Canadians across the country have questions about the Government of Canada’s carbon tax, a policy designed to address climate change by taxing carbon emissions. There are concerns about fairness, economic impact, and its effectiveness in reducing greenhouse gas emissions.

Below is a conversation between two neighbours who dive into some of the most common questions Canadians have. While it doesn’t cover every question, this discussion explores some of the key points Canadians want to understand about the carbon tax.

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On a warm fall morning, Andrew was enjoying a coffee on his front porch, savouring the quiet start to the day. Out of the corner of his eye, he noticed his neighbour Sandra step outside onto her own porch, looking somewhat pensive. Not one to ignore a neighbour, he gave her a small wave, which she returned with a faint smile.

Moments later, she seemed to decide on something and walked over to the edge of her porch. “Hey, Andrew,” she called, “I just got my carbon tax rebate. I am curious about your opinion. Do you think that the carbon tax is really doing any good, or is it just a way to get more money out of us? I know you are informed about these kinds of topics.”

Sensing an interesting conversation ahead, Andrew set his coffee down and turned to her. “I get where you’re coming from, Sandra. A lot of people are wondering the same thing. Want to take a few minutes to chat about it?”

Sandra crossed her arms, giving him a skeptical look. “Alright, let’s hear it.”

1. What Exactly Is the Carbon Tax?

Andrew started, “The carbon tax isn’t like income tax; it’s a fee on fossil fuels—like gas, natural gas, diesel—intended to make everyone think twice about how much we use them. The goal is to make carbon-heavy choices cost more so that cleaner choices are more appealing” [1, 2].

Sandra shook her head, unimpressed. “So, they’re trying to make my gas bill skyrocket, and I’m supposed to go buy a fancy electric car?”

“Well, it’s not so much forcing you,” he replied. “It’s more about nudging demand toward cleaner options as they become more affordable and available over time. Instead of mandating change, it’s about creating incentives to choose differently,” he explained [3, 4].

2. Isn’t This Tax Unfair for Rural and Low-Income Canadians?

Sandra’s brow furrowed. “And how’s that fair to people in rural areas who can’t just take the subway or have access to EV chargers?”

“It’s a fair point,” Andrew replied. “In provinces with the federal carbon tax, most households receive a rebate through the Climate Action Incentive Payment (CAIP) every quarter. And for a lot of low- and middle-income families, the rebates are actually higher than what they pay. And rural and Indigenous communities get extra support, too, so the tax doesn’t hurt them unfairly” [5, 6].

Sandra looked a bit surprised. “So, the government isn’t just keeping the extra money?”

“Nope,” he said. “It’s structured to give most families back more than they pay, especially in lower-income brackets. And yeah, rural households do get added support to cover the extra costs, understanding they may not have access to infrastructure or choices due to where they live or the unique jobs in those communities,” he explained [7, 5].

3. Where Does the Money Go?

“But then where’s the rest of the tax money going?” Sandra asked. “How do we know it’s not just padding the government’s budget?”

Andrew smiled. “Good question. In provinces without their own system, most of the revenue is returned to people as rebates. In places like B.C. and Quebec, which have their own carbon systems, the money goes into things like public transit, renewable energy projects, and other green initiatives” [2, 8].

Sandra raised her eyebrows. “So it’s not just disappearing?”

“Exactly. It either goes right back to people or is reinvested into projects that reduce emissions, depending on the province,” Andrew explained [4, 9].

4. Is the Carbon Tax Actually Reducing Emissions?

Sandra’s skepticism was still there. “Okay, but is it even working? Prices keep going up—has anything actually changed?”

Andrew nodded. “Canada’s made progress. It’s estimated that carbon pricing helped Canada avoid about 80 to 90 million tonnes of emissions in the last year. That’s the same as taking around 17 million cars off the road” [10, 2].

Sandra paused, clearly taken aback. “So it’s not just talk?”

“Nope, there’s actual progress. We’re not at our 2030 or 2050 goals yet, but carbon pricing is a big part of Canada’s strategy to meet those targets,” he replied [11, 9].

5. Isn’t This Just Hurting the Economy?

Sandra frowned. “So, it’s supposedly working on emissions, but what about Canadian businesses? Seems like it’s just making things harder on them.”

Andrew nodded. “It’s true that certain sectors feel the impact more, but the government introduced programs to help with that, like the Output-Based Pricing System. This gives emissions-intensive industries a bit of a buffer to keep them competitive. And many companies are actually innovating to cut emissions and costs at the same time” [5, 3].

