Clearing the air on carbon tax

Andrew Joseph, Editor

Sometimes, people and governments toss out new words or phrases and expect everyone to follow along.

Such is the case with carbon taxes.

Most of us have a peripheral understanding of the concept.

But, when we look to learn more online, we are met with a wall of words written by academics—words that are complex in verbiage and not easily understood by the layman.

So, let’s start by decoding some of the academic source material.

What is a carbon tax?

If a company produces a product and creates carbon emissions while doing so, it is required to pay a carbon tax.

Carbon taxes are placed on carbon-based fuels and industries that produce carbon emissions.

Why? Why do you have to pay a carbon tax?

Because carbon emissions are considered bad for one’s health and the environment, countries are being asked to reduce the amount of carbon emissions produced to lessen the danger to the world.

The tax’s idea is to penalize those who produce carbon emissions by making it more expensive for them to produce their products.

At the same time, carbon taxes are subtly meant to encourage using products or methods that produce either fewer or zero carbon emissions.

It’s a methodology to save the producer money.

The carbon tax is unlike other types of taxes. For example, a standard tax placed on a book purchased at a bookstore goes back to the government, where that tax money can be used to pay for a government social program, government medical offerings, or to pay for the upkeep of roads, etc.

Carbon tax revenues, however, are being used to combat carbon emissions.

What happens to the money I pay into the carbon tax?

If we peruse the Internet, we get many answers to many questions, but presenting a cut-and-dry answer to this question requires some investigation.

If you pay a carbon tax in any province, the money is used only in the province from which it was obtained.

Ontario payers of the carbon tax can rest assured that their money will only be used in their province.

This holds even though the carbon tax is a federal tax initiative.

The Government of Canada said that ”all the money from the federal price on pollution charged to fuel goes directly back to benefit Canadian families, businesses, farmers, and Indigenous groups—in the same province or territory where it was collected.”

Who gets money from a carbon tax?

Not everyone, that’s for sure. At the time of this writing—October 2023—the carbon tax money rebate can only be claimed by provinces and territories subject to federal pollution pricing.

The carbon tax rebate—the Climate Action Incentive Payment (CAIP)—was a tax credit that could be claimed on your tax return. Still, a few years ago, it became a tax-free payment, paid quarterly, and enrollment is typically automatic.

The writer of this article received a CAIP cheque in the mail for $213.50 in mid-October.

Does every province have to pay a federal carbon tax?

Yes, that’s true. Depending on their locale, they must pay a provincial carbon tax equivalent to a federal carbon tax.

Ontario, Saskatchewan, Manitoba, and Alberta were the first to pay a federal carbon tax.

This past summer, starting July 1, 2023, residents of Nova Scotia, Prince Edward Island, and Newfoundland and Labrador received their first carbon tax benefit rebate because they were now being hit with a fuel pollution surcharge.

British Columbia, New Brunswick, and Quebec each have their own provincial carbon taxing systems. As for our three territories, well…

So, only some people pay a federal carbon tax, and only those who use fuel to produce a product seem to get charged a carbon tax. Only those in seven provinces are currently being carbon taxed, and the money taxed stays in the province from which it was taken.

We can assume that carbon taxes are charged in a manner whereby the more carbon emissions you produce, the more you get charged.

So, does every person and province get the same CAIP rebate?


Carbon rebates can be somewhat complex. Still, the chart below will allow you to calculate your quarterly CAIP rebate amount if you live in Alberta, Manitoba, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, or Saskatchewan.

If you live in a designated rural area, you get an additional 10 percent more. Except if you live in Prince Edward Island because the Government of Canada has decided that the entire province is rural and has built that bonus into the dollars in the chart below.

  Alberta  Manitoba  Newfoundland & Labrador  Nova Scotia  Ontario  PEI Saskatchewan 
Individual/Base $193 $132 $164 $124 $122 $120 $170
Spouse/Common Law Partner $96.50 $66 $82 $62 $61 $60 $85
First child in a single-parent family $96.50 $66 $82 $62 $61 $60 $85
Each child under the age of 19 $48.25 $33 $41 $31 $30.50 $30 $42.50

So why am I getting a carbon rebate?

