Justin Trudeau’s government introduced a carbon-pricing regime with two components: a levy on fuel paid by consumers (fondly known as the “carbon tax”) and an emissions-trading system for large industrial emitters. One of Prime Minister Carney’s first actions was to axe the fair and environmentally-sound but politically unpopular “carbon tax.” He has promised to “improve and tighten” the large-emitter trading system. 

And well he should. According to The Canadian Climate Institute, “Industrial carbon pricing is the most important policy Canada has for cutting carbon pollution and creating a competitive clean economy.” With Canada committed to bringing down emissions by at least 40 per cent below 2005 levels by 2030, this is one instrument we cannot afford to lose.

Even industry agrees. In an open letter to provincial ministers of the environment last year, a group of industry leaders stated, “We support industrial carbon pricing as the backbone of decarbonization across this country.” The group included the Canadian Manufacturers and Exporters association, the Canadian Steel Producers Association and the Cement Association of Canada.

Not all of industry agrees, however. Perhaps not surprisingly a dozen major oil and gas companies have called for the program to be repealed.

And certainly not surprisingly, Conservative leader Pierre Poilievre does not agree. He has promised to repeal it. He has, as a consolation, promised to expand eligibility for existing federal tax credits targeted at clean technology and manufacturing. That, unfortunately, means the taxpayer will pay rather than the big polluters.

All the provinces and territories except Manitoba, Prince Edward Island, Nunavut and Yukon run their own programs, but they must comply with federal standards on the carbon price and how the money is used. The federal program acts as an important backstop for those provinces that operate their own as well as administering the system in those that don’t.

Large-emitter trading systems (LETS) price the emissions associated with a firm’s production, such as tonne of cement or steel. But firms only pay the carbon price if they exceed a certain threshold of emissions intensity. Firms that emit above the threshold have to buy credits to cover their excess emissions; and firms that emit less than the threshold receive credits they can sell to the other firms for a profit. The government uses the funds paid for the credits to support projects that reduce emissions and promote cleaner technologies.

The systems put the cost of reducing emissions on the big polluters rather than taxpayers while encouraging the polluters to innovate in order to reduce their emissions. The Canadian Climate Institute estimates that there are currently 70 emissions-reducing projects across Canada, with a value of over $57 billion, tied to the carbon pricing.

Should the federal program be repealed as Poilievre threatens, not only would some provinces be left without any system, others would be encouraged to follow suit. Since Poilievre’s announcement, Saskatchewan Premier Scott Moe has announced he is putting his province’s industrial carbon pricing system on pause.

The LETS are not only our major instrument in fighting climate change, they also make our industry more competitive, using both carrot and stick. The stick of imposing a price on excess carbon is complemented by the carrot of credits, the incentive for companies to improve their technologies, and improved technology developed by governments with the carbon tax income.

There is a further consideration in this era of tariff-talk. As Britain and the European Union increase their climate ambitions, they are concerned that companies will shift carbon-intensive production to countries with weaker environmental regulations, leading to “carbon leakage.” In order to combat this they are introducing tariffs that give an edge to “low-carbon producers.” We can either enjoy that edge or repeal the LETS and encounter more tariffs, the last thing we need as we seek to diversify our trade outside the U.S.

I’ll leave the last word to Natural Resources Minister Jonathan Wilkinson: ”It is important to create incentives to decarbonize if we want to be competitive going forward. … the European Union is in the process of putting in place border carbon adjustments, which means that decarbonization is really important if we want to trade with Europe.”