As the carbon tax faces an uncertain future, here’s what you need to know

Axe the Tax signs can be seen at a rally in this undated file photo. (File)

With Prime Minister Justin Trudeau stepping down, the future of consumer carbon pricing appears uncertain.

Also known as the carbon tax, carbon pricing has been a point of contention in Canada since it was implemented in 2019.

Here’s how it works.

Through The Greenhouse Gas Pollution Pricing Act, a cost is assigned to 21 combustible fuels, like coal and gasoline. Big companies like oil producers are also directly charged for the emissions they produce.

That carbon price is then raised over time to help consumers and industries make the switch to more sustainable energy sources.

Canada’s carbon price started at $20 per tonne in 2019. It will increase by $15 each year until it reaches $170 per tonne in 2030, with the next increase coming in April (equalling an extra 3.3 cents per litre at the pumps).

All money collected through the federal fuel charge is returned to the province it was collected in, and most of it is returned to individuals through the tax-free Canada Carbon rebate. The rest is given to farmers, small and medium enterprises and Indigenous governments.

Economist Andrew Leach said you can think of it like a national swear jar.

“Every time you swear, you’ve got to put a toonie in the jar, and then I divide that jar up and we all get an equal share of the jar,” he said.

“If I eliminate the swear jar program … it’s bad for people who don’t swear very much who were still getting the rebate. It’s good for people who swear a lot.”

“The same thing is true with the carbon tax,” he explained. “The majority of the population has below average emissions, and so we see over and over in the calculations … a substantial majority of consumers (are) made better off on that fiscal trade.”

The Canadian government reports that eight in 10 Canadian families receive more in rebates than they pay in carbon pricing.

Paid four times a year, the first rebate of 2025 came on Wednesday. This year in Alberta, individuals can expect $900 and a family of four will bring in $1,800.

Residents of British Columbia, Northwest Territories and Quebec don’t receive federal rebates because all three have their own provincial system.

What happens when Trudeau goes?

Conservative leader Pierre Poilievre has promised to “axe the tax,” should he be elected and has made the slogan a significant piece of his platform.

Chrystia Freeland, who is expected to announce her run for prime minister on Sunday, will reportedly make scrapping the consumer carbon price one of her campaign promises.

While Freeland had previously defended carbon pricing, a source close to her told CTV News she is planning to replace the consumer carbon price with a system to be developed with provinces and territories.

Mark Carney, who launched his leadership bid in Edmonton on Thursday, has not announced concrete plans regarding the tax but he hinted at making changes during a recent appearance on The Daily Show and at a local media event.

“I’ve said for a long time that if you are going to take out the carbon tax, you should replace it with something that is at least, if not more, effective,” Carney said.

“And by effective, it’s not just having the same impact in reducing greenhouse gas emissions, but it’s making our companies more competitive, it’s creating jobs, it’s ensuring that Canadian households are made whole in terms of their finances.

“Because perception may be that it takes out more than the rebate provides, but reality is different, and Canadians will miss that money.”

Ongoing challenges

Saskatchewan, Ontario and Alberta have all gone to court to argue the legislation is unconstitutional, but in 2021, the Supreme Court of Canada ruled 6-3 that it was.

Multiple premiers, including Alberta’s Danielle Smith, have continued to fight the so-called tax.

In late 2023, Saskatchewan Premier Scott Moe announced his province would stop collecting carbon levy on natural gas for home heating in response to a federal exemption on home heating oil, used primarily in Atlantic Canada.

In October, Smith announced her province had applied for a judicial review to declare that exemption unconstitutional and unlawful.

The contentious policy has not been without supporters, though.

Economists have found it to be an economically sensible policy to cut greenhouse gas emissions at a relatively low cost to consumers; the David Suzuki Foundation called it “one of the most powerful incentives” governments have to reduce pollution and encourage cleaner technologies.

With files from CTV News Edmonton’s Mike Le Couteur and Stephanie Ha and The Canadian Press