Why a tonne of industrial carbon costs $95 in Alberta but credits sell for less than $20

A key part of the memorandum of understanding between Alberta and Ottawa for a new pipeline is a $130-per-tonne "effective credit price" on industrial carbon emissions, but already the two levels of government are talking about that figure in different ways.

The rhetoric is confusing at best, contradictory at worst. And it raises questions about how much understanding there truly is between the two parties.

On the one hand, you have Prime Minister Mark Carney saying the deal “means more than a six-times increase in the industrial price on carbon from its effective level” and Energy Minister Tim Hodgson saying it’s “far above” the current market price in Alberta of roughly $20 per tonne.

On the other, you have Premier Danielle Smith and her staff framing the figure relative to the current $95-per-tonne price the province collects from large emitters (and the previous federal government’s plan to increase that to $170 per tonne by 2030), which makes the new $130-per-tonne level sound like a much smaller increase.

So, who’s right?

According to the specific wording in the memorandum of understanding, the federal government’s framing is more accurate.

But the numbers the provincial government is citing are also real.

The issue is that they are talking about two different — but related — carbon prices.

For simplicity’s sake, we’ll call them the “headline price” and the “market price.”

The “headline price” is the number you are probably more familiar with. It’s the price that polluters pay to the Government of Alberta under its longstanding industrial carbon pricing system. That price is currently $95 per tonne.

But that’s not the only way polluters can square up their emissions obligations. Instead of paying the government directly, they can also purchase carbon credits on an open market, and apply those to cover the vast majority of what they owe.

Right now, those credits are trading at less than $20 per tonne. This is the “market price.”

(To make matters even more complicated, there is a third way companies can cover their emissions obligations under Alberta’s large-emitter system: carbon offsets. But that’s less relevant to the current discussion, so we’ll set it aside.)

The headline price, understandably, gets most of the headlines. But the market price matters — a lot — when it comes to actual emissions reductions, not to mention the fate of another major project: the Pathways carbon-capture proposal.