The form of carbon pricing that has the greatest impact in driving down climate pollution will also be the key to keeping Canadian industry competitive as trading partners around the world get more serious about tracking and disclosing carbon emissions, says the chair of a new commission focusing on the intersections between climate and trade policy.
And in response to two inaugural reports from the Commission on Carbon Competitiveness (C3), a climate advocacy group is urging provincial environment ministers to work together on industrial carbon pricing as a way to cut emissions and boost the economy.
As a trading nation, Canada has always had to pay attention to global markets and geopolitics, C3 says in an explainer [pdf] published last week. Now, “over the balance of this decade and beyond, carbon competitiveness is emerging as an increasingly influential factor shaping Canadian competitiveness and introducing new opportunities and challenges alike.”
Those factors call for a focus on four “related objectives”, the explainer states: decarbonizing Canadian industry to “preserve and promote competitiveness”, avoiding carbon leakage so that decarbonization “is not achieved through deindustrialization”, attracting low-carbon investment, and fostering development of green sectors with high-growth potential.
“We are already seeing increasing use of trade measures to account for carbon embedded in goods, increasing investor awareness of the carbon footprints of firms, and moonshot efforts by our major trading partners to build up firms that will take leadership roles in the low-carbon economy of the future,” writes C3, a joint initiative of the International Institute for Sustainable Development (IISD), Clean Prosperity, and the Canadian Climate Institute. That creates different risks and opportunities for three categories of industries:
- Large emitters like steel, cement, and aluminium that can look ahead to relatively stable or growing international markets, but “will need to transform how they produce goods if Canada is to meet its climate targets, if they are to remain competitive in global markets that increasingly care about embedded carbon in goods, and if they want to attract investment”;
- Large emitters like oil that face structural decline from 2035 through mid-century, where “policy-makers must consider how best to support workers and communities through the transition” while keeping Canada “in the most beneficial position possible”;
- Potential high-growth industries like clean energy, critical minerals, low-carbon hydrogen, and climate tech/cleantech.
C3 launched last week with the release of two reports: a sector-by-sector assessment [pdf] of Canadian industry’s carbon competitiveness, and a set of policies [pdf] to achieve industrial decarbonization in vulnerable sectors.
The commission formed “because nobody else seems to be going there and it’s important,” said C3 Chair Aaron Cosbey, a senior associate at IISD. If Canada doesn’t address the 40% of its greenhouse gas (GHG) emissions that come from industry, “we’re not going to hit our [Paris climate agreement] targets. But politically, you can’t do that unless you also think about competitiveness. So the idea here is that these things have to go hand in hand or neither succeeds.”
From that starting point, “our motivation really is to back up and focus on these legacy emissions-intensive, trade-exposed sectors and figure how we make them competitive in the green markets of the future, where buyers increasingly care about the carbon content of traded goods and their carbon footprint,” Cosbey told The Energy Mix.
It may not be easy for C3 to make its case at a time when political alignments are shifting in Canada, at both the federal and provincial levels, he added. “But the one thing we have going for us is that this is not just about the environment. It’s also fundamentally about how you keep these sectors competitive. And that boils down to jobs, it boils down to investment, it boils down to keeping communities thriving, and that has resonance with every political stripe. It’s not going to be an easy sell for everybody, but that’s our angle.”
Over the short and medium term, C3’s approach is rooted in industrial carbon pricing systems that have so far delivered the lion’s share of the climate benefit from any pricing mechanisms in Canada. “With a change in [federal] government, we won’t see a consumer price. That’s gone instantly. What we don’t know yet is what the opposition [in the House of Commons] is currently thinking about industrial carbon pricing,” Cosbey said. “Our hope is that we have some kind of convincing power in favour of keeping the industrial carbon pricing mechanisms, because that decision hasn’t been made yet.”
Looking at carbon competitiveness through an international lens, Cosbey said it’s obvious that Canada isn’t the only country grappling with the issue. The European Union has launched a carbon border adjustment mechanism (CBAM) to protect domestic industries while they decarbonize. The United States has subsidized (mostly) clean technologies through the Biden-Harris administration’s Inflation Reduction Act and Infrastructure Investment and Jobs Act. The two big trading partners are negotiating GHG intensity standards for steel and aluminium. And an industrial decarbonization initiative first launched by the G7 has now drawn support from 43 countries.
“At the global level, there’s an accelerating trend toward collaboration in this space,” Cosbey said, and “to the extent we can move the global community toward agreement on GHG intensity standards, we’ll have lessened our domestic risk of leakage and increased the markets for our green goods.”
A day after the C3 release, Toronto-based Clean Prosperity published [pdf] an open letter along with 12 major industrial associations and firms, urging provinces to embrace industrial carbon pricing as the “backbone of decarbonization across this country.” Signatories included Alberta’s Industrial Heartland Association, Canadian Manufacturers & Exporters, the Canadian Renewable Energy Association, the Canadian Steel Producers Association, Carbon Removal Canada, the Cement Association of Canada, the Chemistry Industry Association of Canada, Clean Prosperity, Enhance Energy, Heidelberg Materials, Kiwetinohk Energy, Itoa Energy, and Lafarge.
“We write to raise concerns about how provincial carbon markets work together, or rather how they do not,” the letter stated. “The disconnect across nine different markets makes it harder to invest in major projects in Canada. It is holding back capital, economic growth, jobs, and decarbonization. We need to act now to fix this.”
“The push comes at a pivotal moment for Canada’s industrial decarbonization strategies because of the possibility of a federal election soon,” writes Globe and Mail climate columnist Adam Radwanski. “The opposition Conservatives, who hold a large lead in opinion polls, are campaigning on scrapping the consumer-facing carbon price. But they have been non-committal on whether they would maintain requirements for provinces to price heavy industrial emitters—giving impetus to supporters of the industrial system to try to strengthen it before the campaign starts.”
