ISF Comments on Driving Effective Carbon Markets in Canada

The potential for Canada’s industrial carbon markets to deliver credible incentives for decarbonization while protecting competitiveness is being undermined by market fragmentation and limited transparency.

To begin to address these issues, ISF’s response to an open consultation held by Environment and Climate Change Canada recommends two practical, high‑impact steps toward more cohesive and investable carbon markets across Canada:

• Increase market liquidity via an interprovincial credit trading mechanism, starting with a time-limited Alberta–British Columbia pilot.
• Enhance transparency through standardized public reporting of carbon market transactions.

Read and download ISF’s Comment on Driving Effective Carbon Markets in Canada.

“ISF supports Environment and Climate Change Canada’s efforts to strengthen industrial carbon markets,” said ISF Director of Research Yrjö Koskinen. “It’s hard to justify that the European Union, spanning 27 sovereign member countries, can run a single, transparent emissions‑trading market while Canada is still stuck with fragmented, poorly aligned carbon markets. We must do better than this.”

“Properly functioning markets need quality data,” said ISF Research Associate Apoorva Hegde. “Major improvements to digital pricing and data transparency should be seen as low-hanging fruit to advance carbon credit trading in Canada.”

Interprovincial credit trading

Canada’s industrial carbon markets are currently fragmented, and market participants have highlighted that small markets and limited participation can reduce liquidity and weaken the price signal. Firms operating in multiple jurisdictions also face a higher administrative burden when compliance units cannot be used across their business portfolio. Interprovincial credit trading — designed with appropriate safeguards — would be a practical step toward a more cohesive Canadian market while preserving provincial flexibility. While this is a long-term goal, a major first step would be to establish a federal interoperability framework and launch a time‑limited Alberta–British Columbia credit pilot, allowing trading between two similar provincial output-based pricing system (OBPS) credit markets.

Improved data transparency

The ECCC discussion paper notes that limited transparency on credit supply, demand, trading volumes and prices undermines predictability and the ability to make informed compliance and investment decisions. More consistent and timely reporting — paired with confidentiality safeguards in smaller markets — would strengthen price discovery, market confidence and oversight. ISF’s Comment recommends strengthening benchmark public reporting requirements with standardized, timely publication of key market metrics (prices, volumes, supply/demand and compliance), and establishing a national portal for large-emitter trading system (LETS) daily market information. This would support stronger price discovery and enable the emergence of derivative instruments (carbon futures and options) to improve hedging, investment signals and liquidity.