Canada’s industrial carbon pricing landscape is undergoing significant change. As political momentum builds ahead of the April 28th federal election, questions are emerging about the future of key programs—from Quebec’s cap-and-trade system to Alberta’s TIER framework.
ClearBlue Markets recently hosted:Navigating Uncertainty: The Impact of the Canadian Election on Carbon Markets (download the recording here).
This article delves into that conversation, providing answers to many of the questions asked, and explores the implications of the removal of the federal fuel charge, recent developments across provincial systems, the role of federal leadership, and the broader implications of international mechanisms like the Clean Fuel Regulations, Article 6, and CBAM.
Sections:
- The Federal Fuel Charge: What is Changing and What Comes Next?
- What’s Next for Industrial Carbon Pricing Under a Carney Government?
- What’s Next for Canada’s Industrial Carbon Pricing Systems? A Provincial Rundown
- The Future of the Clean Fuel Regulations: What’s at Stake Under a New Government?
- Canada, Carbon Markets, and Global Trade: Navigating Article 6, CBAM, and the Future of Climate Regulation
- Federal election and Policy Certainty
The Federal Fuel Charge: What is Changing—and What Comes Next
Canada’s carbon pricing framework has once again taken centre stage in national policy discussions as well as recent federal election debates. With recent developments surrounding the federal fuel charge—often dubbed the "consumer carbon tax"—there have been questions, confusion, and political spin.
What Is the Fuel Charge?
Despite how it is often portrayed, the federal fuel charge is not just a tax on consumers. It is a volumetric charge applied to distributors of fossil fuels like gasoline, diesel, propane, and natural gas. Certain groups—such as large industrial facilities covered under programs like the Output-Based Pricing System (OBPS), farmers, and greenhouse operators—are partially or fully exempt.
While the charge is technically paid by fuel distributors, in practice, it is passed on to end users. That is why the fuel charge is often called a consumer-facing carbon tax, especially during election campaigns where candidates talk about “cutting costs for everyday Canadians.”
Has the Consumer Carbon Tax Been “Removed” or Just Paused?
The federal government set the fuel charge to zero dollars effective March 31, 2025. This move effectively removes the cost from consumer bills and reporting obligations. But the underlying legal framework—the Greenhouse Gas Pollution Pricing Act (GGPPA)—remains firmly in place.
This means the government has not repealed the policy; they just set the price to zero dollars for now. While this could technically be reversed post-election, it is politically unlikely. The current frontrunner, Mark Carney, has indicated a shift toward strengthening industrial carbon pricing instead of reinstating the consumer fuel charge.
Since revenues from the fuel charge were returned to households and not used to fund federal programs, there is no major fiscal incentive to bring it back. Reinstating it would also come with political risks, such as accusations of backtracking on campaign promises.
What About Industrial Emitters? Will They Opt Out?
Without the federal fuel charge, the financial incentive for voluntary participants to remain in industrial emitter programs is significantly reduced. 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.
That said, most jurisdictions place conditions on opting out, such as maintaining emissions below 10,000 tonnes of CO₂e for a number of years. Alberta is the exception: facilities in its Technology Innovation and Emissions Reduction (TIER) program can opt out without meeting those thresholds, provided they notify the government by September 1 of the prior year.
ClearBlue’s analysis estimates that 250–300 opted-in facilities—representing around 2 megatonnes of demand in the TIER credit market—could exit. That is about 10% of the total 2023 demand. While it is not a market-breaking shift, it is significant enough to warrant close attention. A detailed supply-demand analysis is currently in development and will be available on ClearBlue’s Vantage platform soon.
Could This Undermine the Supreme Court’s Ruling on Carbon Pricing?
Some have wondered if dialling back the consumer-facing portion of the GGPPA could lead to another legal challenge, perhaps arguing that the law no longer addresses a "national concern" since it is no longer a true national minimum standard.
At this point, there is no indication that another reference case would be initiated to challenge the Constitutional authority of the federal government to enact the GGPPA in light of its decision not to impose the federal fuel charge on fossil fuel distribution. The Supreme Court of Canada’s decision only confirmed the federal government’s jurisdiction to enact the GGPPA to set minimum national standards of GHG price stringency. This decision did not hinge on the federal government applying that standard to every emissions source in the country. In fact, the GGPPA never applied the federal backstop price to all emissions sources; certain sources were always outside the scope of the statutory scheme. So, a decision to limit the practical application of the scheme to a smaller group of emissions sources seems unlikely to be a determinative factor, especially given evidence showing that the most effective aspects of the GGPPA have been its regulation of industrial emissions.
