Prime Minister Mark Carney admitted on May 15, 2026, that "Canada's carbon market is broken" during the Alberta and Canada Energy MOU announcement. This rare honesty highlights a critical issue: the carbon industry in Canada is not functioning as intended.
The Broken Promise of Carbon Pricing
Varme Energy, an Edmonton-based company, developed a project in response to federal requests. The company converts municipal waste into electricity while capturing and storing carbon emissions. Similar facilities operate successfully across Europe, but in Canada, the carbon credit market makes such projects unviable.
Initially, the carbon economics worked. Companies like Varme made investment decisions based on the 2020 announcement of a $170/tonne carbon price by 2030 and a 50% carbon capture investment tax credit in 2021. Developers raised capital, advanced engineering, secured permits, and negotiated agreements based on these signals.
Policy Shifts Undermine Investment
The recent MOU between Alberta and the federal government establishes a new floor price of $60 per tonne in 2030. While intended to provide certainty, it dramatically reduces revenue expectations for carbon capture projects. Varme's costs are approximately $118 per tonne to capture and store carbon, but available carbon revenues are materially lower. Even the strongest carbon contracts leave Varme losing more than $30 per tonne before capital costs.
Direct requests to improve the business model have been rejected. Varme supported a 13-company coalition requesting harmonized tax credits for Bio-CCS and Direct Air Capture. Finance Canada responded that "economics are sufficient," despite no Bio-CCS projects ever being financed in Canada.
Comparison with the United States
In the United States, permanently sequestered carbon can generate approximately $120 Canadian per tonne through federal incentives alone, and companies can still sell their CO2. Donald Trump's America offers stronger operating economics for carbon sequestration. Investors respond to incentives, and capital flows where projects can earn returns. Many are now looking southward.
American carbon developers benefit from Trump's $85 USD production tax credit and also earn the majority of the value from Canada's own clean fuel regulations market—costs borne by all Canadians at the pump. The carbon market remains broken, and without policy corrections, Canada risks losing its competitive edge in carbon capture technology.
