FAQs about carbon pricing
how the policy works
What is the policy?
The federal carbon tax and rebate program puts a price on carbon emissions in 4 provinces where there is no current carbon pricing – Ontario, Saskatchewan, Manitoba and Alberta. The tax starts at $20/tonne in 2019, rising $10 per year, until it reaches $50/tonne in 2022. From 2023 to 2030, the carbon tax will increase by $15/tonne per year, to reach $170/tonne in 2030. The rebates will continue to grow as the tax increases.
What is taxed?
The tax applies to fossil fuels including gasoline and natural gas. In 2021, the tax will increase the cost of gasoline by 8 cents and the average home heating bill, for those using natural gas, by about $16-$18 per month. The money is then returned to households in the form of a rebate. Most families get back more in rebates than they pay in taxes. The costs and rebates will rise each year through 2022 as cost of the tax rises from $20/tonne of carbon to $50/tonne. From 2023 to 2030, the carbon tax will increase by $15/tonne per year, to reach $170/tonne in 2030. The rebates will continue to grow as the tax increases.
What is the rebate?
The federal government takes all the money from the carbon tax and returns it evenly to all households in the province where the tax was collected. So, for example, all the money collected from Ontario is returned to Ontario businesses and families. Ninety percent of that money goes to households, with the remaining 10% sent to businesses and nonprofits. The average family of 4 in Ontario receives a rebate of $600 in 2020. The funds will be provided as a credit as part of each household’s tax filing.
Why tax me and then give me the money back?
Because you’ll still have an incentive to reduce your carbon footprint (to save money). That’s because you get the rebate first, regardless of how much you emit. So now you have more money in your pocket but you choose how to spend it. Since the cost of gas and home heating will be more expensive, you’ll have a reason to try to avoid using it (and if you can’t avoid it, you can use the rebate to ensure you’re no worse off).
To illustrate, imagine you went to the grocery store and received $5 at the entrance. You then discover potatoes have gone up in price by $4. You could still buy potatoes and come out $1 ahead. But you could also buy rice, which is $2 cheaper, and thus keep $2 more. Some people will still buy potatoes, but others will buy rice. Overall, the number of potatoes sold will go down. Same for carbon pollution!
Are there any exemptions?
The carbon tax does not apply to fuel (gas and dyed diesel) used as part of farm operations. Many farmers sell their goods in international markets so they cannot increase their prices to accommodate for the new costs, and thus the policy exemption is intended to ensure they can maintain competitiveness.
Large emitters (those emitting more than 50MT per year) are taxed through a separate system called the Output Based Pricing System, explained below.
What’s the Industrial system?
Large emitters (those emitting more than 50MT per year) have a separate carbon tax and rebate program called the Output Based Pricing System (OBPS). The OBPS is meant to address the fact that many large businesses export products and the carbon tax could disadvantage them. If these companies move production outside of Canada to avoid the carbon tax, emissions would not go down and Canada’s economy would suffer. Hence the OBPS.
OBPS has the same carbon tax as the rest of the economy, but the rebate system works differently. Each facility receives a rebate based on the average carbon intensity of its industry. For example, steel producers receive a rebate equal to 80% of the industry’s average carbon tonnes per tonne of steel produced. This system incentivizes producers to reduce their carbon intensity without discouraging them from producing more steel. To learn more, see the explainer here.
Why are big companies getting exemptions while small businesses are asked to pay?
Large emitters are still subject to a carbon tax and rebate program but they’re managed in a separate system because they export products and the government is trying not to put them at a disadvantage in international markets. If the carbon tax results in companies moving jobs to other markets that don’t have carbon pricing, this would hurt Canada without reducing emissions.
Small businesses receive support through the climate action incentive fund, which offers funds for energy efficiency projects. Note too that many ( businesses will likely pass on extra costs to their customers, though it’s true that some businesses will be adversely affected and may need further support to adjust.
Why is it only in some provinces?
The federal government asked each province to come up with their own system for pricing carbon pollution. Some provinces (e.g. BC and Quebec) already had carbon pricing while other provinces created their own system or voluntarily adopted the federal government’s approach. There are 4 provinces who do not have a sufficient carbon pricing program, and those provinces have come under the federal “backstop” system – Ontario, Saskatchewan, Manitoba and Alberta. Of note, Saskatchewan and Alberta have adopted the federal government’s industrial system, OBPS.
how does this affect me?
Will I pay more?
The costs in 2021 are 8.8 cents on gasoline and about 7.8 cents per cubic meter of natural gas, plus sales tax (which results in about $16-$18/month of cost for the average home).
But you’ll also get a rebate that, for most families, will give you back more than you pay. For example, the average family of 4 in Ontario will get $600 in rebates in 2021.
To see an estimate of your costs and rebates, check out our rebate calculator.
I can’t reduce my emissions because I have to drive my car and heat my home. Why should I be taxed?
If there’s nothing you can do, the program is designed to ensure that you will be no worse off – you will receive a rebate on your taxes in April that will offset your added costs. That said, there’s typically at least small changes that most people can make. For example, you can set your thermostat slightly lower while you’re out of the house or add weather-stripping to your doors or windows. And when you do make new purchases in the future such as when you buy your next car, you’ll have an incentive to buy items that emit less. Maybe that’s a fuel efficient car or an electric vehicle, or a more efficient furnace. The hope is that everyone will find ways to reduce their emissions over the long-term!
do we really need it?
