Canada is at a key moment in its fight against climate change. Carbon pricing has been the central tool used to cut emissions, but recent policy changes and differences across provinces have created uncertainty.
This article examines how Canada’s carbon pricing system works now. It covers expert concerns and what the key federal review in 2026 might mean for both industry and the country’s journey toward a lower-carbon future.
How Canada Prices Pollution
Canada uses carbon pricing to encourage companies and people to cut greenhouse gas (GHG) emissions. Under that system, there are two main parts.
For ordinary people and small businesses, there used to be a “fuel charge” or carbon tax on fossil fuels. For large industrial emitters, there is a program called the Output-Based Pricing System (OBPS).
Under the OBPS, factories or facilities that produce a lot of emissions get a limit based on how much they produce. If they emit more than their limit, they must pay; if they emit less, they earn credits that they can sell or use later.
This approach aims to reduce carbon pollution while trying to protect industries that compete globally. The goal is to cancel out the risk that companies might move to other countries with weaker climate rules.
From Gas Pumps to Smokestacks: A Major Policy Shift
In 2025, the federal government made important changes. It removed the “consumer-facing” carbon tax — the fuel charge — effective April 1, 2025. This means people pay no extra carbon tax when buying gasoline or heating fuel.
Instead, the focus shifted more clearly onto industrial carbon pricing. The government said it would review the carbon pricing “benchmark” in 2026. This review could change how industrial carbon pricing operates.
A recent analysis by ClearBlue Markets shows that Canada’s carbon pricing for industry is now fragmented. Fragmentation has caused uncertainty. This is a problem for companies that need stable cost signals before they invest in cleaner technology.
The ClearBlue report stated:
“The federal benchmark review will therefore trigger extensive engagement between the federal government and the provinces, aimed at aligning key benchmark elements such as coverage, pricing stringency, and competitiveness protections. Negotiations are likely to be complex and politically charged, particularly with provinces like Alberta and Saskatchewan, which have already taken strong positions. These types of unilateral decisions reflect ongoing tensions and highlight the difficulty of achieving a truly aligned national approach.”
Carbon pricing today: A patchwork across Canada
Because Canada is large and its provinces have different rules, carbon pricing for industry is not the same everywhere. ClearBlue Markets shows that credit prices—what companies pay or earn—vary a lot by province or system.
Here are specific examples:
In Alberta, the Environmental Monitoring, Evaluation and Reporting Agency has seen a big drop in credits under its Technology Innovation and Emissions Reduction Program (TIER). Despite a compliance price of CAD 95 per tonne, market credits trade at around CAD 18 per tonne. This shows a credit surplus and weak demand.
In British Columbia (B.C.), the new B.C. Output-Based Pricing System (B.C. OBPS) began to be applied recently. Credits are trading at about CAD 65 per tonne, a discount compared with the regulatory level of CAD 80.
In Ontario, the Emissions Performance Standards (EPS) system governs industrial emissions. Because the program does not allow offset credits, supply is tighter — units (EPUs) recently traded at around CAD 72 per tonne.
In areas where the federal OBPS still applies, like some territories and small provinces, cheap carbon offset credits from Alberta’s TIER have lowered prices. Now, they can be as low as about CAD 37.50 per tonne.
The true cost of carbon emissions differs greatly by industry and province. The federal government aims to raise the carbon price to CAD 170 per tonne by 2030 for direct pricing systems.
The 2026 Showdown: Can Canada Fix Its Carbon Market?
The upcoming review of the federal benchmark is seen as a turning point. It could lead to stronger, more aligned carbon pricing across all provinces. As ClearBlue Markets notes, the review may address issues such as:
- Align different provincial systems under a common design. This way, credits and compliance will act more alike.
- Improving transparency in reporting credit inventories, trades, and emission reductions.
- Possibly introducing a “floor price” — a minimum cost for carbon credits — to avoid extreme price drops like those seen in some programs.
- Setting a long-term carbon price path past 2030 helps industries plan investments more clearly. This is especially important for clean technologies.
All of these could make carbon pricing more predictable and effective. If the review doesn’t meet expectations, patchwork and uncertainty may persist. This could weaken the carbon price signal and confuse investment in clean technology.
This patchwork of provincial and federal carbon pricing programs has created a corresponding patchwork of compliance offset markets. The image below shows how these offset markets are distributed across Canada.
