How Canada’s pollution pricing system works
Backgrounder
Every day, we see the increasing impacts of climate change, and they’re costing Canadians more and more. Climate-related impacts are already costing average Canadian households $720 per year and are likely to rise to $2,000 per year by 2050 without significant action to reduce emissions.
A price on pollution is widely recognized as the most efficient means to reduce the greenhouse gas emissions that are contributing to the more intense wildfires, droughts, and floods caused by climate change. Canada’s approach to pollution pricing is also designed to put money back into people’s pockets.
Putting a price on pollution is a cornerstone of Canada’s plan to tackle climate change.
In provinces where the federal fuel charge system applies, the Government of Canada returns the majority of proceeds from the federal pollution pricing system to families through the quarterly Canada Carbon Rebate for individuals. The remaining portion of proceeds will be returned through federal programming to groups that may be disproportionately impacted by climate change. This includes returning proceeds to farmers, to Indigenous governments through jointly developed mechanisms, and to small- and medium-sized businesses.
The federal carbon pollution pricing system is not about raising money for the Government. All direct proceeds collected are returned to the province or territory in which they were collected. Furthermore, the system was designed to return the money in advance before Canadians incur extra costs at the pump or on their home heating bills.
Quarterly Canada Carbon Rebate for individuals
Households in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador receive four payments under the Canada Carbon Rebate each year by direct deposit or cheque. This helps keep life affordable for individuals and families while fighting climate change. Through these quarterly payments, eight out of 10 households receive more money back than they pay.
As Canadians continue to take action to reduce emissions—by improving their home insulation, using transit, purchasing an electric vehicle, or installing a heat pump—they will cut costs and save money.
Independent analysis by Clean Energy Canada has shown that a Canadian family that adopts clean-energy solutions, including electric vehicles and heat pumps, could reduce their monthly energy bills by $800, compared to a household that is largely reliant on fossil fuels.
Canada’s approach to carbon pricing does not increase the cost of living. In fact, the federal government is focused on addressing the cost-of-living crisis and is delivering the Canada Carbon Rebate to make life affordable for Canadians and to support families. The Canada Carbon Rebate, distributed via direct bank deposit or cheque, outweighs the costs from pollution pricing for the vast majority of families in provinces where the federal fuel charge applies.
Rural supplement
In addition to the base Canada Carbon Rebate amount, a rural supplement is provided to residents of small and rural communities. To further recognize rural Canadians’ higher energy needs and more limited access to cleaner transportation options, the Government has doubled the rural supplement available for households in rural areas and smaller communities from 10% to 20% of their base Canada Carbon Rebate amount.
On January 15, 2025, a family of four will receive the following in Canada Carbon Rebate payments:
- | AB | MB | ON | SK | NB | NS | PEI* | NL |
---|---|---|---|---|---|---|---|---|
Family of four | $450 | $300 | $280 | $376 | $190 | $206 | $220 | $298 |
Family of four Rural | $540 | $360 | $336 | $451.20 | $228 | $247.20 | $220 | $357.60 |
* As all residents of Prince Edward Island are eligible for the 20% rural top-up, it is reflected in the base amount for Prince Edward Island.
Canada Carbon Rebate for Small Businesses
Canada’s small- and medium-sized businesses are the backbone of the Canadian economy and the heart of our communities. Across the country, they keep main streets flourishing, create good jobs, and deliver on the dream of entrepreneurship. Through the new Canada Carbon Rebate for Small Businesses, the Government of Canada is delivering on its commitment to return proceeds from the price on pollution directly to small- and medium-sized businesses in the provinces where the federal fuel charge applies.
The Canada Revenue Agency has issued the rebate to the majority of eligible Canadian-controlled private corporations that filed their 2023 tax return no later than July 15, 2024. For more information, go to Canada Carbon Rebate for Small Businesses.
Support for Indigenous communities
In 2020, the Government of Canada committed to return 1% of federal fuel charge proceeds to Indigenous governments. In 2024, proceeds allocated for return to Indigenous governments doubled to 2% in recognition of the disproportionate impacts of climate change on Indigenous communities. This will support Indigenous governments to respond to a changing climate and advance self-determined priorities.
The Government of Canada has worked with First Nations, Inuit, and Métis partners to develop a program that will return a share of federal fuel charge proceeds collected from 2020–2021 to 2024–2025, as soon as possible.
Pollution pricing in the agriculture sector
Farmers are on the frontlines of climate change, facing ever-increasing risks of floods, droughts, and storms to their operations. Canada’s approach to pollution pricing was designed to take into account the unique needs of farmers. Farmers do not pay the fuel charge for gasoline and light fuel oil (diesel) used in eligible farming machinery on farms. Similarly, biological emissions are not priced under the federal system, such that roughly 97% of on-farm emissions are not subject to the price on pollution.
Greenhouse operators also receive upfront relief of 80% of the fuel charge on propane and marketable natural gas used to heat an eligible greenhouse or to supplement carbon dioxide in eligible greenhouses to grow or produce plants.
Additionally, farm businesses that operate in provinces where the federal fuel charge is in place can generally receive a refundable tax credit, the purpose of which is to return total fuel charge proceeds related to farm use of natural gas and propane in heating and drying activities in those provinces to help farmers transition to lower-carbon ways of farming.
Associated links
- How Carbon Pricing Works
- Canada Carbon Rebate Amounts for 2024–2025
- Canada Carbon Rebate for Small Businesses
- Carbon Pollution Pricing Proceeds Programming
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