The recent federal election in Canada, which saw Mark Carney lead the Liberal Party to a strong minority government, has brought a new wave of certainty to the country's carbon markets, according to experts speaking at ClearBlue Markets’ May 5, 2025 webinar. The event featured an in-depth analysis of what the election outcome, and particularly Mark Carney's stated intentions, signifies for climate policies across Canada.
The webinar generated considerable interest, including from Carbon Pulse Senior Correspondent Allison Gacad,
who provided comprehensive coverage in her article:Canada to strengthen carbon policy, provincial equivalency remains precarious, experts say.
The expert panel included Michael Berends, CEO and Jennifer McIsaac, Chief Market Intelligence Officer, both of ClearBlue Markets, Tyson Dyck, a partner at law firm Torys, and Chelsea Erhardt, an environmental trader with Traxys North America. The discussion covered a range of critical topics, including industrial carbon pricing, provincial programs, the potential impact of developments in the United States under a possible Trump presidency, Carbon Border Adjustment Mechanisms (CBAM), and the overall supply-demand dynamics within various Canadian carbon markets. Highlights are provided below:
Canadian Prime Minister Mark Carney, known as a major advocate for carbon pricing, especially in the voluntary market, is expected to integrate this stance into his platform and future decision-making. The consensus from the webinar was that the carbon pricing programs currently in place are here to stay and are likely to become stronger. Michael Berends noted that the election outcome removed significant uncertainty that had previously led to stagnation in some markets.
One notable, immediate change following the election is the formal repeal of the consumer fuel charge, which had previously been reduced to zero. While replaced with incentives for green choices, this repeal has implications for emitters, particularly smaller ones who may have opted into the federal and provincial Output-Based Pricing Systems (OBPS) or equivalent programs based on the incentive of avoiding the fuel charge. Experts noted that technically, without the fuel charge to pay, the incentive to opt into these programs is removed. The future may see changes to mandatory thresholds for these programs or rules around opting out.
A key focus under the new Liberal government is expected to be strengthening industrial carbon pricing and harmonizing carbon markets across the provinces. Berends highlighted the intent to "really push industrial carbon pricing," putting pressure on provinces.
The concept of "equivalency" among provincial programs is a central, and complex, issue. Tyson Dyck explained that equivalency is not solely about pricing, though that is a significant component. Other factors include whether provincial programs have a common scope of coverage, include the same percentage of emission sources, and send a clear price signal.
Berends pointed out that, to date, a number of provincial programs were "fundamentally not equivalent," citing differences in how revenues were returned and the design of the markets themselves, particularly in provinces like Ontario and Saskatchewan. The expectation is that markets which were less market-driven previously may evolve.
However, achieving true national harmonization or linkage remains an open question. Dyck remarked on the uncertainty regarding the federal government's capacity to "force that kind of linkage". While formal linkage can enhance market liquidity, linked jurisdictions must cede some authority to other decision-makers. This could face push back from provinces like Alberta that would like to have control over what they're doing and not be subject to market dynamics driven by other jurisdictions.
Another critical point of discussion was the future of the federal backstop carbon price. The previous Liberal government had set a plan for the price to escalate to $170 per tonne by 2030. Experts at the webinar believe this escalation is up for discussion. A wide range of possibilities includes stopping the price at the current level of $95, potentially rolling it back in some provinces, or adhering to the $170 plan. This will be a crucial piece in determining the price outlook for fixed-price programs by 2030. Notably, a minority government has the power to change the effective price and other aspects of the industrial carbon pricing program through order-in-council, without requiring legislative amendments.
The upcoming 2026 stringency review of the federal backstop is expected to be a key period for assessing and potentially implementing some of these changes. While some policy developments may see a pause in the immediate months as the new government settles in, discussions about the core aspects of equivalency are expected to begin behind the scenes between federal and provincial governments in the coming months.
The webinar also touched upon highly political issues, such as the proposed oil and gas sector emissions cap. Alberta Premier Danielle Smith has drawn a clear line, stating her government will not cooperate with such a program. Tyson Dyck, from a legal perspective, predicted "significant political opposition at the provincial level" and potential "constitutional litigation over the constitutional validity of the program" if the federal government moves forward. He noted this kind of multi-year litigation environment makes it difficult to provide the investment certainty needed in these markets, especially if the cap links to compliance offset programs.
CBAM, or Carbon Border Adjustment Mechanisms, was another topic discussed with political and legal dimensions. Michael Berends and Jennifer McIsaac noted that CBAM is looking like a “tariff by another name". While collaboration between Canada and the US on a North American CBAM in a "perfectly rational world" could be beneficial, Dyck cautioned that driving forward hard with a CBAM proposal for Canada carries some political risk.
Implementing it sends a signal that tariffs might be in play, which is difficult given the current state of Canada-US relations.