What’s Next for Industrial Carbon Pricing Under a Carney Government?
With the Liberals polling favourably, there is growing interest in the potential implications for Canada’s industrial carbon pricing systems under a Carney government. His climate platform indicates an intention to strengthen the Output-Based Pricing System (OBPS) and to enhance the overall integrity and functionality of carbon markets.
Could the $15/Year OBPS Price Path Slow Down?
One of the key pillars of Canada’s climate policy is the predictable $15/year increase in the carbon price, scheduled to rise to $170 per tonne by 2030. While Carney has not explicitly stated that his government would alter the carbon pricing schedule, it remains a possibility as part of the upcoming federal benchmark review. The review aims to refine the benchmark to better achieve emissions reductions, accelerate the transition to low-carbon technologies, and safeguard industrial competitiveness while mitigating carbon leakage risks.
This does not necessarily imply a price increase. The federal government has a range of policy levers that it can leverage to enhance fairness, effectiveness, and stringency across all markets. These may include adjustments to performance standards, changes to the treatment and flexibility of compliance units, and improvements in transparency and credit fungibility.
How Might the Federal Government Address Credit Oversupply?
One of the more specific concerns raised in Carney’s plan is oversupply in carbon markets. An oversupplied market leads to low credit prices, which in turn weakens the incentive to reduce emissions.
Alberta has already taken steps to address this in its TIER program, such as increasing compliance unit usage limits and reducing the expiry periods for Emission Performance Credits (EPCs) and offsets.
While provinces are given flexibility under Canada’s pan-Canadian carbon pricing framework, the federal government can—and does—set minimum standards through the federal benchmark. To improve consistency and manage oversupply more effectively, potential federal actions could include greater alignment on performance standards, stringency factors, participation thresholds, and consistency on which sectors are regulated.
The challenge is balancing consistency with provincial autonomy, a tension that has persisted since the framework’s inception.
What Price Signal Is the Government Targeting?
The federal government does not target a specific market price when determining whether a program meets federal benchmark criteria. Instead, it assesses the stringency of OBPS programs through its own modelling, conducted in consultation with the relevant jurisdiction.
To demonstrate adequate stringency, the modelling must show that the projected total compliance obligations of all regulated facilities exceed the projected supply of tradeable units in the market. This imbalance indicates that the marginal price is being maintained, reflecting a functioning and credible market.
What’s Next for Canada’s Industrial Carbon Pricing Systems? A Provincial Rundown
Amid a ongoing changes to Canada’s carbon pricing framework, recent political and policy developments have raised important questions regarding the future of provincial industrial emitter programs. From Quebec’s participation in a linked cap-and-trade system to the evolving structure of Alberta’s TIER program, each province is assessing the future of its policies, particularly in the context of potential shifts in federal leadership.
Quebec: Resilience of the WCI and What Happens If California Delinks
Following Ontario’s abrupt exit from the Western Climate Initiative (WCI) in 2018, market observers feared disruption. However, the WCI system remained stable; California and Quebec remained linked, and allowances held their value. To protect market integrity, both jurisdictions cut off registry access from Ontario, preventing allowance transfers while preserving the system’s credibility.
If California were to delink from Quebec in the future, prices would likely rise, as Quebec is a net buyer in the system. Importantly, Quebec’s political support for WCI remains strong, and California’s program is legislated through 2030. Even in the event of a split, Quebec credits would retain value and the province is expected to maintain a carbon pricing regime.
Alberta: Carbon Capture, Program Reform, and Political Tension
Alberta’s TIER program offers a more complex mix of carrots and sticks for industrial emitters, especially around carbon capture.
Is Carbon Capture Incentivized Under TIER?
Under TIER, facilities that capture and export CO₂ from their facility boundaries do not see reduced emissions under the regulation, meaning the action doesn’t directly lower their compliance costs. Instead, to reduce compliance costs, the facility must either sequester CO₂ within its facility boundaries (in which case the sequestered emissions are deducted from its total reportable emissions for the compliance year). Alternatively, if a facility arranges for the delivery of CO₂ offsite to a sequestration facility, the facility that sequesters the CO₂ can generate offset credits under approved protocols (e.g., Deep Saline Aquifers or Enhanced Oil Recovery). These credits benefit the sequestering facility, though in practice, the CO₂-exporting facility will typically enter into agreements to receive all or a portion of them, in exchange for a service fee payable to the sequestration facility operator.
Offset credits can be used toward compliance (within annual usage limits) or converted to sequestration credits, which can also be stacked with the Clean Fuel Regulations (CFR) for additional revenue. These can further be converted into Capture Recognition Tonnes (CRTs), which reduce regulated emissions and are not subject to offset usage limits. CRTs, however, cannot be banked or sold. If a facility’s emissions fall below its benchmark due to CRTs, it may earn Emission Performance Credits (EPCs).
