Industrial carbon pricing is critical to Canada’s economic health and climate action

Canada’s industrial carbon pricing system is working to make polluters pay for their pollution. (Photo: Kris Krüg via Flickr)

The consumer carbon tax is being repealed. What does that mean?

On April 1, 2025, Canada’s consumer carbon tax was repealed. This means gasoline prices will drop, and households with fossil gas furnaces will see some relief. However, rebates funded by this tax will also disappear, leaving many households worse off. Without complementary policies like incentives, lower fuel prices will slow the transition to clean energy, delaying the switch from furnaces to heat pumps and gas cars to EVs, as well as energy-efficiency upgrades.

This setback will require stronger policies elsewhere to support our international emissions and pollution commitments. While poor communication and misinformation doomed the consumer carbon tax, Canada’s industrial carbon pricing system is far more important.

Industrial carbon pricing is in the spotlight

This policy is effective because large polluters in oil and gas, mining, and heavy industries generate far more emissions and pollution than individual consumers. Industrial carbon pricing is the most effective tool for driving down emissions. It is projected to deliver 20 to 48 per cent of national emissions reductions by 2030. It also strengthens Canada’s competitiveness in a world moving toward cleaner economies.

The “polluter pays” principle ensures that major emitters are responsible for their pollution, incentivizing them to clean up operations.

And it’s fair. The “polluter pays” principle ensures that major emitters are responsible for their pollution, incentivizing them to clean up operations. On the jobs front, industrial carbon pricing pushes companies to invest in clean technologies, creating employment in industries including renewable energy, electrification and advanced manufacturing.

A well-designed system under attack

The fossil fuel industry and its proponents are calling for industrial carbon pricing to be scrapped, despite its success. They’re sowing confusion by falsely claiming this would benefit consumers. But industrial carbon pricing was carefully designed with extensive consultation, and many industries want to keep it because it delivers real emissions reductions and economic benefits. The agenda here is to maximize profits for the biggest polluters and to shift climate action into reverse.

Support for industrial carbon pricing

As leaders from the cement, steel and other heavy industries wrote in a recent open letter:

We support industrial carbon pricing as the backbone of decarbonization across this country. Industrial carbon markets are the most flexible and cost-effective way to incentivize industry to systematically reduce emissions.

These business leaders don’t want industrial carbon pricing rolled back; they want it improved with greater consistency across provincial schemes and ability to trade credits.

Michael Bernstein, head of the market-oriented think tank Clean Prosperity says, “Canada’s industrial carbon pricing system is a strategic asset for growing and strengthening Canadian industry.”

Industrial carbon pricing doesn’t impact consumers

A key piece of misinformation is that scrapping industrial carbon pricing will benefit consumers. In reality, this policy has no noticeable effect on household costs — a fact confirmed by independent analyses from the Canadian Climate Institute and others.

If pollution isn’t priced, increasing pollution will exacerbate current affordability problems. A Canadian Climate Institute study found that “life will become less affordable for households as economic growth slows, governments are forced to raise taxes to pay for climate disasters, job losses increase, and goods become more costly because supply chains are disrupted.”

How does industrial pricing work?

Canada’s industrial pricing system is designed for competitiveness and minimizing industry costs. It’s known as the Output-Based Pricing System because it sets emissions limits for large industrial facilities relative to their production. The federal backstop ensures a more even playing field and greater certainty for industry, supports efforts to remove internal trade barriers and helps deliver on Canada’s emissions-reduction goals. The Supreme Court has confirmed the federal government’s power to require pollution pricing throughout Canada.

Canada’s industrial pricing system is designed for competitiveness and minimizing industry costs.

Alberta was one of the first jurisdictions in North America to implement industrial carbon pricing, aiming to reduce oil and gas emissions while improving efficiency. Today, most provinces operate their own systems that meet the federal legal requirement , with Quebec running a cap-and-trade market linked to California.

Companies that operate efficiently and pollute less receive credits, while those that pollute excessively pay more. Firms have three options:

• Reduce their emissions through innovation and cleaner technology.
• Buy credits from companies that have already cut emissions.
• Pay the carbon charge if they continue polluting above their limit.

Because of this flexible, market-driven approach, compliance costs for major industries are relatively low.

Canada risks falling behind without industrial carbon pricing

Industrial carbon pricing isn’t just about cleaning up our polluting industries; it’s a key part of Canada’s ability to compete in global markets. Countries worldwide, including the European Union and China, are strengthening carbon-pricing policies. The EU has even implemented a Carbon Border Adjustment Mechanism, which applies tariffs to goods from countries that fail to price pollution. Weakening or eliminating industrial carbon pricing would put Canadian exporters at a competitive disadvantage.

Some claim we don’t need to price pollution and that governments can instead encourage business to invest in clean technologies. But why would a business in a polluting industry invest in cleaner technologies if it can pollute at zero cost? Tax credits for investing in more efficient and cleaner technologies are much more effective when combined with carbon pricing.

Some claim we don’t need to price pollution and that governments can instead encourage business to invest in clean technologies. But why would a business in a polluting industry invest in cleaner technologies if it can pollute at zero cost?

Aligning with global climate policy leaders also provides certainty for Canadian businesses. Large-scale industrial investments require predictable rules, and scrapping carbon pricing midstream would destabilize billions of dollars in planned investments. Worse, it would push capital away from clean technologies — such as renewables, electrification and advanced manufacturing — toward outdated, high-emission industries.

The bottom line

Industrial carbon pricing is Canada’s most powerful tool for cutting emissions, strengthening our economy and ensuring fairness. Major industries support it, global markets expect it and it drives clean investment and job creation. While Canada’s industrial carbon pricing system is delivering results, there is room for improvement — ensuring stronger alignment between provincial systems and the federal OBPS while fine-tuning the system to accelerate results.

Calls to repeal it are not about affordability or competitiveness; they’re about protecting polluter profits at the expense of our future. Canada must keep this essential climate tool in place, reducing emissions and making our economy more resilient to U.S. tariffs and less dependent on the foreign-owned fossil fuel industry.