Number four, different sectors need different stringency. Under the federal OBPS, firms pay only for emissions above standards that are tailored to the individual sector. This lowers the total costs, and it prevents carbon leakage and loss of competitiveness, but research from the Commission on Carbon Competitiveness has shown that industrial sectors in Canada face very different vulnerabilities.
The current regime doesn’t differentiate enough and, moreover, it applies an across-the-board annual tightening of 2% regardless of vulnerability. Modelling conducted for IISD shows that applying a more stringent tightening rate to less vulnerable sectors would have a huge impact. In a scenario with high carbon prices, it could achieve the same environmental outcome by 2040 while generating 12,000 more full-time equivalent jobs, $2.6 billon more in GDP and just over $1 billion more in net exports.
Number five, the industrial carbon price can’t do it all by itself. As essential as the industrial carbon price is for Canadian competitiveness and for achieving our climate commitments, it is not a silver bullet. Steel mills are not going to invest in decarbonization, for example, if policies aren’t in place that assure them they will be able to have future supplies of clean electricity and hydrogen.
Carbon price modelling commissioned by IISD shows that the cost of low-carbon technologies is one of the most influential factors in the model, which highlights a clear role for green industrial policy in Canada. Moreover, Canada’s industrial carbon pricing barely makes a dent in the 60% of national emissions that are not from heavy industry, bypassing significant sectors like transport, agriculture and buildings.