Prime Minister Justin Trudeau makes an announcement that the government will double the carbon price rebate for rural Canadians beginning next April in Ottawa on Oct. 26.Sean Kilpatrick/The Canadian Press
The federal government’s signature carbon tax policy has faced political pressure from the Official Opposition Conservatives and an increasing number of provincial politicians.
Conservative Leader Pierre Poilievre has demanded that the government back off from its plan to raise the carbon price another $15 per tonne as scheduled on April 1. The hike will add about three cents to the price of a litre of gasoline.
Last October, Prime Minister Justin Trudeau made a surprise announcement that softened the policy. In an effort to battle rising prices, the federal government increased the rebate on carbon pricing for rural Canadians and removed the carbon price from home heating oil entirely for the next three years. The new rules, which have been largely criticized by climate groups, apply to the Prairie provinces, Ontario and Atlantic Canada.
So, what, exactly, is carbon pricing? What are the newly announced exemptions? Why is there backlash from provinces? Here’s what you need to know about the latest changes.
What is carbon pricing? What is a carbon tax?
Carbon pricing means charging a minimum cost for fossil fuels such as gasoline, diesel and coal, and the goods made from them, so that their prices come closer to the real environmental costs. This can be applied either as a carbon tax on goods produced or sold, or as a carbon cap and trade system that corporations can trade on a regional market. Both have the same goal – to give companies and individuals a financial incentive to reduce their emissions.
Carbon tax:
A carbon tax is a fee imposed on each tonne of emissions from fossil fuels that includes oil products, such as gasoline and diesel, natural gas and coal-fired electricity. Under this system, everyone who buys a product that creates greenhouse gases pays for their emissions. Companies also pay, but those who face competitive pressures get a special break.
Cap and trade:
A “cap and trade” system sets a limit on the amount of carbon that companies are permitted to burn. It also offers the option for companies to buy the right to burn more than their quota by purchasing allowances, also known as carbon credits, from companies that burn less. By doing this, they exchange their right to emit greenhouse gases. The government also allows free allowance to some companies that face competitive pressure.
How much is the carbon tax?
The Trudeau government announced in 2018 that all provinces would need to implement a carbon-pricing system by April 1, 2019. The federal government intended the law to meet the country’s obligations under the 2015 Paris Agreement, which seeks to limit the increase in the Earth’s surface temperatures to 1.5 C by 2050.
For consumers, the federal minimum price is set at $65 per tonne of CO2 equivalent as of April, 2023. It started at $20 per tonne in 2019 and will increase by $15 annually until it reaches $170 in 2030.
Provinces and territories are allowed to create their own system of carbon pricing as long as they meet or exceed the minimum requirements set by the federal government. If a province has no plan, or if it’s below the standard, the federal government applies a “backstop” that applies the minimum price through federal taxes.
Is the carbon tax legal?
The Trudeau government had most provinces on board when it developed the carbon framework in 2018′s Greenhouse Gas Pollution Pricing Act, but some provinces elected new governments opposed to it, such as Doug Ford’s Progressive Conservatives in Ontario. Alberta, Saskatchewan and Ontario asked their appeal courts for a judgment on whether the act was constitutional: Alberta’s said no, Saskatchewan and Ontario’s said yes. Quebec, Manitoba and New Brunswick also intervened to oppose the law, while B.C. intervened in support.
The Supreme Court of Canada’s final decision was that the federal law is constitutional under the Constitution’s “peace, order and good government” clause, which gives the federal government jurisdiction over issues of “national concern.” Successful POGG claims are rare, but in the court’s 6-3 ruling, Chief Justice Richard Wagner wrote that Ottawa had met the threshold:
[Climate change is] a threat of the highest order to the country, and indeed the world. This context, on its own, provides some assurance that ... Canada is not seeking to invoke the national concern doctrine too lightly. The undisputed existence of a threat to the future of humanity cannot be ignored.
What are Ottawa’s carbon-pricing exemptions?
Mr. Trudeau said he would increase the carbon price rebate for rural Canadians and pilot a new rebate program in Atlantic Canada that will entirely cover the costs for lower-income households to switch to heat pumps.
He also introduced a three-year carbon price exemption to home heating oil, which took effect in November 2023. It applies to oil used for heating homes and other buildings, meaning businesses will also benefit from the pause. The government is not making a similar exemption for any other fuels used for heating, so people who use natural gas to heat their homes will still have to pay the carbon price.
The government did not release cost breakdowns for the changes. Mr. Trudeau said the rural rebate increase is within the “existing envelope” of revenues from the levy. He also said the changes would not affect Canada’s overall emissions targets.
The federal government has since rejected calls for more carbon-pricing concessions, saying its carve out aimed at improving the affordability of home heating oil won’t be extended to households who use other fuels for heating.
Conservative Leader Pierre Poilievre rises during question period in the House of Commons on Parliament Hill in Ottawa on Wednesday, Nov. 1, 2023.Sean Kilpatrick/The Canadian Press
What has been the backlash to the policy?
After the Atlantic Canada exemptions were announced last fall, premiers in several provinces accused the government of regional favouritism and a two-tier system.
Saskatchewan Premier Scott Moe stopped the collection of carbon pricing on natural gas bills on Jan. 1, which goes against federal law. Ottawa is now in a legal standoff with Saskatchewan.
Moe and six other premiers have joined Poilievre to demand the April 1 increase be avoided. They include the only current provincial Liberal Premier, Andrew Furey in Newfoundland and Labrador, and Blaine Higgs, the Tory Premier in New Brunswick, who in 2019 said the re-election of the Liberals was a sign voters wanted carbon pricing.
Poilievre’s Conservatives have moved 10 motions in the House of Commons calling for carbon pricing to be scrapped or significantly amended. To date, none of them have succeeded.
Meanwhile, the carbon carve outs have been also largely criticized by climate groups. The government-funded Canadian Climate Institute warned that the change brings uncertainty to federal climate policy and dilutes the effectiveness of the carbon levy.
With reports from Marieke Walsh, Susan Krashinsky Robertson, Sean Fine, Ian Bailey and Emma Graney