Backgrounder: Proposed Application of the Federal Carbon Pollution Pricing System in Alberta

In 2016, the federal government worked with provinces, territories, and with input from Indigenous Peoples, on Canada's first comprehensive climate action plan, which includes a stringent, fair and efficient price on carbon pollution.

As part of Canada's plan, provinces and territories have the flexibility to maintain or develop a carbon pollution pricing system that works for their circumstances and meets the federal standard for stringency.

As a result of Alberta's May 30, 2019 repeal of its carbon levy, Alberta now only partially meets federal benchmark stringency requirements and will join the provinces of Ontario, New Brunswick, Manitoba and Saskatchewan in being covered by the federal fuel charge for jurisdictions that have not met the Canada-wide federal standard for stringency. A charge applied to fossil fuels, generally paid by registered distributors (fuel producers and distributors), as set out in the Greenhouse Gas Pollution Pricing Act, Part 1, would start applying as of January 1, 2020, reflecting a carbon pollution price of $20 per tonne of carbon dioxide equivalent (CO2e). The charge would be raised to $30 per tonne as of April 1, 2020 (as in other provinces where the federal backstop applies). For details about fuel charge rates that will apply in Alberta, see the table at the end of this backgrounder.

The Government of Canada will monitor any proposed changes to Alberta's large industrial emitter system, and will undertake another benchmark assessment once sufficient details about the new system for large emitters are available. The Government is also open to working with the Government of Alberta to determine the most appropriate treatment of small oil and gas facilities under the carbon-pricing regime.

Returning Direct Proceeds from the Federal Fuel Charge to Albertans

The Government of Canada has committed to return all direct proceeds from the federal carbon pollution pricing backstop system in Alberta, through direct payments to families and investments to reduce emissions, save money, and create jobs. In Alberta, it will return the direct proceeds as follows:

  • Climate Action Incentive payments: The bulk of the direct proceeds from the federal fuel charge will be returned directly to eligible individuals and families residing in Alberta through Climate Action Incentive payments, starting in early 2020, through 2019 personal income tax returns. Most households in Alberta will receive more in Climate Action Incentive payments than they incur in increased costs resulting from pollution pricing. 
  • Support for other sectors: The remainder of those proceeds will be used to provide support to the province's schools, hospitals, small and medium-sized businesses (SMEs), colleges and universities, municipalities, not-for-profit organizations, and Indigenous communities, which will help save money and create good jobs. In Alberta, this amount is estimated at $610 million over the next four fiscal years.[1]

How Climate Action Incentive Payments Will Benefit Albertans

Exceptionally, the first Climate Action Incentive payment claimed by eligible Albertans will reflect fuel charge proceeds generated over a 15-month period. This consists of three months (January-March 2020) with a carbon price of $20, plus 12 months (April 2020-March 2021) with a carbon price of $30.

For residents of Alberta, the proposed Climate Action Incentive payment amounts for 2020 are as follows:

  • $444 for a single adult or the first adult in a couple.
  • $222 for the second adult in a couple. Single parents will receive this amount for their first child.
  • $111 for each child in the family (starting with the second child for single parents).

Based on these proposed amounts and taking into account the various family compositions and circumstances, households in Alberta will receive $880 on average, in early 2020, which consists of $126 for the first three months of the fuel charge (January-March 2020) and $754 for the next 12 months (April 2020-March 2021). These amounts are greater than the estimated average cost impacts per household (which are $101 for the first three-month period and $610 for the following 12-month period).

In future years, as in other jurisdictions where Climate Action Incentive payments are available, payments will reflect direct fuel charge proceeds generated over a 12-month period (from March through April) at a given carbon price.

Example: Family of Four

Andrew and Ann, who have two young children, live in Edmonton. They decide that Ann will be the parent claiming the Climate Action Incentive payment for their family when she files her 2019 tax return in early 2020. She will claim $444 for herself, $222 for Andrew, and $111 for each child, for a total amount of $888. She will see this full amount when her tax return is assessed.

Supplement for Residents of Small and Rural Communities

The Government of Canada will also provide a supplementary Climate Action Incentive payment amount for people who live in small and rural communities, in recognition of their increased energy needs and reduced access to energy-efficient transportation options. This supplement will be an additional 10 per cent of the payment amount to which they are entitled. Small and rural communities are identified as anywhere outside of a census metropolitan area (CMA), as defined by Statistics Canada.[2]

Example: Single Parent with One Child Eligible for Small and Rural Communities Supplement

Eva is a single mother who lives in Youngstown with her five-year-old son. Under the Climate Action Incentive payments, Eva will claim $444 for herself and $222 for her son when she files her 2019 tax return in early 2020, for a total Climate Action Incentive payment of $666. Given that the family lives in a small or rural community, Eva will indicate on her tax return that her family qualifies for the small and rural communities supplement, meaning that their payment will be boosted by 10 per cent. As a result, Eva will see an amount of $733 when her tax return is assessed.

