We’re hearing a lot about carbon pricing. But what is carbon pricing? Why have we implemented it? And how will carbon pricing going up affect workers?

When the carbon in fuels like gasoline or heating oil is burned, it creates carbon dioxide. Carbon dioxide traps heat in the atmosphere, leading to global warming. This rise in temperature can have negative impacts, including species loss, problems with food production and more severe weather.

In response, the Canadian government decided to implement carbon pricing. Carbon pricing is a tax or a fee placed on carbon-based fuels and industries that produce carbon emissions. In other words, carbon pricing makes it more expensive to use products or industrial processes that create carbon dioxide. The idea is that if it is more expensive to create carbon-based emissions, individuals and companies will choose to invest in “greener” energy.

Canada’s federal carbon pricing system has two components: a charge added to carbon-based fossil fuels like gasoline and home heating oil, and a separate system for industries, based on emissions output.

In 2019, the federal government mandated that all provinces and territories need to have their own carbon pricing systems. Provinces and territories can implement their own system for either fuel or industrial emissions output, for both or for neither. The federal government’s standards apply when a province or territory chooses not to implement their own plans.

Right now, the federal fuel charge applies in Alberta, Manitoba, Nunavut, Ontario, Saskatchewan and the Yukon. As of July 2023, the federal fuel charge will be introduced in Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The federal output-based pricing system applies in Manitoba, Nunavut, Prince Edward Island, the Yukon and partially in Saskatchewan. British Columbia, New Brunswick, the Northwest Territories and Quebec have their own independent plans for both parts.

In 2022, the federal carbon price was $50 per ton of carbon dioxide. The price will be going up by $15 a ton each April until it reaches $170 a ton in 2030.

What does all this mean for you?

Provinces that create their own carbon pricing systems can use the revenue they generate however they want. But if the federal government back-stop applies, the federal government decides where that revenue goes. And right now, 90% of the revenue from the federal fuel charge goes directly back to households through the climate action incentive payment (CAIP). This is a tax-free benefit the government pays to individuals and families to help offset the cost of carbon pricing. The average household gets back more than they’ve paid into the system. Only higher income households pay more than they get back. This is because higher income households tend to use more fossil fuels by having larger homes, owning more vehicles and traveling more often than the average family.

Estimate net cost of carbon price for households, 2021-2022

To get the climate action incentive payment, you must file a tax return. The Canada Revenue Agency will decide if you are eligible and how much you will get, based on your province of residence and the number of people in your household.

Starting in 2022, the incentive will be paid out four times per year directly into your bank account. If you live in a rural area, you qualify for an additional 10% supplement. To receive this supplement, you have to fill out a Schedule 14 (except for residents of PEI, who will get the supplement automatically).

Starting in 2023, the Northwest Territories will replace their rebate on home heating oil with a $135 increase to their cost-of-living offset. Residents of BC also get a carbon tax rebate, but the amount varies depending on household income. New Brunswick is using some of the revenue from their carbon pricing to reduce income taxes, a strategy which is less effective for lower-income individuals. Quebec was the first province to introduce carbon pricing in 2006 and has had a cap-and-trade system since 2013. Quebec uses revenues from this system to invest in climate action, and so is the only province or territory without a rebate for households.

The higher carbon price is intended to convince households to reduce their consumption of fossil fuels. The rebate is intended to make sure those who aren’t able to make any changes to their consumption levels aren’t negatively affected. In general, the more you can do to reduce your consumption, the better off you are, because you will pay less tax and get the same rebates. So—be wary of anyone who tells you about the costs of this system without also mentioning the benefits!