How Canada’s pollution pricing system works (2024)

Backgrounder

How Canada’s pollution pricing system works

Every day, we see the increasing impacts of climate change, and they’re costing Canadians more and more. Climate-related impacts are already costing average Canadian households $720 per year and are likely to rise to $2,000 per year by 2050 without significant action to reduce emissions.

A price on pollution is widely recognized as the most efficient means to reduce the greenhouse gas emissions that are contributing to the more intense wildfires, droughts, and floods caused by climate change. Canada’s approach to pollution pricing is also designed to put money back into people’s pockets.

Putting a price on pollution is a cornerstone of Canada’s plan to tackle climate change.

In provinces where the federal carbon pricing system applies, the Government of Canada returns the majority of proceeds from the federal pollution pricing system to families through the quarterly Canada Carbon Rebate for individuals. The remaining portion of proceeds will be returned through federal programming to groups that may be disproportionately impacted by climate change. This includes returning proceeds to farmers, to Indigenous governments through jointly developed mechanisms, and to small- and medium-sized businesses.

The federal carbon pollution pricing system is not about raising money for the Government. All direct proceeds collected are returned to the province or territory in which they were collected. Furthermore, the system was designed to return the money in advance before Canadians incur extra costs at the pumps or on their home heating bills.

Quarterly Canada Carbon Rebate for individuals

Households in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador receive four payments under the Canada Carbon Rebate each year by direct deposit or cheque. This helps keep life affordable for individuals and families while fighting climate change. Through these quarterly payments, eight out of 10 households receive more money back than they pay.

As Canadians continue to take action to reduce emissions—by improving their home insulation, using transit, purchasing an electric vehicle, or installing a heat pump—they will cut costs and save money.

Independent analysis by Clean Energy Canada has shown that a Canadian family that adopts clean-energy solutions, including electric vehicles and heat pumps, could reduce their monthly energy bills by $800, compared to a household that is largely reliant on fossil fuels.

Canada’s approach to carbon pricing does not increase the cost of living. In fact, the federal government is focused on addressing the cost-of-living crisis and is delivering the Canada Carbon Rebate to make life affordable for Canadians and support families. The Canada Carbon Rebate, distributed via direct bank deposit or cheque, outweighs the costs from pollution pricing for the vast majority of families in provinces where the federal fuel charge applies.

For 2024–2025, a family of four will receive the following in base Canada Carbon Rebate amounts:

Rural supplement

In addition to the base Canada Carbon Rebate amount, a rural supplement is provided to residents of small and rural communities. To further recognize rural Canadians’ higher energy needs and more limited access to cleaner transportation options, the government has doubled the rural supplement available for households in rural areas and smaller communities from 10 percent to 20 percent of their base Canada Carbon Rebate amount. Canadians will start to see this doubled rural supplement with their Canada Carbon Rebate payment on October 15. The supplemental increase will be retroactive to April 1, 2024, so those households can expect a one-time double payment in October 2024 for the retroactive amounts from April and July. Additionally, the boost from 10 percent to 20 percent will be ongoing from October 1, 2024, onward.

Canada Carbon Rebate for Small Businesses

Canada’s small- and medium-sized businesses are the backbone of the Canadian economy and the heart of our communities. Across the country, they keep main streets flourishing, create good jobs, and deliver on the dream of entrepreneurship. Through the new Canada Carbon Rebate for Small Businesses, the Government of Canada is delivering on its commitment to return proceeds from the price on pollution directly to small- and medium-sized businesses in the provinces where the federal fuel charge applies.

This accelerated and automated return process will deliver over $2.5 billion directly to an estimated 600,000 small- and medium-sized businesses through a refundable tax credit. By receiving direct payments, this simple process for accessing fuel charge proceeds will help eligible small- and medium-sized businesses to focus on what matters most—driving their businesses forward. To be eligible for the retroactive payment with respect to the 2019–2020 to 2023–2024 fuel charge years (a fuel charge year runs from April 1 to March 31), a Canadian-controlled private corporation (CCPC) must:

• Have employed one or more persons in a designated province in the calendar year in which the fuel charge year begins
• Have had 499 or fewer employees throughout Canada in that calendar year
• File a tax return for its tax year ending in 2023 no later than July 15, 2024

Canadian-controlled private corporations do not have to apply for this rebate. Once the Minister of Finance has specified the payment rates for each designated province for an applicable calendar year, we will calculate and automatically issue the rebate amounts to eligible small businesses.

The rebate amount for an applicable calendar year between 2019 and 2023, inclusively, will be calculated for each designated province in which the eligible Canadian-controlled private corporation had employees in that calendar year.

This rebate amount will be equal to the number of persons employed by the eligible Canadian-controlled private corporation in a designated province in a calendar year, multiplied by a payment rate specified by the Minister of Finance for the designated province for the corresponding calendar year.

More details on rebate amounts and distribution dates for the rebate will be provided in the coming months.

Support for Indigenous communities

In 2020, the Government of Canada committed to return 1 percent of federal fuel charge proceeds to Indigenous governments. In 2024, proceeds allocated for return to Indigenous governments doubled to 2 percent in recognition of the impacts of climate change on Indigenous communities. This will support Indigenous governments to respond to a changing climate and advance self-determined priorities.

Environment and Climate Change Canada is continuing to engage with Indigenous partners, including First Nations, Inuit, and Métis governments, to advance jointly developed solutions to return the share of proceeds collected from 2020–2021 to 2024–2025, as soon as possible.

Pollution pricing in the agriculture sector

Farmers are on the frontlines of climate change, facing ever-increasing risks of floods, droughts, and storms to their operations. Canada’s approach to pollution pricing was designed to take into account the unique needs of farmers. Farmers do not pay the fuel charge for gasoline and light fuel oil (diesel) used in eligible farming machinery on farms. Similarly, biological emissions are not priced under the federal system, such that roughly 97 percent of on-farm emissions are not subject to the price on pollution.

Greenhouse operators also receive upfront relief of 80 percent of the fuel charge on propane and marketable natural gas used to heat an eligible greenhouse or to supplement carbon dioxide in eligible greenhouses in order to grow or produce plants.

Additionally, farm businesses that operate in provinces where the federal fuel charge is in place can generally receive a refundable tax credit, the purpose of which is to return total fuel charge proceeds related to farm use of natural gas and propane in heating and drying activities in those provinces, to help farmers transition to lower-carbon ways of farming.

As part of the Strengthened Climate Plan and the 2030 Emissions Reduction Plan, the Government of Canada committed over $1.5 billion to accelerate the agricultural sector's progress on reducing emissions, while remaining a global leader in sustainable agriculture. This includes $470.7 million for the Agricultural Clean Technology (ACT) Program to create an enabling environment for the development and adoption of clean technology that will help drive the changes required to achieve a low-carbon economy and promote sustainable growth in Canada's agriculture and agri-food sector.

Additional information

• How Carbon Pricing Works
• Canada Carbon Rebate Amounts for 2024–2025
• Canada Carbon Rebate for Small Businesses
• Carbon Pollution Pricing Proceeds Programming