Fixing industrial carbon pricing makes sense—for both Alberta and Canada

Without an effective carbon credit market, Pathways doesn’t generate revenue. But when LETS works properly, carbon credit sales can generate cash. Mobilizing private dollars using markets is a much more cost-effective and more fiscally sound approach to unlocking carbon capture than straight-up government subsidies. All of this, however, is contingent on credit markets working. And right now, they aren’t. Credit prices in Alberta’s carbon market, TIER, were recently trading at below $20 per tonne, prior to the MOU. Those markets are thoroughly in oversupply, gutting incentives to invest in low-carbon projects. Worse, political uncertainty about the future of industrial carbon pricing has added more risk and further hobbled investment—especially after Alberta further weakened its credit market last week. The MOU—and the policy changes it requires—could fix all of that. Maybe. Critically, it notes an agreement to ramp up the effective credit price in TIER to $130 per tonne. That’s lower than the $170 per tonne that is the current schedule for the aspirational “headline price” defined federally. But it’s far higher than the $20 that markets are actually experiencing. And if Alberta and Canada are in agreement, it’s also far more certain, which matters for capital markets. A predictable $130 per tonne credit price makes carbon capture look economic. It makes clean steel much more attractive. Industrial energy efficiency projects become much more profitable. Renewable electricity projects have a stable new revenue stream. How can Alberta and Canada make that fix? The answer is a price floor for carbon markets. Alberta can establish $130 per tonne as a minimum effective credit price. This isn’t at all analogous to the much-discussed $170 per tonne by 2030 price established by current federal requirements. That price is a ceiling, not a floor. The price ceiling still matters; it sets the maximum price for firms, containing costs, but it’s only part of the price corridor necessary to send strong signals to the market. Alberta can deliver a floor price by a combination of tightening credit supply over time, limiting offset and banking use, and buying back credits. It can even use revenue currently generated by the system to help fund those credit purchases. To bring certainty to this market, a $130 price floor can’t be a distant future number. Canada and Alberta both commit to net-zero emissions by 2050 in the MOU. Given how long-lived big investments like power plants, cement factories, or carbon dioxide pipelines are, delivering on a 2050 goal still requires steady progress between now and then. An effective minimum credit price of $130 by 2030 would drive investment in low-carbon facilities. While the MOU is a bilateral agreement, it also has ramifications for the rest of Canada. Industrial carbon pricing minimizes the costs of emissions reductions specifically because it sends a consistent incentive across all emissions. That means price floors should apply across all provinces, not just in Alberta. After all, other provinces—hello B.C., Saskatchewan, and Ontario, for example—also have credit markets that look dangerously out of balance, creating precisely the same investment risks. The solution, then, is a minimum effective carbon price in all provinces. The federal government can establish exactly this by amending its carbon pricing “benchmark,” the minimum standard it sets for provincial and territorial LETS. Provinces would have flexibility in how they create their minimum price, but would be accountable for delivering a clear, harmonized price floor to bring certainty to investment across the country. From a climate perspective, the MOU between Alberta and Canada is far from perfect. Amidst the clear flaws, however, there is an opportunity to fix industrial carbon pricing in Canada, bringing much-needed policy certainty. Fixing industrial carbon pricing makes sense for heavy industry. It makes sense for low-carbon projects. It makes sense for investment and competitiveness, and for emissions reductions. It makes sense for Alberta. And it makes sense for Canada.