Recent regulatory shifts and mounting global trade pressures have placed Canada’s diverse carbon pricing landscape at a critical juncture. As jurisdictions like the EU finalize its Carbon Border Adjustment Mechanism (CBAM), the coherence of Canada's pan-Canadian approach is being rigorously tested—both domestically and internationally.
Download our webinar: CBAM 2026: Compliance, Risk and Opportunity from October 21, 2025.
Drawing on expert commentary provided to Carbon Pulse in a recent interview, and our ongoing deep-dive analysis into Canadian carbon markets landscape, this post explores why the fragmentation across Canada’s industrial carbon pricing systems creates significant risks for exporters and why the upcoming 2026 federal benchmark review is non-negotiable for restoring clarity and competitiveness.
The CBAM Challenge: Moving Beyond a "Whole-Country Approach”
The implementation of the EU's CBAM, set to enter its definitive phase on January 1, 2026, presents potential major cost implications for Canadian exporters of carbon-intensive products, including iron and steel, cement, and fertilizers.
ClearBlue Markets' Director of Policy and Strategy, Adi Dunkelman, recently emphasized that for Canadian industry to receive fair deductions on CBAM fees, the EU Commission must recognize Canada's sub-national carbon markets, rather than viewing the country as a single, homogenous pricing jurisdiction. Dunkelman stressed that a targeted approach is crucial to avoid "unfair treatment of industry". This advocacy comes as the Commission has yet to publish key implementing rules clarifying how foreign carbon pricing systems will be recognized under the mechanism.
Read the October 29, 2025 Carbon Pulse interview with Adi Dunkelman, written by Sarah Sobanski: INTERVIEW: EU Needs to Consider Canada’s Sub-national Carbon Markets for CBAM
A Patchwork Problem: Fragmentation and Uncertainty at Home
Canada's system of carbon pricing is built upon a federal "benchmark” that establishes a set of minimum national standards designed to ensure consistency while granting provinces the flexibility to design their own systems. This model aims for balance but often results in a patchwork of systems varying in standards, benchmarks, and entry thresholds.
Read Canada's Carbon Markets: A Patchwork of Pricing Systems by Adi Dunkelman
This fragmentation, coupled with political challenges, creates uncertainty that stalls long-term and medium-term planning for Canadian industry. Dunkelman noted that the simultaneous pressures of provincial pre-emption, wavering trade relations, and the EU's CBAM implementation are converging in a "perfect storm".
Our analysis in the Special Report, Canadian Federal Benchmark Equivalency Analysis: Current Landscape, highlights several key divergences from the federal intent for the 2023-2030 period:
- Price Divergence: While the federal benchmark requires the carbon price to rise predictably to CAD $170/tCO₂e by 2030, recent announcements place the stringency of two major provincial systems at risk. Alberta’s decision to freeze its carbon price and Saskatchewan’s pause of its industrial carbon tax diverge directly from the federal trajectory, risking non-compliance.
- Oversupply and Weakened Signals: Despite tightened criteria for the 2023-2030 period, oversupply remains a practical concern. ClearBlue analysis indicates that the federal OBPS is likely to become structurally oversupplied, while the Alberta TIER market remains heavily oversupplied in the near term, potentially undermining the price signal and the incentive for abatement. Quebec’s Cap-and-Trade system, though structurally compliant, also suffers from allowance oversupply, requiring future regulatory reforms to restore scarcity.
- Transparency Gaps: Transparency is uneven across the country. While Alberta and Quebec provide detailed, regular market data, limited information from other jurisdictions, including the federal OBPS and Ontario’s EPS, restricts visibility into market functionality and compliance outcomes.
Clarity is Coming: The Urgency of the 2026 Review
With these inconsistencies in play, Prime Minister Mark Carney has signaled that strengthening and harmonizing industrial carbon pricing is a top priority, particularly following the elimination of the federal fuel charge. Carney has also signaled the need for Canada’s own CBAM to protect the competitiveness of its domestic industry.
The upcoming 2026 interim review of the federal benchmark is the critical regulatory milestone that will shape Canada’s carbon pricing framework through to 2030. It represents the vehicle for the federal government to address program gaps and push for greater consistency and harmonization.
To achieve effective and efficient markets, Dunkelman emphasized the need for improvements like harmonized markets and enhanced system transparency. For the federal government to drive necessary emissions reductions, it must be transparent, open to consultation, and provide modeling to "take a lot of the politics out of it".
Ultimately, clarity on benchmark alignment will be essential for anticipating regulatory and market shifts in the years ahead. The goal is to focus on making the carbon market "very strong, transparent, [and] efficient" to drive deep decarbonization.
Ready for Regulatory Shifts?
ClearBlue Markets is actively engaging with government and industry to provide thought leadership on these market dynamics. Our two-part Special Report, Canadian Federal Benchmark Equivalency Analysis, examines the current landscape and sets the stage for what comes next.
Download Part 1: Canadian Federal Benchmark Equivalency Analysis: Current Landscape
Part 2 of this report, Potential Scenarios and Impacts, will look ahead to potential changes, including how harmonization efforts could support a Canadian CBAM, and how the Carney government might safeguard Canadian industry amidst U.S. trade challenges.
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