The Carbon Tax Gamble: the ‘cost of climate inaction’ will be bigger than short-term relief at the pump

Brampton resident Chirag Patel was relieved to see a drop in fuel prices. But like many Canadians, he was unaware of the reason for the unexpected gift at the gas pump.

“I went to get gas this weekend and saw the price, and I was like, ‘Wow, is this because of tariffs or something?’” Patel shared with The Pointer Wednesday.

When told the price drop was due to the consumer carbon tax being scrapped—a move made by Prime Minister Mark Carney, who is also the Liberal leader in the federal election campaign—Patel was thankful. With rising fuel prices, rent and food costs, he started driving for Uber on weekends alongside his full-time job, just to make ends meet.

“This has definitely been a relief for my wallet,” he said. “Just two weeks earlier, it was around $1.50 per litre and this week it’s gone down to somewhere between $1.20 to $1.15. Who wouldn’t be happy? I know I am, and so are my friends who own a car.”

For Brampton-based environmental and biking advocate David Laing, the temporary relief at the pump doesn’t ease his concerns about the consequences of cancelling the consumer carbon tax, a "short-sighted," and “downright stupid” decision, he said.

The now cancelled consumer carbon tax (which targeted 25 to 35 percent of the country’s emissions; the vast majority of pollution is from the private sector and the industrial carbon tax remains in place, for now) was used by Ottawa to fund its Canada Community-Building Fund, formerly known as the Federal Gas Tax Fund (which was launched in 2005). A portion of the revenues collected at the pump from every single driver each time they filled up, was then eventually distributed to municipalities. 

The Canada Community-Building Fund has been touted by the federal government as a huge benefit to thousands of Canadian municipalities — big and small — which received tens of billions of dollars in revenues to help pay for infrastructure, transit and the increasingly large costs of adapting to climate change. 

When it was first launched as the Gas Tax Fund two decades ago, Ottawa trumpeted it as “one of the federal government’s most far-reaching programs… The GTF’s unique program design allows the federal government to move dollars for projects at the local level quickly and efficiently… The GTF also provides communities with money for planning; viable communities now, and in the future, require a sustainable approach to development that is well planned, integrated and responsive to a community’s longterm needs. Infrastructure is a key enabler of economic, environmental and community development objectives; as such, communities must plan in order to make the right investments.” 

The Association of Municipalities of Ontario has reported that the province’s towns and cities have received about $900 million annually from the Canada Community-Building Fund, almost $20 billion since 2005, which has been used for thousands of local projects including critical climate mitigation and adaptation initiatives.

On April 2 and 3, days after the cancellation of the consumer carbon tax that helped fund thousands of local investments in key initiatives such as flood mitigation, severe rainfall and flash flooding in Brampton caused significant damage to the city’s trail systems, particularly the newly restored shoreline and trail at Loafer’s Lake.

Flooding has been a recurring issue at Loafer’s Lake for years.

(City of Brampton)

Laing argues that eliminating the consumer carbon tax further strains municipalities and residents, who are already working with limited financial flexibility. Without this crucial revenue, local governments will struggle to fund necessary climate-related infrastructure projects and disaster response efforts. Meanwhile, residents will bear the burden as adaptation and recovery costs rise and municipalities are forced to increase taxes to pay for damage or repair efforts. 

"I sit on a task force for the City of Brampton, which was discussing hundreds of millions of dollars in climate adaptation costs. The report hasn't gone to council yet, likely because it would result in an unacceptable property tax increase. Delaying action only pushes the problem down the road, and we're already seeing more flooding as a result,” Laing said. “Despite efforts by the Toronto Region Conservation Authority, this past storm caused significant damage, particularly at Loafer’s Lake, where the Ontario government had spent $2.5 million on restoration."

With the NDP and Liberals promising to scrap the consumer carbon tax long-term and the Conservatives pledging to remove the carbon tax entirely (including the industrial carbon tax which addresses about 70 percent of Canada’s emissions), Laing worries that environmental issues are being overshadowed by other concerns like the trade war triggered by U.S. President Donald Trump, as the election nears its midway point.

“Everybody's focus and attention right now is on Trump's tariffs and trying to make ends meet. We want to do everything so quickly. We want to get the industries up and going, and I understand that, but my fear is that the environment will get steamrolled as a result, even more so than it has been in the past,” Laing warned.

