In 2019, every province and territory had to have a federally approved carbon pricing system.
The carbon pricing systems in British Columbia and Québec were approved. The pricing systems proposed in Alberta, Saskatchewan, Manitoba, Ontario, and New Brunswick were not approved; these provinces were required to accept the federal backstop.
Nova Scotia’s carbon pricing system was approved, despite falling far short of the federal stringency standards.
How far short?
Between 2019-20 and 2022-23, the federal carbon price on carbon emissions increased from $20/tonne of carbon emissions in 2019-20 to $50/tonne in 2023-23.
During this time in Nova Scotia, it remained at about $4/tonne.
To understand the difference, consider the carbon tax on a litre of home heating fuel. In 2019-20, a province or territory using the federal backstop paid about 5.5 cents, while in Nova Scotia, it was about one cent.
In 2022-23, the federal backstop price per litre had increased to about 13.8 cents, while in Nova Scotia it was about 1.2 cents.
These changes are shown in Figure 1.
Despite protests from the premier of Nova Scotia in August 2022, Nova Scotia became part of the federal carbon pricing system on July 1, 2023.
Consequently, the carbon price on a litre of heating fuel in Nova Scotia increased to 17.9 cents per litre.
Joining the federal carbon pricing program
For a Nova Scotian household, this means that all carbon-based fuels, such as home heating fuel, gasoline, and electricity, have a price on their carbon emissions.
This is widely referred to as the “carbon tax.”
In addition to the carbon tax, the carbon pricing system includes a Climate Action Incentive Payment (or CAIP) cheque issued quarterly to Nova Scotians who paid their federal income taxes the previous April.
The CAIP is a “pre-bate” (as opposed to a rebate) in that it is intended to cover the household’s carbon taxes for the upcoming three months.
In 2023-24, Nova Scotians will be receiving three quarterly CAIP cheques in July and October 2023 and January 2024.
The CAIP varies by province, household size, and place of residence (that is, urban or rural). Alberta has the highest CAIP, while New Brunswick has the lowest. Rural households receive an added 10%.
Nova Scotia’s CAIP for various household sizes is shown in Table 1. The larger the family size, the higher the CAIP.
Table 1: Nova Scotia’s CAIP for fiscal year 2023-24
| Couple family | Lone-parent family | Quarterly CAIP | |
| Urban | Rural | ||
| One adult | $124 | $136 | |
| Two adults | One adult and one child | $186 | $205 |
| Two adults and one child | One adult and two children | $217 | $239 |
| Two adults and two children | One adult and three children | $248 | $273 |
| Two adults and three children | One adult and four children | $279 | $307 |
The combination of the carbon tax and CAIP is intended to minimize the impact of the carbon tax on Canadians, while getting them to recognize that carbon emissions have a cost.
In fact, according to the federal Department of Finance, the CAIP is designed so that “8 out of 10 households [will be] getting more money back than they pay.”
Canada’s carbon pricing seemed to be a fact of life in the country until the last Thursday in October this year, when Prime Minister Trudeau announced that:
- In mid-November, the carbon tax on home-heating fuel was being stopped for the next three years.
- The CAIP paid to residents living in rural communities, currently 10% higher than those of their urban counterparts, is to be increased to 20% beginning in April 2024.
- The existing free heat-pump program for low- and medium-income households using home-heating fuel is being expanded.
Most pundits, federal opposition politicians, and provincial premiers interpret this as a cynical ploy to shore up weakening support for the Liberal party in Atlantic Canada where about 20% of the heating systems use heating oil; the Liberals do well in rural ridings in Atlantic Canada; and heat pumps are seen as way of helping low- and medium-income households reduce their use of heating oil.
The question facing many Nova Scotians is, how much of a difference will this decision make in the province where about 30% of households have heating systems relying on fuel oil for space and water heating?
The carbon tax in Nova Scotia
The federal Department of Finance CAIP webpage lists quarterly payments for adults, children, and families of four.
The cost of the carbon tax to a hypothetical family of four in Nova Scotia depends on their home’s heating and hot water demand; their electricity demand for appliances and lighting; and their transportation fuel consumption.
My research has used energy data from Efficiency Nova Scotia for space heating demand in three types of 1,700 square foot home (R2000, Average, and Older) and a family of four’s hot water demand.
