Climate Institute report questions emissions impact of Ottawa–Alberta carbon pricing deal

A new analysis from the Canadian Climate Institute suggests a recent carbon pricing agreement between the federal government and Alberta is unlikely to significantly reduce Canada's greenhouse gas emissions, despite Ottawa's claims that the deal will strengthen industrial carbon pricing in the province.

According to the institute's report, the implementation agreement signed last month by Prime Minister Mark Carney and Alberta Premier Danielle Smith could result in only minimal emissions benefits while allowing increased oil production. The report argues that changes to Alberta's industrial carbon pricing system make it easier for companies to accumulate compliance credits, weakening incentives to invest in emissions-reduction measures.

The agreement is intended to bring Alberta's effective carbon price to $130 per tonne by 2040, while the province's headline carbon price would reach $100 per tonne by 2027 and $130 per tonne by 2035. However, the report says relaxed industrial emissions benchmarks, known as stringency rates, could create an oversupply of carbon credits after 2030, reducing pressure on companies to cut emissions.

Dave Sawyer, principal economist with the Canadian Climate Institute and author of the study, said policymakers should re-examine the design of the system to ensure the carbon price floor can effectively drive emissions reductions. The report concludes that maintaining carbon prices alone may not deliver meaningful reductions if companies can rely on accumulated credits to meet compliance requirements.

The findings raise questions about how federal and provincial governments plan to manage a potential surplus of carbon credits in the coming years. While Carney has previously suggested governments could purchase credits to create market scarcity, Sawyer said the revised system may make such interventions less effective.