What cutting the consumer carbon tax means for Canada's emissions
Fuel charge helped drop emissions, but other policies could make up for it — at a price
The federal government has ended its carbon pricing for consumers, and that's expected to lead to savings at the gas pump. But what did the carbon tax and rebate actually do for the climate? And now that it's gone, what impact will that have on emissions? Here's a closer look.
How was the consumer carbon tax and rebate supposed to reduce emissions?
The federal government's consumer carbon pricing, launched by Justin Trudeau's Liberal government in 2019, was applied in provinces that didn't have their own carbon pricing.
It had two parts:
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A surcharge or tax added to the price of carbon emitting fuels that was to increase each year from $20 per tonne of carbon in 2019 to $170 a tonne in 2030. As of March 31, when it ended, it added 17.6 cents a litre to gasoline and 15.25 cents per cubic metre to natural gas.
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The Canada Carbon Rebate, based on family size, was paid out four times a year to offset the cost, returning 90 per cent of revenues from the tax. The April payment will be the last families receive.
That boosted the sticker price of carbon emitting fuels, which was intended to curb their use. "When something costs more people use less of it … we find ways to be more efficient or adopt alternatives," said Stewart Elgie, a professor of law and economics at the University of Ottawa.
Those alternatives could include such things as getting an electric car, taking transit or cycling more, insulating your home or replacing your furnace with a heat pump.
The climate rebate allowed the government to increase price of fuel without impacting people's costs overall. But it also added to the incentive to reduce emissions, since people received payment even if they weren't buying fossil fuels.
"The more you reduced, the more you came out ahead in the pocketbook," Elgie said. "Those who reduced the most actually made money in the end."
But was it actually working?
Yes, according to a 2024 report from the Canadian Climate Institute. It found that carbon pricing, both consumer and industrial, would play a "leading role" in cutting emissions by 2030.
However, the industrial carbon price was projected to have three times the impact of the consumer carbon price. The consumer carbon price, or fuel charge, was expected to cut emissions by eight to 14 per cent, compared to 23 to 48 per cent for the industrial carbon price.
Dale Beugin, co-author of the Canadian Climate Institute report, said: "In some ways, losing the consumer carbon price just emphasizes the importance of the industrial carbon price — that it's hugely important for delivering on competitiveness as well as emissions reductions."
The Liberals under new leader Mark Carney have promised to maintain the industrial carbon price if elected in the upcoming federal election. However, the Conservatives under Pierre Poilievre have promised to eliminate industrial carbon pricing if elected.
Overall, Canada's emissions are declining despite a growing economy. In 2023, Canada emitted 694 megatonnes of carbon dioxide, down 0.9 per cent compared to 2022 and a decrease of 8.5 per cent compared to 2005, the federal government reported.
"We're finally seeing success in lowering our emissions and building a clean economy after decades of of failure," said Elgie. "And that's because our climate policies are now working."
Will losing the consumer carbon tax cause Canada's emissions to go up?
Not necessarily, according to both Elgie and Beugin.
It depends partly on whether the government maintains its current climate policies. They include targets for selling electric vehicles and a clean fuel standards that could both nudge consumers toward electric vehicles even without the carbon tax, Beugin said.
Elgie says it also depends on whether the consumer carbon price is replaced with other climate policies that generate equivalent emissions reductions. Those could include subsidies for cleaner technology such as EVs and heat pumps, or regulations.
Carney has said that if elected, he would replace the carbon tax with a rebate program to reward Canadians for buying products such as energy efficient appliances, electric vehicles or better home insulation.
Elgie says that could help cut emissions, but studies, including some of his own research, show such subsidies could cost more than carbon pricing. Carbon pricing is considered the cheapest and most efficient way to cut emissions, since it is the most flexible and allows each person or business to choose the way to cut emissions that works best for them.
Beugin said rebates and subsidies for clean technology have seen a lot of success in the U.S. But they're paid for by taxpayers, and they risk being used to pay people to do things that they might have done anyway, even without the subsidy.
He says the area most in need of policies to cut emissions is buildings. "It's one of the sectors that's still going the wrong way in terms of emission reductions," he said, suggesting that more could be done to improve energy efficiency and move away from burning fossil fuels for heat, such as tighter building codes.
While falling prices for technology like heat pumps may help, Beugin said the government still has a necessary role to play in driving down emissions.
"We are not going to deliver on our emissions targets as a country, absent policy incentives."
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