The Government of Canada cheque you receive will have, under the Canadian flag, written: Climate action incentive payment (CAIP).

While most people in Canada will not have had to contribute money via a carbon tax and didn’t know the cheque was coming, the government better not miss giving me a cheque!

Most people are indifferent to the CAIP payout and lack knowledge about why they are receiving it.

However, we still haven’t examined just what a carbon tax is.

The carbon tax cost is a number our government (in this case) has derived from the social cost of carbon. This social cost is the amount of money calculated as the externality of carbon pollution.

Externalities—what’s that?

Using the example of air pollution caused by an ICE (internal combustion engine) farm vehicle, externalities are the cost of air pollution to society that is not paid by either the producer or user of the vehicle—a moral cost in GHG emissions that hits the rest of society.

In this example, the fuel the ICE engine uses in a tractor produces GHG gases. The fuel does not cause GHG emissions, and the tractor does not produce GHG emissions.

But, when used to plant, grow, protect, and harvest food in a field, the tractor uses fuel that causes GHG emissions that contribute to the combined global issue of “bad air.”

What bad air?

The air up here seems good, aside from those unlucky enough to be close to the plethora of forest fires afflicting Canada or those brave enough to fight the fires. Isn’t the air clean?

According to the Government of Canada, our total GHG emissions in 2020—the last year we have calculated data—were 672 megatonnes of carbon dioxide equivalent (MtCO2e). Globally, Canada’s share of GHG emissions is less than 1.5 percent.

1.5 percent doesn’t seem so bad, right?

That is true; however, Canada’s population equals 0.48 percent of the world’s population.

This means we are producing more than our share of GHG emissions per global capita.

But how are GHG emissions calculated?

I don’t know. Political pundits suggest that no one knows, but in truth, someone or some department had an inkling and provided a calculated “guess” of how much GHG emissions Canada produces.

Unless every chimney or exhaust pipe has some GHG emission calculator on it, there is no way to get an exact count of the emissions. As such, what we have from the Government of Canada is what one calls a “best guess.”

However, the writer’s best guess is that it is based on specific calculations. In other words, the numbers weren’t simply made up, no matter how much you want to believe that because it’s the government.

But you said you would teach us!

Okay, per the Government of Canada, GHG emissions are reported in carbon dioxide equivalent (CO2 eq), which is determined by multiplying a particular gas’s emissions by its global warming potential. The indicator uses the Intergovernmental Panel on Climate Change’s 1995 100-year global warming potentials.

I stand corrected. Maybe I’m not smart enough.

What are our GHG emissions?

The Government of Canada reported that our total GHG emissions in 2021 were 670 megatonnes of carbon dioxide equivalent (Mt CO2 eq), a 1.8 percent increase from 659 Mt CO2 eq in 2020.

But didn’t you say that it was 672 megatonnes of carbon dioxide equivalent in 2020—also data from the Government of Canada?

Yes. One of those numbers must be correct, however.

So, how does Canada stack up against the rest of the industrialized world?

We’re third! But not in a good way!

In a 2021 report, 1.5-Degree Lifestyles: Towards A Fair Consumption Space for All, produced by the Berlin, Germany-based Hot or Cool Institute, it showed that of the 10 chosen companies, Canada lagged far behind in cutting our carbon emissions.

The 10 countries analyzed were chosen for their varying income levels: Canada, Finland, the United Kingdom, Japan, China, Turkey, South Africa, Brazil, India, and Indonesia.

And Canada was the worst. However, the German study did not include Australia (the worst carbon emitter) and the United States of America (number two).

Is Canada the only country that has a carbon tax?

No. Over 70 countries now have some form of carbon emissions taxation. Canada’s problem—globally speaking—is that it was late to the dance.

Countries such as Germany, Sweden, and the United Kingdom were early proponents of reducing their GHG emissions well before we were. We’re just playing catch-up.

