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Carbon tax in Canada

With everything more expensive these days, Canadians are paying more and more attention to anything that might boost costs. That includes carbon pricing (also known as the carbon tax, levy or whatever you want to call it).

The price on carbon has been a political punching bag for years, but the current cost-conscious environment, coupled with the federal price on carbon increasing on April 1, 2024, from $65 to $80 per metric ton — is increasing the tone and tenor of the debate. 

That debate has long lacked nuance

How does the ‘carbon tax’ work in Canada?

First of all, it isn’t technically a tax — a price or levy would be the accurate way to describe the system, but colloquially, it’s known as a “carbon tax.”

The federal government introduced a price on carbon in 2019 — the first time individuals across the country were faced with a price that impacted things like gasoline and home heating. But it wasn’t the first time industry had faced a levy, and Ottawa wasn’t the first to tack costs onto carbon pollution. 

Alberta was the first jurisdiction in North America to put a price on emissions, instituting its levy on large emitters in 2007, followed shortly by Quebec. Other Canadian provinces (and some states) introduced emissions-trading systems shortly thereafter. 

According to the federal government, the consumer carbon price currently adds 17.6 cents to each litre of gasoline.

Ontario Greenbelt: workers with buckets in a farm field with a tractor look up at geese flying overhead
Diesel and gasoline used in tractors, combines and other farm machinery has long been excluded from the federal carbon price system — some farmers and politicians argue other fuels should be included in that exemption. Photo: Christopher Katsarov Luna / The Narwhal

How does the rebate work for the carbon tax?

The costs of the carbon levies can be hard to measure, particularly as they are offset by rebates on to Canadians, paid out quarterly as the Canada Carbon Rebate. Basically, the pool of money the federal government collects through the price on carbon is redistributed to all Canadians, but the amount of that rebate varies depending on where you live, whether you’re in an urban centre and whether you have children. The basic idea being, the less money you spend through the price on carbon emissions, the more of that rebate that remains in your pocket.

Want to learn more about the carbon tax?
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Want to learn more about the carbon tax?
We report on a number of climate measures affecting people — and the natural world — across Canada. Sign up for our ad- and paywall-free reporting!

So, as the carbon tax or the price on carbon goes up, that rebate will increase, too.

Money collected through carbon levies for industrial emitters are returned to the provinces and territories and are meant to fund greener technologies.

How will the carbon tax affect me?

It depends where you live.

The current federal system is a bit of a mish mash. Provinces can create their own carbon pricing systems that meet federal standards — and prices — or they can adopt the federal system. This goes for both consumer prices and for industrial emitters. 

British Columbia, The Northwest Territories and Quebec are the only jurisdictions with their own systems for both the consumer price and industry, while Manitoba, Nunavut and the Yukon rely on the federal system for both. The others have a blend. In Alberta, for example, the province implemented its own levy on industrial emitters, while adopting the federal system for consumers. 

All territories and provinces must follow the federal price, which is set to rise to $170 per ton by 2030.

An aerial view of part of the area that will be used as Metrolinx station and train yard
Carbon pricing is applied different depending on where you live and who — or what — you are, with consumers paying a different levy than industry. Photo: Christopher Katsarov / Luna

Why is everyone so fired up about the carbon tax?

There is tension between the federal government and the provinces on the carbon pricing regime, particularly in Saskatchewan. There, the government has said it will stop collecting the levy on households in response to rebates the federal government provided on home heating oil, which largely benefits those living in Eastern Canada. 

That will likely impact the rebates Saskatchewan residents receive

Before that, Saskatchewan, along with Manitoba and Ontario, brought a constitutional challenge of the federal carbon price to the Supreme Court of Canada. The court ruled the carbon price was valid, and underscored that it is not, in fact, a tax.

As the price is set to rise, those governments (largely, but not exclusively, conservative) are increasing calls for a pause while citing rising costs. Economists, however, say that carbon pricing is the lowest cost form of regulating emissions, can be highly effective and help fund new green projects.

We’ll be keeping an eye on the carbon tax and how this pricing affects both people and the environment, among other stories about the natural world that matter most. Sign up for our weekly newsletter to stay informed!

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The Narwhal’s reporters uncover energy stories that send shockwaves throughout Canada. But they can’t do it alone — we need to add 300 new members this month to meet our budget. Will you support crucial climate reporting that makes an impact?