Explore the vast range of titles available.

Canadian provinces are required to regulate their power sectors using carbon pricing systems that meet national minimum stringency standards, which are set by the federal government. A diverse set of systems has emerged as a result. However, there has been limited assessment of how different pricing mechanisms impact the evolution of Canada’s electricity system. To address this gap, we use an electricity system planning model called COPPER and a scenario-based approach to assess if, and to what extent, different policy regimes impact power sector greenhouse gas emissions and costs. Our results show that carbon pricing systems currently in place lead to significant carbon reductions over the long term, provided that free emissions allocations are reduced. However, the cost-optimal pathway for the power sector differs across provinces depending on the carbon pricing mechanism. Some provinces achieve least-cost emissions reductions by switching from high-carbon technologies to renewables, while others are better served by replacing high-carbon technologies with low-carbon fossil fuel alternatives. Further, provinces that implement cap-and-trade systems may affect the transitions of interconnected jurisdictions. Power sector climate policy design should reflect the heterogeneity of available assets, resources, and neighbouring approaches.

The Canadian public widely anticipates the demise of the federal fuel charge in 2025, and politicians and journalists now frequently refer to “industrial carbon pricing” as the main line of defence still held in Canada’s greenhouse gas emission reduction plan. This commentary examines the most important component of this line of defence—namely, federal and provincial output-based pricing systems (OBPS). It assembles hitherto obscure information with respect to three OBPS design features: eligibility, stringency of emission reduction requirements, and total cost to emitters. The study finds that OBPS implementation is off to a weak start. Many sectors that do not genuinely compete with foreign firms are eligible to participate. Provinces encourage facilities to opt into OBPS—meaning, out of full carbon pricing—with little selection. Most provinces only require facilities to slowly reduce emissions relative to their past performance, instead of catching up to low-emission peers. And low-emission facilities face weak incentives to further reduce emissions due to weak or non-existent price signals on emissions-trading markets.

At least up to the release of the federal 2024 budget, many Canadian politicians, climate policy think tanks, and industry groups promoted carbon contracts for difference (CCfD) to complement carbon pricing. This commentary urges caution against the broad adoption of CCfDs. The author begins by noting that the current designs of provincial output-based pricing systems (OBPS) are not consistent with the expectation of the systems delivering robust price signals. He argues that CCfDs depend on such price signals, and they are not a plausible policy for encouraging the emergence of such signals. The author then argues that it is hard to justify the government making a bet against itself on the “policy price” of carbon. An extensive scholarly literature has long argued against providing businesses with “certainty” against future policy changes in general, and there is little reason to think carbon pricing is relevantly different. The author concludes that, overall, the use of CCfDs should remain narrowly targeted.