Content: OTTAWA — The future of Canada’s climate policy may hinge on a contentious industrial carbon pricing system, following a recent agreement between Prime Minister Mark Carney and Alberta officials. The memorandum of understanding marks a significant shift in federal climate strategy, particularly as Alberta is the largest greenhouse gas emitter in the country.

Under the new agreement, federal climate measures that previously applied to Alberta have been altered or suspended in exchange for cooperation from the province's pro-oil government. Alberta Premier Danielle Smith, who has been critical of Ottawa's climate policies, expressed satisfaction with the changes. However, the deal has sparked controversy, leading to the resignation of Steven Guilbeault, a former Liberal environment minister, from Carney’s cabinet in protest.

A key aspect of the agreement involves redesigning Alberta’s industrial carbon pricing system. The timeline for implementing stricter measures is currently under negotiation, with a deadline set for April 1. Experts warn that the outcome of these negotiations could either undermine Canada’s climate action efforts or lead to a more effective strategy for reducing emissions.

Marlo Raynolds, a former chief of staff to two Liberal environment ministers, emphasized the importance of the details in the negotiations. "If the theory of the Carney government at this stage is that the industrial price is the tool to make up for relaxing regulatory requirements, the effectiveness of the trade-off will depend on the timing for the effective price coming into place," he said.

Previously, Canada required provinces to implement two carbon prices: one for consumer fuels and another for industrial emissions. Carney eliminated the consumer carbon price earlier this year but pledged to strengthen the industrial price. The federal Conservative Party has shifted its focus from opposing the consumer tax to criticizing the industrial pricing system, with leader Pierre Poilievre promising to eliminate it as a national requirement, arguing it increases costs and hinders private development.

Despite the criticism, the industrial carbon pricing system is crucial for meeting Canada’s emissions reduction targets for 2030. The Canadian Climate Institute estimates that this pricing could account for 20 to 48 percent of the country’s projected emissions reductions over the next five years. Environment Minister Julie Dabrusin stated that the government aims to maintain the purpose of industrial carbon pricing while enhancing its effectiveness. This includes establishing a long-term trajectory for the carbon price, which is set to rise from the current $95 per tonne to $170 per tonne by 2030.

However, the current system has been criticized for weakening incentives to cut emissions. David Sawyer, an environmental economist, pointed out that heavy industries can pay significantly lower prices through offset credits, which are currently priced below $20 per tonne. This creates a disincentive for companies to invest in reducing emissions.

The Alberta-Canada agreement aims to negotiate an increase in the cost of these credits to a minimum of $130 per tonne by the April deadline. The debate continues over whether this agreement represents a concession to Alberta or a genuine improvement in climate policy.

Michael Bernstein, CEO of Clean Prosperity, views the potential increase in credit prices as a positive step for climate action, suggesting it could incentivize heavy emitters to invest in technologies like carbon capture. However, Alberta’s interpretation of the deal may complicate matters, as Premier Smith has indicated that the path to the $170 per tonne target is not guaranteed.

As negotiations progress, Dabrusin noted that discussions will focus on how Alberta can increase credit costs while also considering the long-term trajectory of the carbon price. Critics, including Guilbeault, argue that the federal government has compromised too much without receiving adequate concessions from Alberta. The outcome of these negotiations will be critical in determining whether Canada can meet its climate targets in the coming years.