Additionally, Alberta’s Carbon Capture Incentive Program (ACCIP) offers 12% support for CCUS capital costs, which stacks with the federal CCUS Investment Tax Credit.
What About Political Support?
While Premier Danielle Smith has voiced support for industrial carbon pricing, she is also critical of the federal benchmark and pricing schedule. Alberta has started consulting on major changes to TIER, including the possibility of:
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- Maintaining the current system with added compliance options via tech investment.
- Replacing the program with a requirement for direct emissions-reduction investments.
- Allowing companies to choose between TIER and mandatory tech investment.
- Maintaining the current system with added compliance options via tech investment.
A Conservative federal government would likely give Alberta full jurisdictional control, so we can expect changes to TIER under that scenario.
Will Alberta Need to Align Prices with the Federal Backstop?
If a Carney-led federal government strengthens the benchmark, provinces will likely have to respond. Alberta’s low prices are driven by credit oversupply and uncertainty, issues that new federal rules may seek to address.
Ontario: A Quiet Market Amid Uncertainty
Ontario’s Emissions Performance Standards (EPS) system is still maturing. Market activity remains limited and seasonal, typically picking up before the December 1 compliance deadline.
Looking ahead, potential changes at the federal level have many facilities waiting to see what’s next. With no public trading and minimal transparency, price trends are hard to track, but policy clarity could help unlock growth.
British Columbia: Big Shifts on Consumer Carbon Pricing, But Industrial Pricing and Clean Fuels Stay the Course
Immediately following Carney’s removal of the federal fuel charge, B.C. Premier David Eby announced that his government is scrapping its provincial consumer-facing carbon tax that has been in place since 2008 and adds 17 cents per liter to gasoline prices. The provincial carbon tax was officially removed through legislation on April 1, 2025. Premier Eby emphasized that his government will ensure "big polluters pay" and that the new provincial output-based pricing system will remain in effect. This move is part of a broader shift to reduce fuel costs for consumers, especially in regions like Vancouver, where prices are relatively high.
The removal of the tax is unlikely to impact biofuels like biodiesel and renewable diesel, as they were not exempt from it. However, it could increase gasoline demand and slow zero-emission vehicle (ZEV) adoption, supporting credit prices in the BC-LCFS market by easing supply pressure.
To boost energy security and compete with U.S. IRA incentives, B.C. is updating its fuel standard. Starting April 2025 for diesel (8%) and January 2026 for gasoline (5%), renewable fuel mandates must be met using Canadian-made biofuels, reducing reliance on imports and supporting local producers.
The Future of the Clean Fuel Regulations: What’s at Stake Under a New Government?
Mark Carney’s emerging climate plan hints at strengthening existing regulations, but it stops short of naming the CFR directly. Our assumption is that a Liberal-led government would keep the regulation in place, though modifications may be considered, particularly now that the federal fuel charge has been removed.
Without a fuel charge to penalize fossil fuels, the economic case for low-carbon fuels becomes harder to justify. This could place upward pressure on CFR credit prices, potentially driving them toward cost containment thresholds in the CAD 300–$370/tonne range. If this happens, regulatory adjustments could follow to keep the system balanced and functioning.
On the Conservative side, Pierre Poilievre has labelled the CFR a “Carbon Tax 2.0” in the past. While the program has not been a focal point of their campaign, the party’s broader narrative of repealing “costly Liberal climate policies” puts the CFR at risk. The newly released Conservative Party Platform references the removal of the CFR.
Although the CFR has remained under the radar in public discourse, it has been critical in drawing investment to Canada’s clean fuel sector. Local and international stakeholders have committed significant capital based on projected CFR credit revenues. Weakening or repealing the regulation could severely undercut investor confidence and send mixed signals about Canada’s long-term climate policy direction.
A Boon for Biofuels—and Rural Economies
Many in the biofuels industry are eagerly awaiting the federal government’s move to enable field-based carbon intensity (CI) scoring under the CFR. This development would allow for more accurate emissions accounting and could unlock new revenue streams for growers and clean fuel producers, particularly in rural areas where agriculture and energy interests intersect.
This is one reason there was the potential for the Conservative Party to maintain the CFR, if elected. Despite its climate policy scepticism, the Conservatives have historically supported programs that benefit rural and energy-sector constituents. A parallel can be seen in the U.S., where the Trump administration is open to working with farming and biofuel stakeholders to reform the Renewable Fuel Standard (RFS). However, in the Conservative Party Platform, references to the removal of the CFR were included.
