Last week, in partnership with ClearBlue Markets, we had the privilege of hosting an exclusive, off-the-record roundtable during the Energy Disruptors Summit in Calgary, Alberta. We brought together 15 senior voices from across Oil and Gas, Power and Utilities, and Industry for a candid conversation on the state of industrial carbon pricing in Canada. Key themes emerged amidst this period of generational change for carbon and economic policy in Canada, along with a notion that there is an opportunity for a win-win for both climate and economic growth if we manage to get this right.
Here are our top takeaways:
1. Policy certainty is the single most important input but remains elusive
If there was one theme that united participants across every sector, it was this: without long-term, credible policy certainty, nothing else in the carbon market ecosystem can function as intended. Investors cannot allocate capital, project developers cannot secure financing, and banks cannot provide liquidity. One participant made a particularly striking observation, that even if a program like the Clean Fuel Regulations technically ran through to 2050, but did so on a year-to-year basis without a firm federal commitment, the market would still be uninvestable, even if the program outperformed all expectations. This highlights how the signal for the market matters just as much as the substance of the market itself.
A necessary part of this is the federal government being unequivocal about the purpose of industrial carbon pricing. In the absence of any other meaningful climate policy instrument in Canada, carbon pricing is effectively the only mechanism capable of driving emissions reductions. Saying that clearly and consistently would go a long way.
2. Financial infrastructure is a must
Quebec’s linkage to the Western Climate Initiative was broadly described as a success story from a market perspective. The WCI’s mature financial ecosystem, deep liquidity, sophisticated hedging instruments, robust price discovery, and an options market that helps smooth volatility, is what separates a functional carbon market from one that stays in its infancy. The contrast is stark, participants noted that you can relatively easily offload $1 billion of risk for up to five years in the WCI but cannot execute a $1 million, two-year hedge in Ontario. No other Canadian carbon market currently has this infrastructure and that gap will continue to hamper any ambition to scale. The good news is that financial sophistication follows certainty so if you can build the policy foundation, then the market infrastructure will come.
3. The price debate is less about the headline number and more about the collar
There was healthy debate on the carbon price trajectory, with some arguing the near-term priority should be establishing the floor price as described in the Canada-Alberta MOU, and others noting that several provincial programs, BC’s in particular, remain closely indexed to the headline number. What the group broadly agreed on is that the WCI’s price collar model, a defined floor and ceiling with price containments / market stability reserves, is the right design for managing volatility, supporting investment certainty, and enabling long-term project financing. The collar gives both supply and demand participants what they actually need, a range they can plan around.
4. Focus on the carrot or the stick?
Several participants raised whether Canada is at risk of over-indexing on carbon market mechanisms at the expense of direct investment incentives, such as investment tax credits, production tax credits or providing additional value for lower carbon commodities (ex. lower carbon oil or steel). The concern is not that carbon pricing is wrong, but that it is working in a vacuum. Without complementary incentives for low-carbon products, the carbon price creates a compliance cost without fully creating an investment case. The most durable frameworks are likely to be those that combine both.
5. The CFR is becoming a successful Pan-Canadian carbon market, but challenges to growth remain
Participants broadly viewed the Clean Fuel Regulations as a credible national carbon market in its early stages — but its primary spot market structure and short track record make it difficult to finance against. The ask from industry is straightforward: make it a binding, long-term commitment and more importantly, reframe it. A carbon program tied explicitly to industrial policy, i.e. jobs, economic growth, and attracting foreign direct investment, has political durability in a way that a standalone climate instrument simply does not. The lesson from other jurisdictions is that the markets that have scaled are the ones that solved for both.
6. ITMOs offer a dual-sided opportunity for Canada
The federal government’s exploration of Internationally Transferred Mitigation Outcomes (ITMOs) generated optimism in the room. On the supply side, Canadian companies — particularly in engineered carbon removals — are well-positioned to generate and sell high-quality credits to foreign governments. On the demand side, allowing heavy emitters to purchase ITMOs to offset emissions growth tied to economic expansion could meaningfully benefit the broader economy while preserving compliance integrity. It is one of the more compelling near-term levers available to policymakers.
7. A Pan-Canadian carbon market — or something bolder — is the long-term answer
The fragmentation of Canada’s carbon market landscape was a recurring source of frustration. A Pan-Canadian market would directly resolve the liquidity gaps and financial complexity that currently limit scalability, and participants broadly agreed the logic is compelling. But the most provocative idea of the session came from one participant who went further: why not explore Canada joining the EU Emissions Trading System as part of its associate membership in the EU? The group acknowledged that this would, in theory, resolve most of the existing market challenges in one move — delivering the depth, liquidity, and financial infrastructure that no Canadian market currently has. However, it was recognised as likely impractical given the makeup of Canada’s economy versus the EU’s, among other challenges. Regardless, any form of a Pan-Canadian market will require bold vision, political will and compromise from all the provinces and territories, but the opportunity to make this work is too large to ignore.
RBC’s capabilities
To help navigate the rapidly evolving carbon markets, RBC Capital Markets offers extensive expertise and full capabilities in emissions trading across both compliance and voluntary carbon markets. The Environmental Markets Solutions Group partners with RBC Capital Markets’ Environmental Commodities desk, established in 2008, to offer bespoke solutions to clients looking to operationalize their net-zero targets through carbon and renewable energy solutions.
In April 2023, RBC announced a strategic investment and partnership with ClearBlue Markets, an award-winning carbon markets advisory firm. ClearBlue Markets provides carbon markets services to hundreds of clients worldwide, helping them optimize their strategies for compliance requirements and voluntary net zero ambitions through its deep advisory expertise and AI enabled technology.
