What’s at stake as Canada’s industrial carbon pricing rules face political headwinds

Inayat Singh · CBC News

· Posted: Mar 30, 2025 4:00 AM EDT | Last Updated: March 30

Cabot Canada has been making carbon black, a powdery chemical used mainly in reinforcing rubber, in Sarnia, Ont., for 72 years.

It takes a lot of energy — in the form of burning natural gas — and that’s meant the company has had to pay for its carbon emissions, under Canada’s industrial carbon pricing rules.

This week, they won a $5.6 million grant from the federal government to install new equipment that would slash their carbon footprint.

The money comes from a fund created from the proceeds of the industrial carbon pricing system, which put a price on the carbon emissions of major industries. (In Ontario, the program started as a federally-run operation, then switched in 2022 to Ontario’s own provincially-run pricing system that works in a similar way.) 

“We’re very happy to see that they have these funding programs available,” said Dean Pearson, president and facility general manager of Cabot Canada, which will use the money on new technology to reuse the heat energy produced in its manufacturing process. The recycled energy will be used to heat its buildings and facilities, lowering the plant’s use of gas.

Along with Cabot, the federal government announced funding for a range of projects this week from $662,000 for retrofitting a dryer at McCain Foods in Carberry, Man., to $25 million for Redpath Sugar in Toronto to reduce energy use in its sugar refining plant.

It’s a snapshot of what could be at risk if industrial carbon pricing was cancelled, something Pierre Poilievre’s Conservatives have promised to do at the federal level on the campaign trail. The announcement last week drew concerns from climate policy experts who are worried how the uncertainty will impact companies across Canada.

Companies stand to make money from carbon pricing

The industrial carbon price has been a key part of the Liberal government’s plan to tackle climate change, giving economic incentives to reduce emissions — by both carrot and stick.

Large-scale emitters have thresholds for how carbon-intensive their operations can be. Those that exceed it have to pay. Those that produce less carbon pollution than allowed can profit by having surplus credits to sell.

Currently, the federal government directly administers the pricing system in Manitoba, Prince Edward Island, Nunavut and Yukon. All other provinces run their own programs, but they need to comply with federal standards on the price put on companies and how the money is used.

An independent analysis last year found it the most effective part of the government’s policies to lower emissions in Canada, and industrial voices were publicly supporting it — until recently.

The Conservatives say they would remove the federal requirement, leaving it to provinces to run their own pricing systems if they choose, and expand federal tax credits aimed at clean technology and manufacturing.

Mark Carney, the Liberal leader, has said he would maintain and improve the industrial carbon pricing system, but has not detailed any proposed changes to it.

Since Poilievre’s announcement, Saskatchewan Premier Scott Moe announced Thursday that he will pause his province’s industrial carbon pricing system April 1.

Alberta Premier Danielle Smith, meanwhile, welcomed Poilievre’s announcement to remove the federal government’s role in carbon pricing. But many expect Alberta to maintain its own system, which has been in place since 2007.

“There’s money on the table that has been invested that is at risk,” said Dave Sawyer, principal economist at the Canadian Climate Institute.

“We’re hearing from investors that they are really worried they’re going to have to write off some significant assets or get a significantly lower return on their investment that they’ve made should these systems go away.”

Sawyer was referring to the “carrot” part of the industrial carbon pricing system, where companies can generate carbon credits in return for cutting their emissions. Those credits can then be sold, at a profit, to other more polluting companies who are required to offset some of their emissions.

What all this uncertainty means for investment

The Canadian Climate Institute now estimates that 70 emissions-reducing projects across Canada, with a value of over $57 billion, are tied to the carbon price. 

“You can see that those that have been moving early, using new tech, trying new tech, implementing new technologies, they’ve become winners in these carbon markets,” said Michael Berends, CEO of ClearBlue Markets, a firm that advises companies on how to navigate carbon pricing systems in Canada.

Berends says that Ontario’s pricing system is attractive for multinational companies to bring their investments to the province, because they know they can access the money they pay into the system in future years. Without that certainty, he says those companies would rather invest elsewhere.

“We’ve had a client say, we decide to invest in our Quebec plant rather than Ontario plant because the carbon pricing was more stable and more certain,” Berends said, referring to Quebec’s carbon credit market which has been in place since 2013 and is considered to have stable prices.

The federal government raised $313 million from pricing industries in Ontario from 2019 to 2021, before Ontario’s own provincially-run system kicked in — the “stick” to get companies to lower their emissions.

Cabot and many other companies are now finding their way to the “carrot” part of that system, where they can get some of the money for green upgrades to their facilities.

Vincent Caron, vice-president of Ontario government relations and member advocacy at lobby group Canadian Manufacturers & Exporters, called Ontario’s carbon pricing system “the gold standard,” because companies can get up to 100 per cent of what they pay into the system. 

“I think companies broadly are really confident that the program gives them enough certainty. The funds don’t expire, they can pull several years together,” he said.

And Cabot is not done using the grants on offer. Pearson says the company has been paying into Ontario’s pricing system, and is applying to get that funding back for projects to improve their manufacturing processes and switch their vehicles from gas to electric.

“Being able to recycle those proceeds and bring them back into our business is a really good incentive for companies to make those improvements faster than they normally would,” Pearson said.