Carbon pollution pricing proceeds programming

Pricing carbon pollution is working. Since 2019, every jurisdiction 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 emissions that will occur between now and 2030.

Canada’s approach is flexible: any province or territory can design its own pricing system tailored to local needs. Or they can choose the federal pricing system.

The federal government sets minimum national stringency standards (the federal ‘benchmark’). All systems must meet these standards to ensure they are comparable and effective in reducing greenhouse gas emissions.

If a province does not put a price on carbon pollution or proposes a system that does not meet these standards, the federal system is put in place. Provinces or territories can also request the federal system and can request the proceeds be returned directly to their government to use as they see fit. This ensures consistency and fairness for all Canadians.

Proceeds from the federal fuel charge are currently returned to the governments of Yukon and Nunavut. For all other provinces where the federal system applies, the federal government returns the majority of proceeds from the federal fuel charge directly to families through the Canada Carbon Rebate (CCR) (formerly known as Climate Action Incentive payments).

The rest of the proceeds from the federal fuel charge are returned to help reduce the energy use, costs, and greenhouse gas emissions of:

• small and medium-sized businesses (SMEs)
• Indigenous governments
• farmers

Canada Carbon Rebate

Households in Alberta, Manitoba, Ontario, Saskatchewan, Newfoundland and Labrador, Nova Scotia, Prince Edward Island and New Brunswick receive four quarterly 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, most 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. As of April 2024, the Government will double the rural supplement to 20%, in recognition of the increased energy needs of rural residents and their reduced access to cleaner transportation options.

Fuel Charge Proceeds Return Program

The Fuel Charge Proceeds Return Program will return a portion of federal fuel charge proceeds as direct payments to eligible small and medium-sized enterprises. The program will be available in jurisdictions where the federal fuel charge applies:

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

Support for Indigenous Communities

In 2020, the Government of Canada committed to return 1% of federal fuel charge proceeds to Indigenous governments. Proceeds will be returned in provinces where the federal fuel charge is in effect through solutions developed together.  In recognition of the impacts of climate change on Indigenous communities, proceeds allocated for return to Indigenous governments will increase from 1% to 2%. Starting in 2024-25, this will support Indigenous governments to respond to a changing climate and advance self-determined priorities.

Environment and Climate Change Canada is currently engaging with Indigenous partners to return the share of proceeds collected from 2020-21 to 2024-25. The Department also is exploring best practices for transferring these funds to First Nations, Inuit and Métis governments, as quickly as possible.

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:

• 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 place a price on carbon pollution for large industry.

This 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 voluntarily adopted the OBPS can opt for a direct transfer of proceeds collected. Proceeds from the federal OBPS are currently returned to the governments of Yukon, Nunavut and Prince Edward Island.

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.

Energy Manager Program

Natural Resources Canada received $3.1 million to return 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.