“It's a bad time to be an environmental advocate.”

The carbon rebate has long been a flashpoint between the Liberals and Conservatives.

On April 1, Canadian Prime Minister and Liberal leader Mark Carney officially scrapped the "divisive carbon tax" for consumers, leaving the opposition in limbo as the Conservative platform had long hinged on dismantling the carbon pricing system altogether.

“I'm not a career politician, I'm a pragmatist. So, when I see something that doesn't make sense, something that doesn't work, I change it,” Carney said in a press conference. “On my first day as Prime Minister, I ended the consumer Carbon Tax. Today, that change takes effect.”

But did the carbon tax really not make sense, as Carney suggested? Or does it simply lack the capacity to work effectively? Or was the move nothing more than a political play to impress millions of voters at the pumps, right before they decide who the next prime minister will be on April 28th?

There are many examples around the world of carbon pricing as the central piece of national strategies to fight climate change, an economic imperative Carney has loudly supported, up until recently. His best selling 2021 book, Values, which won the National Business Book Award, laid out his views, at the time, about the need for carbon pricing. 

“Meaningful carbon prices are a cornerstone of any effective climate policy framework. The Canadian federal carbon pricing framework is a model for others,” he wrote. But on the campaign trail, he has suddenly changed his tune, describing the consumer carbon tax as “divisive”.

Mark Carney’s bestselling 2021 book, Values: Building a Better World for All, emphasized the need for carbon pricing and investments to transition the world to a clean energy economy.

(Penguin Random House Canada)

Jagmeet Singh, the NDP leader, agrees with Carney and committed to keeping the consumer carbon tax off the books, if elected. 

Conservative leader Pierre Poilievre, meanwhile, wants the entire carbon pricing system, including the existing tax on industry, which targets roughly 70 percent of Canada’s emissions, scrapped. Despite more than two years in opposition, he has failed to put forward any plan to reduce emissions. 

Sweden’s carbon tax is considered one of the most successful global examples.

It was the first country to introduce a carbon tax, starting at $30 per ton of carbon dioxide in 1991. By 2019, the rate had increased to $132, making it the highest in the world at the time. 

The tax initially focused on the transport sector, with most of the revenue coming from gasoline and diesel. Some industries, like electricity production, were either exempt or taxed at a lower rate. Over time, Sweden also added a 25 percent value-added tax (VAT) to gasoline and diesel.

The impact of these changes was evident, as the carbon tax played a significant role in reducing emissions, especially in transportation, which is responsible for nearly 40 percent of Sweden's carbon dioxide emissions. One study found that from 1990 to 2005, the carbon tax led to a 10.9 percent reduction in emissions from the transport sector—about 2.5 million metric tons of carbon dioxide each year. When isolating the effect of the carbon tax from the VAT, the reduction was around 6.3 percent or 1.5 million metric tons of carbon dioxide.

In 2019, when Sweden's carbon tax was set at $132 per ton, Canada introduced its federal carbon tax at $20 per ton of CO2, with plans to raise it to $80 by 2024.

Before former prime minister Justin Trudeau unveiled plans for a national carbon pricing system in 2016, most provinces in Canada, except Saskatchewan, had already either started implementing their own provincial carbon levies or had one in the works.

Poilievre and the Conservatives tried to make the carbon tax “the single issue” of the 2019 federal election campaign, but failed.

On March 25, 2021, legal challenges to the law were also dismissed, as the Supreme Court of Canada upheld the Greenhouse Gas Pollution Pricing Act, ruling it constitutional despite appeals from the provinces of Manitoba, Ontario, Alberta, and Saskatchewan.

Alberta, the first region in North America to introduce a carbon price with the 2003 Climate Change and Emissions Management Act, was among the provinces challenging the federal carbon tax. This early legislation established a mandatory reporting program for large emitters in the province, where the oil and gas industry is responsible for about 59 percent of Alberta's greenhouse gas (GHG) emissions and roughly 26 percent of Canada's total emissions.

Following Alberta’s lead, Quebec introduced similar measures in 2007.

In 2008, John Baird, the Conservative federal environment minister at the time, hailed carbon trading as a "key part" of the government's strategy to curb emissions from oil and gas producers, as well as coal-fired power plants. Just a couple of months later, in July, British Columbia led the way by becoming the first province to introduce a carbon tax, with all proceeds returned to the province's taxpayers.

