The essence of carbon pricing lies in acknowledging the true cost of pollution and incorporating these costs into everyday decision-making processes. Recognized globally as a highly efficient approach to curbing greenhouse gas emissions and fostering innovation, carbon pricing has been adopted by every jurisdiction in Canada since 2019. The Canadian approach offers flexibility, allowing each province or territory to design its own carbon pricing system to meet local needs or opt for the federal system.
Flexibility notwithstanding, the federal government establishes minimum national stringency standards, commonly referred to as the federal ‘benchmark.’ These standards ensure uniformity and effectiveness in emission reduction across all systems. If a province or territory opts not to implement carbon pricing or proposes a system falling short of these standards, the federal system becomes operational, ensuring consistency and fairness nationwide. Strengthened standards were introduced in August 2021 for the 2023 to 2030 period.
The federal pricing system consists of two components: a regulatory charge on fossil fuels, known as the fuel charge, and an Output-Based Pricing System for industries. Depending on jurisdiction, one or both of these components may be applicable. Manitoba, Nunavut, Prince Edward Island, and Yukon are subject to both components, while provinces like Alberta, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Saskatchewan see the federal fuel charge alongside provincial systems for industry.
British Columbia, the Northwest Territories, and Quebec currently meet the federal benchmark stringency requirements, exempting them from the federal pricing system. A color-coded map categorizes provinces and territories based on whether the federal backstop applies in full, in part, or not at all.
Proceeds from the federal carbon pricing system are retained in the jurisdiction where they were collected. Provinces and territories implementing the federal system directly receive these proceeds for local utilization. In other regions, the federal government distributes proceeds to individuals, families, and businesses through payments and climate action programs. This approach ensures the affordability of carbon pricing, empowering households to invest in energy efficiency and emission reduction initiatives. Proceeds are also directed to targeted support for territories and Indigenous Peoples, acknowledging unique circumstances such as high living costs, energy challenges, food security issues, and emerging economies.
Looking ahead, the federal carbon price will maintain its revenue-neutral status, and the Government of Canada remains steadfast in ensuring the affordability of the federal pollution pricing system. Announcements made on November 22, 2022, underscore the government’s commitment to implementing changes based on updated benchmark criteria for the period 2023 to 2030.
