Just like there was an introduction to vaccination passports in Canada and other countries, there is a carbon tax in Canada for the safety of individuals. Rising sea levels and elevated global warming result from the unbelievably increased carbon emissions. People are paying prices for the same and are now focusing on carbon pricing.

Realizing the critical situation, the federal government of Canada has also taken a significant step to deal with the issue by imposing taxes all over the country. The Canadian system includes taxes imposed on the carbon content of the fuels that the federal government or the provincial government can administer.

British Columbia was the first province in North America to have initiated and campaigned for the issue of carbon pricing and introduced the first revenue-neutral carbon tax.

What might seem like an intriguing term, i.e., revenue-neutral carbon tax, means that the amount that the citizens pay in the name of tax is compensated back in the form of relaxations in a few other taxes, e.g., personal income tax rates and corporate income taxes.

An interesting fact to note here is that any province can formulate its laws and policies concerned with the Carbon tax as long as they satisfy the minimum requirements set by the Canadian federal government.

What is Meant by Carbon Pricing?

Realizing the expense of Carbon and its effects on the environment and further compensating for it in monetary terms can be a suitable definition of Carbon pricing.

The tax levied or the regulatory fee charged on carbon usage is referred to as the Carbon tax. Since 2019, all the Canadian provinces and territories have imposed these taxes by federal law. 

The tax in Canada has existed since 2007, when the province of Quebec first imposed a tax on the consumption of carbon and fossil fuels. It all began in 2008 when the Canadian province of British Columbia introduced the first broad-based revenue-neutral carbon tax in North America to purchase and consume fuel.

This came after the government realized the elevating figures that depicted the rate at which the environment was deteriorating, and the conditions did not get better any sooner.

As a result, many countries adopted the carbon pricing policy, and the outcomes were positive. Ultimately, British Columbia decided to apply the carbon tax, which became mandatory in all Canadian provinces and territories.

Need for Carbon Tax

Now the question that might come to anmyone’s mind is that why carbon tax is required. We tried to find out the answer.

Basically, the federal government has not charged the carbon tax for personal benefits. Instead, it is really important to fight off climate change and limit the use of fuels to some extent. Carbon Taxes have been identified as one of the best ways to reduce greenhouse gas emissions.

Ethically speaking, the taxes ensure the true cost of burning carbon is being extracted from the consumer. These costs are created by people impacted by this, such as farmers, homeowners, and the governing body. It makes the companies and consumers pay the extra cost imposed on the people and the environment.

The Central government of Canada has given the privilege to every province to have its own laws and norms to control carbon pollution and hence impose the carbon tax accordingly. Therefore, the Canadian provinces and territories can imply a higher tax but not a lower one.

A province can form its carbon pricing mechanism or choose between the two categories framed by the federal government. However, in the absence of a provincial carbon tax or in provinces and territories which fail to meet the requirements of the federal tax, a regulatory fee is imposed by the federal Greenhouse Gas Pollution Pricing Act (GHGPPA).

You Must Know About GHGPPA

The Canadian federal law established a set of minimum standards for a carbon price in Canada to meet the targets of reduced carbon pollution set under the Paris Agreement. The Greenhouse Gas Pollution Pricing Act (GHGPPA) was established to validate the carbon price. It came into force on June 21, 2018.

However, it faced much criticism from states like Saskatchewan, the Ontario government, and Alberta. The Supreme Court rejected their appeal, stating that the GGPPA is constitutional.

The Federal Pricing System

The Federal Pricing system has two different areas according to which the fee is charged:

1. A Fuel Charge

The fee is charged for fuels like natural gas and gasoline. The fuel charge began at CA$ 20 per tonne of CO2 in 2019, which rose by CA$ 10 every year, reaching CA$ 50 in April 2022. Each province can set its taxes to either meet or exceed the requirement. The provinces that use a cap-and-trade system are exempted from this.

A cap-and-trade system allows the governing body to put a cap, i.e., a certain amount of GHG emissions that companies and industry sectors are permitted to emit annually, on GHG emissions to reduce emissions over time.

Currently, Nova Scotia and Quebec work under the cap-and-trade system, wherein the companies can buy emissions credits and if they wish to purchase beyond the set cap, they can purchase from other companies who have some extra credits left, in other words, companies that emit fewer carbon emissions.

This promotes the companies to reduce emissions. Unlike the federal government, which increases the carbon tax every year, the regulatory body reduces the cap in these two provinces, which avoids the extra cost incurred by the companies.

2. Output-Based Pricing System

A performance-based system that targets greenhouse gas emissions from large industry or industrial facilities. In layman’s language, companies that emit 50,000 tonnes of carbon or more every year will have to pay a regulatory fee dependent on industry standards and the amount of extra carbon emitted.

