Business and environmental groups are urging the Canadian government to swiftly implement a program that guarantees carbon pricing revenue or risk losing the necessary investments to achieve the country’s climate goals. They have written to Finance Minister Chrystia Freeland, requesting that access to the program, known as “contracts for difference,” be made widely available instead of engaging in individual deals with companies.
Carbon contracts for difference serve as a public backstop for Canada’s carbon pricing system. These contracts can be used to establish a minimum price for carbon credits or secure the scheduled increase in carbon price over the next decade, irrespective of future government decisions. The aim is to provide companies with long-term certainty regarding the financial implications of emission reduction efforts so they can make informed decisions about large-scale capital projects, like implementing equipment for capturing greenhouse gas emissions.
The letter highlights the pressure on the Canadian government to keep pace with the United States, their largest trading partner, which offers lucrative tax credits for green manufacturing. Business groups have also been urging Prime Minister Justin Trudeau and Finance Minister Freeland to expedite the launch of clean-energy tax credits promised in this year’s federal budget.
Etienne Rainville, from Clean Prosperity, a group advocating for market-based climate programs, emphasized that delay in implementing these initiatives could result in capital leaving Canada. Signatories of the letter comprise diverse stakeholders such as the cement industry, fuel producers, and environmental groups like the Pembina Institute.
Given the lengthy project development timeline, it is crucial for the government to act promptly in implementing the carbon pricing program. Projects approved today will come online just before 2030 when Canada aims to reduce emissions by 40 to 45% below 2005 levels.
Chris Hooper, Vice President of Capital Markets for Entropy Inc., which signed the letter, stressed that carbon price uncertainty poses a significant barrier to private capital deployment. Hooper argued that the federal government is best placed to mitigate the policy risk associated with carbon pricing.
The signatories of the letter put forth four recommendations: a broad-based program, timely implementation, clear eligibility criteria, and the inclusion of a floor price for carbon credits. While this year’s federal budget vowed to initiate consultations on designing contracts for difference, no updates have been provided thus far. The signatory groups are calling for details to be announced before year-end.
Freeland’s office stated its commitment to consult on the development of a broad-based approach but did not offer a timeline. The office acknowledged receipt of the letter and expressed close communication with several organizations involved. However, progress has been made on clean-energy tax credits, with draft proposals being circulated for public feedback. These proposals include a long-awaited tax credit for carbon capture systems and the upcoming release of details regarding a tax credit for hydrogen fuel production.