Since 2019, every Canadian province has had a carbon tax fee through fuel charges and, for large industries, an output-based pricing system.

While all provinces (not territories) must have a carbon tax system, it can be their provincial version or use the federal example.

According to The Conference Board of Canada, when it comes to GHG emissions as of 2013—granted, this was 10 years ago—Canada’s per capita GHG emissions are very high, earning Canada a “D”—only the US and Australia fare worse.

Alberta and Saskatchewan score a “D—” with much higher per capita GHG emissions than Australia, the worst-ranked peer country.

New Brunswick was also higher (or worse) than the Canadian average, though it has its provincial carbon tax levy.

Quebec received an “A” grade, placing seventh overall in the international report. Its provincial carbon tax seems to be working quite well.

Receiving a grade of “B” is British Columbia, a province that doesn’t pay a federal carbon tax because it set up its provincial carbon tax in 2008.

And, as of 2013—after five years of a provincial carbon tax—the province found that the ag industry there was not negatively impacted.

While Ontario was also a paying “B” recipient, this doesn’t explain why the D-graded New Brunswick is not paying.

Statistics Canada said in a February 2023 report that Quebec and British Columbia have the lowest per capita household GHG emissions among the provinces, while Atlantic Canada has the highest.

Quebec and British Columbia produced the lowest per capita household GHG emissions among the provinces in 2020, at 2.7 metric tons (MT) per capita.

Nunavut (0.9 metric tons), the Northwest Territories (2.9 MT), and Ontario (3.0 MT) were also below the national per capita level, while Manitoba (3.2 MT) matched it.

Saskatchewan (5.1 MT), Newfoundland and Labrador (5.0 MT), Prince Edward Island (4.9 MT), Nova Scotia (4.4 MT), and Alberta (4.4 MT) had the highest per capita household GHG emissions. New Brunswick (3.7 MT) and Yukon (3.5 MT) were also above the national average.

Among the provinces, Newfoundland and Labrador (+1.0 MT) had the largest per capita household GHG emissions increase from 2009 to 2020, while Prince Edward Island (-2.5 MT) had the largest decline.

What sectors are the biggest producers of GHG emissions per region?

Households are the largest emitters in Central Canada. In 2020, both Ontario (29.6 percent) and Quebec (28.4 percent) ranked households as their greatest source of direct GHG emissions.

Pulp, paper, and paperboard mills account for one-fifth of emissions in British Columbia. Pulp, paper, and paperboard mills (20.5 percent) and households (18.7 percent) were the largest sources of GHG emissions in British Columbia in 2020.

Crop and animal production are essential contributors to GHG emissions in several provinces. In 2020, the crop and animal production industry accounted for the largest share of total GHG emissions in Manitoba (37.2 percent) and Saskatchewan (24.4 percent) and the second largest in Prince Edward Island (22.8 percent), after households (46.2 percent).

In Saskatchewan, in addition to the crop and animal production industry, the oil and gas extraction industry (22.9 percent) and the electric power generation, transmission, and distribution industry (21.0 percent) also had a larger share of total emissions. These three industries accounted for more than two-thirds (68.3 percent) of the total emissions in the province.

The electric power generation, transmission and distribution, and oil and gas extraction industries are among Atlantic Canada’s top emitters.

In 2020, the electric power generation, transmission, and distribution industry was the most significant source of GHG emissions in Nova Scotia (42.6 percent). In New Brunswick, the highest contributors were the electric power generation, transmission, and distribution industry (21.1 percent), pulp, paper, and paperboard mills (20.4 percent), and households (18.1 percent).

In 2020, households (28.8 percent) were the primary GHG emitters in Newfoundland and Labrador, followed by the oil and gas extraction industry (18.7 percent).

The mining industry is the largest GHG emitter in Nunavut and the Northwest Territories. In 2020, the metal-ore mining industry accounted for almost two-thirds of the GHG emissions in Nunavut (63.3 percent), and the non-metallic mineral mining and quarrying industry accounted for one-third (32.9 percent) of the GHG emissions in the Northwest Territories.

