How we’re putting a price on carbon pollution
Canadians see the costs of a changing climate all around us. Climate change is driving stronger storms, wildfires, and record-breaking heat waves. We also know that taking climate action is an enormous opportunity to create jobs and advance economic growth, save households money by increasing the energy efficiency of their homes, and ensure the air we breathe is clean and healthy.
Pricing carbon pollution in Canada
A price on carbon pollution is an essential part of Canada’s plan to fight climate change and grow the economy. Pricing carbon pollution is the most efficient way to reduce greenhouse gas emissions and stimulate investments in clean innovation. A price on carbon pollution creates incentives for individuals, households, and businesses to choose cleaner options.
In October 2016, the Prime Minister announced the Pan-Canadian Approach to Pricing Carbon Pollution (the federal benchmark), which gave provinces and territories the flexibility to develop their own carbon pollution pricing system and outlined criteria all systems must meet to ensure they are stringent, fair, and efficient. The federal government also committed to implementing a federal carbon pollution pricing system in provinces and territories that request it or do not have a carbon pollution pricing system that meets the federal benchmark.
Under the Greenhouse Gas Pollution Pricing Act, adopted on June 21, 2018, the federal carbon pollution pricing system has two parts:
- a trading system for large industry, known as the output-based pricing system
- a regulatory charge on fuel (fuel charge)
Provinces and territories had until September 1, 2018, to outline their plans. The stringency of each of the provincial and territorial systems was assessed against the federal benchmark stringency criteria. On October 23, 2018, the Prime Minister announced how carbon pollution pricing would apply across Canada:
Provincial systems apply in British Columbia, Quebec, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. The governments in these jurisdictions are either already implementing or are on track to implement carbon pollution pricing systems that meet the federal benchmark.
The federal fuel charge has taken effect in Saskatchewan, Ontario, Manitoba, and New Brunswick. The federal fuel charge will also apply in Alberta beginning in 2020. The federal government will monitor any proposed changes to Alberta's large industrial emitter system, and will undertake another benchmark assessment once sufficient details about the new system for large emitters are available. The Government is also open to working with the Government of Alberta to determine the most appropriate treatment of small oil and gas facilities under carbon-pricing.
The federal pricing system for industry applies in Ontario, Manitoba, New Brunswick, Prince Edward Island, and partially in Saskatchewan. Saskatchewan has proposed a pricing system for some of its industries; the federal system fills in the gaps in that province by covering the electricity and natural gas transmission pipeline sectors.
Proceeds from the federal carbon pollution pricing system
The federal carbon pollution pricing system is not about raising revenues. It is about recognizing that pollution has a cost, empowering Canadians, and encouraging cleaner growth and a more sustainable future. All direct proceeds from carbon pollution pricing under the federal system will be returned to the jurisdiction in which they were generated.
Provincial and territorial governments that have committed to addressing climate change by voluntarily adopting the federal system will receive these proceeds directly from the federal government and can decide on how to use them.
Climate Action Incentive payments
For provinces that have not committed to pricing carbon pollution (Ontario, New Brunswick, Manitoba, Saskatchewan and Alberta), the federal government will return the majority of direct proceeds (approximately 90%) from the fuel charge directly to individuals and families in the form of tax-free Climate Action Incentive payments.
Most households in those provinces will receive more in Climate Action Incentive payments than the increased costs they incur from carbon pollution pricing. Returning proceeds from carbon pollution pricing mitigates the financial impact on families while maintaining the incentive to pollute less.
How Climate Action Incentive payments work
Individuals receive the full amount of the Climate Action Incentive payment for the year after having filed their tax returns.
The amounts of Climate Action Incentive payments made to individuals and families vary according to family composition and province of residence. This is because different levels of proceeds will be generated in each jurisdiction where the federal carbon pollution pricing system applies, an outcome of the different types and quantities of fuels consumed in different provinces. In Ontario, for example, the baseline amount for a family of four in 2019 (claimed through 2018 income tax returns) is $307.
Residents of small communities and rural areas can claim a supplementary amount equal to 10 per cent of this baseline amount, in recognition of their specific needs.
Climate Action Incentive payment amounts will be increased annually to reflect increases in the price on carbon pollution, under the federal carbon pollution pricing system. The Minister of Finance will make annual announcements on Climate Action Incentive payment amounts, reflecting the increasing price on carbon pollution and updated levels of direct proceeds.
Supporting other affected sectors in provinces that do not meet the federal benchmark stringency criteria
In each province that does not meet th federal benchmark stringency criteria, the direct proceeds from the federal regulatory charge on fuel – that are not returned directly to individuals and families through Climate Action Incentive payments – will be used to provide support to schools, hospitals, small and medium-sized businesses, colleges and universities, municipalities, not-for-profits, and Indigenous communities in the province.
The proceeds from the output-based pricing system will also be reinvested in the province or territory of origin.
Pricing carbon pollution in the territories
Nowhere in Canada are the costs and risks of a changing climate more apparent than in the North. It is accelerating the loss of Arctic sea ice. It is leading to the reduction of important northern wildlife habitats, and disrupting traditional Indigenous ways of life. At the request of the Governments of Yukon and Nunavut, the Government of Canada will apply the federal backstop beginning July 1, 2019.
To address the unique circumstances of the territories, and to support implementation of the federal carbon pricing system in Yukon and Nunavut:
- Aviation fuels for flights within these territories will not be subject to a carbon pollution price. This ensures that, while carbon pollution pricing applies broadly in Canada, it also reflects the high reliance on air transportation in the North;
- Diesel fuels and natural gas used for electricity generation in remote communities will be relieved of the fuel charge; and
- Gasoline and diesel used for fishing vessels or in fishing activities will be relieved of the fuel charge.
All direct proceeds from the application of the federal system will be returned to the Yukon and Nunavut governments.
The Northwest Territories’ carbon pollution pricing system is expected to take effect beginning September 1, 2019. Their system is on track to meet the federal benchmark requirements.
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