Canada's Carbon Markets: A Patchwork of Pricing Systems 

As Canada heads toward its federal election on April 28th, the future of national carbon policy is uncertain. The Liberals and Conservatives are proposing sharply different paths, setting the stage for significant shifts in climate strategy.

The Liberal government aims to strengthen and extend the federal Output-Based Pricing System (OBPS) through 2035. With the removal of the federal fuel charge, the government is focused on refining the carbon pricing benchmark by working with provinces and territories to enhance industrial carbon markets to accelerate decarbonization. In contrast, the Conservative Party proposes scrapping carbon pricing altogether in favour of expanding industrial tax credits and emphasizing technology-based solutions.

Regardless of the outcome, changes to Canada’s carbon pricing system are likely. With this in mind, it's worth taking stock of the current landscape.

Federal Carbon Pricing Framework

Canada’s carbon pricing landscape is defined by a patchwork of federal and provincial compliance carbon markets. To ensure consistent stringency across jurisdictions, the federal government established a Federal Benchmark of minimum national carbon pricing standards. The federal carbon pricing schedule applies to explicit price-based systems, starting at CAD 80/tonne (2024) and rising annually by CAD 15/tonne to reach CAD 170/tonne in 2030. Cap-and-trade programs can maintain market-based pricing.

Federal Backstop Components

The federal backstop comprises two main elements: the now-repealed fuel charge, and the Output-Based Pricing System (OBPS) for large industrial emitters. The OBPS sets sector-specific emissions intensity benchmarks. Facilities emitting less than their benchmark earn tradable credits, while those exceeding it must pay for their excess emissions. This system encourages investment in clean technologies and improved efficiency. Select offset credits from Alberta’s system are also eligible for compliance under the OBPS.

Entities regulated under the federal OBPS can trade credits among the different covered jurisdictions. Currently, the federal OBPS is in effect in Manitoba, Prince Edward Island, Yukon, and Nunavut.

Provincial and Territorial Carbon Pricing Systems

Quebec – Cap-and-Trade System (SPEDE)

Quebec operates Canada’s first Cap-and-Trade system, launched in 2013 and linked with California through the Western Climate Initiative (WCI) in 2014. It maintains market-based pricing and is exempt from following the federal carbon price schedule.  Allowances are allocated freely or sold at quarterly auctions, and the total supply decreases annually, pushing entities to cut emissions or purchase credits. It is currently undergoing regulatory amendments as well as pursuing linkage with the Washington Cap -and-Invest program.

Alberta – Technology Innovation and Emission Reduction (TIER) Program

Alberta implemented Canada’s first carbon pricing system in 2007 through the Specified Gas Emitters Regulation, which was replaced which was replaced by the Carbon Competitiveness Incentive Regulation (CCIR) in 2018 and then by TIER in 2020. TIER covers large industrial emitters and allows three types of tradable credits: Emissions Performance Credits (EPCs), offsets from registered Alberta projects, and sequestration credits from CCUS projects which can be stacked in the Clean Fuels Regulation (CFR) program. Currently, 18 protocols are eligible under Alberta’s system, with five recognized federally. Starting in 2024 credit prices in Alberta declined, trading at a significant discount to the federal price due to uncertainty surrounding upcoming elections and potential policy changes.

British Columbia – Carbon Tax, OBPS, and LCFS

British Columbia implemented North America’s first broad-based carbon tax in 2008, aligning with federal pricing in 2022. To address competitiveness risks, the province launched the CleanBC Program for Industry in 2020, which was replaced by the B.C. OBPS in April 2024. Under this system, large emitters are exempt from the carbon tax and pay only for emissions above a set benchmark, earning credits for strong performance. As of April 1, 2025, B.C. removed its consumer-facing carbon tax.

The B.C. Offset System supports compliance and voluntary use, with protocols for landfill gas and forest carbon; others are under development. Additionally, B.C. operates a Low Carbon Fuel Standard (LCFS) to reduce the carbon intensity of fuels.

Ontario – Emissions Performance Standards (EPS)

Ontario’s Emissions Performance Standards (EPS) program, in place since 2022, governs industrial emitters. It represents the third carbon pricing program in Ontario replacing the federal OBPS which was enforced from 2019-2021 after the province scrapped its Cap-and-Trade system in 2018.

Facilities earn Emission Performance Units (EPUs) when they emit below limits, and offsets are not permitted for compliance.  The Emissions Performance Plan (EPP) influences market demand by providing facilities access to funds paid for compliance. The EPS credit market remains opaque, as trades occur directly between facilities.

New Brunswick – OBPS

New Brunswick operates a provincial OBPS for large industrial emitters. This system replaced the federal OBPS, which was in place in the province during 2019 and 2020.

Saskatchewan – OBPS

Saskatchewan has operated its own OBPS since 2019, with electricity and gas pipeline sectors added in 2023 after previously being regulated under the federal OBPS. Premier Scott Moe recently announced plans to eliminate industrial carbon pricing, aiming to set the rate at zero and remove federal backstop oversight. He has urged federal leaders to allow provinces full control over emissions regulation ahead of the April 28 federal election.

Nova Scotia – OBPS

Nova Scotia formerly had a Cap-and-Trade system but transitioned to a provincial OBPS in 2023 to regulate industrial emissions.

Newfoundland and Labrador – OBPS

Newfoundland and Labrador have implemented a provincial OBPS to regulate emissions from large industrial sources.

Northwest Territories – Carbon Tax

The Northwest Territories apply a carbon tax on fossil fuels, tailored to the unique challenges of remote communities and high energy costs. The system aims to balance environmental goals with regional economic realities.

The Evolving Landscape of Carbon Pricing

Canada’s carbon pricing landscape continues to evolve, driven by environmental targets and political developments. For businesses, this creates both challenges and opportunities. Navigating this landscape is more than just meeting compliance obligations, it requires strategic foresight. Balancing the costs of carbon with competitiveness, innovation, and sustainability is now a core business concern.

Regulatory certainty plays a critical role in enabling long-term investment decisions. Businesses need stable, predictable policy frameworks to justify capital-intensive investments in low-carbon technologies, infrastructure, and process improvements. Uncertainty around carbon pricing design, implementation, or longevity can delay or deter investment, increase costs, and complicate risk management. As Canada pursues its net-zero targets, clear and consistent carbon pricing signals are essential to foster confidence for investment and accelerate emission reductions.

ClearBlue offers significant expertise in all Canadian compliance carbon markets. Join our upcoming webinar, Navigating Uncertainty for a look at how the upcoming election will impact these markets.