Evolving Carbon Pricing Regulations in Canada: Impact & What to Watch

The federal benchmark now runs to $140 by 2040, Alberta gets a credit price floor, BC gets compensated, and Saskatchewan sits outside every operating system. A market-by-market read of the federal OBPS, Alberta TIER, BC OBPS, and Ontario EPS after the July 2026 package.

By Koorosh Behrang • July 3, 2026 • 12 min read

At a Glance — Our Assessment

The Reset by the Numbers

In fourteen months, Canada removed its consumer carbon price, froze and then re-anchored its industrial price, and replaced a uniform $15-per-year escalator with a negotiated trajectory that runs to 2040. The July 2026 package — a west coast pipeline referral, a trilateral Pathways MOU, and the Canada–BC Cooperative Prosperity Agreement — is the first time the new architecture has been applied deal by deal, province by province.

For anyone holding, buying, or creating compliance credits, the question is no longer “what is Canada’s carbon price” — it is “what is the price, floor, and stringency in my system, and what did my province negotiate.” This commentary works through the four operating markets in turn.

Canada prices industrial emissions through the Greenhouse Gas Pollution Pricing Act (GGPPA) benchmark: provinces either run their own system that meets the federal minimum, or the federal Output-Based Pricing System (OBPS) applies as the backstop. Between April 2025 and July 2026, nearly every load-bearing element of that architecture changed.

The through-line: industrial carbon pricing survived — every deal reaffirms it — but its parameters are now set in federal–provincial negotiation rooms, not in a uniform national schedule. The full updated benchmark, expected later in 2026, will codify what those rooms produced.

On May 15, 2026 the federal government updated the headline price trajectory for every industrial carbon pricing system assessed under the benchmark — the same schedule agreed with Alberta days earlier. The trajectory is lower than the prior path through 2030 but extends ten years further, to 2040.

Updated trajectory holds $100 from 2027–2029, steps +$3/yr from 2030–2035, then escalates ~1.5%/yr to $140 in 2040. A full updated federal benchmark is expected later in 2026.

Two readings coexist. Bearish: the 2030 price signal is cut by roughly a third, and a $3/yr nominal ladder likely trails inflation mid-decade. Bullish: for the first time, every project financier in Canada can underwrite a carbon price to 2040 with federal–provincial agreement behind it — and in Alberta, a regulated floor under the credit itself.

The federal OBPS operates today in Manitoba, Prince Edward Island, Yukon, and Nunavut. It is also the legal backstop for Saskatchewan — but it has not been implemented there. After Saskatchewan paused its own provincial OBPS, large emitters in the province have faced an effectively zero carbon price, and Ottawa has so far not moved to apply the backstop. That gap — a province with no operating system and no enforced federal replacement — is the clearest evidence that benchmark enforcement has become a negotiation, not an automatic mechanism.

Where the federal OBPS does operate, it is a small market moved by outside forces. Facilities beating their output-based standard earn surplus credits; those exceeding it pay the excess emissions charge or remit surplus credits, federal offset credits, or recognized units — a category of select Alberta TIER offsets and BC forest carbon offsets.

Impact of the reset. Two forces pull in opposite directions. The lower headline trajectory compresses the price ceiling — bearish for surplus credit values. But Alberta’s $60 credit floor from 2030 effectively imports a floor into the federal market through the recognized-unit channel: if TIER units cannot legally transfer below $60, the cheap supply that caps federal pricing disappears. Meanwhile, with the consumer fuel charge gone, voluntary participants that opted in to avoid it are exiting — regulatory amendments already allow this, and analysis by ClearBlue Markets pegs the potential demand loss at up to ~9.5% across evaluated programs.

Canada’s oldest and largest industrial carbon market is where the reset was negotiated, and where its mechanics bite first. We covered the Implementation Agreement’s architecture in detail in our May commentary; the July 2 trilateral MOU with the Oil Sands Alliance (Canadian Natural, Suncor, Cenovus, Imperial, and ConocoPhillips) now adds the industry counterparty.

The MOU’s core trade: the Alliance commits to 16 Mtpa of net emissions reductions — 6 Mtpa from Pathways carbon capture and storage by January 1, 2035, plus 5 Mtpa of additional reductions by 2040 and a further 5 Mtpa by 2045. In exchange, compliant Pathways companies face benchmark tightening of 1% per year instead of 2% from 2031–2040. Definitive agreements are due this fall.

Market read. TIER credits collapsed to roughly $18 during the freeze, jumped ~25% on the November MOU, and traded in the $30–40 range through Q1 2026. The forward curve now has a regulated anchor: hold-to-2030 economics improve mechanically as the floor approaches. Everything else turns on how Alberta defines and manages the effective price — the market price of credits it has agreed to steer toward $130 by 2040 — via offset usage limits, stringency top-ups, or floor design. The floor regulation, due by December 31, 2026, is the single most consequential regulatory document pending in Canadian carbon markets.

