Standing Committee on Public Accounts (PACP) Department of Finance Appearance on the Public Accounts of Canada 2024

Pollution Pricing Framework and Canada Carbon Rebate

Issue

The federal government must return all direct proceeds from the federal pollution pricing system within the jurisdiction where they were collected.

Key points

• The fuel charge proceeds collected and returned within a given fiscal year are usually not equal in the Public Accounts due to timing considerations. For example:
  • Canada Carbon Rebate (CCR) payments are based on estimated total fuel charge proceeds. Any discrepancies in projected versus actual fuel charge receipts and CCR payments is made up by adjusting CCR payments in subsequent years.
  • Most significantly, fuel charge amounts in respect of a given fuel charge year to be returned through federal programming are expected to be returned over multiple years due to program administration considerations.
• ECCC will return fuel charge proceeds to Indigenous governments through the Fuel Charge Proceeds Fund for Indigenous Governments program. This comprises 1% of proceeds from 2020-21 to 2023-24, and 2% of proceeds in 2024-25.  
• A portion of fuel charge proceeds in respect of the 2019-20 to 2023-24 fuel charge years is being returned to SMEs in 2024-25 (starting on November 25, 2024) via the Canada Carbon Rebate for Small Businesses. Proceeds in respect of the 2024-25 fuel charge year will be returned in fall 2025.
• Farming businesses that are eligible for the Return of Fuel Charge Proceeds to Farmers Tax Credit are generally able to claim amounts in respect of a given fuel charge year on their tax returns that include the calendar year when the fuel charge year begins (e.g., proceeds for 2023-24 are claimed on tax returns for the 2023 calendar year).
• The government also reports the source and disposition of carbon pricing proceeds in the annual Greenhouse Gas Pollution Pricing Act (GGPPA) Report.
• The GGPPA Annual Report in respect of the 2023-24 fuel charge year is expected to be tabled in the coming months.

Anticipated Questions and Answers

1. Why are the proceeds returned lower than the proceeds collected?
   • Generally, we would not expect all proceeds collected in a fiscal year to be returned in the same fiscal year.
   • CCR payment amounts, through which the government returns about 90 per cent of proceeds to individuals and families in jurisdictions where the federal fuel charge applies, are specified in advance of the fuel charge year based on estimates.
   • As actual proceeds and the total amount of proceeds returned in a specific jurisdiction through CCR payments may differ from estimated levels, adjustments are made through changes in future CCR payment amounts.
   • This ensures that direct proceeds are fully returned to the jurisdiction of origin over time.
   • The difference between cumulative pollution pricing proceeds and proceeds returned is expected to largely unwind over the next two years, with the majority being returned through the Canada Carbon Rebate for Small Businesses in fiscal year 2025.
2. Why are the aggregate amounts in the Public Accounts always different from the aggregate amounts in the Greenhouse Gas Pollution Pricing Act (GGPPA) Annual Report (the "Report")?
   • The bases of reporting fuel charge proceeds collected and returned (e.g., via CCR payments) are different in these two documents.
   • The GGPPA Annual Report attributes these amounts to the fuel charge year (i.e., April 1 to March 31) to which they relate.
   • The Public Accounts attribute these amounts to the fiscal year in which they were assessed.
3. When will the Government of Canada begin returning fuel charge proceeds to Indigenous Governments?
   • The Minister of Environment and Climate Change is expected to make a decision on the allocation formula between Indigenous governments (First Nations, Métis, and Indigenous) within each implicated province very soon.
   • Once that decision is made, the Government of Canada will make every effort to implement the Fuel Charge Proceeds Fund for Indigenous Governments and establish the necessary grant agreements to issue payments to eligible Indigenous governments as soon as possible.
4. Has the Government of Canada returned any fuel charge proceeds to Indigenous governments to date?
   • Yes. As part of the carbon pollution pricing system in Canada, the Government of Canada returned approximately $7.33 million from 2019-20 proceeds, the first year that the federal fuel charge was in effect, to Indigenous recipients in four provinces where the federal fuel charge applied (at that time, Saskatchewan, Manitoba, Ontario, and New Brunswick). These proceeds were returned through existing federal government programming delivered by Natural Resources Canada, Indigenous Services Canada and Crown-Indigenous Relations and Northern Affairs Canada.
   • Proceeds from 2020-21 to 2024-25 have not yet been returned to Indigenous governments

Background

In jurisdictions that request the federal system and its proceeds, and commit to not negating the carbon price signal – Prince Edward Island (OBPS only), Yukon and Nunavut – proceeds are returned directly to the government.

In provinces where the federal fuel charge applied in 2023-24 (i.e., Prince Edward Island, Newfoundland and Labrador, Nova Scotia, New Brunswick, Ontario, Manitoba, Saskatchewan, Alberta), about 90 per cent of fuel charge proceeds is returned directly to households through CCR payments. The remaining fuel charge proceeds (about 7 per cent) are returned through other federal mechanisms, including programming. Proceeds from the federal OBPS in these jurisdictions are returned via federal programing. Note that as of the 2023-24 fuel charge year, the proportions returned have been fixed specifically (93 per cent for CCR payments, 5 per cent for the CCR for small- and medium-sized enterprises (SMEs) and 2 per cent for Indigenous governments; these percentages are applied to total proceeds net of the estimated amounts for the farmer tax credit which is in respect of the use of propane and natural gas in heating activities).

For the first time, cumulative pollution pricing proceeds and proceeds returned since 2019 are shown in the Public Accounts of Canada. Figure 1 below shows the respective table from Volume I: Summary Report and Consolidated Financial Statements of the 2023-2024 Public Accounts of Canada.