The Invisible Industrial Carbon Tax

Making Sense Of Industrial Carbon Pricing In Canada

Contributed by Robert Lyman © 2025. Robert Lyman’s bio can be read here.

image licensed from Adobe Stock

EXECUTIVE SUMMARY

On March 14, 2025, his first day as Prime Minister of Canada, Mark Carney ordered the suspension of the federal fuel charge.  He left unchanged the other components of the federal government’s “carbon pricing system”, including notably the Output-Based Pricing System (OBPS), generally known as the industrial carbon tax.

On December 11, 2025, the House of Commons Committee on Environment and Sustainable Development held a meeting to hear witnesses testify concerning industrial carbon pricing. The main witness was the Hon. Julie Dabrusin, Minister of the Environment, Climate Change and Nature. David Bexte, Member of Parliament for Bow River, Alberta asked Minister Dabrusin what the anticipated federal government “take” from the OBPS would be every year. The Minister said that the revenues collected from the tax “goes back to the province or the jurisdiction where it’s collected, and then that is often paid back to industries”, and “it does not go to federal coffers”. That exchange largely misses the point about the problems with the OBPS.

The OBPS system is extremely complex. It is balkanized across Canada The balkanized system is governed by the Pan-Canadian Approach to Pricing Carbon Pollution (known as the federal benchmark) which sets stringency criteria that all provincial and territorial industrial carbon pricing systems must meet. A facility is not subject to carbon pricing for GHG emissions below an intensity benchmark, which measures emissions per unit of output. Emissions above the benchmark give rise to compliance obligations, which may be satisfied either by paying a carbon price  – which follows the same schedule as the federal fuel charge – or surrendering emissions credits purchased from others. It thus includes at least three components, a carbon price, an emissions intensity standard, and an emissions trading feature. In most jurisdictions, the funds raised as a result of the system must be spent on emissions-reduction projects or investments. They are not returned to taxpayers through refunds or made available for investment in projects justified by their economic merits.

The most up-to-date information available concerning the revenue raised by federal and provincial OBPS systems indicates that they are in the range of $2 billion per year. The Public Accounts of Canada indicate that the “excess emission charges” in the federal government system alone totaled $301 million in 2022-23, $225 million in 2023-24 and $15 million in 2024-25.

Environment and Climate Change Canada recently published a discussion paper in which it outlined perceived problems with the current OBPS system, including a proposal to modify the required coverage of the system to include smaller emitters (those emitting under 10,000 tonnes per year for conventional oil and gas activities). It is not clear how, if at all, these considerations would be affected by the recently-signed memorandum of understanding between Canada and Alberta. The timing is strange.

Many Canadians think that the carbon tax has been eliminated. They are unaware of the complexity and cost of the carbon pricing regime imposed on Canadian firms, of the magnitude of the costs and of the misallocation of resources it causes. The Carney government’s move to make the OBPS even more costly and restrictive may draw attention to what is really happening.

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