Everything you need to know about the new federal carbon tax

Published: April 8, 2019

Carbon Pollution Photo by Shutterstock/Stocker1970

Your commute to the cottage just got a bit pricier. On April 1, the cost of gas rose by 4.4 cents per litre in Saskatchewan, Manitoba, Ontario, and New Brunswick after the federal government implemented a new carbon tax. The carbon tax is designed to curb climate change by imposing a fee on each tonne of emissions from fossil fuels with a goal of reducing emissions by 60 million tonnes in 2020. As a result, oil products such as gasoline, diesel, natural gas, and coal-fired electricity will see a rise in price as the federal government tries to encourage Canadians to choose greener alternatives.

According to the federal government’s Department of Finance, “The fuel charge rates reflect a carbon pollution price of $20 per tonne of carbon dioxide equivalent (CO2e) in 2019, rising by $10 per tonne annually to $50 per tonne in 2022.” This means that by 2022, the price of gas will have risen by approximately 11 cents per litre.

In October 2016, Prime Minister Justin Trudeau announced a pan-Canadian approach to pricing carbon pollution, allowing provinces and territories to develop their own carbon pollution pricing systems as long as they met federal standards. Saskatchewan, Manitoba, Ontario, and New Brunswick, however, did not develop adequate systems, causing them to be subject to the federal carbon tax. Elsewhere in Canada, such as British Columbia, Alberta, Quebec, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, provincial systems of pricing carbon pollution have been implemented.

The Northwest Territories are implementing their own plan on July 1, while the federal carbon tax will be applied to the Yukon and Nunavut on the same date. There will be a few exceptions for the territories, however, such as no carbon taxation on aviation fuel and diesel-fired electricity generation in remote communities.

The price of the carbon tax will vary based on the area you’re in, with more revenue being generated from provinces and territories that rely more heavily on fossil fuels. And a 10 per cent supplement will also be built in for residents of small communities and rural areas where oil products are considered more essential. But much of the revenue generated from the tax will be returned in the form of rebates called climate action incentive payments. The federal government plans on returning the majority of direct proceeds from the carbon tax back to individuals and families in the province of origin.

For example: The federal government says the average Ontario family will pay $244 into the carbon tax in 2019, but will receive approximately $300 from the climate action incentive payment; in Saskatchewan, the average family will pay $403 with a rebate of $598; In Manitoba, the average family will pay $232 with a rebate of $336; and in New Brunswick, the average family will pay $202 with a rebate of $248. All rebates will be paid out by the Canada Revenue Agency.

The remaining proceeds from the carbon tax will be used to support the province or territory’s schools, hospitals, small and medium-sized businesses, colleges, universities, municipalities, not-for-profit organizations, and Indigenous communities. The federal government estimates that the carbon tax will generate $1.45 billion for these sectors over the next five fiscal years.

Big industries in provinces and territories subject to the federal carbon tax will also be affected. They will be subject to what the federal government is calling an output-based pricing system (OBPS). Under this system, the federal government will set a limit on the amount of emissions a facility can produce. Facilities that exceed this limit will pay a carbon tax on their excess emissions. Facilities that pollute less than the set limit will receive credits that they can sell to other businesses—similar to a cap and trade system. According to the federal government’s website, the OBPS hopes to incentivize industries to find innovative ways to reduce emissions and finance clean investments. The proceeds from the OBPS will be returned to the province or territory from which they were collected in order to fund initiatives to further reduce greenhouse gas emissions.

 

 

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