One of Prime Minister Mark Carney’s first moves after taking office in March, 2025, was to remove the federal carbon pollution pricing, commonly known as the carbon tax, as of April 1st, 2025, as a measure to improve affordability. This includes removing the requirements for provinces and territories to have a consumer-facing carbon price as well.
After March 31, 2025, the applicable fuel charge rates for all types of fuel and for combustible waste will be set to zero. The federal fuel charge was applied in Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, Ontario, Manitoba, Saskatchewan, Alberta, Nunavut and Yukon.
Other provinces that had their own carbon pricing system may continue to have a locally focused carbon tax. However, British Columbia announced on March 14 that it is also repealing its provincial carbon tax as of April 1st for consumers, and will maintain its focus on large emitters.
The regulations do not affect obligations for reporting periods prior to April 1, 2025. Fuel charge payers are still required to pay amounts owed, continue to be able to claim rebates to which they are entitled, and are subject to assessments and reassessments in respect of past reporting periods.
Why April 1st?
April 1st historically was the date of scheduled increases to the carbon tax across Canada. In Alberta, for example, the carbon tax was set to add 3.3₵/L to gasoline consumption, $2.86/GJ to natural gas usage, and 2.32₵/L to propane consumption. This is also the beginning of the new fiscal year in Canada.
Who is impacted by the carbon tax removal?
Households and small businesses will be the most impacted as they will no longer face a tax hike on April 1st, which technically means lower costs at gas stations, natural gas bills, and many other situations, as the carbon tax was applied to 21 fossil fuels before the cancellation. Although the Canada Carbon Rebate (CCR) historically gave back to families more money than they paid in taxes over the previous fiscal year, consumers still had to deal with tax increases for a full year before they received the CCR.
Full focus on large GHG emitters
A price on pollution for large emitters will continue via the Output-Based Pricing System (OBPS). The federal OBPS is designed to ensure there is a price incentive for industrial emitters to reduce their greenhouse gas emissions. As opposed to residential and small businesses, big industries and other large emitters are charged based on their emissions, not their fuel consumption. A few updates to the OBPS are expected.
In a news release, the Federal government stated:
“Changes would focus the benchmark on ensuring industrial pricing systems continue to maximize emissions reductions and encourage the transition to low-carbon technologies, while protecting industry against competitiveness and carbon leakage impacts.”
What about the Canada Carbon Rebate?
With the removal of the fuel charge from Canada’s carbon pricing system, the Government will also terminate the Canada Carbon Rebate. This means Canadians will receive a final carbon rebate for 2024.
In provinces where the federal fuel charge currently applies, a family of four will receive up to $456 under the base Canada Carbon Rebate for April 2025. In addition to the base rebate amounts, a rural top-up of 20% is provided for individuals residing in small and rural communities.
The CRA will issue the last rebate payment for individuals starting 22 April 2025. Individuals must file their 2024 income tax returns on or before 2 April 2025 to receive the payment starting 22 April 2025. An eligible individual who files their 2024 return after 2 April 2025 will receive the final rebate payment when their 2024 return is assessed.
To receive their Canada Carbon Rebate for April 2025, Canadians need to file their 2024 tax return. For Canadians who are registered for direct deposit with the Canada Revenue Agency, the Canada Carbon Rebate will be deposited directly into their bank account; otherwise, the Canada Carbon Rebate will be delivered via cheque.
What about the Canada Carbon Rebate for Small Businesses?
With the removal of the federal fuel charge effective April 1, 2025, the Canada Carbon Rebate for Small Businesses payment in respect of the 2024-25 fuel charge year will be the final payment to eligible businesses.
How will the carbon tax removal affect prices?
With the termination of the tax on 21 fossil fuels, including gasoline, natural gas, and propane, prices could be considerably lower for consumers. According to Randall Bartlett, deputy chief economist at Desjardins, in a CBC interview, provinces using federal carbon pricing should notice a drop of almost 18 cents in the price of a litre of gasoline, or about $9 less to fill a 50 L tank.
Other financial experts also expect a significant drop in inflation, not only because gasoline and natural gas directly play a big role in the lives of everyday Canadians, but also because they can drive up or down prices for other industries, including electricity. In Alberta, for example, natural gas accounts for about 85% of the province’s electricity generation. This means this could also potentially make electricity rates lower in some regions.
The list of fuels included:
- Aviation gasoline
- Aviation turbo fuel
- Butane
- Ethane
- Gas liquids
- Gasoline
- Heavy fuel oil
- Kerosene
- Light fuel oil
- Methanol
- Napththa
- Petroleum coke
- Pentanes plus
- Propane
- Coke oven gas
- Marketable natural gas
- Non-marketable natural gas
- Still gas
- Coke
- High heat value coal
- Low heat value coal
- Combustible waste
