Canada's 2024 Carbon Tax Update and Its Impact on Businesses

The Canadian carbon tax stands as a pivotal mechanism towards achieving the nation's climate goals. Introduced as a part of Canada's commitment to reduce greenhouse gas emissions and combat climate change, this policy encourages companies to track and decrease their carbon footprint. It also provides a financial incentive to invest in cleaner and more sustainable transportation options.

Guide to Canada’s Carbon Tax

Canada’s carbon tax is a minimum carbon price the federal government sets on the value of carbon (CAD/metric ton). For diesel and other fuels, the Canadian carbon tax is a fuel charge rate, an added fuel cost to account for the emissions profile of each fuel: gasoline, diesel, propane, naptha, and many others.

The federal carbon tax is the “minimum” carbon price for provinces to decide if they would like to enact more stringent carbon pricing. Notably, Quebec has a longstanding cap-and-trade program that the federal government has deemed stringent enough to not require the adoption of the federal carbon tax rate and thus the federal fuel charge rate.

More on the April 2024 Carbon Tax Update

The remaining Atlantic provinces transitioned to the federal carbon tax rate in 2023, so the 2024 carbon tax and fuel charge rate will be nearly uniform across all provinces come the carbon tax update. The federal carbon tax rate will increase from CAD 65/metric ton to CAD 80/metric ton starting on April 1. For all the provinces, apart from Quebec and British Columbia, the fuel charge rate for diesel will increase to CAD 0.2139/litre.

• Quebec’s fuel charge rate is a unique case because of its cap-and-trade program. Their rate will be dependent on cap-and-trade market activity, so the effects on diesel prices are variable.
• For British Columbia, although the province aligns with the federal carbon tax schedule, it assumes a greater volume of biodiesel than the federal government. This leads to a lower fuel charge rate for diesel at CAD 0.2074/litre.

The Political Landscape for Canada’s Carbon Tax

The Canadian federal government, under Prime Minister Justin Trudeau, is facing considerable pushback on Canada’s carbon tax from constituents and Conservative political leaders because of concerns around the rising cost of living and the effectiveness of the policy. For instance, in late 2023, the Trudeau government exempted home heating oil from the carbon tax because of the considerable pushback on its costs. This raised further questions about the provincial and regional variations in the impacts of the carbon tax policy.

Trudeau’s government is now working to alter the narrative around the carbon tax to try and better convey its purpose and benefits to Canadian citizens, particularly the revenue rebate program. Despite the attempted rebranding, Conservative Premiers and a sole Liberal Premier are calling on Trudeau to either not increase the carbon tax on April 1 or increase it by a smaller value than scheduled. In Trudeau’s counter arguments, he has highlighted how the rebates benefit citizens and the program’s importance to the climate. Long term, if the Conservatives take control in the next federal election, they will likely remove the Canadian carbon tax altogether. The next election will be held by October 2025, meaning another carbon tax increase will occur on April 1, 2025, before the federal election – barring any political compromises from Trudeau. The carbon tax rate would increase to CAD 95/metric ton and the diesel fuel charge rate would increase to CAD 0.254/litre.

Even if the carbon tax is removed completely, provincial policies like Quebec’s cap-and-trade system would not be affected.

Canada's Carbon Tax Policy: Challenges and Opportunities

Canada's carbon tax policy presents challenges and opportunities for companies. To stay compliant, companies must remain vigilant, adapting their operations and accounting practices to reflect these changes. An essential tool in this process is Breakthrough's Fuel Recovery solution.

Fuel Recovery considers carbon taxes in its market-based fuel reimbursement calculation, allowing for more accurate budgeting and financial planning. Utilizing this mechanism not only helps in managing the intricacies of carbon tax but also showcases businesses as responsible corporate citizens dedicated to sustainability. With the April 2024 carbon tax update approaching, now is a critical time for businesses to evaluate their current practices and make necessary adjustments. To accurately calculate your carbon taxes on all shipments, schedule a meeting with the Breakthrough Team!