LASER TALK: Canada’s carbon pricing policy – The Greenhouse Gas Pollution Pricing Act

Environment Canada video about Canada's Carbon Pricing Policy

Laser Talk: Canada’s Carbon Pricing Policy

In June 2018, the Greenhouse Gas Pollution Pricing Act achieved Royal Assent and became law of the land in Canada. All provinces and territories must have a carbon pricing policy of at least $20 tonne by January 1, 2019, raising $10 per tonne each year until 2022, with the flexibility to have their own carbon pricing systems which are equally stringent as the federal Backstop Carbon Pricing system. In 2021, the federal government updated its policy on recognizing the stringency of provincial carbon pricing systems and the price will rise incrementally to $170 tonne by 2030. In jurisdictions that do not have carbon pricing policies, the Federal Backstop Carbon Pricing system will apply. 

There are two elements of the federal carbon pricing policy:

1. A charge on fossil fuels that is generally payable by fuel producers or distributors, with rates for each fuel that are equivalent to $10 per tonne of carbon dioxide equivalent (CO2e) in 2018, rising by $10 per year to $170 per tonne CO2e in 2030. The carbon fee for the federal backstop policy is revenue-neutral. Between 2019 and 2021 the revenue was recycled back to the citizens in their income taxes under line 449 “climate action incentive“. Starting in 2022, in provinces where the federal backstop  Fuel Charge applies (currently, Alberta, Saskatchewan, Manitoba, and Ontario), will include quarterly payments at the beginning of each quarter. To give the Canada Revenue Agency sufficient time to develop the new system, payments will start in July 2022 with a “double-up” payment. This payment would return proceeds from the first two quarters of the 2022-23 fuel charge year (April 2022 to March 2023). Of note, 80% of households come out ahead, a finding confirmed by the Parliamentary Budget Office and Clean Prosperity.

2. For businesses and industries that qualify, they are enrolled in an Output-Based Carbon Pricing System. They pay a carbon price based on their emissions’ intensity relative to the best in the class of their industry, and surplus credits are traded. This component of the act protects emissions-intensive trade-exposed industries from trade pressures and carbon leakage. However, it does not send a strong enough signal to transform Canada’s energy systems to carbon decarbonize in alignment with the realities of the climate emergency we face. This assertion is supported by research by Clean Prosperity and the Parliamentary Budget Office. CCL recommends that the carbon price should be economy-wide and thus the Output-Based Pricing System should be temporary, and ultimately replaced with Border Carbon Adjustments.