Data for electricity use and car and light-truck average fuel consumption is from Natural Resources Canada.
This year, the carbon tax for light fuel oil (used for space or water heating, or both) is 17.4 cents/litre, while the carbon tax on gasoline is 14.3 cents/litre.
The carbon tax on electricity is determined from Nova Scotia Power’s annual emissions limit, which is specified as part of the regulations in Canada’s Output-Based Pricing System or OBPS. Based on Nova Scotia Power’s second quarter Management’s Discussion & Analysis report, the carbon tax on electricity is about 0.43 cents per kilowatt-hour.
The carbon tax on the hypothetical family of four is shown in Figure 2.
Each bar in the chart is either:
Space heating (green): A home using a mini-split heat pump has the lowest cost tax (Electric SH), while a home using oil heating has the highest (Oil SH). The cost depends on the home’s energy requirements and energy source: the R2000 home with the heat pump is the lowest and the older home with oil is the highest.
Water heating (blue): A home using electric water heaters (Electric WH) have the lowest tax, while those using oil have the highest (Oil WH). The tax is the same in each type of home.
Lighting & Appliances (yellow): The carbon tax on these emissions is negligible and is not visible on the chart.
Vehicle use (gray): The tax is same for all households.
HST (orange): The federal price on carbon does not include the 15% harmonized sales tax (HST). However, the full 15% is applied to the carbon tax on gasoline, although only the 5% federal part is applied to the carbon tax on electricity and light fuel oil.
Of the twelve households examined, the R2000 home using electricity for space heating (Electric SH) and domestic hot water (Electric HW) has the lowest total carbon tax of $575. The highest cost is $1,038 for the older home using oil for space heating (Oil-SH) and hot water (Oil-HW).
Applying the CAIP
Every quarter, the federal government sends individuals and households a Climate Action Incentive Payment (CAIP) based on their expected carbon tax expenses.
Between July 2023 and March 2024, a family of four living in Halifax will receive a total CAIP of $744.
Nova Scotians living outside these areas get an added 10% rural supplement. A CAIP with the rural supplement for a family of four living in Nova Scotia is $818.
The benefit of the CAIP to a family of four receiving the rural supplement, if applied to their total carbon tax for 2023-2024, is overwhelmingly dependent on the energy used for space and water heating, as Figure 3 shows.
The results for households not receiving the rural supplement follow a similar pattern, as shown in Figure 4.
The impact of removing the carbon tax on heating oil
The prime minister’s decision to remove the carbon tax from fuel oil will lower the carbon tax for households using oil for space heating or water heating, or both, as shown in Figure 5.
For example, rather than paying $1,038 in an older home using oil for space and water heating, the household now only pays $543. However, the carbon tax for those using electricity for both space and water heating stays unchanged, regardless of the building.
Since the CAIP remains unchanged, both rural and urban households benefit.
As Figure 6 shows, both rural and urban households using heating oil for space and water heating benefit more than those using electricity for space and water heating, and rural households receive about $75 more than urban ones do.
The carve out
The genesis of the heating oil carve out can be traced back to 2018 when the federal government took the decision to accept Nova Scotia’s carbon pricing plan.
Consequently, Nova Scotia put a price on fuels such as gasoline and heating oil, that defeated the purpose of the carbon tax.
If Nova Scotians had been paying the carbon tax and receiving the CAIP from 2019-20 onwards, the shortfalls would have been small, but could have signaled policymakers and politicians to increase their support for programs for residential energy efficiency and low- or no-cost heat pumps.
By removing the carbon tax on heating fuel, we now have the situation where far more than “8 out of 10” households in Nova Scotia will be receiving more money back than they pay for the carbon tax.
Unfortunately, the prime minister’s decision to “axe the tax” simply enhances Canada’s reputation as a climate laggard.
Larry Hughes is a professor in the Department of Electrical and Computer Engineering at Dalhousie University.
Excellently written piece that is easily understandable. The Fed’s decision on the application of the tax to heating oil sends entirely the wrong message and creates division. Your last sentence, Larry, says it all.
The carbon tax is a cash grab that will not help reduce emissions. We still need to heat out homes, drive our cars and have the lights on. We all need to make our best efforts to reduce consumption. I suppose that’s the idea of the carbon tax, but it hits the end consumer. NS needs to eliminate coal fired power generating stations.