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:

  1. a trading system for large industry, known as the output-based pricing system
  2. 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, drawing on information submitted by provinces and territories as well as public documents, where applicable.   

The results of that assessment are as follows:

  • Provincial systems will apply in British Columbia, Alberta, 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 pricing system for large industry will apply starting in January 2019, 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 will fill in the gaps in that province by covering the electricity and natural gas transmission pipeline sectors.
  • The federal fuel charge will apply starting in April 2019, in Saskatchewan, Ontario, Manitoba, and New Brunswick because those governments have not developed a system to price carbon pollution, which meets the federal benchmark.

Pricing carbon pollution in the territories

The Government of the Northwest Territories is planning to implement a system that meets the federal benchmark, on July 1, 2019. The federal carbon pollution pricing system will apply in Yukon and Nunavut. The federal system will start applying in the territories on July 1, 2019, to ensure alignment across the territories. This is one of several solutions to address the unique circumstances of the territories. Other solutions include providing full relief on aviation fuel and diesel-fired electricity generation in remote communities.

Proceeds from the federal carbon pollution pricing system

All direct proceeds from pricing carbon pollution under the federal system will be returned to the jurisdiction in which they were collected.

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.

Proposed Climate Action Incentive payments

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. That is why, for provinces that have not committed to pricing carbon pollution (Ontario, New Brunswick, Manitoba, and Saskatchewan), the federal government proposes to return the majority of direct proceeds from the regulatory charge on fuel, in the form of Climate Action Incentive payments, directly to individuals and families in the province of origin.

Most households in those provinces will receive more in Climate Action Incentive payments than the increased costs they incur from carbon pollution pricing. This incentive will benefit those who adopt practices that lead to less carbon pollution. 

How Climate Action Incentive payments would work

Under the proposed approach, individuals will receive the full amount of the Climate Action Incentive payment for the year, after having filed their tax returns (starting in early 2019). This amount will include a 10 per cent supplement for residents of small communities and rural areas, in recognition of their specific needs. Having the Canada Revenue Agency provide these payments will ensure timely, accurate, and cost-efficient delivery. 

The amounts of Climate Action Incentive payments made to individuals and families will vary according to the province of residence. 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 will be $307, in 2019.

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 announcements on Climate Action Incentive payment amounts once a year, reflecting the increasing price on carbon pollution and updated levels of direct proceeds. In Ontario, for example, the baseline amount for a family of four is expected to be $718, by 2022.

Supporting key sectors in provinces not committed to carbon pollution pricing

In each province that has not committed to pricing carbon pollution, those direct proceeds from the federal regulatory charge on fuel, which are not returned directly to individuals and families through Climate Action Incentive payments, will be earmarked to provide support to schools, hospitals, small and medium-sized businesses, colleges and universities, municipalities, not-for-profits, and Indigenous communities in the province. Further details on how this support will be delivered will be outlined in early 2019.

The proceeds from the output-based pricing system will also be reinvested in the province or territory of origin to support carbon pollution reduction. Further details on how these investments will be allocated will be outlined in early 2019.

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