Module: Carbon pricing
How does Canada price carbon now?
Canada priced carbon in two ways: a charge on fuels paid by households and businesses, and output-based systems for large industrial emitters. The consumer fuel charge ended on April 1, 2025. Industrial pricing remains, on a slower path announced in May 2026.
- Benchmark price, 2025
- $95per t
- Up from $20 in 2019
- Consumer fuel charge
- $0
- Since April 1, 2025
- Industrial path, 2030
- $115per t
- Previously $170
- Industrial path, 2040
- $140per t
- Updated trajectory, May 2026
Price schedules
Carbon price schedules, 2019–2040
Dollars per tonne CO₂e. The consumer fuel charge was set to $0 from April 1, 2025; industrial pricing continues on a revised, lower path.
Output-based pricing: paying only above the line
Large emitters face a limit based on how much they produce. They pay for emissions above it and earn credits below it.
Output-based pricing calculator
A facility pays only on emissions above its limit (output × standard), but every tonne it avoids is worth the full carbon price.
| Emissions (output × actual intensity) | 850,000 t |
| Emissions limit (output × standard) | 800,000 t |
| Excess emissions | 50,000 t |
| Average cost per tonne emitted | $5.59 |
| Marginal value of avoiding one more tonne | $95 |
| Value of cutting intensity by 0.01 | $950,000 |
The average cost is low because most emissions fall under the limit, which protects competitiveness. The marginal incentive is still the full price — that is what drives abatement.
Where does abatement stop?
Marginal abatement cost and the carbon price
A stylised industry emitting 60 Mt. Firms abate every tonne that costs less than the price, so abatement stops where the price meets the marginal cost curve.
Three kinds of system
Exercises
In the calculator, a facility produces 1 million tonnes with a standard of 0.80 and an actual intensity of 0.85, at $95 per tonne. What does it pay, and what is its average cost per tonne emitted?
Check your reasoning
Excess emissions are 1,000,000 × (0.85 − 0.80) = 50,000 t, so it pays $4.75 million. Average cost is $4.75M ÷ 850,000 t ≈ $5.59 per tonne emitted, but the marginal value of avoiding a tonne is still $95.
Who bore the cost of the consumer fuel charge, and what was done with the revenue? Why did the government argue most households came out ahead?
Show a hint
Look up the Canada Carbon Rebate and think about how its payments related to household energy use.
Check your reasoning
Fuel suppliers remitted the charge but most of it was passed on to consumers through prices. Most revenue was returned as equal lump-sum rebates, so households that used less fuel than average received more than they paid; the price signal at the margin was kept while the average burden was offset.
Use the MAC chart: at $95/t with a slope of 4, how much is abated? If the true slope is 8, how much is abated at the same price? What does that imply about choosing a tax over a cap when costs are uncertain?
Check your reasoning
About 23.8 Mt at slope 4, about 11.9 Mt at slope 8. A tax fixes the cost per tonne but the quantity is uncertain; a cap fixes the quantity but the price is uncertain. Weitzman (1974) shows the better choice depends on whether the damage curve or the cost curve is steeper.
The updated industrial path reaches $130 in 2035 instead of $170 in 2030. Using the MAC logic, describe the expected effect on abatement and on the credibility of future targets.
Check your reasoning
A lower price means firms stop abating at a lower point on their MAC curves, so less abatement for the same technology. Long-lived investments (carbon capture, electrification) depend on expected future prices, so revisions can also reduce investment by making future prices less credible.