Read more in the August 15 edition of Invert Insights.
A new report from Clean Prosperity, Market Force: How Canada’s carbon markets can be an engine of growth, underscores how Canada has a unique opportunity to become a global low-carbon energy leader by leveraging strong carbon markets to drive billions in private investment, accelerate decarbonization, and seed high-potential industries such as clean fuels, carbon capture, low-carbon materials, and carbon dioxide removal (CDR).
Canadian carbon markets – primarily provincial output-based pricing systems (OBPSs) and Quebec’s cap-and-trade program – are already proving their value. Industry surveys show they are positively influencing capital investment, efficiency, and environmental performance and, if strengthened, could unlock at least $50 billion in mostly shovel-ready, strategic projects spanning carbon capture, clean fuels, low-carbon steel, and cement. While Alberta’s Technology, Innovation and Emissions Reduction (TIER) system demonstrates how carbon pricing can catalyze multi-billion-dollar investments, from renewables to hydrogen.
The opportunities are significant. Strong carbon markets can give Canada a competitive advantage over jurisdictions like the United States by combining credit revenues with federal and provincial investment tax credits, making Canadian projects more profitable. They can enable large-scale emissions reductions at the lowest overall cost while preserving industrial competitiveness. They also position Canada to align with trading partners such as the European Union and United Kingdom, avoiding future carbon border adjustment mechanism (CBAM) charges and opening new markets for low-carbon exports. Emerging sectors like carbon dioxide removal (CDR) stand to benefit significantly; with the right market signals, CDR could remove hundreds of megatonnes of CO₂ by 2050, create over 300,000 jobs, add $143 billion to GDP, and establish Canada as a global supplier of carbon removal credits.
However, realizing these benefits requires overcoming several barriers. Federal–provincial misalignment remains a major challenge, with Saskatchewan eliminating its industrial carbon price in 2025, Alberta freezing its headline price at $95 per tonne, and other provinces doing only the minimum to meet federal standards. Market design weaknesses also hinder performance: oversupply keeps credit prices well below headline levels, transaction data is not transparent, and interprovincial trading is restricted, limiting liquidity and market depth. Policy uncertainty compounds the problem, with no agreed-upon, long-term carbon price path beyond 2030 and resistance from some provinces to scheduled price increases. Competitiveness concerns, particularly the risk of carbon leakage for trade-exposed sectors, persist in the absence of a coordinated Canadian border carbon adjustment policy to match those in the EU and UK.
The report highlights a path-forward through a federal-provincial partnership anchored in five core principles:
If these reforms are implemented through durable federal–provincial cooperation, carbon markets could become a central pillar of Canada’s economic strategy, enabling deep decarbonization and securing global leadership in emerging low-carbon industries.
Invert Insights.
💡 The durability of Canada’s carbon markets, rooted in long-term, cross-partisan political support, is the single most important driver of investment. Investors will only commit billions of dollars to decarbonization projects if they have confidence that carbon pricing and credit market rules will remain stable for decades, regardless of changes in government. Without that assurance, capital will either be delayed or flow to other jurisdictions with more predictable policy environments.
💡 Liquidity and linkage are essential to building efficient and resilient markets. By enabling interprovincial and, eventually, international credit trading, Canada can deepen market pools, stabilize prices, and reduce compliance costs for industry. Linked markets not only create a more competitive and efficient system domestically, but also position Canadian firms to integrate seamlessly into global low-carbon supply chains where credit fungibility will increasingly be a competitive advantage.
💡 Tools such as adaptive tightening of credit supply, standardized carbon contracts to guarantee value, and transparent market data can provide the clear, durable price signals the industry needs to mobilize private investment. These measures can achieve large-scale emissions reductions and industrial transformation at a fraction of the fiscal cost of direct public incentives, allowing governments to conserve funds for other strategic priorities while still driving deep decarbonization.
