Why a Price Floor Could Fix Weaknesses in Canada’s Industrial Carbon Pricing Systems

March 26, 2026 –Weaknesses in the federal industrial carbon pricing benchmark risk limiting progress toward national greenhouse gas reduction targets. As the federal government prepares its 2026 review of carbon pricing, Canada’s carbon pricing benchmark needs to be retooled to improve transparency, fairness, and efficiency, according to a new report by the C.D. Howe Institute.

In “One Federation, Many Prices: A Price Floor for Carbon Pricing in Canada,” Nicholas Rivers argues that Canada’s industrial carbon pricing benchmark could be improved with a simple but significant change: require a minimum price floor in all price-based systems across the country.

“While effective in theory, the current benchmark relies too heavily on subjective assessments, making compliance decisions vulnerable to political influence,” says Rivers, Professor at the University of Ottawa. “We need a system that is clearer, more predictable, and easier to enforce.”

At the core of the issue is the federal government’s “demand test,” which estimates whether provincial systems will achieve minimum stringency.  The report finds this approach indirect and overly complex, relying on economic models ill-suited for facility-level regulation and prone to uncertain results.

The current system also lacks transparency, according to Rivers. Key details, including performance standards, credit prices, trading activity, and model inputs, are difficult to access. Fragmented regional markets and high transaction costs further limit the effectiveness of credit trading, while inconsistent carbon prices across provinces create uneven emissions reductions and economic distortions.

“A price floor would replace this complexity with a clear, objective rule,” says Rivers. “By guaranteeing a minimum price for carbon credits, governments can reduce uncertainty, improve market function, and ensure more consistent emissions outcomes across provinces.”

With consumer carbon pricing phased out and Canada refocusing on industrial carbon pricing, Rivers argues that introducing a price floor would provide greater certainty for businesses. Firms would be able to sell credits at a guaranteed minimum price, helping define expectations for future carbon costs while lowering transaction barriers.

“With the carbon pricing review ahead, now is the time to address these complexities,” says Rivers. “A price floor would align incentives across provinces while still allowing regulators to protect industrial competitiveness.”

Read the Full Report

For more information, contact: Nicholas Rivers, Full Professor, School of Public and International Affairs, University of Ottawa; Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805-3918, rschneider@cdhowe.org. 

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

Want more insights like this? Subscribe to our newsletter for the latest research and expert commentary.