for clean tech and low-emission manufacturing while eliminating direct carbon pricing.
ClearBlue is following these developments closely and will provide updates on an ongoing basis.