Thank you, Mr. Chair and members of the committee, for the invitation to present today.
My name is Etienne Rainville. I am the vice-president for central Canada at Clean Prosperity, which is a not-for-profit, non-partisan Canadian climate policy organization that advocates for market-driven solutions to build a low-carbon economy and reduce emissions.
The 2030 emissions reduction plan, or ERP, presented by the former federal government included dozens of measures aimed at reducing emissions, but for the purposes of this presentation, I’ll focus on the merits of only one: industrial carbon pricing.
Industrial carbon pricing is the single most significant policy detailed in the ERP. Industrial emissions account for 42% of Canadian emissions, and this single policy is projected to achieve as much as 50% of Canada's reductions by 2030. Further, it achieves that while being among the lowest economic costs to Canada, being sensitive to trade-exposed sectors, creating minimal pass-through costs to consumers and being widely supported by industry.
The history of industrial pricing in Canada started in 2007 with Alberta’s creation of the specified gas emitters regulation. Other provinces, such as British Columbia, Quebec and Ontario, later followed suit and introduced their own systems. Industrial pricing went nationwide in 2018 with the passage of the federal Greenhouse Gas Pollution Pricing Act.
While industrial pricing systems vary by jurisdiction in Canada, most provinces operate output-based pricing systems. These systems work by establishing a performance benchmark for each facility and setting a stringency rate that prices a specific fraction of a given facility's emissions. That benchmark tightens every year, slowly escalating both the price and the fraction of emissions covered.
Facilities that exceed the benchmark face a compliance cost, and those that outperform it are able to generate credits to sell to those that have exceeded it. In this way, a market is created. The market is broadly technology- and industry-agnostic, and it works to identify and pursue the lowest-cost decarbonization opportunities within a given jurisdiction. This allows the economy to target the lowest hanging fruit, prioritizing investments that can reduce emissions for, say, $50 per tonne, instead of $500 per tonne. Non-pricing regulations, by contrast, are often more indiscriminate, less flexible and more economically burdensome, and they often fail to distinguish between high-cost and low-cost emissions reductions.
While I expect that most members of the committee are familiar with how the consumer carbon tax or fuel surcharge is operated, there are two key differences I would highlight about industrial pricing that explain how it keeps costs low.
First, the consumer carbon tax worked by charging a price on every tonne of emissions. Industrial pricing systems work differently by charging a price on only a fraction of emissions today. It's roughly 20% in most jurisdictions.
Second, the consumer carbon tax charged the full carbon price on each tonne. Output-based emissions pricing systems provide the option to pay by credits instead, with credits often trading at a discount to the headline price, subject to supply and demand in a given market.
What’s the catch? The primary challenge with industrial pricing in Canada is long-term certainty. Initial emissions reductions can often be made through efficiency projects, but when those options are exhausted, facilities may consider deploying new technology, like carbon capture, electrification or fuel-switching options. All of these are capital-intensive projects, and their economic case rests in part or wholly on generating revenue via credits in their output-based pricing systems. A lack of long-term certainty in the durability and the rules of the system means they aren’t as investable as they should be. Without investment, you aren’t deploying technology, and without technology, you aren’t getting emissions reductions or the low-carbon growth you’re looking for.
This is having real-world impacts. In our recent report, “Market Force”, we calculate that over 50 billion dollars' worth of projects across Canada need a stable carbon market to advance. This uncertainty also helps explain why the emissions reduction plan’s modelling is falling short of real results. In our 2024 report, “Missing Megatonnes”, we found that uncertainty around carbon pricing could prevent Canada from achieving as much as 33 megatonnes of industrial emissions reductions per year by 2030, and the situation has only worsened since then.
Thank you for your time. I look forward to your questions.