Decarbonizing emissions-intensive, trade-exposed industries under an output-based pricing system

There is still significant uncertainty concerning the policy and technology pathways that could lead to decarbonizing Canada's emissions-intensive, trade-exposed (EITE) industries. In this study, the CIMS energy-economy model is used to explore how Canada's industrial carbon price—the Output-Based Pricing System (OBPS)—can contribute to low carbon technology adoption and emissions reductions. In the model simulation, four scenarios are designed to represent varying levels of policy stringency as a proxy for Canada's climate ambitions, in a future where carbon leakage and competition concerns remain prevalent for cost-sensitive industries. These scenarios were evaluated in terms of OBPS credit market trading, emissions reductions, production costs, and technological change. Results show that with a $180/tCO2e credit price in 2050, a 42% reduction in emissions is achieved in the model at moderate cost to EITE industries. In higher stringency scenarios, further emissions reductions occur but average production costs rise by more than 5% across all industrial sectors, suggesting that deep decarbonization of EITE industries may require further policy support to minimize carbon leakage and competitive losses.