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Canada’s Carbon Tax and Refund Explained

Updated: May 18, 2020

By Glenn Marshall, October 16, 2019

Why did gasoline go up 4.4 cents in April 2019 in Ontario? Will this kill jobs and will the average taxpayer be out of pocket?

First, please explain - why was this done?

We depend on the economy for jobs and the things we buy. The economy, in turn, depends on a stable climate.

Here’s the problem: the economy is currently dependent on burning fossil fuels (coal, oil and natural gas) and this is destabilizing our climate.

Burning fossil fuels emits carbon that blankets the earth, trapping heat. It also produces air pollution. Our planet is heating up and the climate is destabilizing at a dangerously increasing rate. Hundred year floods now happen every few years, wildfires, droughts, hurricanes and heat waves keep getting bigger, hotter and last longer. Water scarcity is an increasing issue, fueling conflict and political unrest. Ancient glacial ice, Greenland, Antarctica and the Arctic/Siberia are melting at an accelerating rate raising ocean levels. Flooding now regularly occurs on storm free, sunny days in various ocean communities. The 10 hottest years in recorded human history have all occurred in the last 15 years and this has been the case for decades. It’s hot and it keeps getting hotter.

Science has figured this out - there is a 97% scientific consensus around the following statement “global warming is serious, happening now and primarily human caused”. This is greater than the scientific consensus around cigarette smoking causing cancer.

And there’s another problem associated with fossil fuels: fossil fuel emissions are the primary source of air pollution. Air pollution kills and impairs people. Over 10,000 die annually from air pollution in Canada according to Health Canada with millions more dying annually worldwide. Air pollution impairs children’s intellectual development and asthma affects 2.4 million Canadians, hundreds of millions worldwide.

People are concerned and anxious, and this is showing up in the polls - the environment is now the top or near to the top issue in many countries, including Canada, and continues to rise.

What are we to do? On the one hand we could maintain the economy, for now, and thoroughly destabilize the climate along with the economy - the future is not so good for both the climate and the economy. This is our current path of not paying for the consequences of carbon emissions and pollution. In other words, subsidizing it. We are already paying a lot out of our pocket and we’ll all pay a lot more in the future. This is the “everybody pays” approach, including those who aren’t emitting, which is deeply unfair. A destabilized climate along with an impaired economy doesn’t seem like a good plan.

Stanford University calculates that this subsidy is $220 US per ton. No wonder we have a problem of too much pollution and too much carbon - we’re effectively paying people a lot of money to pollute!

Prior to April 2019, in Ontario, we could emit carbon and the associated pollution for free by burning fossil fuels. Yet we are all paying a terrible price today by having to pay for all the problems this causes, out of pocket. This is also a drag on the economy. Wouldn’t it be a good idea if we paid for the cost of our emissions when we purchased the emitting product or products that have emissions in their production, proportional to the amount of emissions? This is called the “emitter pay your way” approach. This seems like a good idea at first glance. There are some concerns however: this is a tax and taxes are a drag on the economy (reduce jobs to a degree) and the taxpayer will be out of pocket a second time. There are major problems with this approach too.

Here’s the good news: There is a middle path where we can have the best of both approaches. We can grow the economy and create jobs, preserve the climate we need and not hurt the taxpayer financially.

The Solution

The middle path is a REFUNDED carbon tax where all the money collected is returned to the province it was collected in. This is a market based approach and it will, over time as the refunded carbon tax increases, eliminate the subsidy (when we burn fossil fuels without directly paying for the damage and pollution it causes). In particular, it doesn’t use regulations which are less effective, much more costly to administer and implement and generally disliked by business and taxpayers as “red tape".

Giving all the money back addresses all of the concerns with a regular (non-refunded) carbon tax. It is not a tax grab since taxpayers are not out of pocket. It is associated with economic growth and job creation - this has been observed in British Columbia with their refunded carbon tax. Most important of all, it will preserve the climate we need by steadily raising the price of things that are destroying it - carbon emissions and pollution.

We know that sales decline when the price goes up and we know there are low carbon choices and strategies available generally, with many more on the way. Many of us will make these choices and thereby reduce emissions and pollution; this happened in British Columbia. Those who do not (and thus choose to pollute; this is all of us to a degree, at times) will over time as the refunded carbon tax increases, pay their way which is fair. And all of us in Ontario, Saskatchewan, Manitoba and New Brunswick will get the money back as a refund, in advance, on our income tax assessment. The refund is called the Climate Action Incentive. Other provinces have a carbon pricing system equivalent to the Federal Government’s; here the Federal Government simply gives the money collected in a province back to that province.

This is in place in Canada as of April 2019. The federal government calls it a [refunded] price on pollution. The rate is $20 per ton of carbon, increasing by $10 per ton until 2022 when it will be $50 per ton. $20 per ton works out to roughly 4.4 cents per litre of gas, for example.

Some people are calling this a carbon tax - this is NOT correct. It is a REFUNDED carbon tax which is completely different from a carbon tax in that it has a positive effect on the economy and a positive effect on the majority of taxpayers - most taxpayers make money - actually earn income!

How much do I get in my refund?

Everybody gets the same basic amount. The government has gone to a lot of trouble to make sure lower earning Ontarians are making money off the refunded carbon tax. Rural residents who have less public transit options and tend to drive more get an extra 10%. A further 10% is refunded to small and medium businesses, non-profits, municipalities, schools and hospitals who generally have trouble passing on price increases. Farm fuel is exempt, so are First Nations.

