Canada has pioneered national and provincial carbon pricing for almost two decades, but its long-standing carbon management policies became a prominent, divisive topic during the 2025 national election. Tensions over carbon pricing influenced the outcome of the election, the results of which will have lasting implications on Canada’s carbon management approach. The Liberal Party of Canada (LPC) won 169 seats across the Parliament in this year’s election (as of April 30, 11:30 ET), which indicates voters’ support for moving away from a consumer-pay carbon tax model. However, this support should not be seen as a dismissal of climate policy more broadly. The LPC platform signals continued support for market-based instruments to decarbonize the industrial sector, as well as the other policy tools for carbon management, such as the nation’s robust Carbon Capture Utilization and Storage Investment Tax Credit.

Canada’s long history of leadership on carbon pricing

Provinces such as Quebec and Alberta introduced carbon pricing as early as 2007. In 2019,  the national carbon pricing scheme went into effect, setting a national carbon pricing benchmark, requiring provinces and territories to meet or exceed that benchmark. At the time, this policy received universal support in Parliament.

Prior to the announcement of changes to Canada’s carbon pricing system on March 14, 2025 (entered into effect on April 1, 2025), the federal carbon pricing system had two parts: 

1. A regulatory charge on fossil fuels like gasoline and natural gas, known as the consumer-pay fuel charge or consumer-pay carbon tax.

2. A performance-based system for industries known as the Output-Based Pricing System (OBPS) or industrial carbon tax.

Figure 1: Map of provincial/territorial versus federal carbon pricing schemes across Canada. Adapted from the Environment and Climate Change Canada (ECCC).

The consumer fuel charge started at CA$20/tCO2 in 2019, rising annually on April 1 by  CA$15/tCO2 to reach CA$170/tCO2 in 2030. Revenue from the consumer-pay fuel charge was returned to individuals and families via the Canada Carbon Rebate. The remaining revenue was then distributed to farmers, small- and medium- enterprises, and Indigenous governments. After the most recent increase to CA$80/tCO2 in April 2024, the price increase for consumers was estimated at an additional three cents per litre of gasoline.

The federal industrial carbon tax rate varies across provinces and territories. Revenue from the industrial carbon tax is distributed through the OBPS Proceeds Fund, administered by Environment and Climate Change Canada (ECCC). The revenue is directed into two key programs: the Decarbonization Incentive Program (DIP) and the Future Electricity Fund (FEF). All revenue from industrial carbon pricing is returned to local economies, with the goal of improving energy efficiency, increasing the adoption of sustainable solutions, and lowering the industrial sector’s overall carbon footprint. 

Figure 2: Carbon Direct

Carbon pricing was center stage in the election campaigns

Carbon pricing emerged as a polarizing issue during the 2025 national election. The Conservative Party of Canada (CPC) adopted the slogan “Axe the Tax,” defining their party with the promise of eliminating all aspects of Canada’s federal carbon pricing scheme. While the Liberal Party of Canada (LPC) supported Canada’s carbon pricing scheme in previous election cycles, the political capital expenditure may not have proven worthwhile.

Leading up to the 2025 elections, former Prime Minister Trudeau of the LPC announced his resignation after 12 years of serving as the leader of the LPC. His interim successor, Mark Carney, stated during his campaign for Prime Minister that “the consumer carbon tax isn’t working” and that he intends to replace the consumer-pay fuel charge with consumer-facing incentives paid for by OBPS. 

On his first day as interim Prime Minister in March 2025, Carney announced the government’s intention to remove the consumer-pay fuel charge requirement at the federal, provincial, and territorial levels. The implementation of this policy change, combined with the unifying concern for the US tariffs on Canadian products, likely resulted in the change of public support for this former governor of the Bank of Canada, whose party trailed behind the CPC until March of 2025. PM Carney’s expeditious termination of the consumer-pay fuel charge indicated a shift in the LPC’s platform, just weeks before the election. As the LPC is poised to build the next government in Canada, the OBPS is likely to remain intact. 

Canada’s commitment to industrial decarbonization

The 2025 election results reinforce Canada’s focus on industrial emissions rather than consumer emissions. Although the CPC advocated strongly to repeal all carbon pricing, the LPC maintained its commitment to tax the high-emitting industrial sector. This is not only important for driving down emissions, but it also provides a significant source of revenue for the climate transition.

Canadian voters have signaled opposition to consumer-pay carbon taxes, while sustaining support for taxes on industrial sources. Carney’s Made-In-Canada Competitiveness Strategy would extend the OBPS to 2035 and tighten the credit allowance, while also working toward a carbon border adjustment mechanism to ensure trade competitiveness. Canada’s OBPS revenue is reinvested into decarbonization activities, such as providing grants for installing emissions abatement technologies for industrial products. The table below illustrates the estimated revenue collected under the federal OBPS between 2019 to 2022.

Figure 3: Adapted from the Environment and Climate Change Canada (ECCC).

Preparing your business for policy changes ahead

The evolving political and policy landscape in Canada has real implications for businesses operating domestically and internationally. Organizations must stay ahead of regulatory changes, evaluate carbon pricing exposure, and understand how shifting incentives could affect carbon credit projects and compliance strategies. 

As the global carbon market continues to expand, staying informed on regional developments like Canada’s new approach to carbon pricing is essential for minimizing risk and seizing emerging opportunities. 

Carbon Direct’s policy team provides policy forecasts, landscape assessments, and integrated policy analysis to support our clients in scaling high-quality carbon removal and mitigating risk.