{"id":24493,"date":"2026-01-30T17:32:02","date_gmt":"2026-01-30T17:32:02","guid":{"rendered":"https:\/\/www.rbc.com\/en\/?post_type=rbc_tl&p=24493\/cop30-c-is-for-compromise"},"modified":"2026-02-20T21:33:25","modified_gmt":"2026-02-20T21:33:25","slug":"can-canada-be-competitive-on-carbon-pricing","status":"publish","type":"rbc_tl","link":"https:\/\/www.rbc.com\/en\/thought-leadership\/climate-action-institute\/can-canada-be-competitive-on-carbon-pricing\/","title":{"rendered":"Can Canada be competitive on carbon pricing?"},"content":{"rendered":"\n
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Driving effective carbon pricing. That\u2019s a core challenge for Canada in implementing a carbon competitiveness strategy and underpins the active review of the national carbon pricing benchmark<\/a> by Environment and Climate Change Canada (ECCC).<\/p>\n\n\n\n

Carbon markets<\/a> are no longer an abstract policy debate. They\u2019re a practical test of whether capital shows up \u2014 or goes elsewhere.<\/p>\n\n\n\n

The Climate Action Institute team spent time this week with the Pembina Institute and other leaders in carbon markets and climate investment to focus on one question: what is required to drive further investment?<\/p>\n\n\n\n

The answer was consistent and blunt: a well-functioning carbon market. And in Canada, we still don\u2019t quite have one.<\/p>\n\n\n\n

The clearest signals from the room:<\/p>\n<\/div>\n<\/section>\n\n\n\n

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1.  Trade is the anchor<\/h2>\n\n\n\n

Carbon policy is increasingly shaped by global market access and competitiveness, not domestic policy alone.<\/p>\n\n\n\n

Large trading partners are embedding carbon constraints into trade architecture. The EU\u2019s Carbon Border Adjustment Mechanism (CBAM<\/a>) is the most visible example: it effectively exports EU carbon prices into global supply chains. Starting with exporters selling steel, cement, aluminum, fertilizers, or electricity into the block, carbon pricing is no longer optional – it\u2019s a cost of doing business. However, shifting political winds in the EU could cast uncertainty onto the implementation of CBAM, creating a rocky landscape for Canada\u2019s carbon policy makers to navigate as they consider benchmark stringency in the context of market access under unpredictable geopolitical conditions.<\/p>\n\n\n\n

But emerging economies aren\u2019t waiting.<\/p>\n\n\n\n

Brazil is advancing a national carbon market framework tied to sustainable finance taxonomies. Several African jurisdictions are building carbon market infrastructure alongside trade and development partnerships\u2013often accelerated by deeper commercial ties with Europe.<\/p>\n\n\n\n

These systems may start narrower, but they are being designed with international alignment in mind from day one.<\/p>\n<\/div>\n<\/section>\n\n\n\n

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2. Scale sets the rules<\/h2>\n\n\n\n

Large consumer blocs are pulling climate policy into their economies at scale.<\/p>\n\n\n\n

China now operates the world\u2019s largest Emission Trading System (ETS) by covered emissions. The EU ETS covers thousands of facilities, has a declining cap, deep liquidity, and a clear long-term trajectory. The UK ETS mirrors this logic. Systems in Japan, Korea, and India are expanding rapidly.<\/p>\n\n\n\n

Canada stands out\u2013not for ambition, but for structure. Instead of a single scaled trading system, we operate a patchwork: the federal backstop, provincial fuel charges, and multiple industrial output-based systems (OBPS, TIER, etc.), each with different rules, prices, and compliance options. Scale and harmonization have helped other countries build function carbon pricing system. Canada\u2019s fragmented approach makes it harder for investors and trading partners to engage. The benchmark review must grapple with whether flexibility has crossed too far into fragmentation.<\/p>\n<\/div>\n<\/section>\n\n\n\n

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3. Functioning markets are a prerequisite for investment<\/h2>\n\n\n\n

Financing decarbonization at scale without a carbon market will be extremely challenging. Large-scale decarbonization projects can be risky to backstop through government guarantees alone. A deeper, more liquid national market would let the market itself absorb more of that price risk, reducing reliance on public balance sheets.<\/p>\n\n\n\n

Establishing fungibility of carbon credits across federal-provincial systems emerged as a critical first step to building the market depth that serious decarbonization investment requires. Investors were clear: price volatility kills capital formation.<\/p>\n\n\n\n

    \n
  • \n

    They need price certainty over investment time horizons<\/p>\n<\/li>\n\n\n\n

  • \n

    They need credible incentives that reward real decarbonization<\/p>\n<\/li>\n\n\n\n

  • \n

    They need policy or fiscal backstops that hold when markets wobble<\/p>\n<\/li>\n<\/ul>\n\n\n\n

    Alberta\u2019s TIER market is a frequently cited example for price volatility. Prices swung from under $15 per tonne to over $40 in a matter of weeks in tandem with the announcement of the Alberta MOU. And this ignores the reality that too often TIER prices can become dislocated from the headline federal carbon backstop\u2013implying future volatility as well. The result is investors are forced to price in the risk that spreads could widen further.<\/p>\n\n\n\n

    ECCC benchmark criteria focused only on minimum price levels may miss the point. Predictability, guardrails, and credible price corridors matter just as much as nominal stringency. By contrast, the EU ETS combines a long-term cap trajectory with market stability mechanisms that dampen extreme swings. The result isn\u2019t cheap carbon\u2014it\u2019s bankable carbon.<\/p>\n<\/div>\n<\/section>\n\n\n\n

    \n
    \n

    4. 2026 is the year to act<\/h2>\n\n\n\n

    Canada is in the middle of an infrastructure push. The first tranche of major projects under Bill C-5 was announced six months ago; the second tranche is underway. Hydrogen, LNG, pipelines, grid interconnections\u2014there\u2019s real momentum behind getting things built faster.<\/p>\n\n\n\n

    Market design choices made now will shape where capital flows next. The ECCC benchmark review is an opportunity to signal that Canada is serious about building a market that works and how complementary instruments can crowd in capital.<\/p>\n\n\n\n

    Carbon contracts for difference (CCfDs), for example, were discussed as a powerful complement to carbon pricing, if used in a targeted manner. They de-risk investments by guaranteeing a carbon price floor for projects that deliver deep emissions reductions.<\/p>\n\n\n\n

    \n\n\n\n

    Market design is investment policy. It determines whether Canada attracts the next generation of clean industrial projects \u2013 or watches them land elsewhere.<\/p>\n\n\n\n

    As ECCC reviews the national carbon pricing benchmark, the question isn\u2019t whether carbon pricing should exist. That debate is over. The real question is whether Canada\u2019s system is credible, scalable, and stable enough to compete in a world where carbon markets now shape trade, capital flows, and industrial strategy.<\/p>\n<\/div>\n<\/section>\n","protected":false},"excerpt":{"rendered":"

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