Canada, Carbon Markets, and Global Trade: Navigating Article 6, CBAM, and the Future of Climate Regulation
As Canada prepares for a pivotal federal election, the future of its climate policy, particularly its role in international carbon markets, remains uncertain. With the EU’s Carbon Border Adjustment Mechanism (CBAM) taking shape and countries reassessing their emissions strategies, how Canada positions itself in the global climate and trade landscape could shift dramatically depending on which party takes power.
Canada’s Role in Article 6 and International Carbon Markets
Despite not having an official policy on Article 6, Canada’s current climate strategy signals that it would act primarily as an importer, not an exporter, of Internationally Transferred Mitigation Outcomes (ITMOs) under Article 6 (if it chooses to leverage international cooperation to meet its NDC). Canada is lagging in its emissions reduction goals. The 2025 National Inventory Report shows national greenhouse gas emissions in 2023 were just 8.5% below 2005 levels. This is well short of Canada’s 2035 target of a 45–50% reduction from 2005 levels.
Given these shortfalls, Canada is unlikely to authorize emissions reductions for other countries’ use under Article 6, which would require applying a "corresponding adjustment" to its national emissions inventory. Instead, domestic emission reductions will likely be used to meet Canada’s own Nationally Determined Contribution (NDC) through Mitigation Contribution Units (MCUs), which do not require international authorization or adjustments.
Additionally, Alberta’s 2023 Emission Reduction and Energy Development Plan includes references to ITMOs, hinting at interest in leveraging Article 6 to support provincial climate strategies. However, any provincial use of ITMOs would require federal approval to ensure proper accounting.
While Mark Carney’s climate platform has not directly addressed Article 6, the federal government has indicated ongoing interest in exploring ITMOs as tools to enhance cooperation and create stronger climate incentives.
The Conservative Party aims to leverage Article 6 of the Paris Agreement to reduce global emissions by exporting clean Canadian resources and technologies.
CBAM and the Political Case for Maintaining a Regulatory Carbon Price
A key driver for carbon pricing policy in Canada may come not from within, but from abroad. Europe’s CBAM, which places a carbon price on imports from countries with weaker climate regulations, is already shifting global trade dynamics. Canada’s own version of a border carbon adjustment (BCA) was introduced by the Trudeau government in 2021 and most recently appeared in the 2024 Fall Economic Statement, signalling a renewed commitment to the policy.
Mark Carney has made a BCA part of his proposed “Made-in-Canada Competitiveness Strategy,” aiming to align climate action with economic resilience by protecting domestic industries and ensuring fair competition with jurisdictions that do not price carbon.
While Pierre Poilievre has promised to scrap the federal carbon price, Canada could still pursue a U.S.-style BCA. The reintroduction of the Foreign Pollution Fee Act in the U.S. shows that border adjustments can be implemented without a national carbon price. This opens the door for a Conservative government to maintain industrial competitiveness through a carbon tariff, without reversing its anti-tax platform.
What Happens to Canada’s NDC under a Conservative Government?
Poilievre has not indicated any intent to withdraw from the Paris Agreement, meaning Canada would still need to meet its NDC. While Conservatives are unlikely to maintain the current carbon pricing regime, they have consistently framed emissions as a global issue, which Canada can help solve by producing and exporting cleaner energy and industrial products.
A likely path forward would include expanding investment tax credits for clean tech and low-emission manufacturing while eliminating direct carbon pricing. The strategy would focus more on rewarding performance and innovation than punishing emissions.
The Voluntary Carbon Market: A Safe Haven Amid Policy Uncertainty?
With so much regulatory change on the horizon, voluntary carbon markets may be poised to benefit. Political uncertainty can destabilize compliance markets, especially when pricing mechanisms and offset protocols are subject to revision or repeal. In contrast, voluntary markets offer a parallel path for project developers seeking more predictability.
Even under a continued Liberal government, policy revisions and provincial negotiations around carbon pricing programs could shift supply and demand dynamics. In the short term, developers may increasingly prefer voluntary markets as a more stable environment until Canada's long-term direction becomes clearer.
Federal election and Policy Certainty
Clarity around the future of industrial carbon pricing and related policies will begin to emerge post-election. However, regardless of which party forms government, a period of uncertainty is likely to persist as new policy directions take shape and provinces adjust their approaches in response. Staying informed and adaptable will be key for stakeholders navigating this evolving regulatory landscape.
ClearBlue is following these developments closely. Please contact us to learn how you can benefit from our Advisory and Market Intelligence services.