Canada’s carbon tax set to rise sharply

The Liberal Party minority government, in its revised climate plan, has proposed to raise the federal carbon tax more than threefold by 2030 and to increase federal spending on environmental programmes by an initial C$15bn (US$12bn).

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The updated plan aims to get Canada back on track to meet its Paris Agreement target of reducing emissions by 30% from 2005 levels by 2030, and drive progress towards the goal of net-zero emissions by 2050. The federal carbon tax is currently C$30 (US$24)/tonne and is already legislated to increase by C$10 each year, to C$50/tonne by 2022. At its present level the tax amounts to about 7 Canadian dollar cents on a litre of petrol, which critics argue only has a small impact on consumption. In a bold move, the government proposes to lift the tax by C$15/tonne each year from 2023, until it reaches C$170/tonne in 2030. At this point it would add 38 cents per litre to petrol prices.

The carbon tax is designed to be revenue-neutral. Households currently receive fuel-charge rebates annually, but this would be switched to quarterly. The government claims that most households will continue to get back more than they pay. In a concession to gas and solid fossil-fuel producers, the government will narrow the scope of the Clean Fuel Standard (another emissions-reduction initiative) to liquid fossil fuels only.

The prime minister, Justin Trudeau, will consult with provincial premiers on the climate proposals. It will be tough to reach a consensus. The Conservative premier in Ontario, Doug Ford, has described the carbon tax increase as “the worst thing you could ever see”, and the Alberta environment minister has also slammed the proposal. In doubling down on its carbon tax and rebate scheme, the government is also betting on the Supreme Court ruling that the federal tax does not impinge on provincial jurisdiction; a decision is expected in early 2021.

Canadians will be able to vote on the climate plan at the next federal election, which is due by October 2023 but could take place as soon as 2021. The main opposition Conservative Party pledged to scrap the carbon tax during the 2019 election campaign, and its new leader, Erin O’Toole, has given no indication that he intends to change the party’s stance.

Impact on our forecast

The government’s bold climate change proposals will cause further friction with provincial leaders, notably in the struggling oil- and gas-producing provinces of Alberta and Saskatchewan.