Pollution pricing in Canada

Putting a price on pollution is widely recognized as the most efficient means to reduce greenhouse gas emissions while also driving innovation and making life more affordable.

Pollution pricing works by putting a cost on the thing we don’t want—greenhouse gas emissions—and adding value to the things we do want—clean air, reliable, affordable clean energy, and sustainable jobs.

The foundational principle of the federal approach to pollution pricing is to ensure it is no longer free to pollute anywhere in Canada.

All direct proceeds collected in a jurisdiction are returned to the same jurisdiction. For those provinces where the federal fuel charge applies, or will apply, by this summer—Alberta, Manitoba, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, and Saskatchewan—90 percent of direct proceeds from the federal fuel charge are returned to individuals and families through Climate Action Incentive payments, which are made to eligible individuals every three months. The remaining 10 percent of proceeds is provided to emissions-intensive, trade-exposed, small- and medium-sized enterprises, farmers, and Indigenous groups.

Each household of the same size in a province gets the same payment. This means that Climate Action Incentive payments are especially generous for low- and middle-income households, which tend to use less emissions-intensive goods. Overall, eight out of ten households, in jurisdictions where the federal price on fuel applies, get more back through Climate Action Incentive payments than they pay through pollution pricing.

Since 2019, every jurisdiction in Canada has had a price on pollution. Canada’s approach is flexible: any province or territory can design its own pricing system tailored to local needs or can choose the federal pricing system.

Under the Greenhouse Gas Pollution Pricing Act, adopted on June 21, 2018, the federal pricing system has two parts: a regulatory charge on fossil fuels such as gasoline and natural gas, known as the fuel charge, and a performance-based system for industries, known as the Output-Based Pricing System. Provinces and territories have the option to design and implement their own systems, provided they meet minimum national stringency criteria, known as the federal benchmark.

• The fuel charge applies in Ontario, Manitoba, the Yukon, Alberta, Saskatchewan, and Nunavut. As of July 1, 2023, it will also apply in Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. New Brunswick will join the federal system at a date to be determined.
• The Output-Based Pricing System applies in Manitoba, Prince Edward Island, the Yukon, Nunavut, and partially in Saskatchewan. All other provinces and the Northwest Territories are implementing their own pricing systems.

Related links

• How Carbon Pricing Works
• Climate Action Incentive Payment Amounts for 2023–24