Evidence of meeting #30 for Environment and Sustainable Development in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was price.
A recording is available from Parliament.
Liberal
The Chair Liberal Shannon Miedema
Thank you very much, Mr. Groleau.
We are going to Mr. Grant for five minutes.
Liberal
Wade Grant Liberal Vancouver Quadra, BC
Thank you, Madam Chair. I would also like to extend my congratulations on your being appointed our chair. I'm looking forward to working with you.
I'm going to share my time with my colleague, Mr. Greaves.
Before I start, I want to say that I spent a number of days with the gentleman from Brandon—Souris. He knows how much I love Manitoba. My kids' mother is from there, so I will put that on the record as well.
Mr. Weis, in your view, what role does policy certainty play in unlocking private sector investments in decarbonization? How does industrial carbon pricing contribute to that certainty?
Senior Director, Industrial Decarbonization, Pembina Institute
As I said a moment ago, when it comes to industry, we're talking about multidecade infrastructure investments in many cases. Knowing what the policy framework will be is pretty important. If a policy changes radically, it really affects those types of investments. In particular, we're thinking about things like long-term energy development, whether it's transmission infrastructure, electricity generation or carbon capture and storage.
You need to be able to make those investments while also understanding what the credits might be. If I'm generating savings or benefits from emissions reductions, how am I going to monetize those? You need to be able to take those to someone who's going to finance your project. Stability is pretty important when it comes to this policy, and I think that's where Alberta has been very successful. We've had an industrial carbon policy in place since 2007. It's made it financeable, which is why you're seeing some of these new clean technologies starting to develop in Alberta.
Liberal
Wade Grant Liberal Vancouver Quadra, BC
How important is access to clean electricity in enabling industrial decarbonization, and how does that intersect with carbon pricing policy?
Senior Director, Industrial Decarbonization, Pembina Institute
Electricity is one of those sectors where we have very good technology today that can replace some of the emitting technologies. Alberta phased out its entire coal fleet within a few years, and now we're seeing a lot of renewable energy get developed.
If we can build clean electricity, we can start to build other technologies using that clean electricity. The electricity sector is able to not only benefit from reducing its emissions but also help other industries, through industrial electrification, reduce their emissions. Clean electricity and Canada's electricity system in general have a major advantage over many of our competitors around the world.
Liberal
Liberal
Will Greaves Liberal Victoria, BC
Thank you very much.
Congratulations, Madam Chair, on your election.
Thank you, colleagues, for having me today. It's a pleasure to join this committee.
Thank you to the witnesses for taking time to be with us today.
I'd like to start with Dr. Weis.
Thank you for your testimony today.
We've heard from some of the other witnesses a bit about public opinion on different aspects of policy related to climate change and the economy. I'm wondering if you're familiar with public opinion research conducted at Université de Montréal. It explored levels of public opinion in Canada at the federal riding level in terms of how many Canadians believe in the scientific basis of climate change and whether the Government of Canada should do anything about it.
Are you familiar with that polling data in general terms?
Senior Director, Industrial Decarbonization, Pembina Institute
I'm not familiar with that poll, but, in general, Canadians remain very concerned about taking action on climate change. Even as we're seeing some ebbs and flows in other parts of the world, and a race to the bottom south of the border, Canadians remain of the opinion that we need to be doing something.
Liberal
Will Greaves Liberal Victoria, BC
Absolutely. The findings of Université de Montréal definitely support that. They showed that every single federal riding in Canada has a majority of adults who believe in the scientific basis of climate change.
Now, I think it's fair to note that there are differing levels of belief in climate science among different groups of Canadian voters. Certainly, partisan preference is one of the strongest indicators of belief in climate science. Given the emphasis on public opinion in today's testimony, it might not be a surprise that our colleagues opposite are emphasizing some of the doubt they'd like to cast on the Canadian commitment to address this problem. However, we can see, very robustly, how seriously Canadians take this issue across the country. We can see that it's something our colleagues in rural prairie ridings, downtown urban ridings and small coastal communities.... All of our constituents have a centre of gravity that understands that this issue is real.
Is it your view that, at the end of the day, Canadians expect their leaders to get on with the business of addressing this problem using the tools we have available?
Senior Director, Industrial Decarbonization, Pembina Institute
As an engineer and someone who's studied thermodynamics I certainly hope that's the case. I know that this problem is not going away. The science is what it is. The fundamental science hasn't changed. We are putting our planetary system at risk. We're putting our children's futures at risk if we don't do something serious about it now.
Liberal
The Chair Liberal Shannon Miedema
Thank you very much, Mr. Weis, Mr. Greaves and Mr. Grant.
That concludes our first hour. Thank you very much to all the witnesses for your time and energy and for coming today. We all truly appreciate it.
We are going to suspend, so that we can switch to the witnesses for our second hour.
Thank you.
Liberal
The Chair Liberal Shannon Miedema
We are going to begin our second hour of witness testimony for the industrial carbon pricing study.
I offer a very warm welcome to our witnesses.
