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Carbon pricing plans are designed to impose a cost on industries and consumers for the combustion of fossil fuels — either directly through a tax or indirectly through a cap-and-trade system.  In a market economy like Canada’s, prices help regulate the supply and demand of goods and services.  By influencing the price of a commodity like gasoline or natural gas through carbon pricing, governments aim to discourage usage (or encourage more efficient use), with the result being a reduction in greenhouse gas emissions.

To assist members in understanding the current expectations around this complicated and politically charged policy area, HRAI presents the following cross-country description of the current plans for carbon pricing (all of which, it should be added, may be subject to change).

In 2016, Prime MinisterJustin Trudeau announced a national climate-change plan that included a system of carbon pricing across Canada. Under the plan, each province and territory must adopt carbon pricing by January 1st, 2019, or Ottawa will impose a federal carbon tax in that jurisdiction (with most of the proceeds going back to the province in question).

The federal carbon pricing system will be used in any province or territory that requests it, but also in any jurisdiction that does not have an alternative carbon pricing system that meets the federal benchmark by January 2019.

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The federal system has two components:

1. A carbon emissions pricing structure for industrial facilities that are emissions-intensive and trade-exposed, beginning in January 2019;[1] and

2. Charges on fossil fuels that will generally be paid by fuel producers or distributors, beginning in April 2019.

Six provinces and three territories are either already implementing an approved carbon pricing system of their own or are working with the federal government to phase in a price on pollution. In some cases, these programs include rebates and exemptions to smooth the transition.

Four provinces are opposing the plan. In those four areas, Ottawa has announced it will be implementing a federal system of carbon prices, plus a system of rebates for taxpayers. The rebates are intended to soften the blow as polluters will inevitably choose to pass on their carbon tax costs to consumers.

Under the federal program, large industrial facilities (emitting more than 50,000 tonnes of CO2 equivalent per year) will pay $20 per ton for the CO2 they produce, starting in January 2019. This will increase each year by $10, until it reaches $50 per ton in 2022.

The second component, beginning in April 2019, will assess fuel companies 11.6 cents per liter for gasoline, 13.7 cents for diesel, 12.4 cents for aviation gas and about 13 cents for aviation turbo fuel.

Marketable natural gas levies will be 1.96 cents per cubic metre for 2018, rising to 3.91, 5.87, 7.83, and 9.79 for 2019-2022 respectively.

Propane will be 1.55 cents per litre for 2018, increasing to 3.1, 4.64, 6.19, and 7.74 for 2019-2022. Light fuel oil for heating buildings will be 2.74 cents per litre for 2018, increasing to 5.48, 8.21, 10.95 and 13.69 for 2019-2022.

Details differ across the country and some of these are described below. Some details are the same in several places, and thus repeated.

ALBERTA, BC AND QUÉBEC HAVE THEIR OWN ESTABLISHED PROGRAMS

Alberta

Alberta is not subject to the federal program. It established carbon pricing in 2007, and expanded the program to include a fuel tax in 2017. Its carbon price increased to $30 per tonne this year, and the gas tax rate went from 4.49 cents per litre to 6.73 cents per litre.

The Alberta governments says its carbon price costs the average family with two children $508 per year. Families earning less than $95,000 per year receive a $540 rebate, with partial rebates available to some households above that income level.

British Columbia

British Columbia is not subject to the federal program. Its existing carbon price has been in place since 2008. It increased to $35 per excess tonne of carbon dioxide-equivalent emissions during 2018, and will rise to $50 per tonne by 2021. Gasoline is taxed at a rate of 7.78 cents per litre. By law it is revenue neutral, and residents receive a climate tax credit of $135 per adult and $40 per child.

According to the BC government, the province’s net emissions fell by 4.7 per cent between 2007 and 2015, and real GDP increased by more than 17 per cent.

Québec

Québec is not subject to the federal program. It is part of a cap-and-trade market with California, and until recently, with Ontario. It came into effect in 2013 and is designed to reduce total emissions 20 per cent below 1990 levels by 2020, and 37.5 per cent by 2030.

Industrial, electricity and fossil fuel companies emitting more than 25,000 tonnes of carbon dioxide-equivalent chemicals must participate in this market. Companies are given allowances to emit carbon dioxide-equivalents to a certain level, and are able to buy and sell credits to pollute above that level, so that they can optimally plan clean energy improvements. Each year, the total number of allowances in the province decreases, to encourage implementation of cleaner systems by polluters and thus move Quebec toward its overall emissions reduction goals.

Revenues from the sale of carbon credits are used for clean energy implementation, research and development programs, which must reduce carbon emissions and/or contribute to climate change adaptation/resilience.

LABRADOR & NEWFOUNDLAND, NOVA SCOTIA AND PEI WILL IMPLEMENT NEW PROGRAMS IN 2019

Newfoundland and Labrador

Newfoundland and Labrador is not subject to the federal program. Its government has established a new carbon pricing plan which has federal approval.

A carbon price will apply to industrial polluters responsible for 43 per cent of all carbon dioxide-equivalent emissions in the province based on annual reduction targets. There will be exemptions for some businesses in agriculture, fishing, forestry, mineral exploration and other struggling sectors. A levy on gasoline will rise to 4.42 cents per litre, from the existing charge of four cents per litre. A surcharge will also apply to diesel fuel, but not to home heating fuels.

