Skip to Content

What is the Carbon Tax in Canada? And how it Affects you

The Carbon Tax was first introduced into Canada’s federal legislation in 2018 and officially began collecting revenues on April 1, 2019. 

The Carbon Tax attaches a fee to activities which produce emissions from fossil fuels. These fossil fuels include coal, oil, gasoline, or natural gas.

The Carbon Tax operates in all sectors of the Canadian economy and functions to push carbon producers to find alternatives to carbon-producing ways of operating. 

Certain exemptions exist for carbon-producing entities. For example, biological emissions from farm animals are exempted from the penalties assigned under the Carbon Tax.

The goal of the Carbon Tax is to incentivize Canadians to be more responsible with the amount of carbon they use, by putting a price tag on carbon-producing activities.

The Carbon Tax functions as both the carrot and the stick. It ties a slight penalty to the use of carbon while awarding payouts directly to Canadian citizens. These payments vary by province and will come in the form of a cheque or direct deposit payment. These payments, now known as the “Canada Carbon Rebate” – formerly known as the Climate Action Incentive Payment – arrive every three months. The rebate creates a system in which Canadians who participate in fewer carbon-producing activities may receive an economic surplus based on their payment into the Carbon Rebate system.

This information is great and all, but how does this affect me?

Well, in short, it may not, at least directly. The Canada Carbon Rebate means that you, the average Canadian, may be receiving more money as a result of the Carbon Tax than you would have paid into the system when you purchase fossil fuels. On the other hand, even if you do not use a lot of fossil fuels, the price of all goods you purchase will go up because of the Carbon Tax. It takes fossil fuels to produce and transport all goods.

Where you and most Canadians will notice the effects of the Carbon Tax is at the gas pump.

The amount which you will receive in your Canada Carbon Rebate varies based on your geographical location and the number of members of your household. To receive these rebates, you must file your annual tax return.

Criticisms of the Carbon Tax

Politicians debate over whether the Carbon Tax effectively mitigates the harms of the production of carbon by the burning of fossil fuels. Also, even if it does mitigate such harms, does it matter when Canada produces only a tiny fraction of the world’s emissions? Canadians should perhaps not be going cold when in the vast majority of other parts of the world, people aren’t even thinking of making the same sacrifices.

Likewise, critics of the Carbon Tax point to increasing prices of goods as a result of, mostly, the cost of transportation, particularly in light of high inflation and high-interest rates. Simple economics shows that the cost of increased transportation will translate to increased food costs and raise the cost of living for Canadians.

In addition, critics of the Carbon Tax state that there is little proof that the penalty imposed as a result of the Carbon Tax will not push polluters to change their ways but simply increase their cost of operation.


Overall, the Carbon Tax signals commitment towards Canada’s goals of sustainable consumption of natural resources and the reduction of Canada’s carbon production. However, as a result of the Carbon Tax, the average consumer will notice that the prices of nearly everything have increased.

The Liberal Party of Canada says these price increases are meant to incentivize Canadians to make carbon-conscious choices with their lifestyles. We will see in the next election if Canadians agree. Many polls suggest they do not.