In the Yukon, an average of 26.9 percent of the households were responsible for over one-quarter of total GHG emissions. The next biggest offender was the support activities involved in mining and oil and gas extraction at 17.7 percent.

Unsurprisingly, oil and gas extraction was (and continues to be) Canada’s top industrial energy user in 2020, representing 18.1 percent of the country’s total energy use.

The oil and gas extraction industry was also the highest GHG-emitting industry from 2009 to 2020, responsible for 22.4 percent of Canada’s total GHG emissions in 2020.

According to, GHG emissions in Canada by sector in 2021 originated in the following sectors:

  • Oil & Gas: 28 percent;
  • Transportation: 22 percent;
  • Buildings: 13 percent;
  • Heavy Industry: 11 percent;
  • Agriculture: 10 percent;
  • Electricity: 7.7 percent;
  • Waste and others: 7 percent.

If you do the math, we come up to 98.7 percent, but Statistica didn’t include all other sectors with small percentages.

The agency defines heavy industry as including emissions from non-coal, non-oil, and non-gas mining activities, smelting and refining, and the production and processing of industrial goods such as fertilizer, paper, or cement.

For waste, “others” include emissions from coal production, light manufacturing, construction, and forest resources.

So, what’s the big deal?

Canadian farmers are paying carbon taxes, which are charged to any individual or business that uses carbon-based energy, such as natural gas, diesel, and gasoline. The tax or fee is charged for every tonne of greenhouse gas (GHG) emitted into the atmosphere.

But Canadian farmers complain—rightly so—that paying this carbon tax affects their business because competing countries in agriculture don’t have to pay a similar carbon tax.

For Canadian farmers, paying a carbon tax shrinks their profit margins and dilutes their global competitiveness.

Do carbon taxes work to reduce GHG emissions?

Sweden has been using a carbon tax since 1991—yes, for 32 years. Sweden’s Ministry of Environment has estimated that its carbon tax has decreased GHG emissions by 20 percent—and this does not include any regulation changes.

Some farmers found alternative farming methods that reduced their GHG emissions to avoid being penalized by carbon tax penalties.

While it may seem at the outset that the solution is simple for farmers who don’t want to pay a carbon tax—change the way you farm—it’s not that easy.

As noted, Canadian farmers are concerned about shrinking profit margins—and Canadian ag retailers should be, too.

Many of the ag retailers’ inputs contribute to a farm’s GHG emissions. As well, these inputs cost ag retailers carbon tax fees.

Seeds, herbicides, pesticides, farm equipment and parts, and the shipping of such things to your shop will cost the ag retailer carbon taxes, and because the costs need to be recaptured, it will mean higher costs to the farmers.

Further, farmers will seek higher prices for their yields (as they always do!) but may not achieve them because global competitors can provide the same products without the carbon tax burden.

And anything that utilizes commercial transportation to leave the farm—such as a truck, train, or ship—will be carbon taxed.

It’s not just transportation. It’s also expected that producers of electricity required for heat, irrigation, and seed cleaning will incur costs that will be passed on to the consumer (i.e., the farmer).

And fertilizer! There’s already a global availability shortage thanks to the Russian war against Ukraine, which also involves Russian ally Belarus, as all three were big suppliers of global fertilizers.

Canada has a large supply of fertilizer, but it’s expensive. Canada also has large oil and gas supplies, yet consumer costs are high. Why? Taxes.

It’s the same for fertilizer. Albert produces urea and anhydrous ammonia fertilizers. However, natural gas is utilized in both production.

Since natural gas is a fuel, it comes under the carbon tax fee. Therefore, the production of urea and anhydrous ammonia fertilizers is subject to a carbon tax.

Luckily for fertilizer providers, global politics (war), playing catch-up after a global pandemic (factory shutdowns), and a global supply chain disruption (ports closed and backed up) have kept fertilizer in hot demand—if you can get it.