Like Sweden, British Columbia’s carbon tax has proven the most effective in Canada, reducing fuel consumption and GHG emissions by five to 15 percent compared to what they would have been without the tax.

It’s important to note the idea of the carbon tax was originally introduced by the Conservatives. 

Over the years, it has continuously been the subject of misinformation and has become a contentious issue, with Poilievre often basing his entire campaign around the tax and attacking former prime minister Trudeau.

“The retail (consumer) carbon pricing. It was the target, the victim of an extremely coordinated disinformation campaign that lasted years. It got scapegoated and based on just straight up disinformation and lies,” Julia Levin, Environmental Defence’s associate director, national climate, told The Pointer in an interview.

“We have to be really careful that this doesn't continue to happen with different climate policies like those same actors don't target other climate policies. That's what we're seeing happen in the United States. We're seeing decades of hard work on climate get rolled back by this Trump administration, and Canadians don't want to see the same thing happening here in Canada.”

As previously reported by The Pointer, Canadians have been fed muddied information about the carbon tax which studies have shown actually benefits lower-income Canadians, the vast majority of middle-income earners as well as those who reduce their carbon footprint.

Poilievre has made claims of the carbon tax taking money from “hardworking” Canadians, a narrative that took hold among those already dealing with the crippling cost of living. The fact is, the carbon tax was responsible for an infinitesimal portion of any cost increase.

The Parliamentary Budget Officer's November 2024 report further distorted public perception, predicting a $170 per-tonne carbon tax will shrink GDP by 1.8 percent, result in the loss of 185,000 jobs, and reduce real incomes nationwide. Despite rebates, the report estimated an average income loss of $1,540 per employed Canadian and hurt government finances, potentially worsening budgets by $22 billion annually by 2030.

The PBO report was criticized for several key flaws including the report overestimating the financial burdens of the tax by focusing on theoretical economic impacts rather than direct household effects, using averages instead of median data, which distorts the actual benefits for low- and middle-income families. 

The consumer carbon price Canadians pay depends on how much they pollute, but the government gives back a fixed rebate based on what an average household would pay in increased costs. Due to costs differing across regions, this rebate varies by province. Those who pollute more than average face higher costs, and those who reduce their emissions below average receive more back than they paid, rewarding them financially for taking action.

A 2024 study done by the Institute for Research on Public Policy confirmed that emissions pricing such as the federal fuel charge and the British Columbia carbon tax have had a “minimal” impact on inflation. Since 2019, these policies have contributed less than 0.5 percent to increases in consumer prices—an insignificant portion of the more than 19 percent rise in prices during the same period.

“Our study shows that, contrary to popular belief, emissions pricing isn’t driving Canada’s affordability challenges,” the study’s co-authors Trevor Tombe and Jennifer Winter, economists at the University of Calgary explained. “Most price increases for everyday essentials and consumer goods have been because of global factors like surging energy prices and supply-chain disruptions. The slow pace of income growth has also affected affordability.”

Instead, government rebates, like the Canada Carbon Rebate, have played a key role in softening the financial impact of emissions pricing, offering a much-needed cushion for Canadians during an affordability crisis. 

More than 50 percent of Canadians, particularly those in the lowest income brackets, see a net gain from the carbon rebate, as per calculations made by The Pointer using data from the PBO report. 

A carbon tax makes the use of fossil fuel more expensive to help address the rising costs of climate change. The price on carbon and/or fossil fuel is designed to encourage mindful consumption, not to burden average energy users. Simply put: the more you pollute, the more you pay.

(Environmental Defence)

Even with annual carbon tax increases until 2031, it would remain a net benefit for Canadians struggling with the high cost of living. This includes backstop provinces, which do not have their carbon pricing system, including Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Manitoba, Alberta and Saskatchewan.

Average household net cost of the federal fuel charge (the carbon tax) in 2030-31 by income quintile in dollars and as a percentage of disposable income without using economic factors that reduce the benefit to residents (negative numbers indicate a benefit to taxpayers). 

(PBO)
 

To put it into context, by 2030-31, 60 percent of residents in Saskatchewan will still see a net benefit of $606 on average, even when the tax would have been much higher than it was in March 2025.