Sandra’s curiosity was piqued. “So, they’re finding ways to work with it instead of just absorbing the cost?”

“Right. Many industries have found ways to reduce costs and emissions, which helps them stay competitive,” Andrew said. “It’s tough on emissions, not on businesses themselves” [7, 12].

6. Why Does Canada Even Bother? We’re So Small on the Global Scale.

Sandra sighed, “I still don’t get why Canada needs to bother if we’re just a tiny contributor globally.”

Andrew leaned in, knowing this was a key point. “Canada might contribute only a small amount of total emissions, but per person, we emit way more than the global average. The government indicates our carbon in Canada is attributed to our resource-intensive economy, cold climate, and spread-out cities, our energy use is higher than many places. And think about it: if every country said, ‘we’re too small,’ nothing would change. Plus, by setting an example, Canada’s efforts can encourage other countries to do the same” [1, 13].

Sandra nodded slowly. “Alright, so it’s more about setting an example and doing our part?”

“Exactly. Canada’s position encourages other countries to act, and it helps us stay competitive as more countries shift toward renewable energy,” he replied [9, 2].

7. Is This Tax Permanent? Will We Always Have to Pay It?

Sandra raised an eyebrow. “So, are we just stuck with this forever?”

Andrew shook his head. “Not necessarily. The tax is planned to increase gradually through 2030, but it’s flexible. If we hit emissions targets, or if new tech helps lower emissions faster, it can be adjusted or even reduced” [5].

“So, it’s not set in stone? It’ll change if we’re hitting targets?” she clarified.

“Yes, it’s a flexible tool. As we meet goals or find better ways to reduce emissions, adjustments can be made,” he replied [7].

8. Why Do Some Provinces Have Different Systems?

Sandra furrowed her brow. “And why do provinces get to choose their own systems?”

Andrew explained, “Provinces can design their own systems if they meet federal standards. B.C. and Quebec, for example, have carbon plans tailored to local needs. The federal tax steps in only if a province doesn’t meet the benchmark” [8, 12].

“So, they have control as long as it’s effective?”

“Exactly. The provinces get some flexibility, and the federal government ensures it aligns with our climate goals,” Andrew said [3, 9].

9. How Do Party Proposals Differ on Carbon Tax Policy?

Sandra leaned in, “And what about other parties? How do they plan to address emissions if they don’t support the current carbon tax?”

Andrew outlined the various approaches:

• Liberal Party: The current Liberal plan has a gradual increase in carbon pricing, providing household rebates and support for industries through the Output-Based Pricing System. It’s designed to balance emissions reduction with economic feasibility, distributing costs across households and high-emission sectors without major shocks to the economy [6, 9].
  
  Learn more.
  
  
• Conservative Party: The Conservatives oppose a direct carbon tax, proposing instead a low-carbon savings account, where individuals pay into personal accounts for eco-friendly purchases. They also prioritize investment in emissions-reducing technology. While less costly upfront, some analysts believe this approach may reduce emissions more slowly [2, 7].
  
  Learn more. (No policy available on parties website)
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• NDP: The NDP supports the carbon tax but emphasizes stricter penalties for large polluters and increased public investment in green projects. Their approach would place more responsibility on high-emission industries and use revenue to expand green infrastructure and job training, aiming for a “just transition” for workers in carbon-heavy sectors [10, 5].
  
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• Green Party: The Green Party proposes an aggressive increase in carbon pricing, faster than the Liberal plan, with additional taxes on carbon-heavy imports and a swift phase-out of fossil fuel subsidies. This approach would increase emissions reductions quickly but may lead to higher costs for consumers and industries [8, 11].
  
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Sandra’s eyes lit up. “So, there’s a lot more to it than just higher or lower taxes?”

“Right. Each approach has a different balance between reducing emissions, managing economic impacts, and deciding who pays. The Liberals and NDP aim for balanced progress, the Greens push for rapid change, and the Conservatives focus on long-term tech-driven solutions,” Andrew replied.

10. Which Carbon Policy is Most Likely to Achieve Canada’s Environmental Goals?

Sandra paused, processing everything she’d learned. “So, which plan actually gets us where we need to be on climate?”

