How carbon pricing works

Information on Canada’s carbon pollution pricing system

The impacts and costs of climate change are being felt first-hand by communities in Canada and around the globe. Extreme weather events threaten people’s safety, their health, their homes and their livelihoods. In Canada, Canadians pay for these impacts when they are forced to repair and rebuild homes and businesses after a flood or wildfire, when they pay higher insurance premiums, or through rising costs for food, health care or emergency services.

There’s a clear cost from a changing climate, so it can’t be free to pollute. That’s why the Government of Canada introduced a price on carbon pollution across Canada in 2019.

Putting a price on carbon pollution

Carbon pricing is about recognizing the cost of pollution and accounting for those costs in daily decisions. Putting a price on carbon pollution is widely recognized as the most efficient means to reduce greenhouse gas emissions while also driving innovation.

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 that all systems must meet to ensure they are comparable and contribute their fair share to reducing greenhouse gas emissions. If a province decides not to price 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 (GGPPA), adopted on June 21, 2018, the federal pricing system has two parts: a regulatory charge on fossil fuels like gasoline and natural gas, known as the fuel charge, and a performance-based system for industries, known as the Output-Based Pricing System. The fuel charge applies in Ontario, Manitoba, Yukon, Alberta, Saskatchewan and Nunavut. The Output-Based Pricing System applies in Ontario, Manitoba, New Brunswick^{Footnote 1} , Prince Edward Island, Yukon, Nunavut, and partially in Saskatchewan. All other provinces and territories are implementing their own pricing systems.

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.

Carbon pricing proceeds

When the Government of Canada introduced a price on carbon pollution across Canada in 2019, Quebec, British Columbia and Alberta already had carbon pricing systems. Since then many of the other provinces and territories have introduced their own pollution pricing systems. They use the proceeds as they see fit, including by supporting families to take further action to cut pollution in a practical and affordable way. Those governments that opted for the federal pricing system receive all the proceeds back to decide how to reinvest them.

Climate Action Incentive payments

In the remaining provinces where the federal price on carbon pollution is in effect, the Government of Canada uses approximately 90 per cent of fuel charge proceeds to directly support families through Climate Action Incentive payments, delivered through annual tax returns. These payments will move to quarterly payments starting in 2022. Through these payments, the majority of Canadian families receive more money back than they pay, with low-income Canadians benefitting the most.

Households that choose to make changes – for example, through energy upgrades to their home, or by choosing different ways or cleaner vehicles to get around – can come out even further ahead. By making choices that reduce their emissions, Canadians can avoid paying the price on pollution while still collecting the full Climate Action Incentive payment.

The system also considers where people live, acknowledging the reality that Canadians who live in rural and smaller centres don’t necessarily have the same options, particularly when it comes to clean transportation. That’s why, for people in these communities, the Government applied an additional 10 per cent top-up to their Climate Action Incentive payment.

Supporting businesses, communities, schools and hospitals

The Climate Action Incentive Fund is helping schools and small and medium businesses, such as restaurant owners, farmers, truck drivers, and convenience and grocery store owners. These businesses can seek funding of up to 25 per cent of eligible costs for energy efficient retrofits and other projects to improve energy efficiency and productivity, which reduces their energy use and carbon pollution, and saves money. The remaining fuel charge proceeds are returned through other federal programming:

Crown-Indigenous Relations and Northern Affairs Canada’s Indigenous Community-Based Climate Monitoring Program;
Indigenous Services Canada’s Capital Facilities and Maintenance Program (CFMP)/First Nations Infrastructure Fund (FNIF); and,
Natural Resources Canada’s Clean Energy for Rural and Remote Communities (CERRC) Program, and Energy Manager Program.

Targeted support and relief

Not all groups are affected by carbon pricing in the same way. The Government of Canada recognizes that particular groups or sectors may require targeted support or relief, in particular because of the small number of alternative options they may have in the face of carbon pricing. Under the federal system, relief is provided for farmers, fishers, residents of rural and small communities, users of aviation fuel in the territories, greenhouse operators, and power plants that generate electricity for remote communities.

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How carbon pricing works

Putting a price on carbon pollution

Carbon pricing proceeds

Climate Action Incentive payments

Supporting businesses, communities, schools and hospitals

Targeted support and relief

More information

Overview

Climate Action Incentive payments

Regulatory system for large industry: The output-based pricing system

Fuel charge

Federal GHG Offset System

Federal programming supporting businesses and communities

Pan-Canadian Approach to Pricing Carbon Pollution

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