Online, we have Charles Séguin, associate professor at Université du Québec à Montréal. Welcome, Charles.
From the Canadian Climate Institute, we have here in person Dale Beugin, the executive vice-president. Welcome.
From Clean Prosperity, we have here in person Etienne Rainville, vice-president, central Canada. Welcome back to this committee.
Each of you will have five minutes to present your opening statements, and then we will follow up with questions from the members.
We will begin online with Charles Séguin.
Mr. Séguin, you have the floor for five minutes.
Charles Séguin Associate Professor, Université du Québec à Montréal, As an Individual
Thank you, Madam Chair.
Thank you to the committee for allowing me to speak today.
As mentioned, I am a professor in the department of economics at the Université du Québec à Montréal, and my comments are based on my expertise as a researcher on carbon pricing issues. I'm also a member of the Quebec government's advisory committee on climate change, and although I don't speak here on behalf of that committee, my remarks are based in part on the work done by that committee.
The federal output-based pricing system includes the challenge of giving provinces the flexibility to come up with an approach tailored to their own situation, while requiring a minimum so that no province can shirk its obligations to reduce greenhouse gas, or GHG, emissions.
The federal government's removal of its fuel charge in April 2025, in which British Columbia followed suit, has dramatically changed carbon pricing in Canada. Quebec is now the only jurisdiction with this fuel charge for consumers and small emitters. The minimum federal standards for carbon pricing stringency will therefore have to take into account the growing divergence between Quebec's approach and that of the other provinces.
For one thing, Quebec's cap and trade system applies to more than 75% of GHG emissions, while the various output-based pricing systems elsewhere in Canada apply to between 25% and 60% of emissions, depending on the province. Moreover, the cap and trade system is partnered with the State of California, and will soon be with the State of Washington as well.
These two elements require that the federal model not apply minimum prices for systems that include transportation emissions and those with international partners, such as the one in Quebec. A lower price signal on a broader emissions basis can result in as much if not more emissions reductions. In addition, the distributional impacts of higher prices on consumers are harder to mitigate, since they do not benefit from free emissions as industrial emitters do. Third, an international partnership, especially with a larger emissions player such as California, which is the fourth-largest economy in the world, means that Canada, like Quebec, does not play a leading role in determining the market price of emissions.
Instead of focusing on price, the federal model must instead focus on covering and reducing emissions. With respect to coverage, it must be noted that the lack of a price on fuel makes it more important to include small emitters. There should be a threshold of 10,000 tonnes of CO2 equivalent per year. In terms of reductions, reductions from emissions trading between partners must be accounted for, as the Government of Quebec does in a triennial report on its exchanges with California.
With respect to compliance instruments, the science is evolving rapidly on the issue of ecosystem offsets, such as tree planting. As the advisory committee on climate change noted in its November 2025 opinion, storage in ecosystems leads to temporary carbon sequestration that should not be fungible with emissions from fossil combustion. Only those approaches that lead to permanent carbon sequestration, such as deep geological storage, seabed storage or inert solid materials should be used to offset fossil fuel emissions.
As to pricing revenues, the government must give the provinces some leeway. The proposed emissions reduction account is interesting, but it must be limited in order not to dilute the price signal. In Quebec, a similar system includes between 1% and 2% of the emissions cap. A complement to this approach could be to allocate revenues to corporate tax breaks.
Finally, with regard to the rigour of the system, the federal approach could be modelled on the European Union's automatic market stabilization system. When net demand is too low, there must be an automatic adjustment of certain elements. Moreover, the impact of the credits banked so far in the various systems could be considerably reduced if an extension of the system were announced quickly, as California has done by extending its system until 2045, and as Quebec is also expected to announce this summer.
There were a number of discussions at the beginning regarding inflation and the impact on various household budgets. It is worth noting, as reported the Quebec institute study, that the impact on food is very low. In the case of Quebec, the impact of the system is just 0.1% of expenditures, or about $15 a year. The main impacts are in the transportation and the home heating sectors, where alternatives can be offered to consumers.
Thank you for your attention. I will be pleased to answer your questions.
Liberal
The Chair Liberal Shannon Miedema
Thank you very much, Mr. Séguin.
Now we turn to Mr. Beugin.
The floor is yours for five minutes.
Dale Beugin Executive Vice President, Canadian Climate Institute
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.
Liberal
The Chair Liberal Shannon Miedema
Thank you, Mr. Beugin, for your great testimony.
Next up we have Mr. Rainville.
You have the floor for five minutes.
Etienne Rainville Vice President, Central Canada, Clean Prosperity
Thank you, Madam Chair and members of the committee, for the invitation to appear today.
My name is Etienne Rainville. I am vice-president of central Canada for Clean Prosperity. Clean Prosperity is a non-partisan, not-for-profit, climate policy organization focused on market-driven solutions that reduce emissions and grow Canada’s low-carbon economy.