The four provinces of Ontario, Manitoba, Alberta, and Saskatchewan use the first system, which is the fuel charge pricing system. In contrast, Manitoba, Prince Edward Island, Yukon, Nunavut, and Saskatchewan use the OBPS – Output-based pricing system.

The Canadian government, while introducing these carbon pricing mechanisms, ensured that this would be revenue-neutral and 90 percent of the tax would go back to the citizens, and the remaining 10 percent would be utilized to help the affected sectors like schools, hospitals, and so on.

The cost of carbon pollution and greenhouse gas emissions is completely non-negotiable. However, to combat the issue, the tax works under the federal carbon pricing system, which is $50 per tonne of CO2 equivalent as of May 2022, which has increased since 2019 as it sat at $40 per tonne of CO2 equivalent back then.

Another fascinating fact I must tell you is that provinces not having their carbon pricing system get affected a lot because of these changes, while others are not penalized.

To be fair to all, the federal carbon tax ensures minimum requirements, and in provinces like Prince Edward Island, Alberta, Saskatchewan, and Ontario, where the taxes meet the federal benchmarks only for the emissions that they cover, the fuel charges are applied centrally in these provinces to emission sources not covered under the carbon pricing system.

Quebec imposed the first carbon tax on energy distributors, refiners, and producers in June 2007. All of them were hit hard by the decision, from oil companies to gasoline and natural gas manufacturers, as they all paid a tax equivalent to CA$200 million, which was absorbed by the industry.

British Columbia introduced a carbon tax in 2008. The tax applies to the purchase and consumption of fossil fuels and covers up to 70% of the total provincial greenhouse gas emissions.

Alberta began to impose its first carbon tax in November 2015. The premier of Alberta introduced his first piece of legislation: An Act to repeal the carbon tax, which repeals the provincial carbon tax but will be replaced by the federal carbon levy.

Pros and Cons 

Well, every concept has its own pros and cons, and same is the case here.

Pros

The very first advantage of the carbon tax is that it is very predictable. It helps to promote clean technology and motivates consumers to move towards more renewable resources and reduce emissions.

Another merit is that it gives innovation an upper edge and the people who are more concerned with renewable resources a higher market share.

Taxes have been a part of the system forever. Therefore, the addition of another type of tax wouldn’t be bothersome. Inculcating tax within the economy and in the public’s minds would be easy. This would encourage companies and people to reduce their carbon footprint, which is Canada’s main carbon tax purpose.

The data shows it all. The figures released by countries that have already implemented carbon pricing over gas emissions have shown commendable results, except for Australia, where the central government eliminated carbon tax after 2 years.

Cons

Coming down to the cons, the biggest demerit is that the lower-income families who spend a major portion of their income on activities with high emissions are severely affected. Therefore, the tax can be burdensome for them.

Moreover, the rich class with enough money might not take the tax seriously and can easily pay a certain amount and continue using the same amount of fuel and gasoline.

Is There Any Rebate?

The Canadian government ensures that lower-income households are not severely impacted by the tax imposed. It applies to Ontario, Manitoba, Alberta, and Saskatchewan, where a personal carbon tax policy is absent. The rebate depends on the province since each province has a different amount of emissions, and the tax collected on these emissions decides the amount of the rebate.

An essential thing to note here is that the tax is not only implemented on just carbon pollution but also all greenhouse gases. Also, not all greenhouse gas prices are equal; it depends on how much the substance contributes to the greenhouse effect.

A Solution to The Problem

Technology has introduced efficient means of fossil fuel use, making it easy to continue utilizing oil, natural gas, and coal without realizing the environmental effects. This can happen only once the government implements a carbon tax. The tax puts honest pressure on or creates a need to focus on sustainable economic activity and work towards making space for affordable energy.

Undoubtedly, these taxes affect gasoline prices and other jurisdictions increase other fuel prices to compensate for increased carbon pollution.

Most households that belong to low-income families are affected by these elevated prices, and to prevent them from being the worst hit by the situation, the government increases the tax credit per family and child.

For instance, when the carbon tax was hiked from 40 CAD per ton of CO2 to 50 CAD, the government also enhanced the Climate Action incentive, which is also called the Climate Action tax credit, from $174 to $193.50 per adult and from $51 to $56.50 per child effective July 1, 2022.

Takeaway

To sum it up, to fight climate change and increase greenhouse gas emissions, it became important for the government to take a strong step, which came with implementing a carbon tax.

The first broad-based tax was imposed in British Columbia which experienced huge success with the tax and gradually a federal carbon tax was introduced within the whole country. After a lot of controversies and criticism, the Supreme Court finally passed carbon pricing, and all the provinces are hence forced to ensure that they meet the minimum requirements, i.e., the federal benchmark set by the government or else pay a regulatory fee in the name of the fuel charge.

Last Updated on April 14, 2024 by Pragya Chakrapani