Highlights

  • The Canadian government plans to eliminate the federal fuel charge by 2025, shifting focus to industrial emissions for carbon pricing.
  • The Output-Based Pricing System for large industries will remain to drive emissions reductions.
  • The removal of the fuel charge will result in a loss of emissions reductions but is expected to boost the economy and GDP.
  • Wealthier Canadians will benefit more from the removal, as lower- and middle-income households previously gained from the charge and rebate system.
  • The government will update carbon pricing standards and strengthen industrial carbon markets as part of its climate plan.

Canada to Eliminate Federal Fuel Charge and Focus on Industrial Carbon Pricing

The Canadian government is amending regulations to effectively eliminate the federal fuel charge, part of the Greenhouse Gas Pollution Pricing Act, by setting the charge rates to zero starting April 1, 2025. This move is part of a shift to focus carbon pricing on industrial emissions rather than consumer fuel charges. The Output-Based Pricing System (OBPS) for large industries will remain, as it is seen as a more effective driver of emissions reductions. The amendments will also remove certain administrative requirements, such as registration and filing obligations related to the fuel charge.

The decision to eliminate the fuel charge is based on research indicating that industrial carbon pricing systems will be the main driver of emissions reductions by 2030. The government plans to engage with provinces, territories, Indigenous Peoples, and stakeholders to update national carbon pricing standards and strengthen industrial carbon markets.

The removal of the fuel charge is expected to result in a loss of 12.57 megatonnes of greenhouse gas emissions reductions from 2025 to 2030, with a monetized cost of approximately $3.83 billion. However, it is also expected to generate economic gains, increasing GDP by 0.5% in 2030 and benefiting households and businesses. The elimination of the fuel charge will disproportionately benefit wealthier Canadians, as lower- and middle-income households previously received net benefits from the charge and rebate system.

The government intends to introduce legislative amendments to update the Greenhouse Gas Pollution Pricing Act and explore ways to strengthen industrial carbon pricing. The changes are part of Canada’s broader climate plan, which includes complementary policies like the Clean Fuel Regulations and the Electric Vehicle Availability Standard. The amendments are administered by the Canada Revenue Agency and the Canada Border Services Agency. [Source]

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