Here are the average tax and rebates for the 4 provinces where the Federal Government is giving the rebates directly to taxpayers (the 4 provinces that do not have an equivalent to $20 per ton carbon price):

The independent, non-partisan Parliamentary Budget Office has calculated that 80% of Ontario taxpayers will get more money back than they pay in increased prices. In other words, MAKE money off the refunded carbon tax and NEVER be out of pocket since the refund is given in advance (assuming they file their income tax on time).

Here’s how the refunded carbon tax works, and how it will affect us personally:

  1. A refunded carbon tax is set predictably, starting low and increasing steadily over time. People and businesses know what is coming in advance and plan accordingly. New low carbon products are created and formerly non-competitive low carbon products increase production since they are now price competitive.

  2. Prices go up based the amount of carbon emissions associated with each product: - High emissions products go up a lot relatively - Low emission products go up a little relatively - Zero emission products do not have any price change at all. People in Ontario, like people everywhere, are very good at shopping. We will choose equivalent lower emission products because they now cost less. Choosing these lower cost products saves money and preserves the climate that civilization depends on - is a win-win.

  3. The BIG point is what was mentioned previously: all revenue collected is kept aside and returned to the province it was collected in. In Ontario the taxpayer gets the money in advance on their income tax assessment. The lowest earning 80% of Ontarians actually get more back than they pay in increased prices. They MAKE money off the refunded carbon tax!

And when people, regardless of income, choose low or zero emission products (which are now relatively cheaper; this is the point of a refunded carbon tax after all) they also save money regardless of income. 80% of the population save twice!

You may be wondering - how is possible that 80% of the population will make money? This is because the most affluent Canadians emit several times more carbon than everybody else on average. Because of this, the top 20% only get 75% back on average. Yet affluent Canadians can make money off the refunded carbon tax too - all they have to do is make low carbon choices. Make low carbon choices and you save money, courtesy of the refunded carbon tax, regardless of income. The more low carbon choices you make, the more you save.

A good zero carbon choice is to buy an electric motor vehicle. Motor vehicle emissions are the source of 48% of Ontario emissions as of 2018 according to the Environmental Commissioner of Ontario, so making this choice is very important. Electric vehicles have other advantages: they cost around 90% less to fuel, are vastly simpler mechanically (have much lower maintenance costs) and can be fueled at home. The downside is there are only mid-priced cars and buses widely available, although there are rebates available and prices are dropping steadily. If you drive a lot, you will save money with an electric car, even considering the purchase price today. High mileage applications like taxis, police cars and buses will save money and can choose from a variety of choices. Large electric trucks and electric delivery vans are expected next year, in 2020.

Other good low emission choices that save money are installing solar panels and a battery backup system - this will reduce your electricity bill as well as your carbon emissions; this is especially important in areas where electricity is generated from coal or natural gas or where the electricity is unreliable. Ontario is quite good here; Ontario has generally reliable low carbon electricity. Insulating your home, installing high efficiency windows, doors and high efficiency appliances will also reduce your electricity bill. Do a home energy audit and find exactly where you are consuming energy. Switch to solar hot water and to an electric stove. Finally, install a ground based heat pump and get rid of natural gas completely. High efficiency homes with solar panels can be a source of energy - generate more energy than they consume. Some jurisdictions (like California starting in 2020) require this as part of the building code; Ontario is lagging behind here.

A big portion of the needed emission reduction will come automatically from business. Businesses do not like to raise prices since that reduces sales. Businesses are now incentivized to make low carbon choices to keep prices low. And they will; again, this happened in British Columbia.

And there is a BIG bonus from the refunded carbon tax: it will grow the clean economy and we can export these clean energy products and services. Clean energy is a huge growth area and a source of many jobs, many more than will be lost when high carbon product sales in Canada decline. This has been demonstrated in British Columbia with their refunded carbon tax; BC’s carbon tax is admired around the world.

Is the refunded carbon tax the only thing we need to do to ensure a stable climate? No, but the economists agree: as long as it is broadly based, steadily rising significantly and 100% refunded, it is the most effective policy choice available - it is expected to take us most of the way we need to go quickly. Refunded carbon taxes are non-partisan - people across the political spectrum support refunded carbon taxes, including 27 Nobel Laureate Economists.

The federal government has a separate system for large emitters creating high carbon products that are at competitive risk from non-carbon taxed imports (for example, steel and cement). These emitters are required to do their part; discussing this system is a separate article. Suffice to say this system ensures large emitters will be price competitive domestically and internationally, while steadily reducing emissions and pollution like everybody else.

This includes exports of fossil fuels - tar sands oil exports are not affected, for example. The refunded carbon tax only affects domestic consumption of carbon in Canada.

Here’s the bottom line: the evidence is in - we CAN have it all - not raise taxes, create jobs and over time stabilize the climate.

Please tell your friends 3 things:

  1. We need to urgently preserve the climate civilization requires for ourselves and for our children TODAY. We can start this NOW.

  2. We can put money in most people’s pocket TODAY.

  3. We can create jobs, cut emission subsidies and grow the economy TODAY.

We do all this through the REFUNDED, paid in advance carbon tax.

If you have any questions, please contact Glenn Marshall at

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Canada's Carbon Tax and Refund Explained
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