Industrial Carbon Pricing Becomes New Flashpoint in Canada’s Competitiveness Debate

Ontario Premier Doug Ford and business leaders are calling for changes as Ottawa prepares to reshape Canada’s industrial carbon-pricing system

A growing debate over Canada’s industrial carbon-pricing system is putting Prime Minister Mark Carney’s government under pressure to reconsider how large industrial emitters are charged for greenhouse-gas emissions.

Ontario Premier Doug Ford has called on Ottawa to eliminate the industrial carbon tax, arguing that Canadian companies already facing U.S. tariffs should not be carrying additional regulatory costs that their American competitors do not face.

The Canadian Taxpayers Federation has joined Ford in calling for the federal government to scrap the system, while executives in Canada’s oil and gas sector have also warned that industrial carbon costs could weaken the country’s ability to compete for investment.

The issue is becoming increasingly significant as Canada attempts to attract new investment, expand resource exports and respond to a more protectionist American trading environment.

Ford calls for Ottawa to eliminate the industrial levy

Ford’s latest call came as Canada confronts increased trade pressure from the United States.

The Ontario premier argued that Ottawa should eliminate the industrial carbon tax and other federal measures that increase costs for Canadian manufacturers and resource companies.

“We need to help our businesses compete and close the gap created by these new tariffs,” Ford said.

He has also called for exemptions from federal emissions requirements for sectors affected by U.S. tariffs.

The Canadian Taxpayers Federation subsequently urged Carney to act on Ford’s recommendation.

Gage Haubrich, the organization’s Prairie director, argued that industrial carbon costs make it more difficult for Canadian companies to compete with businesses operating in jurisdictions without comparable national carbon-pricing requirements.

Canada does not have one single industrial carbon tax

The terminology surrounding the issue can be confusing.

Canada’s consumer-facing federal fuel charge was eliminated earlier this year, but industrial carbon pricing remains in place.

The federal government describes its industrial system as the Output-Based Pricing System (OBPS). Provinces and territories can operate their own systems as long as they meet federal minimum standards.

Ontario, Alberta and British Columbia, for example, operate provincial industrial carbon-pricing systems, while the federal OBPS applies in several other jurisdictions. Quebec operates a cap-and-trade system.

Under an output-based system, facilities are generally measured against emissions-intensity standards rather than simply paying a tax on every tonne of emissions.

Facilities that perform better than their applicable standard can generate credits, while facilities that exceed the standard face compliance costs.

Ottawa says the system is deliberately structured this way to reduce the risk that businesses move production to countries with weaker environmental requirements—a phenomenon known as carbon leakage.

Ottawa is actually planning a higher industrial carbon-price trajectory

The debate comes at an important moment because the federal government recently changed the long-term industrial carbon-price trajectory.

As of May 15, 2026, Ottawa’s headline trajectory is:

$95 per tonne in 2026
$100 in 2027
$100 in 2028
$100 in 2029
$115 in 2030
$130 in 2035
$140 by 2040

The government says the longer-term trajectory is intended to provide businesses with greater certainty for major decarbonization investments.

That creates a central point of disagreement.

Critics see the increasing carbon price as an additional cost that can discourage investment in Canada.

The federal government argues that predictable carbon markets encourage companies to invest in lower-emission technologies while protecting them from the much larger risk of losing markets or investment to jurisdictions with weaker climate policies.

Energy executives say competitiveness is already a problem

The concern isn’t limited to taxpayer advocates or politicians.

In April, Canadian oil and gas executives publicly criticized industrial carbon pricing at the 2026 BMO CAPP Energy Symposium.

Lisa Baiton, president and CEO of the Canadian Association of Petroleum Producers, argued that Canada is imposing costs on producers at a time when global energy security is becoming increasingly important.

Cenovus Energy CEO Jon McKenzie was even more direct, arguing that the industrial levy represents an incremental cost that makes Canadian production less competitive internationally.

McKenzie said the policy could ultimately encourage production to come from countries outside Canada rather than encouraging additional Canadian investment.

The concerns come as Canada is simultaneously attempting to increase energy exports and develop additional pipeline capacity to reach markets outside the United States.

A Fraser Institute study raises similar concerns

A June study from the Fraser Institute examined the competitiveness of Alberta’s energy sector relative to U.S. jurisdictions.

The study, authored by University of Calgary economist Jack Mintz, examined the impact of industrial carbon policies and carbon-capture requirements on the cost of producing oil, natural gas and electricity.

It concluded that the combination of the policies could increase Alberta’s marginal production costs and make the province less attractive for investment compared with energy-producing U.S. states.

The Fraser Institute has also argued more broadly that Canada needs to remove policies that discourage private-sector investment if it wants to improve productivity, job creation and living standards.

Those conclusions are consistent with the broader competitiveness concerns being raised by industry groups, although the Fraser Institute is a policy think tank rather than a government regulator.

But not every industry wants the system scrapped

There is an important counterpoint.

The Canadian Cement Association, representing a highly emissions-intensive and trade-exposed industry, told a House of Commons committee in April that it supports well-designed industrial carbon pricing.

The association nevertheless said the existing system isn’t working as well as it should.

One of its biggest concerns is fragmentation.