Poilievre misrepresented the data at the time by relying on averages that skew the tax's impact. When excluding the top 20 percent of income earners in Saskatchewan, the remaining 80 percent would see an average benefit of $126 in 2030-31. Including the wealthiest households shifts the average to a net loss of $894, due to the disparity between the poorest ($1,275 benefit) and wealthiest ($4,970 cost) households.

While Poilievre highlights the tax's burden on high-income earners, it's these households that the tax targets to change their carbon-intensive lifestyles. For the majority of households in backstop provinces, the PBO's report shows they'll receive more from the Canada Carbon Rebate than they pay in carbon taxes and related Goods and Services Tax (GST). So, in fact, it’s not a tax at all for the vast majority of Canadians, it is a benefit.

60 percent of Canadians in the lowest three income quintiles were set to benefit most from the rebate. In Saskatchewan, by 2030-31, 60 percent of residents would have received an average rebate of $1,369, while in New Brunswick, the lowest average rebate would be $349.33. In Ontario, the average rebate for the lowest-income households was $452.33 until the tax existed.

The PBO report also failed to account for the long-term economic benefits of emissions reductions and investments in clean technologies and ignored the costs of inaction on climate change, such as infrastructure repair and healthcare expenses.

The misinformation about the carbon pricing system isn’t just the fault of the Conservatives; the Liberals also bear responsibility, particularly with how the tax was introduced and handled over the years.

“One of the mistakes with how consumer carbon pricing was rolled out was they rolled out the policy before they made sure that Canadians had access to climate solutions for their homes,” Levin stressed.

“We know that if you install a heat pump, if you switch to an EV, if you retrofit your home, not only is it good for reducing pollution, it saves you thousands of dollars a year. It's a win win for Canadians—these technologies make their homes healthier, cleaner, and they save money. But for lots of Canadians, those technologies might not be in reach, and that's where the federal government really needs to step in, provide the incentives and grants needed for Canadians to access those clean technologies.”

But this important point was never raised by the Conservatives. Instead, they focused on attacking Trudeau and the tax itself.

On January 6, with Trudeau’s resignation, the carbon tax became the sole issue for the Conservatives to rally around.

“Carbon tax Carney and Carbon Tax Chrystia are just like Justin. Chrystia Freeland has been in charge of the budget for the last four years. How's the economy been doing? I don't think I need to say anything more about that. But the other guy, carbon tax Carney. He's a government bureaucrat, then a government banker…and by the way, he has the most radical policy agenda,” Poilievre said in a press conference in late January. “We need a carbon tax election to fire them all and bring home a common sense.”

“He (Carney) believes the carbon tax is too low…He thinks the carbon tax is too low and needs to go even higher than Trudeau has already placed it. He will be the voice for the billionaire globalist elite that have been impoverishing the working class around the world for the last several decades.”

The carbon tax is indeed low in Canada, with the rate set at $95 per tonne of carbon dioxide equivalent until it was removed by Carney on April 1, when compared to the highest carbon tax rates across the globe.

Uruguay leads globally with the highest carbon tax, at $167 (USD) per metric ton of carbon dioxide equivalent, despite only covering five percent of the world’s GHG emissions. Sweden follows closely at $150.80 per ton with Switzerland and Liechtenstein sharing the third position at $142.55 per ton.

Canada is ninth in global carbon tax rates despite being ranked as the 12th largest GHG emitting country in 2021.

(Anushka Yadav/The Pointer)

Canada is one of the worst per capita carbon polluters in the world, producing more than 14 tonnes of carbon emissions per person in 2022.

(Our World in Data)

On March 23, Carney called a vote to kick off the 2025 federal election officially. In less than two weeks after the announcement, he “cancelled the consumer carbon tax” on his first day in office.

This move wasn’t unexpected, as he had already stated during his campaign to become the leader of the Liberal Party that he didn’t believe the consumer carbon tax was working.

“We need to fight climate change, but we need to do it together. There are billions of dollars of investment on people and millions of jobs at stake…the truth is, the consumer Carbon Tax isn't working. It’s become too distracting and too divisive. That's why I will cancel it and replace it with incentives; so, we can reward people for making greener choices, like buying a more efficient appliance, driving an electric car, or insulating your home,” Carney said in a campaign video posted on his social media on January 31.

“The fact is, big polluters are profiting from their actions, and Canadians are paying the price. We'll get big polluters to pay us…he’s (Poilivre) been lying to you, making us feel like we have to choose between fighting climate change and growing our economy. I know how we can fight climate change and build the strongest economy into G7 together.”

