As of April 1st, 2025, Canada has effectively abolished its federal carbon tax system. While this move seems to have broad support, the medium- and long-term effects of canceling the program have not been discussed at length in the public realm. Let’s dig into what it could mean for Canada’s emissions, economic health, and future climate-fighting strategy.
What is the Consumer Carbon Price?
The consumer carbon price, or the carbon tax, is a federal law that effectively creates a minimum tax on fossil fuels. The law allows provinces to create equivalent systems, as Quebec and British Columbia did. Any province without its own system would fall under the federal backstop, like Ontario after it scrapped its cap-and-trade system. The price starts off low and increases annually until 2030.
This is how it works:
- Taxes are collected by each province, paid by fuel distributors
- The higher cost of fossil fuels leads to changed behaviours in the short term, and investments in lower-carbon systems in the long term
- On a quarterly basis, the dues collected are redistributed equally among the residents of each province
The program is effectively revenue-neutral; the money collected by each province is redistributed to its citizens. The more fuel each province uses, the more money flows into the system. Because of this, residents of Alberta receive the most money, while residents of Ontario receive less.
Average quarterly payment for a family of 4
Finance Canada has shown that 70-80% of households get more money than they pay into the system.
Carbon taxes have been recognized as highly effective carbon reduction tools, since they do not prescribe solutions or impose new regulatory burdens. As the world decarbonizes to limit warming to 2oC or less, removing a highly effective policy will make it yet harder for Canada to meet its climate targets.
The Impact of the Carbon Tax on Canada’s Greenhouse Gas Emissions Reduction Goals
The Government of Canada has a carbon reduction target of 40-45% by 2030 (from a 2005 baseline), with carbon neutrality by 2050. This is in line with a 2oC warming scenario.
To meet these aggressive targets, the Trudeau government announced several policies, including green electrification, clean fuel regulations, an oil and gas emissions cap, industrial carbon pricing, and, of course, the consumer carbon tax.
The Canadian Climate Institute estimates that, by 2030, the carbon tax would contribute 8-9% of Canada’s required emissions reductions. Harder hitters include the industrial carbon tax (20-40% of the pledged reduction) and the oil and gas emissions cap (7-34% of the pledged reduction). Looking forward to 2050, the impact of the consumer carbon tax would continue to grow.
While the carbon tax is not the most consequential policy for reducing emissions by 2030, it has a very small impact on GDP and international competitiveness (and inflation, despite what some may be asserting).
Some Ways Canada could still meet its Emissions Reduction Targets
The most cost-effective way to reduce our emissions would be to reinstate the carbon tax, but this is unlikely to happen soon. There are alternative policies that could achieve similar results, though at a higher cost to the taxpayer. In fact, alternative strategies such as increased regulations or subsidizing emissions reductions would reduce Canada’s per capita GDP by $1,200-$3,000 by 2030, compared to a baseline with the carbon tax still in place.
To meet our reduction targets, then, we should consider new ideas that can have significant impacts while minimizing cost.
Opportunities in the Built Environment
Canada’s carbon reduction strategy has focused heavily on reducing fossil fuel use through electrification and increased energy efficiency. These are important topics, for sure, but they ignore some low-hanging fruit. The construction sector is booming, and embodied carbon emissions from buildings alone now account for 12% of the country’s GHG emissions.
Decarbonizing the sector will be challenging and require significant technological shifts. However, it is possible to make large emissions reductions, up to 30%, without any significant cost increases.
Policymakers have started taking notice. The Greening Government Strategy requires the use of lower-carbon concrete and steel in government buildings. Municipalities such as Toronto and Vancouver have also developed policies requiring embodied carbon reductions in construction. Expanding upon these programs has the potential to lead to significant emissions reductions with a low price tag.
Canada is uniquely positioned to take advantage of low-carbon material solutions, including light frame and mass timber, low-carbon steel, and more. As global supply chains become less certain, investing in local green manufacturing is a win-win.
Though the loss of the carbon tax is a clear loss for the climate, hopefully, it can spur conversation around alternative solutions with more urgency.
For anyone interested in learning more about emissions reduction solutions for the built environment, let’s talk!