Nova Scotia

Nova Scotia is not subject to the federal program. Its government has established a new cap and trade plan, which has received federal approval.

As of Jan. 1, 2019 companies will be given allowances to emit carbon dioxide-equivalents to a certain level, and will be able to buy and sell credits to pollute above that level. Each year, the total number of allowances in the province will decrease to encourage implementation of cleaner systems by polluters, and thus move Nova Scotia toward its overall emissions reduction goals.

The Nova Scotia government says the program will add about one cent per litre to the price of gasoline and about one per cent to electricity rates.

Prince Edward Island

PEI has agreed to implementation of part of the federal program. Large industrial facilities (emitting more than 50,000 tonnes of CO2 equivalent per year) will pay $20 per ton for the CO2 they produce, starting in January 2019. This will increase each year by $10, until it reaches $50 per ton in 2022.

A separate two-year agreement with the federal government will result in a four-cents-per-litre surcharge on gasoline and diesel. PEI will offset this surcharge by reducing its own existing gas tax. Home heating fuels in PEI will not be subjected to any new charges.

YUKON, NORTHWEST TERRITORIES AND NUNAVUT HAVE OPTED FOR THE FEDERAL PLAN

Canada’s three territories have all opted for implementation of the federal program, with a few mutually agreeable tweaks.

Northwest Territories

The Northwest Territories has asked the federal government to apply the same carbon price plan in its territory as is being implemented in provinces that have not developed their own plans.

The territory’s carbon surcharge on gasoline will start at 4.7 cents per litre and aviation fuel will not be taxed under the plan. All costs related to home heating will be fully rebated. Additionally, Northwest Territories residents will be given cost-of-living rebates, which will rise to $260 per year per adult and $300 per year per child.

Nunavut

Nunavut has also asked the federal government to apply the same carbon pricing in its territory as is being implemented in provinces that have not developed their own plans. Large emitters and fossil fuels will be subject to levies, but implementation will begin in July 2019. Aviation fuels and diesel-powered electricity generation will be exempted from the fuel surcharges. 

Yukon

Nunavut has asked the federal government to apply the same plan in its territory as is being implemented in provinces that have not developed their own plans. Large emitters and fossil fuels will be subject to levies, but implementation will begin in July 2019. Aviation fuels and diesel-powered electricity generation in remote communities will be exempted from the fuel surcharges.

THE FEDERAL PLAN WILL BE IMPLEMENTED IN MANITOBA, NEW BRUNSWICK, ONTARIO AND SASKATCHEWAN

Four provinces are subject to the federal program and their governments oppose it.  As noted above, the system will have two components:  1) A carbon emissions pricing structure for industrial facilities; and 2) Charges on fossil fuels that will generally be paid by fuel producers or distributors, beginning in April 2019.

Under the federal program, large industrial facilities (emitting more than 50,000 tonnes of CO2 equivalent per year) will pay $20 per ton for the CO2 they produce, starting in January 2019. This will increase each year by $10 until it reaches $50 per ton in 2022.

The second component, beginning in April 2019, will assess fuel companies 11.6 cents per litre for gasoline, 13.7 cents for diesel, 12.4 cents for aviation gas and about 13 cents for aviation turbo fuel. 

Marketable natural gas levies will be 1.96 cents per cubic metre for 2018, rising to 3.91, 5.87, 7.83, and 9.79 for 2019-2022 respectively.

Propane will be 1.55 cents per litre for 2018, increasing to 3.1, 4.64, 6.19, and 7.74 for 2019-2022. Light fuel oil for heating buildings will be 2.74 cents per litre for 2018, increasing to 5.48, 8.21, 10.95 and 13.69 for 2019-2022.

Wherever the federal plan is implemented, Ottawa says 90% of the revenue will be returned to consumers through a rebate available on their tax returns through 2022.The purpose of the rebate program is to soften the blow, in case polluters choose to pass on the carbon levies to consumers.

The Federal government has also said rebates will mean that more than 70% of affected households will come out ahead, during each of the four years of the phase-in. The table below was supplied by Environment and Climate Change Canada.  According to federal calculations, the average household will be cash positive in Ontario by $56 in 2019, rising to $133 in 2022. The net gain numbers for New Brunswick, Manitoba and Saskatchewan are $46 to $113, $104 to $250 and $195 to $473 respectively.

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Sources

https://www.canada.ca/en/sr/srb.html?cdn=canada&st=s&num=10&langs=en&st1rt=1&s5bm3ts21rch=x&q=carbon+price&_charset_=UTF-8&wb-srch-sub=

https://www.canada.ca/en/services/environment/weather/climatechange/climate-action/pricing-carbon-pollution/output-based-pricing-system-technical-backgrounder.html

https://globalnews.ca/news/4586374/carbon-tax-rebate-what-you-need-to-know/

https://www.ctvnews.ca/politics/how-carbon-pricing-will-work-province-by-province-1.4147695

https://nationalpost.com/pmn/news-pmn/canada-news-pmn/trudeau-mckenna-to-announce-compensation-for-federal-carbon-plan

https://www.canada.ca/en/services/environment/weather/climatechange/technical-paper-federal-carbon-pricing-backstop.html