Global Pressure Is Rising: Europe Could Hit Canada with Carbon Tariffs
One major external risk comes from the global trade environment. Starting in 2026, the European Union’s Carbon Border Adjustment Mechanism (CBAM) will impact imports based on their carbon emissions.
For Canadian exporters, this raises a key question:
- Will EU authorities accept the compliance credits or offsets generated under Canada’s various carbon pricing systems as evidence of “carbon price paid”?
If not, Canadian exports might face extra tariffs. This could double the carbon cost or hurt competitiveness.
This makes it even more important for Canada to standardize and strengthen its carbon pricing framework before 2026. This is to ensure that its pricing and credits are recognized internationally. Otherwise, Canadian industries like steel, aluminum, and cement might find it hard to compete. This is especially true in markets with strict climate-related import rules.
Strengths and Challenges of Canada’s Carbon Pricing
Carbon pricing works to link environmental costs with economic decision-making. For large emitters, it encourages improved efficiency. Carbon pricing revenue, especially from the OBPS, can fund clean energy projects. It also supports carbon capture and investments in low-carbon infrastructure.
A recent evaluation by the government highlights that industrial carbon pricing helps reduce emissions with minimal impact on households.
But there are major challenges too. The system varies by province, so many industries might have low carbon costs. This means there is little motivation for real change.
A 2022 report from the Office of the Auditor General of Canada (OAG) found that weak rules in provincial large-emitter programs lower the impact of carbon pricing. Also, the unclear use of carbon revenues and the long-term price outlook have made some firms hesitant to invest in cleaner technologies.
The Stakes: Canada’s Climate Credibility and Industrial Future
The 2026 benchmark review could reshape Canada’s carbon pricing for decades. Key signs to watch are:
- Whether the government sets a new, clear carbon price path beyond 2030 — possibly up to 2050, that would give firms confidence to invest in long-term clean solutions.
- Whether provincial carbon pricing systems become more harmonized. This means similar rules, credit prices, and transparency everywhere.
- Introducing a price floor or other methods can help prevent deeply discounted carbon credits. This ensures a strong carbon price signal.
- Will Canadian industrial credits and compliance be set up to gain recognition under global systems like CBAM? This could help keep Canadian exports competitive.
Canada’s carbon pricing, especially for industry, is at a crossroads. The removal of the consumer carbon tax in 2025 reflects a shift toward focusing on industrial emissions. Meanwhile, the upcoming 2026 benchmark review offers a chance to make this system stronger, fairer, and more predictable.
However, much depends on political and regulatory will. Without clear pricing, rules, and long-term certainty, the carbon price might be too weak. This puts Canada’s climate goals and global competitiveness at risk. But if the government and provinces act quickly, carbon pricing can help Canada shift to a low-carbon economy while also keeping industries competitive.
The post Canada’s Carbon Pricing Reset in 2026: Will Industry Step Up or Stall Climate Progress? appeared first on Carbon Credits.
Most businesses that decide to act on their net-zero targets reach the same point of friction. Buying carbon credits has meant tracking down brokers, sitting through sales calls, and requesting a quote just to learn a price, sometimes with limited proof of what you are buying.
The earnings calls that quietly reframed climate from sustainability question to operating risk.
Three earnings calls in the last 18 months tell the story without any help from a press release.
Hershey, May 2024: cocoa price exposure compresses margin, and the company attributes part of the cost shock to West African weather. Olam, July 2024: coffee climate exposure quantified in the annual report. JBS, January 2025: supply chain climate disclosures expanded materially in response to investor pressure and regulatory expectation. None of these companies issued the announcement as climate news. They issued it as financial news. The climate-linked supply chain risk did not arrive with a sustainability framing; it arrived as a P&L line.
You are probably reading this article because you suspect the same thing is happening to your business. This piece walks through what is showing up on which earnings calls, how procurement and finance leaders are quantifying the exposure, and what serious corporates are doing about it before the regulator asks.
Where climate risk has already appeared in earnings
The pattern is consistent across resource-intensive sectors. A weather event compresses supply, the price spikes, the cost flows through the income statement, and the analyst on the call asks whether the event is anomalous or structural. Increasingly, the honest answer is the second one.