Industrial emissions account for approximately 42% of Canada’s total emissions. Industrial emissions pricing is expected to drive as much as 50% of Canada’s emissions reductions by 2030. Industrial pricing is the single most efficient tool in the tool box for reducing emissions because it achieves two seemingly contradictory things: It creates economically efficient incentives for large facilities to reduce their emissions and it keeps costs to Canadians low.
On the face of it, this seems too good to be true, so let me explain how this works, with the example of cement.
Portland cement is the basis for all modern construction. It is manufactured by heating limestone mixed with clay, shale or sand to approximately 1400°C in a large rotary kiln. This process, calcination, breaks down the limestone into lime and CO2 and releases about two-thirds of the emissions associated with cement production. Because these emissions come from a chemical reaction that is inherent to the production of Portland cement, cement is considered a hard-to-abate sector. Producing one tonne of cement generates around one tonne of CO2, potentially a little less.
A tonne of cement today costs around $100, and the industrial carbon price is set at $95. You would be forgiven for doing the napkin math and thinking that means either that a tonne of cement now costs at least $195 or that $95 in carbon costs are baked into that price of cement, but neither of these is true. This is the math that we often see in the media, but it misses three key things.
First, our industrial pricing system is not a carbon tax. I don’t say this to be a pedant, but rather because it's key to understanding how this actually works. With a carbon tax, every tonne of CO2 is taxed at the same rate, but with our industrial emissions pricing systems, the majority of emissions today are actually unpriced. Facilities only pay any kind of price on a share of their emissions, which is about 20% of their emissions.
Second, in order to avoid paying on that 20%, facilities can reduce their emissions. Facilities that reduce their emissions successfully lower their compliance costs. If they overperform their benchmark, they can generate credits and sell these to underperformers.
Lastly, when facilities do face a compliance obligation, they can often pay a significant share of that obligation with credits—credits that today trade below the headline price of $95 a tonne. For instance, in Alberta today, credits go for between $30 and $40. As of next week, they can be used to cover 90% of their compliance costs. The net result of these three factors is compliance costs for every sector that are a fraction of what many people assume.
When we ran these calculations in our 2025 report “Market Force”, we estimated the additional costs created for a number of industrial and household products in Alberta and Ontario and found that, at the consumer level, these costs are generally negligible.
Now, let's go back to that tonne of cement. We calculated that in both Alberta’s TIER system and Ontario’s EPS, a representative cement facility was likely in a credit position. That is, it could be generating as much as $10 per tonne of grey cement it produces.
If the costs are so low, how does industrial pricing incentivize emissions reductions? As I said earlier, facilities only face compliance costs on a fraction of their emissions. The system is designed to create a carbon cost on a small share of the total emissions, so facilities face a strong incentive to reduce tonnes at the margin. While less intuitive, this design helps to maximize emissions reductions while limiting the costs to industry.
Canada is far from unique in its approach to industrial emissions. Internationally, similar systems are the preferred tool for reducing emissions. They are operating in more than 38 jurisdictions globally, covering 23% of global emissions and, most importantly perhaps, 58% of global GDP.
None of this is to say that our systems are perfect. There remains significant work to be done to harmonize systems across Canada, remove the interprovincial trade barriers associated with them, make them more responsive to economic shocks and ensure that the incentives are working as intended. That’s important, because if we don't get this right we can't drive investment across Canada in low-carbon technology like carbon capture, blue hydrogen, electric arc furnaces and clean electricity.
Thank you. I look forward to your questions.
Liberal
The Chair Liberal Shannon Miedema
Thank you very much, Mr. Rainville.
Thank you to the witnesses. We'll now move on to questions.
Mr. Bexte, the floor is yours for six minutes.
Conservative
David Bexte Conservative Bow River, AB
Thank you, witnesses, for attending today. I really appreciate your presence and I hope we can glean something from your wisdom.
Professor Séguin, how do Canada's industrial carbon pricing policies compare to other G7 or OECD countries, in terms of both emissions outcome and economic impact, generally or specifically?
Associate Professor, Université du Québec à Montréal, As an Individual
Most of the G7 countries have some form of carbon pricing. This is the case in all of Europe, in Japan and even in countries like China. The main outlier is the United States. Of course, that creates a particular situation for Canada, because the U.S. is our main trading partner.
In terms of economic impact, I'm not sure I can speak to that. I know that Europeans have been much better at reducing their emissions than Canada has, but of course the situation in terms of the importance of the oil and gas sector, for example, is very different. These things are hard to compare. Among G7 countries, we are in a situation where having some form of carbon pricing makes us like most other G7 countries.
Conservative
David Bexte Conservative Bow River, AB
Does it make us like most other G7 countries in terms of emissions performance or emissions outcome?
Associate Professor, Université du Québec à Montréal, As an Individual
It's not necessarily emissions performance; it's emissions pricing. With regard to emissions performance, we do relatively badly in terms of per capita emissions. We have very high per capita emissions. This is partly due to the structure of the economy and also the structure of Canada. We are a northern country that is sparsely populated, so we need to use more energy than some of these other countries, but we tend to do a little bit worse in terms of emissions per capita or dollar of GDP.