British Columbia runs the most stringent design in the country: mandatory for industrial operations above 10,000 tCO₂e since April 2024, a compliance charge tracking the federal minimum ($95 for compliance year 2025), and a compliance-unit usage limit that tightens from 50% in 2024 to 30% from 2026 onward. Earned credits and BC offset units have traded around $65 against an $80 charge — the smallest discount of any provincial credit market except Ontario’s.

BC built its fiscal plan on the old ride to $170 by 2030 — and aligned its system to the federal benchmark in good faith, including repealing its consumer carbon tax when Ottawa dropped the fuel charge. The May reset strands that alignment. The Canada–BC Cooperative Prosperity Agreement (July 2) answers with a first-of-its-kind commitment: Canada will quantify the fiscal impact of the revised benchmark and negotiate a funding agreement that fairly compensates BC, with the arrangement due on or before December 1, 2026.

The precedent matters beyond BC: benchmark alignment is now a federally compensated liability. Expect other provinces to cite it in their own equivalency negotiations.

Ontario’s Emissions Performance Standards program is the structural outlier: offsets are not eligible for compliance. Facilities either remit Emission Performance Units (EPUs) generated by out-performing facilities, or pay the excess emissions charge. That scarcity design — combined with minimal public data on issuance and trading — has made ON EPS Canada’s tightest and most opaque credit market. EPUs trade around $72, the country’s highest credit price and the smallest discount to the government charge (for the 2023 compliance year, EPUs averaged $57 — a 13% discount to the $65 charge).

Ontario’s charge follows the federal benchmark, currently $110 for 2026 on the old path. The reset cuts the 2027 ceiling from a scheduled $125 to $100 — and in a market where the credit trades near the ceiling, cutting the ceiling directly cuts EPU value and the abatement economics built on it. An August 2025 amendment allowing voluntary participants to exit the program trims demand at the margin.

Ontario faces the same equivalency re-test as everyone else when the full benchmark publishes. Whether Queen’s Park mirrors the new trajectory promptly — or uses the moment to push for further softening — is the province-level decision to watch.

The benchmark is now a floor negotiated deal-by-deal, not a uniform escalator. Alberta traded pipeline cooperation and CCUS for a softer, longer price path. BC traded corridor cooperation for compensation and infrastructure. Saskatchewan has so far traded nothing and pays nothing. The full 2026 benchmark publication must reconcile these bilateral outcomes into criteria that still mean something — on coverage, stringency, credit usage rates, and offset eligibility.

Offsets are fragmented three ways too — BC, Alberta, and the federal government each run their own offset program. Three separate legal frameworks, three protocol lists, three registries — and credits that are not interchangeable between them. For project developers, the choice of program determines protocol eligibility, buyer pool, and price floor exposure.

The linkage is strictly one-way — provincial offsets can flow up into the federal system as recognized units, but federal credits are not accepted provincially and the provinces do not accept each other’s. Ontario accepts none of them. Québec runs a fourth protocol list inside its cap-and-trade system.

A National Carbon Credit Framework enters the picture — the first attempt to knit these together. The Canada–BC agreement commits both governments to work with provinces and territories on a framework covering credits from consumer sustainability choices — retrofits, EVs — and nature-based solutions. Read alongside Budget 2025’s first-ever federal language on linking and harmonizing credit markets, this is the clearest signal yet that Ottawa wants a common credit infrastructure spanning today’s fragmented systems. For offset developers — especially nature-based — it is the document stream to track.

Clean fuel and clean electricity credit systems are being recruited as carrots. The Pathways package contractualises a minimum 20% Clean Fuel Regulations credit-creation rate for upstream CCUS and extends the CCUS ITC to 2035; the BC agreement extends the Clean Electricity ITC to major intra-provincial transmission. Compliance credit systems beyond the GGPPA are now part of the federal deal-making toolkit — which supports credit supply, but also ties their parameters to megaproject politics.

CBAM is the external deadline nobody negotiated with. The EU’s definitive regime prices embedded carbon in imports from 2026. The lower Canadian trajectory widens the EUA spread, and it remains unresolved whether compliance met through offsets and credits — standard practice in TIER and BC — will be recognised as “carbon price effectively paid.” A weaker domestic price that isn’t CBAM-recognised simply transfers revenue from Canadian treasuries to Brussels.

About the Author

Koorosh Behrang Founder, Climate Decode Founder of Climate Decode with more than 10 years of experience across decarbonization strategy, corporate sustainability, Net Zero target setting, and compliance carbon markets. His work centres on the interaction between decarbonization pathways and regulated carbon systems. Koorosh has worked extensively across programs including WCI, Ontario EPS, Alberta TIER, BC OBPS, Canada’s Clean Fuel Regulations, the EU ETS, the EU Shipping ETS, and FuelEU Maritime, integrating carbon pricing exposure, credit strategy, and regulatory trajectory into capital allocation and long-term compliance planning. Speak to Koorosh → LinkedIn →