Chelsea Erhardt provided insights from a trader's perspective, noting that Mark Carney's victory, the repeal of the consumer carbon tax, and the reaffirmation of industrial pricing with signals of deeper stringency have "created some dislocations across Canada's carbon markets". She focused her market outlook on the most tradable Canadian markets: Alberta TIER, Canada CFR, and the Quebec-linked WCI market. Notably:
Alberta TIER:
This market is characterized by "hesitation amid policy ambiguity". Prices have remained "stuck around that $29-$30 level". While some might attribute this to oversupply, Erhardt suggested regulatory uncertainty was the real factor. The uncertainty stems from past fears that the provincial government might cancel or materially change the program, although it has now confirmed the program will continue. Though risks like prolonged ambiguity exist, Erhardt pointed out the "opportunity to buy sub $30 is probably a good one." Jennifer McIsaac added that since the election uncertainty dissipated, the market is seeing "stabilization and then maybe even a little bit of bullish momentum". The impact of the federal fuel charge discontinuation on TIER and how Alberta fits into federal harmonization efforts remain factors to watch. The volume contributed by opted-in entities in Alberta's TIER market is significant, but not likely to drastically alter the overall market balance.
California-Quebec WCI:
This linked cap-and-trade market has seen a pullback in prices in 2024, primarily due to "speed bumps... emerging essentially in California," rather than the Canadian election. Prices fell to near the auction floor level in April. Ongoing uncertainty persists due to delays from the California side, despite Quebec being ready to tighten its program. A key development for positive momentum would be an extension bill in California this year. The Trump administration's potential actions to enforce its executive order against state climate policies add further uncertainty.
Jennifer McIsaac addressed concerns about a potential Trump administration trying to undo the California-Quebec linkage. She noted that a previous attempt during the first Trump term to challenge this international linkage "was not a successful legal challenge," and the appetite to revive this challenge is a “wait and see.” Tyson Dyck added that the argument about the linkage interfering with the US government's foreign affairs power was ultimately rejected by the court. While Trump could bring a shotgun approach with many claims, the California system is considered to have a degree of "litigation proofness built into it".
Linkage with Washington state is seen as following a clear order of operations: California legislature must extend their program, then California and Quebec will jointly reform their program, and *then* they can work on linkage with Washington. This suggests linkage with Washington is "at least a couple years away".
Canada Clean Fuel Regulations (CFR) / BC Low Carbon Fuel Standard (LCFS):
The Canada CFR market has seen prices "creeping up," even before the election tied to the removal of the fuel charge, which if fundamentally bullish for the CFR. Without the fuel charge, the CFR program must "do a lot of work" to incentivize biofuels to compete with lower-priced fossil fuels, creating upward pressure on the CFR price. Given the increased certainty post-election and expectation that the program will tighten, more market activity, including hedging, is expected. There may even be a future need to examine cost containment measures in the program.
The BC Low Carbon Fuel Standard (LCFS) market has remained "pretty stable" and "flat since the election", although there is room for the price to increase under certain circumstances. However, ClearBlue finds that satisfying the federal Canada CFR requirements involves attracting clean fuels to other provinces besides BC, and this potentially points to lower BC LCFS prices.
Regarding the BC OBPS compliance market, Chelsea Erhardt described it as "thin". This means there are not many unique participants and compliance obligations are concentrated among a few entities. The market also lacks a large number of unique projects. Erhardt advised developers considering this market to directly engage with compliance entities to understand their specific requirements and buying horizons. Despite being thin, the current reference price ($80 for last year's compliance) is "a very interesting and attractive price" for offset developers, and with the increased market certainty, more projects are expected to be developed, though this will take time.
CCOs (Carbon Capture and Offset Credits):
Looking at non-DEBS CCOs (Carbon Capture and Offset Credits) usable in the Quebec WCI market, Chelsea Erhardt noted that these credits are currently "very cheap". The "non-DEBS market between California and Quebec is oversupplied". As a result, her outlook for non-DEBS CCO prices through the end of the current compliance period (ending November 1, 2027) is flat neutral price. While compliance entities may still buy them to optimize compliance or hedge, the oversupply limits upward price movement. However, with the market having been "beat up" over the last two years, fewer new projects may be created, potentially leading to the supply diminishing over time.
A crucial takeaway for emitters was the affirmation that compliance deadlines for carbon pricing programs "will remain relevant". There was a possibility, particularly under a different government, that compliance for some programs (like in Ontario and Alberta) might have been delayed. However, this is not the case. Berends stated that "nothing's changing, compliance will remain". This certainty is contributing to markets that were previously stagnant, like Alberta and Ontario, becoming more active. Emitters were advised to ensure they are compliant and prepared with legal agreements and access to markets for necessary volumes.
While the election has provided a degree of certainty regarding the continuation and strengthening of Canada's carbon pricing landscape, the path forward involves navigating complex policy dynamics, evolving market conditions, and potential legal challenges. The 2026 stringency review, discussions around provincial equivalency, the future of the federal carbon price escalation, and external factors like US actions will all shape the trajectory of Canadian carbon markets in the coming years. Experts emphasized the need for careful monitoring, strategic planning, and continued engagement with policymakers.
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Following up on our pre-election coverage, in this webinar, we looked at the outcome and provide crucial insights for stakeholders navigating this evolving landscape. Listen to our experts break down the key policy changes, analyze their potential effects on market dynamics, and offer strategic guidance.