Exploring the Impacts of Carbon Pricing on Canada’s Electricity Sector

Abstract

Canadian provinces are required to regulate their power sectors using carbon pricing systems that meet national minimum stringency standards, which are set by the federal government. A diverse set of systems has emerged as a result. However, there has been limited assessment of how different pricing mechanisms impact the evolution of Canada’s electricity system. To address this gap, we use an electricity system planning model called COPPER and a scenario-based approach to assess if, and to what extent, different policy regimes impact power sector greenhouse gas emissions and costs. Our results show that carbon pricing systems currently in place lead to significant carbon reductions over the long term, provided that free emissions allocations are reduced. However, the cost-optimal pathway for the power sector differs across provinces depending on the carbon pricing mechanism. Some provinces achieve least-cost emissions reductions by switching from high-carbon technologies to renewables, while others are better served by replacing high-carbon technologies with low-carbon fossil fuel alternatives. Further, provinces that implement cap-and-trade systems may affect the transitions of interconnected jurisdictions. Power sector climate policy design should reflect the heterogeneity of available assets, resources, and neighbouring approaches.