Cocoa is the cleanest example. The 2023 to 2024 West African harvest fell sharply on the back of erratic rainfall and disease. Cocoa futures more than tripled. Companies with concentrated West African sourcing absorbed the cost; companies with diversified sourcing absorbed less. The exposure was not climate as ESG topic. It was climate as cost of goods.
Coffee follows the same pattern. Brazilian and Vietnamese harvests have moved on weather more sharply across the last several seasons. Roasters with long-tenor supplier relationships and origin diversification have managed the volatility; roasters with spot-market exposure have not. Wheat, sugar, palm oil, beef: the same dynamic in different commodities, a pattern the IPCC AR6 Working Group II report projects will intensify across agricultural systems through mid-century.
What this means: climate risk is no longer a footnote in the 10-K. It is a line item the CFO has to explain on the call.
The three commodity exposures that hit margin first
For most companies with material Scope 3 exposure, three exposures dominate the near-term P&L risk.
- Concentrated single-origin sourcing in a climate-vulnerable region. If your tier-one supply for any material commodity sits in one geography, you have a concentration risk that climate amplifies. Diversification across origins is the obvious hedge, but it takes years to build and requires relationships you cannot acquire by tender.
- Supplier financial fragility under climate stress. Smallholder farmers, who supply a large share of the global cocoa, coffee, and palm oil market, do not carry the balance sheets to absorb yield shocks. When yields collapse, they exit. When they exit, your supply base shrinks, and the surviving suppliers raise prices. The risk is structural, not cyclical.
- Logistics and storage exposure to extreme weather. Hurricane disruptions to Gulf shipping, drought-driven Panama Canal restrictions, flooding in European inland waterways: each of these has moved input costs in the last three years, a pattern documented in Munich Re’s natural catastrophe data. The exposure shows up as a one-quarter event in the financial press but accumulates over time on the cost line.
TCFD and ISSB disclosure changes
The disclosure architecture has now caught up with the risk. The Task Force on Climate-related Financial Disclosures, whose recommendations are now embedded in the ISSB’s IFRS S2 climate standard, requires companies to disclose climate-related risks across physical and transition categories, with quantification where possible.
For physical risk specifically (the climate-linked supply chain risk you are reading about), the disclosure must address both acute exposures (extreme weather events) and chronic exposures (gradual changes in temperature, precipitation, and growing seasons). The disclosure must address the time horizon over which the risk is material, the parts of the value chain exposed, and the financial impact under different scenarios.
The CSRD imposes similar requirements under European law, with double materiality (both financial and impact materiality) embedded in the assessment. The practical effect: your auditors and your investor relations team now need a defensible answer to the climate-linked supply chain risk question, and the answer needs to be quantified.
What procurement and finance can do now
Three actions matter near-term.
Map your exposure. Most companies do not have a clear view of which tier-one and tier-two suppliers sit in which climate-vulnerable geographies. Without the map, you cannot quantify the risk, and without the quantification, you cannot disclose it credibly. The map is the foundation, and World Resources Institute climate risk research provides useful public tooling to start.
Diversify and deepen, in that order. Diversification across origins reduces concentration risk, but the deeper move is to invest in the resilience of the suppliers you already have. Regenerative practices, agroforestry, soil health interventions: these reduce yield volatility under climate stress and protect your input cost trajectory.
Embed the climate spend inside procurement, not outside it. Treating climate risk as a sustainability cost line subordinates it to the ESG budget. Treating it as a procurement and resilience investment puts it in the budget that matters, which is the cost-of-goods budget that the CFO defends quarterly.
Nature-based supply chain investments are the asset class designed for exactly this purpose. They sit inside the value chain, they reduce climate-linked supply risk, they generate verifiable Scope 3 reductions, and they produce the documentation an auditor and a regulator can both test.
If you are quantifying climate-linked supply chain risk in advance of the next earnings cycle or the next disclosure period, the carbon and sustainability experts at Carbon Credit Capital can help you map your exposure and structure a Dual-Value Model response that addresses reduction, resilience, and disclosure-readiness in a single program. Schedule a consultation.
More and more small and medium-sized businesses are hearing the same question from their larger customers: What is your carbon footprint? That question now travels down entire supply chains, and it arrives next to tender requirements, certification criteria, and rising customer expectations.
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