Carbon pollution pricing proceeds programming

Pricing carbon pollution is working. Since 2019, every province and territory  in Canada has had a price on carbon pollution. It is encouraging industries to become more efficient and use cleaner technologies. It is spurring new and innovative approaches for cutting pollution, using energy differently, and saving money. Estimates show that pollution pricing will contribute over a third of Canada's total reductions in greenhouse gas emissions that will occur in the lead up to 2030.

In provinces where the federal carbon pricing system applies, the Government of Canada returns the majority of proceeds from the federal fuel charge directly to families through the Canada Carbon Rebate (CCR).

The remaining portion of fuel charge 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 Peoples through joint-development of distinctions-based mechanisms, and to small- and medium-sized businesses.

Note, in Yukon and Nunavut, proceeds from the federal fuel charge are currently returned by territorial governments.

Canada Carbon Rebate

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 ten families receive more money back than they pay.

Residents of small and rural communities in these provinces are entitled to a rural supplement beyond the base rebate amount.   Rural Canadian residents will receive an extra 20 per cent, in recognition of the increased energy needs of rural residents and their reduced access to cleaner transportation options; such as public transit.

The Canada Carbon Rebate for Small Businesses

In Budget 2024, the Government of Canada announced an accelerated return process to provide direct refunds to small- and medium-sized businesses.  This new program is called the Canada Carbon Rebate for Small Businesses. The program will be available in provinces where the federal fuel charge applies:

• Alberta
• Saskatchewan
• Manitoba
• Ontario
• New Brunswick
• Nova Scotia
• Prince Edward Island
• Newfoundland and Labrador

This programming approach replaces the Fuel Charge Proceeds Return Program. Over $2.5 billion will be returned directly to eligible small- and medium-sized businesses through the Canada Carbon Rebate for Small Businesses program in the form of direct payments from the Canada Revenue Agency.

Support for Indigenous Communities

In 2020, the Government of Canada committed to return 1 per cent of federal fuel charge proceeds to Indigenous governments. In 2024, proceeds allocated for return to Indigenous governments will double to 2 per cent in recognition of the impacts of climate change on Indigenous communities. This will support Indigenous governments to respond to a changing climate and advance self-determined priorities.

Environment and Climate Change Canada is continuing to engage with Indigenous partners, including First Nations, Inuit and Métis governments, to advance on co-developed solutions to return the share of proceeds collected from 2020-21 to 2024-25, as soon as possible.

For a portion of the fuel charge proceeds collected in 2019-20, the Government of Canada returned funds to Indigenous recipients through top-ups to the following three federal programs:

• Canada's Indigenous Community-Based Climate Monitoring Program
• Capital Facilities and Maintenance Program (CFMP)/First Nations Infrastructure Fund (FNIF)
• Clean Energy for Rural and Remote Communities (CERRC) Program.

Pollution pricing for industry

All provinces and territories have systems in place that put a price on carbon pollution for large industry. Any province or territory can design its own pricing system tailored to local needs or can choose the federal pricing system.

This approach incentivizes industrial emitters to reduce their greenhouse gas emissions, spur innovation and maintain competitiveness. It also protects against the risk of industrial facilities moving from one region to another to avoid paying a price on carbon pollution (known as “carbon leakage”).

The Output-Based Pricing System (OBPS), the federal pricing system for industry, currently applies in:

• Yukon
• Nunavut
• Manitoba
• Prince Edward Island

Provinces and territories that have requested and accepted the federal OBPS can opt for a direct transfer of proceeds collected. Currently, this is the case for Yukon, Nunavut and Prince Edward Island, where proceeds are returned to the respective provincial and territories governments.

Proceeds collected in other jurisdictions where the federal pricing system for industry applies (current or past) will be returned through the two program streams of the OBPS Proceeds Fund.

Output-Based Pricing System Proceeds Fund

The Output-Based Pricing System (OBPS) Proceeds Fund returns proceeds collected under the federal OBPS and is comprised of two streams: the Decarbonization Incentive Program and the Future Electricity Fund. The fund leverages clean technology to support grid-greening and clean electricity projects and initiatives, as well as projects that reduce GHG emissions, to help decarbonize Canada's industrial sectors.

Further information on projects being funded by federal industrial pollution pricing proceeds has been published on the Open Government Portal.