Thank you, Madam Chair.
Thank you, members of the panel, for the time and the opportunity to share the Climate Institute's research on industrial carbon pricing, which is also known as large emitter trading systems, in Canada. I have four main points today.
The first point is that industrial carbon pricing is Canada's most important climate and clean growth policy. When working to its full potential, it can deliver more emissions reductions by 2030 than any other policy that has been implemented. It creates market-based incentives for Canada's biggest emitters to invest in technologies and processes that reduce emissions. The revenue stream for projects it enables makes clean-growth projects, from the Dow Chemical's plant in Edmonton to the Pathways project for carbon capture and storage, investable. Our analysis a year ago found that 70 projects across the country, worth $57 billion, were tied to industrial carbon pricing systems.
The second main point is that industrial carbon pricing protects competitiveness and affordability. Industrial carbon pricing is specifically designed to protect firms' competitiveness. When it's working properly, it creates big incentives for emissions reductions but low overall costs for business. That's by design: The policy creates incentives for improving the emissions performance of Canadian industry, not incentives to shift investment production, and the emissions that come with it, to jurisdictions with weaker policy. That's because industries pay only for emissions that exceed given thresholds. For example, current costs to the oil sands from TIER, Alberta's industrial carbon pricing system, averages about nine cents per barrel of oil in the oil sands. Even if credit prices rose to $130 per tonne, as is being discussed in the memorandum of understanding, those costs would be around 50¢ per barrel. Accounting for inflation, that's around a Timbit per barrel. It's also an average: Some oil sands firms actually generate revenue under TIER.
Industrial carbon pricing also has negligible impacts on consumers. That's because, as I noted, the total costs on industry are small by design. However, industry mostly can't pass costs on to consumers because they're price-takers in global markets. Costs of food, fuel and other household goods aren't materially affected by industrial carbon pricing.
The third point is that modernizing industrial carbon pricing systems across Canada is hugely important. The markets created by industrial carbon pricing are currently not working to their full potential. In many markets, the supply of credits in the market is much greater than demand, leading to low credit prices well below the headline credit price, and to weak incentives for investment and emissions reductions. That's a function of how industrial carbon pricing policies in multiple provinces, including Alberta and B.C., have been designed.
Some of these systems aren't working well for other reasons. In Ontario, for example, firms receive all the money they pay for their emissions back if they commit to using it to reduce emissions. Those investments might have happened anyway. As a result, firms face diluted incentives to reduce emissions. There are the same issues in Alberta. Under a program called “direct investment”, again, you can generate additional credits that may or may not drive additional emissions reductions, further glutting credit markets.
All of this suggests that the federal benchmark, the minimum standard for provincial systems defined by the federal government, is extremely important, and it's not working the way it should. Environment Canada and Climate Change is consulting on this benchmark. The Climate Institute has suggested that significant changes should be imposed, requiring additional improvements to those provincial systems.
That takes me to my fourth and final point: A price floor can fix industrial carbon pricing. Policy design can address this critical problem in carbon markets by establishing a minimum effective credit price, as is proposed in the MOU. Specifically, the federal benchmark should be updated to require provinces to maintain a minimum effective price of $130 per tonne, by 2030, to be aligned with the federal-Alberta MOU. Provinces would have flexibility to deliver that outcome by using a range of choices and design options, from buying back credits to tightening performance standards. They can adjust their policies in response to that federal minimum standard.
Ensuring robust carbon markets and incentives across Canada would also be a first step toward harmonizing markets, allowing for linkage of provincial markets into a unified national market with fewer interprovincial trade barriers, more liquidity and more certainty. National approaches will soon be the price of admission for expanding Canada's trading partners, given new carbon border adjustment mechanisms being implemented in the EU and the U.K.
Thank you very much.