The Ontario government has an opportunity to help protect its critical steel industry as it struggles under the weight of steep U.S. tariffs. Targeted reforms to Ontario’s carbon market would ensure that the steel sector is rewarded for its transformational low-carbon investments and provide needed support for the industry during a period of intense financial strain.

Ontario’s two largest steel mills, Algoma Steel and ArcelorMittal Dofasco, have announced billions of dollars in investments to electrify their steelmaking processes. These investments should benefit from a stable financial return through credit generation in Ontario’s carbon market. 

In 2023, the Ontario government introduced a new emissions benchmark intended to recognize low-carbon transitions in the steel sector. But in practice, steel mills continue to face compliance costs after making significant fuel-switching investments. 

The steel sector is at a critical juncture: with nearly half of all Ontario steel production sold to the United States, the current 50% U.S. tariffs are having a severe impact on sector revenues.

“As the industry navigates these intense trade pressures, domestic regulatory certainty is more important than ever. Properly rewarding these historic capital investments through Ontario’s carbon market would put modernized steel facilities on stronger financial footing, enabling them to weather the storm and secure jobs.”

Richard Mullin, manager of Ontario government relations, Clean Prosperity, and report co-author

“As the industry navigates these intense trade pressures, domestic regulatory certainty is more important than ever,” said Richard Mullin, Clean Prosperity’s manager of Ontario government relations, and report co-author. “Properly rewarding these historic capital investments through Ontario’s carbon market would put modernized steel facilities on stronger financial footing, enabling them to weather the storm and secure jobs.”

Key recommendations

In order to protect Ontario’s steel sector and signal to other industries that Ontario is open for business, we recommend strengthening Ontario’s carbon market in the following ways: 

• Recognize real emissions reductions from fuel-switching investments in the steel sector. Award carbon credits to clearly signal that the Ontario carbon market recognizes and values real emissions reductions achieved through low-carbon investments.
• Support predictable and stable credit values by redistributing credit revenues among all regulated emitters and opening the market to third-party investors. Publish market data frequently and create a centralized marketplace to build investor confidence and incentivize investment. 
• Guarantee the future value of carbon credits. The Government of Ontario should work with the federal government to offer standardized, joint carbon contracts for difference to provide the credit price certainty needed to de-risk low-carbon investments.
• Pursue interprovincial trade. Link with other provincial carbon markets to expand the pool of buyers and sellers available to Ontario industries, ensuring the liquidity and financial certainty needed for major low-carbon investments. 

“A strengthened carbon market is the best tool we have to fund industrial decarbonization,” said Chloe McElhone, research manager at Clean Prosperity and report co-author. “By expanding market access and guaranteeing future credit values, Ontario can build a highly active market that reliably rewards transformational low-carbon investments.”

Read the report

_{Photo credit: Algoma Steel’s Electric Arc Furnace}