Carbon Tax (Ontario)

carbon tax ontario
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Carbon Tax (Ontario)

You may have heard the phrase carbon tax being used recently if you’re in Ontario. What does it mean, how does it affect you, and does it really work? Due to its recent implementation in Ontario, there’s a lot of buzz around this topic as well as questions and concerns surrounding it that many Ontarians have.

What is the carbon tax?

The carbon tax is a federally imposed fee imposed on the burning of carbon-based fuels. This includes gasoline, diesel, and natural gas.

To be clear, there is no Ontario carbon tax, rather there is a federal carbon tax that applies in Ontario.

How much is the carbon tax in Ontario?

In 2020, the carbon price starts at $30 per tonne of carbon dioxide released. That translates to about 6 cents per litre of gasoline.

The tax will increase annually by $10, reaching $50 per tonne in 2022. By then the gasoline tax will be 11 cents per litre.

The total cost of the carbon tax in Ontario for families will depend on how exactly much fossil fuel energy they use. In that regard, families who drive more or use more heat in homes will pay more, while people who do not drive or have big houses will pay less.

The average household cost from the carbon tax will range from $296 per year in New Brunswick, $357 in Ontario to $588 in Saskatchewan. The disparity is because some provinces burn more coal to generate electricity.

What’s the purpose of the carbon tax?

When carbon-rich fuels are burned, they produce greenhouse gases, which in turn creates global warming by warming up the atmosphere. The effects of global warming are rampant. Forest fires, floods, blizzards, and droughts are all more present than ever, threatening the livelihood and well-being of Canadian businesses and families. There needs to be a serious action plan to combat this, which is where the carbon tax comes in.

The purpose of the carbon tax in Ontario is to have individuals and businesses reduce their use of fossil fuels or switch to less carbon-intensive fuels in order to lower the country’s carbon emission and meet the reduction targets set in the Paris Agreement. Canada’s obligation to the Paris Agreement was to cut Canada’s carbon pollution by 30% below 2005 levels by 2030.

Through the carbon tax in Ontario and other measures, the government estimates to cut greenhouse gas emissions by 50 to 60 million tonnes in 2022.

The tax is a way to change consumer and business behaviours by incentivizing them to reduce their use of fossil fuels so as to avoid paying a higher cost associated with its use. By reducing fossil fuel use or switching over to a less carbon-intensive fuel, consumers will have to pay little to no carbon tax, which is the goal the government wants to achieve through this program. Through this initiative, the government hopes to shrink Canada’s carbon emission and improve climate change.  

When does the carbon tax take effect?

The increase in tax on gasoline, natural gas, and other fuels took effect in Ontario on April 1, 2019.

What does the carbon tax mean for individuals and families?

The carbon tax in Ontario will be applied at the point of purchase, which means it will increase your cost of living. It will increase the cost to fill up your car, heat your home, and buy groceries to feed your families.

It’s estimated that in Ontario the average cost per household for the carbon tax will be $362 in Ontario in 2020.

What does the carbon tax mean for businesses?

For businesses with relatively low emissions, it’s similar to individuals, where the carbon tax is applied to fuels at the point of purchase. 

For big industrial emitters, the tax is charged on a portion of their emissions, rather than on the fuels they purchase. This is known as the “output-based pricing system,” and the carbon price is charged on between 5% and 20% of those emissions depending on the industry.

Is the carbon tax helping fight climate change?

Although it may be too early to tell the effects in Ontario of the carbon tax as it was implemented in 2019, we can look to British Columbia to see the effects as more data is available there.

British Columbia adopted a carbon tax in 2008 and with the decade of data now available, there’s evidence that British Columbia was able to reduce their per capita emissions by 14%. The carbon tax is clearly working, and we should see a difference in Ontario as well within a few years.

Where else is the carbon tax being applied?

Alongside Ontario, the federal carbon tax will be applied in Saskatchewan, Manitoba, and New Brunswick as well. These four provinces are subject to the federal carbon tax because they do not have their own carbon-tax initiative that meets federal standards.

Other provinces and territories including Quebec, Alberta, British Columbia, Newfoundland, Nova Scotia, and the Northwest Territories already have a carbon pricing system in place and so will not be a levy to this federal carbon tax.

Apart from Canada, the carbon tax has been implemented already in Britain, the United Kingdom, Ireland, Australia, and Sweden.

What’s the rebate for the Ontario carbon tax and am I eligible for it?

Residents of Ontario are eligible for a carbon tax credit, also known as a rebate. The rebate is meant to offset the added consumer cost as a result of this tax. The federal government has promised to return 90% of the revenues collected from the carbon tax to individual households in the provinces where the revenues were raised. Only one person per family is eligible for the refund, but the size of the refund is based on the number of adults and children in the household. The rebate is not based on income; every household has the same rebate available. 

In Ontario, the rebate amounts for individuals and families in 2020 are as following:

  • A single adult or first adult in a couple — $224
  • Second adult in a couple or first child of a single parent — $112
  • Each child under 18 — $56
  • Baseline amount for a family of four — $448

The rebate is eligible to taxpayers who claim it on their yearly tax return with the Canada Revenue Agency. If you owe the government money at tax time, the rebate amount will be reduced from the total sum you are expected to pay.

Where will the proceeds from the carbon tax be used?

Most of the proceeds the federal government collects from Ontario will be returned to individuals and families through the rebate program.

The remainder of proceeds of the Carbon tax in Ontario will be used to provide support to particularly affected sectors including schools, hospitals, small and medium-sized businesses, colleges and universities, municipalities, a not-for-profit organization, and Indigenous communities.

What happened to the Cap and Trade program that was previously in Ontario?

The Cap and Trade program was officially repealed on October 31, 2018; Cap and Trade Cancellation Act and is no longer in effect in Ontario.

The reason the Cap and Trade program was repealed was that it was costly, ineffective, and killing Canadian jobs. This Cap and Trade program was later replaced by the Ontario carbon tax.

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