Many experts, including Carney himself who has served as the UN Special Envoy for Climate Action and Finance in 2020, have called the carbon tax the simplest and least intrusive tool in the climate policy arsenal. 

In 2023, over 250 of Canada’s leading economists signed a letter advocating for the effectiveness of carbon pricing in reducing emissions while imposing minimal costs on Canadians and the economy.

“The reason carbon pricing works is simple: when something costs more (in this case fossil fuels), people use less of it. That is basic economics, and common sense,” the letter underscored.

Yet, it was sacrificed in the political chess game.

“This is 100% politically driven,” Laing said. “Mark Carney, when he was working on the economic side of things, he was one of the proponents of a consumer-based carbon tax as the cheapest way, the most effective way of reducing carbon emissions. Not just specifically for Canada, but globally.”

Laing understands the carbon tax may seem costly for some Canadians but the real issue is the “cost of inaction.” For example, U.S. insurance companies faced $200 billion in climate-related losses last year, “a record high.” These costs ultimately fall on consumers through higher insurance premiums, or even worse, on properties that are now uninsurable. 

Insurance companies are pushing the government to cover these higher risks, he explained. This means taxpayers are absorbing much of the financial burden from climate disasters, including disaster relief. But these hidden costs are rarely factored into the debate when comparing the carbon tax to the impact of rising carbon levels in the atmosphere.

“We're playing a fool's game here. Basically, we're trying to pretend that somehow we're saving money by eliminating a tax which, by definition, most Canadians would be better off by having the tax and getting the rebate than without,” Laing added. “It’s just badly sold, badly marketed.

For Environmental Defence’s Levin, it’s critical that “any party during this election campaign that has any kind of backsliding on climate needs to show how they're filling in the gap” given that Canada has a target of reducing its GHG emissions by at least 40-45 percent below 2005 levels by 2030 under the Paris agreement.

However, any discussion or credible plan for dealing with emissions after the elimination of the carbon tax has been absent from the current federal election campaign. 

Under Carney’s leadership, the Liberals have removed the consumer carbon tax but plan to retain the industrial carbon tax. The New Democratic Party (NDP) has expressed a similar position.

The NDP’s climate plan includes ending the consumer carbon pricing system forever.

(NDP)

Carney aims to fill the “gap” by making sure that “Canada’s largest polluters pay their fair share.” His proposal involves strengthening the Output-Based Pricing System (OBPS) for major industrial emitters and implementing a Carbon Border Adjustment Mechanism (CBAM)—a tax on imported goods designed to stop “carbon leakage,” which occurs when companies shift production to nations with looser environmental standards. 

“Nature is part of our very identity as Canadians,” Carney said in a press release. “In this time of crisis, we need bold new approaches to protect Canada’s natural heritage and defend it for future generations.”

(Liberal Party of Canada)

He has also promised to introduce incentives to promote green building practices, electrify transportation, and encourage consumer investments in initiatives like home retrofits and heat pump installations.

Carney reassured Canadians that the carbon rebate would continue as usual.

“We recognize that there is also a rebate that comes with that carbon tax that gets people ahead. We kept the rebate in place for this, the rebate cheques will show up later this month for people as usual, even though the carbon tax is not being collected,” he said during his announcement on April 1. “We kept it in place to help with the transition, so that if we are returned to government, our tax cut will be in place, which then more than makes up for the rebate.”

The Conservatives have made it clear that they wish to get rid of both the consumer and the industrial carbon pricing system, and have presented no climate plan till date. The Pointer reached out to them to get a response but did not receive one by the time of publication.

On the contrary, the Green Party is firm in its stance: they do not want to eliminate carbon pricing.

“We must treat the climate crisis as the emergency it is. The inconsistent messaging on climate policy since 2015 has led to a state of confusion in our approach to addressing this critical issue,” a statement from the Green Party shared with The Pointer highlighted.

“While carbon pricing works to reduce emissions from vehicles and large industries, the best strategy by far to reduce GHG emissions from homes is to maximize energy efficiency, and increase the affordability of retrofits and heat pumps. We don’t want to see the end of carbon pricing. It is the one thing the Liberals almost got right.” 

The Pointer's 2025 federal election coverage is partly supported by the Rideau Hall Foundation and the Michener Awards Foundation's Election 2025 Fund. 

Email: [email protected]

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