Do Canadians support it?
Yes, 76% of Canadians say they either support or can accept the federal carbon pricing plan, given that it provides citizens with rebates.
Can’t we tackle climate without a tax?
We can but it will be much more expensive. All alternatives to carbon pricing – such as regulations – will cost us more. The Ecofiscal Commission estimated that even the best alternatives to carbon pricing would cost us $1,200 per Canadian in GDP growth by 2030. Carbon pricing is the most flexible and sensible way to address climate – it gives individuals and businesses choices for how to respond, and harnesses the creativity and innovation of the private sector. Experts agree that an effective response to climate change requires carbon pricing. See this editorial from the Globe & Mail, or this statement by many of the world’s leading economists, both conservative and liberal.
Why should Canada act when it’s such a small player?
Canada is one of the top 10 emitters in the world. If we don’t act, how can we expect the 183 countries that emit less than us to do their part?
Every bit of emissions matters – the less we pollute, the cleaner our air and healthier our planet. Plus, other countries, including China, are taking action. China now has carbon pricing across much of its economy, and it is the world’s leader in renewable energy installations. China has more electric vehicles, solar energy and wind energy than the rest of the world combined. The United States also has carbon pricing in ⅓ of its economy. To be sure, these countries, and the whole world, need to do much more. But they have started, and Canada should not fall behind as the world transitions to cleaner energy.
Plus, if Canada creates a cleaner energy sector at home, we will be in a position to export our technology to the rest of the world. 98.4% of emissions are happening outside our borders, so imagine the business opportunities that exist for Canadian innovators. The World Bank estimates that the clean economy is a $23 Trillion opportunity globally over the next decade.
Just as importantly, Canadians have always done their fair share to solve critical global challenges. We know Canadians want to address climate change, and this is how we can do our part.
What’s the difference between cap and trade and carbon taxes?
There are two different methods of pricing carbon: cap and trade and carbon taxes. Cap and trade puts a hard cap on emissions, and allows companies to enter a carbon market where they can purchase credits to emit more carbon once they’ve hit their cap. If a company emits less carbon, they are able to sell those remaining credits in this marketplace.
Carbon taxes put a fixed price on carbon and require that companies pay that price per unit of carbon emitted. As a general rule, businesses and economists prefer carbon taxes to cap and trade as they are more predictable and transparent then cap and trade, and allow businesses to adjust to the price over time.
impact on the ecomomy & environment
Will it hurt the economy?
No. BC has had a carbon tax for over a decade and has been the fastest growing economy in Canada. A carbon price is also the most pro-growth way to address climate change (and doing nothing would present huge risks to the economy). The Ecofiscal Commission estimated that even the best alternatives to carbon pricing would cost us $1,200 per Canadian in GDP growth by 2030.
A federal government analysis estimated that carbon pricing would have a negligible impact on the economy – 0.1% of GDP at most. This estimate also did not include investments made in efficiency and alternative technologies which would boost GDP.
In Canada, renewable energy provides nearly double as many jobs as the oilsands. By boosting clean energy, a price on carbon supports even more jobs and more new business opportunities. Putting a price on carbon encourages emissions reductions at the lowest cost, by giving those affected by the price the flexibility to choose how and when to cut pollution based on their own needs.
There are a small number of sectors that are trade exposed that will experience competitiveness concerns under carbon pricing – but they can be protected through policies like the industrial system called Output-Based Pricing, as explained above.
Will it kill jobs?
The policy is supposed to have minimal to no impact on the economy, as explained above, and thus should not have an impact on jobs. It is possible that some businesses will be affected but it’s important to note that other businesses will be helped by this policy, especially companies working on clean energy solutions. The clean energy sector is a quickly growing part of our economy. Already, the “cleantech” sector provides more than double as many jobs in Canada as the oilsands.
Note too that the policy compensates businesses. Large industrial emitters are part of the OBPS system described elsewhere on this page. Small and medium sized businesses are eligible for funds for energy efficiency through the Climate Action Incentive Fund.
Will this hurt the oil & gas sector?
Many companies in the oil & gas sector support carbon pricing, including executives like Steve Williams, the CEO until recently of Suncor. Carbon pricing will cost these companies money but it will also help them transition to cleaner technologies and make Canadian oil more competitive and attractive in the global market. The world is changing and it’s important Canada’s energy sector evolve with it.
Will this actually help the environment?
Yes, when we put a price on pollution, people pollute less. Carbon pricing in Canada will reduce our carbon emissions by about 8% relative to 2018 emission levels (removing 50-60MT from the atmosphere). That’s equivalent to shutting down 30+ coal fired power plants!
This policy is also being complemented by other initiatives such as regulating methane emissions and increasing the number of zero emission vehicles sold in Canada.
Isn’t the price too low to make a difference?
Not if it continues to increase over time. As described above, carbon pricing in Canada will reduce emissions by 50-60 MT by 2022. For a carbon price to work, it should start at a manageable level and steadily rise, as this policy is designed to do. The government has also committed to review the program before 2022 to determine if additional increases should be pursued (and we think they should!).
something we missed?