Canada’s budget to set up carbon credit contracts for differences for large projects

So-called contracts for differences set a price on tradable carbon credits, which heavy emitters can get if they reduce pollution. If the market price for the credit falls below the minimum in the contract, the government would make up the difference.

Canada’s system will be run through a growth fund announced in last year’s budget, which will be operational “in the coming months” and will be “particularly focused on large projects,” said the source, who was not authorized to speak on the record.

The Ministry of Finance had no immediate comment.

Some heavy emitters such as oil sands producers say lack of pricing certainty has held them back from making significant investments in emission reduction projects like carbon capture and storage. They are also concerned that costly projects could be a waste of money if carbon pricing is scrapped in the future.

Finance Minister Chrystia Freeland will present the 2023-2024 budget bill to parliament on Tuesday. Contracts for differences could be used by companies investing in carbon capture or hydrogen projects, the source said, citing examples.

“People are talking about large capital investments in this net-zero transition. This is just giving businesses some certainty, particularly over the longer term,” the source said.