The collapse of the supply-and-confidence agreement and declining support for the Liberal government, Canada’s climate policy framework is becoming increasingly precarious.
Key initiatives, such as investment tax credits and carbon pricing, now hang in the balance as industrial emitters express hesitancy in committing to major emission-reduction projects without clearer policy guarantees.
In response to this uncertainty, experts have highlighted carbon contracts for difference (CCfDs) as a potential solution.
CCfDs offer price stability by ensuring that a government entity guarantees a fixed price for emissions reductions achieved by industrial projects.
If the market price dips below this fixed price, the government compensates the project proponents, while excess earnings from market price increases are returned to the government.
This mechanism has proven effective in several countries, including the UK, and is seen as vital for attracting significant investments in industrial decarbonization.
Canada’s future emissions reduction efforts hinge on strategic policies amid shifting political geographies.Canada has allocated up to $7 billion through the Canada Growth Fund to support CCfDs, aiming to stabilize investments while advancing emissions-reduction goals.
However, some researchers caution against over-relying on CCfDs. While they provide immediate financial reassurance to companies, they may inadvertently undermine existing climate policies and delay urgent actions needed for a genuine transition to net zero.
Three main concerns arise with a CCfD-based approach. First, by safeguarding the financial interests of recipients, there is less incentive to support robust climate policies.
Second, focusing on certain emissions reduction projects may inadvertently prop up industries resistant to necessary climate reforms.
Lastly, the lengthy process of issuing CCfDs could lead companies to postpone critical investment decisions, stalling progress.
As Canada grapples with its climate strategy, a more nuanced approach is necessary—one that connects current industrial practices to long-term sustainability goals, ultimately fostering resilience in climate action regardless of political shifts.