The federal carbon pollution pricing benchmark
Putting a price on carbon pollution reduces emissions and encourages innovation. It encourages reductions across the economy while giving households and businesses the flexibility to decide when and how to make changes. And it creates incentives for Canadian business to develop and adopt new low carbon products, processes and services.
Since 2019, the Government has ensured it is no longer free to pollute by establishing a national minimum price on carbon pollution starting at $20 per tonne in 2019, increasing at $10 per tonne to $50 in 2022.
The Government’s approach to pricing carbon pollution gives provinces and territories the flexibility to implement the type of system that makes sense for their circumstances as long as they align with minimum national stringency standards, or ‘benchmark’ criteria.
This approach also reflects the leadership of some provinces. Alberta and Quebec led the way in 2007 – the former with a carbon pricing system for heavy industry and the latter with a carbon levy that became its cap-and-trade system in 2013. British Columbia implemented an economy-wide carbon tax in 2008. In 2016, Canada published the Pan Canadian Approach to Pricing Carbon Pollution. This committed to an increasing carbon price, to $50 per tonne in 2022, set out the benchmark criteria, and committed to establishing a federal system to serve as a ‘backstop’ where needed. In the following years, governments across the country implemented additional carbon pricing systems that met the benchmark criteria. As a result, as of 2019, Canada has had carbon pricing systems in place throughout the country.
This is an historic accomplishment, and Canada’s leadership on carbon pricing has been recognized across the world. On this page, you will find more information on updates to the federal carbon pricing benchmark, and the link to the full updated benchmark publication for the 2023 to 2030 period.
An increasing carbon price from 2023 to 2030
In order to accelerate the market adoption of the technologies and practices needed to reduce emissions and to build a prosperous low carbon economy, Canada proposed in a Healthy Environment and a Healthy Economy to increase the price on carbon pollution annually at a rate of $15 per tonne from 2023-2030.
Following engagement with provinces, territories and Indigenous leaders, the minimum price on carbon pollution (for direct pricing systems) will increase by $15 per tonne per year starting in 2023 through to 2030. Canadians living in jurisdictions where the federal system applies, and where the federal government returns fuel charge proceeds through Climate Action Incentive payments, will continue to receive rebates that increase each year as the carbon price increases.
Fairer and more rigorous benchmark criteria for 2023 to 2030
The initial carbon price and its trajectory up to 2022 was set in 2016. The pan-Canadian approach to pricing carbon pollution also established the design criteria that all pricing systems in Canada need to meet.
As Canada looks to significantly reduce emissions and to incent innovation, it is important that longer term certainty is provided with respect to how carbon pollution pricing will work going forward. Beyond simply the rate at which the price will rise, it is also important that the “benchmark” stringency criteria are updated to ensure all systems across Canada are comparable in terms of stringency and effectiveness.
In 2020-21, a review of carbon pricing systems in Canada was undertaken, with engagement of provinces, territories and Indigenous organizations. This included an independent expert assessment, led by the Canadian Institute for Climate Choices, which found there are significant variations in the stringency and effectiveness of the different systems across Canada. The results of this assessment demonstrate that, while carbon pricing can be a key driver of emissions reductions, changes in how systems presently operate are necessary to ensure that all carbon pricing systems in Canada are similarly effective in cutting pollution and supporting domestic competitiveness.
Drawing from these engagement and review processes, the Government has updated the minimum national standards (federal benchmark) for the 2023 to 2030 period to make sure they are fair, consistent and effective.
Key changes in the updated benchmark include:
- Common scope and coverage. All provincial and territorial carbon pricing systems will need to cover the same proportion of emissions as would be covered by the federal backstop in their jurisdiction. This proportion will vary from jurisdiction to jurisdiction depending on the distribution of emission sources. However, requiring similar coverage to what the backstop would achieve will continue to allow provinces and territories to tailor their systems to their respective needs, while setting a minimum threshold that ensures more comprehensive and consistent pricing – which is key to reducing greenhouse gas emissions.
- A clear price signal. The new benchmark includes requirements to ensure that:
- government measures do not weaken the price signal, for example by giving instant rebates that are tied to the amount of carbon price paid or by explicitly reducing fuel taxes in order to offset the carbon price; and
- output-based pricing systems for industry are sufficiently stringent to create strong markets that maintain a clear price signal across all covered emissions that is aligned with the minimum carbon price.
- Ensuring that protections against carbon leakage are restricted to sectors at risk. All carbon pricing systems in Canada include features to protect against carbon leakage – the risk that emissions-intensive, trade-exposed industry will lose business to competition from countries without carbon prices.
- High quality offset credits. New requirements will ensure that offset credits meet the best practices identified by the Canadian Council of Ministers of the Environment.
- Increased stability by moving to a multi-year assessment period. This will increase certainty for consumers, businesses and investors by requiring that all jurisdictions establish systems that align with Canada’s carbon price trajectory and benchmark requirements out to 2030. It also means that systems will change less frequently – once systems are in place in 2023, they will stay in place until at least 2027.
All provinces and territories will have the opportunity to propose carbon pricing systems for the 2023-2030 period that meet these updated benchmark stringency criteria in the coming months.
To provide further stability, where the federal backstop system currently applies, the earliest any new proposed system will be able to replace it will be January 2023. Existing provincial and territorial systems and the new output-based pricing systems slated for implementation in New Brunswick and Ontario can continue to apply in 2022 and beyond so long as they meet the benchmark criteria.
- Federal benchmark 2023-2030: Update to the Pan-Canadian Approach to Carbon Pollution Pricing 2023-2030 (August 2021)
- Federal benchmark 2016-2022: Pan-Canadian Approach to Pricing Carbon Pollution (October 2016)
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