Canadian industrial operators can face different carbon-pricing regimes depending on the province where they operate. The Cement Association said its members operate under five different provincial pricing regimes, each with different rules, benchmarks and compliance markets.

That suggests the debate isn’t necessarily as simple as “carbon tax versus no carbon tax.”

For some businesses, the greater concern may be how the system is designed, how predictable it is and whether Canadian companies face comparable costs to international competitors.

Fertilizer industry warns of billions in carbon costs

Canada’s fertilizer industry has raised similar competitiveness concerns.

Nadine Frost of Fertilizer Canada told the House environment committee that fertilizer producers face a disproportionate regulatory burden because they are both emissions-intensive and heavily exposed to international competition.

A Fertilizer Canada study conducted with PwC estimated that the industry’s cumulative carbon-pricing costs could reach $1.32 billion between 2025 and 2030.

Frost said almost 60 per cent of the industry’s carbon-pricing burden comes from indirect costs associated with energy, electricity and transportation inputs.

For an industry selling into global commodity markets, the concern is that Canadian producers have limited ability to simply raise prices to recover those costs.

The government’s argument: industrial pricing is different from the old consumer carbon charge

Ottawa rejects the idea that industrial carbon pricing is simply another consumer tax.

The federal government says its industrial system is specifically designed to protect competitiveness.

Under the OBPS, companies are not required to pay the headline carbon price on every tonne they emit. Instead, facilities are assessed against emissions-intensity standards, with credits and compliance mechanisms designed to reward better-performing facilities.

The government also says money collected through federal industrial carbon pricing is returned to the provinces and territories where it was collected, with proceeds supporting emissions reductions and clean-technology investments.

The Canadian Climate Institute makes a similar argument, saying industrial carbon pricing can reduce emissions while having little effect on household consumption.

Its research estimates that industrial carbon pricing had an impact of approximately zero per cent on household consumption in 2025.

Other researchers say the system needs fixing—not necessarily eliminating

The C.D. Howe Institute has taken a different position from both the government’s defence of the existing system and calls for its abolition.

A March 2026 analysis argued that Canada’s industrial carbon-pricing benchmark has weaknesses involving transparency, consistency and the operation of provincial credit markets.

The institute proposed a minimum price floor for carbon credits as one possible way of creating greater certainty while maintaining industrial carbon pricing.

A separate review commissioned by the International Institute for Sustainable Development reached a similar broad conclusion: Canada’s industrial carbon-pricing systems have helped reduce emissions and attract decarbonization investment, but several systems have experienced credit oversupply and other design problems that can weaken incentives for investment.

That puts another option on the table—reforming the system rather than eliminating it outright.

The Alberta pipeline question

The industrial carbon debate is also becoming intertwined with Canada’s effort to build new energy infrastructure.

The federal government and Alberta have agreed to a framework for a proposed new West Coast pipeline, while Alberta has been seeking changes to the regulatory and economic conditions surrounding energy development.

The economics of that project remain closely connected to the ability of Canadian producers to increase output and compete for investment.

Cenovus CEO Jon McKenzie has warned that Canada’s regulatory framework and industrial carbon costs could make the proposed pipeline difficult to finance privately unless production economics improve. Reuters reported in June that McKenzie described the proposed one-million-barrel-per-day pipeline as currently “unfinanceable” under the existing regulatory regime.

The argument from industry is straightforward: building export infrastructure only makes sense if companies believe they can produce enough additional energy profitably to use it.

A competitiveness debate with no easy answer

The argument over industrial carbon pricing increasingly reflects two competing economic priorities.

Critics argue Canada cannot afford to impose additional costs on industries competing directly with producers in the United States and other countries that have different environmental requirements.

They point to oil and gas, steel, fertilizer, mining and manufacturing as industries where investment can move across borders.

The federal government and supporters of industrial carbon pricing argue that abandoning the system could undermine emissions-reduction efforts and make Canada less competitive in a global economy increasingly influenced by carbon standards and border measures.

They also argue that properly designed industrial pricing systems can encourage companies to reduce emissions while limiting the costs imposed on trade-exposed industries.

The question facing Carney

For Prime Minister Mark Carney, the challenge is balancing two objectives that are increasingly difficult to separate: making Canada a more attractive place to invest while continuing to push industrial emissions downward.

The Canadian Taxpayers Federation and Ford want Ottawa to eliminate industrial carbon pricing.

Industry groups such as the Canadian Cement Association are calling for a system that works better across provincial boundaries.

Economists and policy researchers have proposed reforms to make carbon markets more predictable and functional.

And the federal government maintains that industrial carbon pricing is an important part of Canada’s economic and environmental strategy.

With Canada’s trade relationship with the United States under pressure and Ottawa attempting to accelerate major resource and infrastructure projects, the issue is unlikely to disappear.

The debate is now less about whether Canada needs to address industrial emissions and increasingly about how much those efforts should cost Canadian businesses—and whether the current system is helping or hurting the country’s ability to compete.

Sources and additional reading

Editorial note: The article distinguishes between the positions of advocacy organizations, industry groups, researchers and the federal government. Claims about the economic effects of industrial carbon pricing are attributed to the organizations or studies making them rather than presented as settled fact.