Andrew nodded, understanding the importance of this question. “It’s essential to remember that carbon pricing is just one part of Canada’s climate strategy; no single policy will meet all targets. However, a balanced approach, as an independent assessment from Environmental Defence Canada, Canadian Climate Institute and Canadian Institute for Climate Choices like the Liberal and NDP plans—using both carbon pricing and green investments—is likely the most effective and cost-efficient based on economic and environmental assessment.”

• Liberal and NDP Plans: Both plans are generally recognized by analysts as having the best chance to meet Canada’s 2030 and 2050 targets. Their combination of steady carbon price increases and support for industries balances carbon pricing with household rebates and industry incentives. This strategy helps reduce emissions across the economy without major economic shocks, and the NDP’s emphasis on green job programs could further accelerate reductions in high-emission sectors [10, 6].
  
  
• Green Party’s Accelerated Approach: The Green Party’s plan is considered highly effective for rapid emissions reduction due to its higher carbon price and swift phase-out of fossil fuel subsidies. However, analysts caution that this approach might lead to increased initial costs for households and businesses, potentially requiring robust rebate systems to prevent economic disruption [8, 11].
  
  
• Conservative Party’s Tech-Driven Approach: The Conservative approach, while economically conservative, relies on voluntary choices through the low-carbon savings account and tech investments. Analysts from the Canadian Climate Institute suggest that tech-based solutions alone may not reduce emissions quickly enough to meet Canada’s 2030 and 2050 targets [1, 7].

Sandra looked thoughtful, her skepticism softened. “So, it sounds like the best plan balances the price on emissions with green investments and rebates for people who need it most. It’s not just about raising taxes but shifting things in the right direction?”

Andrew nodded thoughtfully, "Exactly. The Liberals and NDP are working toward a balance between progress and practicality, while the Greens are pushing for really rapid changes to hit climate targets fast. The Conservatives, on the other hand, are betting on long-term tech solutions to get there. So, all together, these policies create a kind of toolkit, with carbon pricing as just one tool among many."

He continued, "Of course, no policy is perfect. The Greens and Conservatives may be at opposite ends of the spectrum, but both their approaches, like all climate policies, evolve as we learn more. For now, we've seen the Liberal approach in action, and while it’s early, it does seem to be making some positive strides."

With that, Sandra had a new perspective, seeing that Canada’s climate policy wasn’t simply about adding costs but rather about investing in long-term, balanced solutions. She left their conversation feeling more hopeful—and with a sense of ownership in Canada’s role in the global climate effort.

References

1. Canadian Climate Institute. (2021). Carbon pricing in Canada: Effects and implications. Retrieved from https://www.canadianclimateinstitute.ca
2. Clean Prosperity. (2021). PBO confirms that carbon rebates exceed carbon costs for all but highest earning households. Retrieved from https://cleanprosperity.ca/statement-on-the-parliamentary-budget-offices-analysis-of-the-federal-carbon-pricing-system/
3. Environment and Climate Change Canada. (2022). Progress on Canada’s climate plan. Government of Canada. Retrieved from https://www.canada.ca
4. Goulder, L. H., & Schein, A. R. (2013). Carbon taxes vs. cap and trade: A critical review. Climate Change Economics, 4(3), 1-33.
5. Flanagan, T., & Kessel, M. (2022). Carbon pricing and low-income households: Fairness and efficacy. Canadian Policy Research, 9(4), 44-58.
6. Office of the Parliamentary Budget Officer. (2021). Carbon pricing for climate change mitigation. Retrieved from https://www.pbo-dpb.ca
7. Pomerleau, K. (2022). Comparing climate policies: An analysis of Canadian party platforms. Fiscal Studies Journal, 45(2), 123-145.
8. Vivid Economics. (2021). Impact of carbon pricing on business competitiveness. Retrieved from https://www.vivideconomics.com
9. Canadian Climate Institute. (2021). Climate policies and competitiveness: Balancing emissions with economy. Retrieved from https://www.canadianclimateinstitute.ca
10. Clean Prosperity. (2020). The federal carbon tax and rebates: An overview. Retrieved from https://www.cleanprosperity.ca
11. Environment and Climate Change Canada. (2022). Emissions reductions progress and projections. Government of Canada. Retrieved from https://www.canada.ca
12. Pomerleau, K. (2022). Comparative analysis of carbon pricing impacts on Canadian industry. Fiscal Studies Journal, 45(2), 147-163.‍
13. Vivid Economics. (2021). Global leadership through local action: Canada’s role in climate solutions. Retrieved from https://www.vivideconomics.com