Stelco's steel plant in Hamilton, Ont. on May 6, 2022.CARLOS OSORIO/Reuters
Industry is calling on provinces to work together to strengthen Canada’s patchwork industrial carbon pricing system by aligning and pooling their carbon-credit markets, in order to give companies more flexibility and more incentive to invest in emissions-reducing technologies.
The request comes in a letter sent to all 10 provincial premiers on Wednesday, which was co-ordinated by the advocacy organization Clean Prosperity. Among its 13 signatories are the national associations for the steel, cement, chemical and manufacturing sectors, as well as companies such as cement producers Heidelberg Materials and Lafarge Canada and Enhance Energy Inc., which captures and stores carbon dioxide.
It expresses support in principle for industrial carbon pricing, which is distinct from the consumer-facing carbon price with which many Canadians are more familiar, and which involves the opportunity for heavy-emitting companies to trade credits generated by investments such as carbon capture and storage.
But it states that the current approach of each province having its own market, without companies being able to buy and sell credits between them, makes it more difficult to back those sorts of major decarbonization projects. It frames that challenge as an interprovincial trade barrier, which provinces could remove by jointly developing standards and effectively creating a smaller number of larger markets.
The missive includes several other related policy asks, including that provinces make their carbon markets less opaque by providing more public information about transactions and credit prices; that they also commit to reinvesting all industrial carbon-pricing revenues that they themselves collect back into industrial decarbonization efforts; and that they work with Ottawa to advance discussion of carbon border adjustment mechanisms (CBAMs), which are essentially tariffs on carbon-intensive imports from countries without equivalent pricing systems.
The push comes at a pivotal moment for Canada’s industrial decarbonization strategies because of the possibility of a federal election soon. The opposition Conservatives, who hold a large lead in opinion polls, are campaigning on scrapping the consumer-facing carbon price. But they have been non-committal on whether they would maintain requirements for provinces to price heavy industrial emitters – giving impetus to supporters of the industrial system to try to strengthen it before the campaign starts.
That effort was also reflected in a pair of reports released last week by the Commission for Climate Competitiveness, a new expert panel launched by the Canadian Climate Institute, the International Institute for Sustainable Development and Clean Prosperity. Most prominent among its recommendations is for Canada to work with the United States to protect industrial competitiveness by jointly developing CBAMs.
But the letter to premiers may also be indicative of decarbonization proponents – and sectors seeking help with emissions-reduction plans – beginning to shift focus toward the provinces. While Ottawa has previously been the primary target of most such advocacy, climate organizations have increasingly been making the case that – with many national framework policies having been put in place, as well as the subtext of a less green federal government potentially soon taking office, there needs to be greater onus on implementation at the subnational level.
On industrial carbon pricing, which modelling has projected to have the strongest emissions-reduction impact of all Canadian climate policies, every province other than Manitoba and Prince Edward Island has done enough to meet minimal standards imposed by Ottawa, and avoid a backstop federal system being imposed on them.
The extent to which carbon credit markets have taken shape within those provinces varies significantly. Experts point to Alberta’s, where industrial pricing was initially established before the federal requirements and where the oil-and-gas sector means a cluster of the country’s heaviest emitters, as the most robust. Some others, including Ontario’s, are much less advanced.
However, sectors covered by the industrial system contend that – with the exception of Quebec, which is part of a joint market with the state of California – all provincial markets are too small and would benefit from interprovincial linkages.
”I think it’s an imperative even where the market is relatively well developed,” Greg Moffatt, executive vice-president of the Chemistry Industry Association of Canada, said in an interview. His members, he said, want the compliance flexibility offered by a bigger pool of available credits to purchase. And because larger markets are less volatile, they would offer companies greater certainty about the value of major investments in decarbonization technology, he said.
Michael Berends, chief executive officer of ClearBlue Markets – which is not a letter signatory, but advises companies on carbon credit trading − said that interprovincial alignment would be particularly helpful for companies with industrial facilities in multiple provinces. As it currently stands, he said, those companies can sometimes have surplus credits in one jurisdiction while being behind in their obligations elsewhere.
Another category of companies seeking bigger markets is those such as Enhance Energy that are primarily credit sellers. Vice-president Candice Paton said that the Calgary-based company’s vision revolves around generating revenues through Alberta’s provincial system, but that that market alone currently lacks certainty.
Tackling such concerns, advocates acknowledge, would require provincial governments to set aside wariness of surrendering control – and in some cases potentially seeing net revenue loss – that often stands in the way of economic co-operation.
While one common market might be ideal, Clean Prosperity policy and strategy director Brendan Frank suggested that it could be more manageable to start with small groups of provinces aligning – pointing to the New West Partnership, through which the four westernmost provinces removed some trade barriers, as a model.
“Harmonization doesn’t have to happen all at once,” Mr. Frank said. “Provinces can experiment to figure out what set-up works best for them.”
Mr. Berends, meanwhile, invoked experience operating in common carbon-credit markets between multiple countries overseas to question why Canada can’t establish one.
”I look at Europe and say, they did it, and half of them don’t get along most of the time,” he said. “Then you look here and there’s all these different programs.”
“My optimism is low that it’ll actually happen,” he added, “but the education of why it needs to happen is a good thing.”