Carbon pricing in Atlantic Canada

On July 1, 2023, Newfoundland and Labrador, Prince Edward Island, Nova Scotia, and New Brunswick became part of the federal carbon pricing system, joining Alberta, Saskatchewan, Manitoba, and Ontario. 

When the four Atlantic provinces joined, the price of emitted carbon dioxide was $65 per tonne and will remain so until the end of March 2024.

The carbon price is applied to any emissions-intensive energy sources. In a household, this means energy for space heating, water heating, electricity (appliances and lighting), and transportation. For example, in 2023-24, the carbon levy (commonly referred to as the carbon tax) on a litre of gasoline is 14.31 cents/litre and 17.38 cents a litre on home heating oil.

The impact of the carbon tax was felt immediately at the pumps. Figure 1 shows the price of a litre of gasoline in Halifax the week before the increase and the week after. The price of a litre of gasoline increased by 20.75 cents and consisted of the carbon tax (14.3 cents); the Clean Fuel Standard (3.74 cents); and, because the HST is applied to the total price (including taxes), an additional 2.71 cents for the HST.

In addition to the carbon tax, individuals and families who filed their income taxes for 2023 would receive rebate cheques, the Climate Action Incentive Payment (CAIP). The CAIP is paid every three months to offset the estimated cost of the carbon taxes the individual or family would be paying in the following three months.

The values of the CAIP are based on the size of the household (i.e., the number of occupants). The 2023-24 CAIP for several different household sizes in Atlantic Canada is shown in Table 1. (The rural CAIP, which is currently 10% higher than the rebates discussed in this article, has been omitted because of space limitations.)

Table 1: CAIP for the Atlantic provinces: July 2023 (Q2) to March 2024 (Q4) only; there were no payments the Atlantic Provinces between April 2023 and June 2023 (Q1)

Ideally, the carbon rebate equals or exceeds the amount an individual or family has paid for all their carbon taxes. However, as was shown last year in the Halifax Examiner and elsewhere, in many instances the CAIP would not cover the carbon taxes being paid in some households using heating oil for heating older, less energy efficient homes in Nova Scotia.

The heating oil problem was not restricted to Nova Scotia. A considerable number of space and water heating systems in Atlantic Canada still use heating oil for both; however, most are to be found in Nova Scotia and Prince Edward Island, as Figure 2 shows.

News of the problems with the carbon tax in Atlantic Canada soon reached Ottawa.

In response, the prime minister announced in late October last year that the carbon tax on heating oil would be removed for three years.

The decision to eliminate the carbon tax on heating oil is seen by many as a cynical move to shore up support for MPs in his Atlantic caucus. It was dubbed a “carveout,” favouring those using heating oil over those using other heating sources, and making a mockery of the Liberal party’s signature piece of environmental legislation.

2023-24: The carveout

To understand the impact of removing the carbon tax on heating oil, we examined three building types and sizes of home in each province in Atlantic Canada. The building types and sizes, and the number of people living in them (the household size) are shown in Table 2. 

Table 2: Building type and size, and household size

The total carbon tax is calculated using the building’s size and energy demand, its heating oil consumption, its electricity usage, and transportation energy consumption. Energy use increases as the size of the household increases. 

The value of the household’s rebate (CAIP), determined from the number of occupants and using the provincial data, appears in Table 1. The “balance” is the difference between the household’s CAIP and its total carbon tax. (Households heating electrically are not considered in this article; suffice to say all had positive balances).

In all cases, the resulting balances for the different households in all provinces is negative or slightly positive. However, as the following figures show, removing the carbon tax on heating oil makes the balance positive.

In Newfoundland and Labrador (Figure 3), the balances for single detached and attached homes are both negative; however, the household living in an apartment experiences a (slightly) positive balance. Once the carveout is applied, all households receive well over $450.

Households in Prince Edward Island also experience a negative balance (Figure 4), regardless of the type of household. With the carveout, the balance is positive.

When the heating oil tax is included, the hypothetical households in Nova Scotia (Figure 5) have a negative balance. With the tax removed, the households all have balances over $300.

In New Brunswick (Figure 6), when the carbon tax on heating oil is applied, the balance is negative for the hypothetical households. It is also the most negative of any province because of its small CAIP intended for electrically heated homes. When the tax on heating oil is removed, the household balances are all above zero.

