What are contracts for difference? In finance, a contract for difference (CFD) is a legally binding agreement that creates, defines, and governs mutual rights and obligations between two parties, typically described as “buyer” and “seller”, stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at the contract’s end date. If the closing trade price is higher than the opening price, then the seller will pay the buyer the difference, and that will be the buyer’s profit. The opposite is also true. That is, if the current asset price is lower at the exit price than the value at the contract’s opening, then the seller, rather than the buyer, will benefit from the difference. What are Canada’s plans? Canada aims to be a global innovator in carbon pricing. The 2022 fall economic statement set out a plan to establish carbon contracts for difference, ensuring businesses can “plan long-term investments in decarbonization and clean technologies, based on a predictable price on carbon pollution and carbon credits.” Why is the federal government doing this? Although carbon pricing is widely accepted by economists as the most economically efficient way to cut fossil fuel pollution and the Supreme Court of Canada ruled in favour of the policy in March 2021, the policy faces very strong headwinds from several provinces and the Conservative Party of Canada. Thus, companies don’t know if a future federal government is going to freeze or even cancel the carbon price. This risk is discouraging them from going all-in on cutting their emissions. We are in a climate emergency. We must use every tool at hand to ensure that we cut greenhouse pollution to at least 45 percent below 2005 levels by 2030. Fossil fuels are the number one source of greenhouse gas pollution. The fossil fuel industry has been lying to us for decades, and they continue to do so. The fact is, there can be no new fossil fuel infrastructure built, and we need a measured retreat from fossil fuels. Canada’s carbon pricing policy is an important tool for unwinding our economy off fossil fuels. We no longer have the luxury of time to create policies that are ripped up at election time. Governments, companies, and households need to make long-term financial plans. Thus, contracts for difference for Canada’s carbon pricing policy are necessary.
In short: We need Contracts for Difference for Canada’s Federal Carbon Pricing Policy
