How carbon pricing works

Pricing carbon pollution is one of the most effective ways to reduce the greenhouse gas emissions that cause climate change. It creates a financial incentive for people and businesses to pollute less.  

Putting a price on carbon pollution

It is estimated that carbon pollution pricing will contribute as much as one-third of Canada’s emissions reductions in 2030.  Carbon pricing is about recognizing the cost of pollution and accounting for those costs in our daily decisions. Taking action to reduce emissions by choosing less carbon-intensive options for energy production, home heating and transportation means Canadians will save money too.

Since 2019, every jurisdiction in Canada has had a price on carbon pollution.

Each province or territory can design its own pricing system tailored to local needs or choose the federal pricing system. The federal government sets minimum national stringency standards (the federal benchmark), that all pricing systems must meet to ensure they are comparable and effective in reducing greenhouse gas emissions.

If a province or territory decides not to price pollution or proposes a system that does not meet these standards, the federal system is put in place to ensure consistency and fairness. It can apply in whole or in part in a jurisdiction.

Carbon pricing proceeds

All direct proceeds from the federal pricing system are returned to the province or territory where they were collected.  Those provinces and territories with their own carbon pricing systems use the proceeds as they see fit.

Canada Carbon Rebate

The federal pollution pricing system makes life affordable by returning money to families through the Canada Carbon Rebate payments (formerly known as Climate Action Incentive payments).

Approximately 90% of fuel charge proceeds are used to directly support families through Canada Carbon Rebates, delivered quarterly by cheque or direct bank deposit. 8 out of 10 households get more money back than they spend on the fuel charge.

The remaining proceeds from the federal price on pollution charged to fuel are returned to businesses, farmers and Indigenous groups in the same province or territory where it was collected.

Pollution pricing for industry

Canada’s industrial pollution pricing systems are designed to ensure there is a price incentive for industrial emitters to reduce their greenhouse gas emissions by re-investing in cleaner operations.

Most provinces and territories have a performance-based pricing system for industry that meets federal standards. The federal system for pricing emissions from large industries (known as the output-based pricing system - OBPS) applies in Manitoba, Prince Edward Island, Yukon and Nunavut.

Agriculture sector

Pollution pricing was designed to take into account the unique needs of farmers who are on the frontline of climate change. It exempts all gasoline and diesel used on farms as well as biological emissions so that about 97% of on-farm emissions are not subject to the price on pollution.  As well, farmers in provinces where the federal system is in place can receive a refundable tax credit to help them transition to lower-carbon ways of farming. This amount is expected to increase as the price on carbon increases each year. As of 2024, farmers in rural areas will benefit from the doubling of the rural top-up to 20%.

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