It’s no joke – Carbon price increase on April 1, 2024

On April 1, 2024, the price of carbon in Canada increases from $65 a tonne to $80 a tonne. In accordance with a 2021 federal benchmark, the carbon price will continue to rise annually by $15 until it reaches $170 a tonne by 2030.

The carbon price is established pursuant to the federal Greenhouse Gas Pollution Pricing Act. There are two main components to this legislation:

  1. A federal fuel tax (the “carbon tax”) is applied in provinces that have not established their own carbon pollution regimes which meet national stringency criteria (British Columbia, Quebec and the Northwest Territories have done so).
  2. An Output-Based Pricing System is applied to certain carbon-intensive industries (the “OBPS”). Like the carbon tax, the OBPS only applies in provinces that have not adopted equivalent provincial measures (most provinces have done so with the exception of Saskatchewan, Manitoba, Ontario and New Brunswick).

In 2021, the Supreme Court of Canada affirmed that the legislation is constitutional.

The carbon tax is a financial incentive for individuals and businesses to change their behaviour to burn less fossil fuels and transition to greener forms of energy. The preamble to the legislation states that greenhouse gas (GHG) emission pricing is a core element of the Pan-Canadian Framework on Clean Growth and Climate Change, and that the pricing of GHG emissions on a basis that increases over time is an appropriate and efficient way to create incentives for behavioural change.

Behavioural change is intended to lead to increased energy efficiency, to the use of cleaner energy, to the adoption of cleaner technologies and practices and to innovation that is necessary for effective action against climate change.

A number of provincial premiers have criticized the carbon tax for increasing inflation. In addition, the leader of the Official Opposition in Ottawa has indicated that the carbon tax will be abolished if the government changes.

Canada calls the carbon tax revenue neutral because all proceeds are returned to the province where the proceeds were collected. Through a rebate program, 90% of the government revenues are returned to households. The other 10% is directed to programs to help businesses, schools, municipalities and other grant recipients reduce their fossil fuel consumption. However, the carbon tax – as currently structured – is not designed to be revenue neutral for individual Canadians. This is dependent on how each individual heats their home and how much they drive their car. In the case of the OBPS, proceeds from the tax are returned to the province of origin to support clean technology, clean projects and programs to reduce emissions in the long-term. For reference, here is more information on the federal government’s Output-Based Pricing System Proceeds Fund.

Given the steep rise in carbon prices to come in future years, all individuals and businesses in Canada need to understand the pricing regime, the options that are available to minimize their exposure, and potential opportunities to both individuals and business to benefit from the return of the revenue collected to consumers, provincial and municipal governments, and industrial emitters. Contact our Energy Law practice group for more details.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.