Carbon pollution pricing proceeds programming and use of proceeds 

Since 2019, every jurisdiction in Canada has had a price on carbon 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. The federal government sets minimum national stringency standards (the federal ‘benchmark’) that all systems must meet to ensure they are comparable and effective in reducing greenhouse gas emissions. If a province decides not to price carbon pollution, or proposes a system that does not meet these standards, the federal system is put in place. This ensures consistency and fairness for all Canadians. Under the Greenhouse Gas Pollution Pricing Act, the federal carbon pollution pricing system has two parts:

• a regulatory charge on fuel (the federal fuel charge)
• a regulatory trading system for industry – the Output-Based Pricing System (OBPS)

For provinces that did not commit to pricing carbon pollution and where the federal fuel charge is currently in place – Alberta, Manitoba, Ontario, and Saskatchewan – the federal government is returning approximately 90% of proceeds from the federal fuel charge directly to families through Climate Action Incentive payments. This helps keep life affordable for individuals and families in the province of origin. With Climate Action Incentive payments, the majority of families receive more money back than they pay. The remainder of the proceeds from the federal fuel charge are returned to the province of origin through federal programming. As announced on November 22, 2022, the federal fuel charge will come into effect as of July 1, 2023 in Newfoundland and Labrador, Nova Scotia, and Prince Edward Island, and further updates were made on June 30, 2023 to provide more details on fuel charge proceeds to be returned to New Brunswick.

The federal OBPS is designed to ensure there is a price incentive for industrial emitters to reduce their greenhouse gas emissions, spur innovation, maintain competitiveness, and protect 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 federal OBPS currently applies in Manitoba, Nunavut, Prince Edward Island, Yukon, and partially in Saskatchewan.

On November 22, 2022, the Government of Canada announced changes to the application of the federal carbon pollution pricing system for 2023-2030 based on updated federal benchmark criteria for the period that was published in August 2021. This page will be updated to reflect these changes once they have taken effect.

Pricing carbon pollution is working in Canada. It is encouraging industries to become more efficient and use cleaner technologies, and it is spurring new and innovative approaches for cutting pollution, using energy differently, and saving money. All carbon pollution pricing proceeds will be returned to the jurisdictions of origin.

Climate Action Incentive payments

If you are a resident of Alberta, Manitoba, Ontario, or Saskatchewan, you can claim the Climate Action Incentive payment when you file your income tax return. The Climate Action Incentive payment includes a 10% supplement for residents of small and rural communities. Starting in 2022, these payments were changed from a refundable credit claimed annually on personal income tax returns to quarterly payments.

Fuel Charge Proceeds Return Program

The Fuel Charge Proceeds Return Program supports the return of federal fuel charge proceeds of over $2.5 billion as direct payments to eligible small and medium-sized enterprises, specifically those in emissions-intensive and trade-exposed sectors. The program will be available in jurisdictions where the federal fuel charge applies: Alberta, Manitoba, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, and Saskatchewan.

The first round of programming will target small and medium-sized enterprises in Alberta, Manitoba, Ontario, and Saskatchewan. Further information on the return of proceeds to small and medium-sized enterprises in Newfoundland and Labrador, Nova Scotia, and Prince Edward Island will be available in due course.

Support for Indigenous Communities

In 2020, the Government of Canada committed to return 1% of federal fuel charge proceeds to Indigenous communities in jurisdictions where federal programming is in effect. Environment and Climate Change Canada is currently working with Indigenous partners in Alberta, Manitoba, Ontario and Saskatchewan to co-develop solutions for returning 1% of proceeds collected from 2020-21 to 2022-23. The proceeds will be returned once co-development activities have concluded.

For 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:

• Indigenous Community-Based Climate Monitoring Program

  Funding for Métis Nation programming was provided through Crown-Indigenous Relations and Northern Affairs Canada’s Indigenous Community-Based Climate Monitoring Program. This funding program responds to needs identified by Indigenous partners through the development of the Pan-Canadian Framework on Clean Growth and Climate Change and is focused on building Indigenous capacity to monitor climate change and co-apply Indigenous Knowledge and science to track changes in climate and the impacts of climate change.

• Capital Facilities and Maintenance Program (CFMP)/First Nations Infrastructure Fund (FNIF)

  Indigenous Services Canada utilized the Capital Facilities and Maintenance Program (CFMP)/First Nations Infrastructure Fund (FNIF) to support First Nation communities located below the 60th parallel. Fuel charge proceeds of $1.64 million were returned to Manitoba, New Brunswick, and Saskatchewan to support First Nations recipients seeking to reduce energy costs and consumption, and reduce GHG emissions through alternative energy options.

• Clean Energy for Rural and Remote Communities

  Natural Resources Canada returned $4.45 million in fuel charge proceeds to Indigenous recipients through the Clean Energy for Rural and Remote Communities (CERRC) Program. The CERRC program aims to increase renewable energy generating capacity in rural and remote communities and off-grid industrial sites to displace diesel and fossil fuel usage, while also building community capacity to pursue and operate these projects. The fuel charge proceeds supported two First Nations-led biomass projects in Northern Ontario.

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 OBPS Proceeds Fund leverages clean technology to support grid-greening and clean electricity projects and initiatives, as well as projects that reduce GHG emissions, in order to help decarbonize Canada’s industrial sectors.

Climate Action Incentive Fund

The Climate Action Incentive Fund was active until March 31, 2021. The program is now closed. The program used a portion of federal fuel charge proceeds to support small- and medium-sized enterprises and schools in Manitoba, New Brunswick, Ontario, and Saskatchewan.

Energy Manager Program

Natural Resources Canada received $3.1 million for the purposes of returning fuel charge proceeds collected in 2019-20 through the Energy Manager Program. This program focused on reducing energy-use, GHG emissions and operating costs in small and medium sized enterprises, municipalities, universities, schools, hospitals (MUSH), not-for-profit organizations, as well as Indigenous organizations.