Tuesday’s federal budget proposes to take some action to help Canadian industry finally put a price on its carbon emissions.

The government is pledging to spend $66 million over the next two years ($35 million this year and $31 million next year) to establish a regulatory regime to support creation of a carbon market, among other things, that would help reduce emissions.

A Canadian carbon market has been a long time coming, but slow to develop. The budget notes that greenhouse gas regulations, which enter into force in 2010, call for market-based mechanisms that will help establish a price for carbon and support the development of carbon trading in Canada.

The government has long pointed to a trading system as its preferred way of reducing emissions because a market-based system theoretically allows for the most efficient route to reductions. Firms can decide whether to cut their emissions or buy permits that allow them to pollute. The government suggests in the budget that establishing a market for emissions will “drive private sector investments in clean technology needed to reduce emissions.”

The various stock exchanges have expressed an interest in hosting such trading; but they’ve insisted they need a regulatory regime to facilitate trading.

Industry just wants a price for carbon because that gives them cost certainty. Some would like to see a trading system; others would prefer a carbon tax.

Whether the investment announced in Tuesday’s budget finally results in the founding of a market remains to be seen. There have been numerous promises of a carbon market in the past, but they have yet to turn into concrete progress.

The funds pledged in Tuesday’s budget are to be directed at the creation of an electronic system for units that are traded in the carbon market and a single-window reporting system for industry, along with other measures designed to help reduce emissions. These include a technology fund to invest in emission reduction projects and an offset system to finance emission reduction projects in non-regulated sectors.

In addition to the investments designed to reduce emissions, the government is also hitching its wagon to the idea of carbon capture. “Carbon capture and storage presents an opportunity for Canada to develop world-leading technology than can significantly reduce greenhouse gas emissions,” the budget says.

With that in mind, the government is promising a $250 million investment in carbon capture technology. The bulk of it, $240 million, is to go an initiative in Saskatchewan to build a full-scale commercial demonstration of carbon capture and storage in the coal-fired electricity sector. It is also spending $5 million to investigate the potential for carbon storage in Nova Scotia and another $5 million to investigate the “regulatory, economic, and technological issues” surrounding carbon capture technologies.

Finally, it is also spending a bit more on environmental enforcement. The budget allocates $21 million over two years to Environment Canada “to increase the effectiveness of its enforcement officers”; and, it plans to spend up to $12 million over two years for the implementation of an enhanced law enforcement program within the country’s national parks.