Loyal Canadian farmers would, of course, prefer to buy Canadian. But if they can’t because of the added carbon tax cost and have to buy exported fertilizer because that fertilizer had to be shipped, it increases a farmer’s carbon footprint.

Because farmers are slaves to the whims of agents and buyers setting the price for their yield, they

cannot pass on any additional input costs.

So, for Canadian farmers who already work against razor-thin margins, additional input costs and carbon taxes significantly affect the bottom line.

So, what’s a Canadian farmer to do?

As long as the carbon tax remains in place—and Sweden’s near 30-year use proves that the Canadian carbon tax isn’t going anywhere anytime soon—farmers will have to adjust their farming practices.

No-till farming is a good soil-environmental practice. So is creating windbreaks for houses and barns using tree lines, which can save money on heating.

More efficient fertilizer usage will keep the carbon from fertilizers in and around the plant roots and soil longer, resulting in more effective plant growth and less carbon escaping into the atmosphere.

Adaptive grazing is when farmers use the smallest amount of land for the shortest amount of time to provide a longer rest period, which allows the land to regrow, pulling more carbon back into plant roots and soil.

Is there anything going on that can protect Canadian farmers?

Yes, there are rebates available to Canadian farmers if they purchase:

  • any equipment that helps the farm improve its energy efficiency;
  • add solar panels and connect them to the provincial electric grid;
  • new equipment that improves your water use efficiency and reduces your energy use.

It’s also worth noting that carbon taxes are not applied to dyed diesel or gasoline used in farming operations.

Is there anything else that can provide financial relief?

Yes. The latest event is Bill C-234, which, if passed, will remove the carbon tax fuel surcharge against propane and natural gas when no other alternative is available.

The Ontario Federation of Agriculture (OFA) said in a statement: “With no viable alternatives to propane and natural gas for grain drying and barn heating and the high price for energy use, the charge collected on these fuels makes it even more difficult for farmers to manage business finances.”

If Bill C-234 is eventually passed, it will provide Canadian farmers with some tax relief, which they could use to invest back into their businesses.

A recent Parliamentary Budget Officer report suggested that the carbon tax relief seen in Bill C-234 could save Canadian farmers nearly $1 billion through 2030.

What about carbon tax credits?

This is cheating. But it’s legal and is known as cap-and-trade.

Should a company produce excessive carbon emissions, rather than pay its fair share of the carbon tax penalty, it can buy carbon credits from a third party for less.

The carbon credits allow the buyer to emit a fixed amount of CO2 (carbon dioxide) without fear of being hit by the carbon tax.

It is cheating, but it is hoped that those purchasing carbon credits will still do their part and change how they do their day-to-day business.

Suppose they don’t try to alleviate their carbon emissions by changing processes. In that case, the carbon credit purchase becomes akin to a permission slip to expel all the CO2 they want without paying the Canadian carbon tax.

This also means they don’t contribute to Canadian citizens’ receiving the quarterly Climate Action Incentive Payment (CAIP).

Because change within an industrial sector is slow, we can state that industries such as the oil and gas sector remain the largest producers of GHG emissions. However, because of the purchase of carbon credits, it pays the lowest carbon tax rate.

We can argue about the injustice, but it’s a smart business ploy.

Do companies that provide carbon credits contribute to the Canadian carbon tax system?

The writer is still determining. If anyone has any information about this, please let us know.

Most know California is very concerned about reducing its global carbon footprint.

However, although they have carbon tax systems in place, California and the European Union give free credits to carbon-intensive sectors to protect them from foreign competitors who don’t pay a carbon price. It also prevents these industries from moving outside California (or the EU) to a less expensive territory abroad.

Should Canada not protect its ag industry?

Yes. But how to do that is a ticking time bomb that will have multiple answers, all correct and, at the same time, all wrong.

Right now, it is what it is.

And since Québec is among the global leaders in its lack of GHG emissions, maybe we should see what they are doing so well.

Every province is different, but there are some additional lessons to be learned for the rest of us to change the way we go about our day-to-day in the agriculture sector.

Related articles