The prime minister’s decision to remove the carbon tax on heating oil ensured that many households in Atlantic Canada were not penalized for using this energy source.

By removing the carbon tax on heating oil, the household’s total carbon tax is limited to electricity and personal vehicle use, the largest of the two by far.

Since the carveout will continue into 2024-25 and 2025-26, it gives those using heating oil an opportunity to supplement their heating with, for example, subsidized electric heat pumps.

2024-25: A new price on carbon

On April 1, Canada’s price on carbon will increase from $65 a tonne to $80 a tonne. This will result in a rise in the cost of most fuels Canadians use. This current fiscal year’s (2023-24) carbon taxes for major fuels and those for the upcoming fiscal year (2024-25) starting this April are listed in Table 3.

Table 3: Increases in the carbon tax from 2023-24 to 2024-25

In 2024-25, as in 2023-24, individuals and families who filed their income taxes will be receiving rebate cheques every three months to cover the estimated cost of the carbon taxes they will be paying in the following three months.

Like the price on carbon, the rebate has changed. In attempting to clarify the purpose of the rebate, the federal government has changed the name of the rebate from Climate Action Incentive Payment (CAIP) to Canada Carbon Rebate (CCR). Examples of the household size and corresponding value of the CCR are shown in Table 4. 

Table 4: 2024-25 full-year CCR for the Atlantic provinces

$80/tonne vs. $65/tonne

The four Atlantic premiers and many local opposition leaders are against April’s increase in the carbon price and want it rolled back to its 2023-24 value, $65/tonne.

If it is rolled back and the 2023-24 CAIP is used for the full year (that is, four-quarters) rather than three-quarters it is at present, this will increase the balance (the rebate minus the total carbon tax paid). 

Figure 7 compares the 2023-24 CAIP for three quarters (July-March) with the new 2024-25 federal carbon price and CCR, and the provinces’ call for the carbon price to be rolled back using the 2023-24 CAIP.

In all provinces, except New Brunswick, the 2024-25 CCR is less than the full-year (four-quarters) CAIP (in New Brunswick, the 2024-25 CCR has a slightly larger value than the full-year 2023-24 CAIP).

The difference between the 2023-24 three- and four-quarter CAIPs is significant. For example, a four-person household in Newfoundland and Labrador would see an increase of $328, while a two-person household in New Brunswick receives an additional $184.

The final balances for Newfoundland and Labrador (Figure 8), Prince Edward Island (Figure 9), Nova Scotia (Figure 10), and New Brunswick (Figure 11) are shown below. The figures should be interpreted as follows: 

• The results are grouped by household size (single-detached and -attached, and apartment) for each province. Within each grouping, the balances are shown for the 2023-24 CAIP with no carbon tax on oil for three quarters (2023-24 No oil tax (3Q)); the upcoming 2024-25 CCR with an $80/t carbon price without the carbon tax on oil (2024-25 $80/t); and applying the 2023-24 CAIP for the entire year or four quarters (2023-24 No oil tax (4Q)).
• There is no carbon tax on heating oil.
• The only major remaining cost is the carbon tax on transportation. This is particularly noticeable in Nova Scotia with low rebates and where the average distances driven are second only to those driven in Newfoundland and Labrador. 
• The lowest balance for each building type is the 2023-24 No oil tax (3Q); the result of the prime minister’s removal of the heating oil carbon tax.
• In most cases, the second highest balance is for “2024-25 $80/t. Nova Scotia is the exception because of its vehicle use and relatively low rebate.
• The highest balance occurs for all building types if the 2024-25 carbon price is returned to 2023-24 levels with the full-year CAIP, shown as 2023-24 No oil tax (4Q). This is the result of including an extra CAIP quarter.
• Newfoundland and Labrador have the largest balances, followed by Nova Scotia and Prince Edward Island, and finally, New Brunswick with the lowest.

Axe the tax?

The prime minister’s decision to axe the tax on heating oil has clearly benefitted those heating their homes with oil, although it appears to have done him little good. Whether or not he decides to return to using the CAIP at $65 per tonne or keep the new CCR at $80 per tonne, it appears that most households in Atlantic Canada using heating oil will have additional funds to spend on essential items such as groceries and rent.  

Larry Hughes is a professor in the Department of Electrical and Computer Engineering at Dalhousie University.

The work in this report was not funded by the federal or provincial governments or any other organization.