Payment Amounts in Years Subsequent to 2020

Climate Action Incentive payments will increase annually to reflect increases in the price on pollution under the federal backstop system, until at least 2022. The federal Minister of Finance will make annual announcements of Climate Action Incentive payment amounts, reflecting the increasing price on pollution and updated levels of direct proceeds.

Based on current projections and reflecting direct fuel charge proceeds generated over a 12-month period at a given carbon price, Climate Action Incentive payment amounts (excluding the supplement for residents of small and rural communities) in future years would be as follows:

Illustrative Climate Action Incentive Payment Amounts for 2021 and 2022
  2021 2022
Carbon Pollution Price* $40/tonne $50/tonne
Single adult, or first adult in a couple $496 $600
Second adult in a couple, or first child of a single parent $248 $300
Each child under 18 (starting with the second child for single parents) $124 $150
Example: Baseline amount for a family of four $992 $1,200
* As of April 1 of each year.

Targeted Relief for Farmers and Fishers, and Residents of Rural and Remote Communities

The Government also recognizes that particular groups and sectors—including farmers and fishers, and residents of remote communities—require targeted relief from the fuel charge because of the more limited number of alternative options they may have to respond to carbon pollution pricing.

Details on this relief can be found in the Department of Finance Canada Backgrounder: Targeted Relief for Farmers and Fishers, and Residents of Rural and Remote Communities as well as in the Department of Finance Canada news release Department of Finance Canada Proposes Refinements to the Federal Carbon Pollution Pricing System.

Support for Municipalities, Universities, Schools and Colleges, Hospitals, Non-Profits, and Indigenous Communities

In recognition of the fact that universities and colleges, hospitals, schools, municipalities, non-profit organizations, and Indigenous communities can expect to incur additional costs as a result of pricing carbon pollution, the Government will return a portion of the proceeds collected through the price on carbon pollution to help these groups take climate action, and this will also help them lower their energy costs. Context for this support (predating Alberta's coverage by the federal system) can be found in the Department of Finance Canada Backgrounder: Support for Municipalities, Universities, Schools and Colleges, Hospitals, Non-Profits, and Indigenous Communities.

Support for Small and Medium-Sized Businesses

Small and medium-sized enterprises (SMEs) are a critically important part of the Canadian economy. The Government recognizes that SMEs can expect to incur additional costs as a result of carbon pollution pricing, and is committed to providing additional support to help them take climate action, and lower their energy costs while remaining competitive. Context for this support (predating Alberta's coverage by the federal system) can be found in the Department of Finance Canada Backgrounder: Support for Small and Medium-Sized Businesses, as well as in the Environment and Climate Change Canada news release Canada to help small businesses invest in energy-saving equipment and retrofits.

Projected Proceeds and Returns for Alberta

The table below shows the estimated direct proceeds from the federal fuel charge for fiscal years 2019-20 to 2022-23 for Alberta. The table also indicates how much of the direct proceeds will be provided to support particularly affected sectors including small and medium-sized enterprises (SMEs), municipalities, universities, colleges, schools and hospitals, non-profit organizations, and Indigenous communities. An estimate for total Climate Action Incentive payments to eligible individuals and families is also included.

As illustrated, all net fuel charge proceeds will be returned to the province.

Projected Proceeds and Returns for Alberta, 2019-20 to 2022-23
 Year of Fuel Charge 2019-20 2020-21 2021-22 2022-23
 Carbon Pollution Price $20/tonne $30/tonne $40/tonne $50/tonne
Net Fuel Charge Proceeds ($ million) 230 1,365 1,805  2,240
Less: Proceeds Returned ($ million)
Projected Total Climate Action Incentive Payments (in Respect of This Year) 205 1,220 1,610 1,995
Support for SMEs 15 100 130 165
Support for Municipalities, Universities, Schools, Colleges, Hospitals, Non-Profit Organizations, and Indigenous Communities 10 50 65 80
Total Net Fuel Charge Proceeds Returned 230 1,365 1,805 2,240
Projected Fuel Charge Proceeds Less Total Proceeds Returned 0 0 0 0
Notes: Due to rounding, totals may not add and numbers in the table may not match numbers in the text.
Numbers over $5 million are rounded to the nearest $5 million. This table excludes the costs of administering the fuel charge in Alberta, and the costs of delivering Climate Action Incentive payments and relief to certain sectors, which will be borne by the Government of Canada. Estimates are illustrative and subject to adjustments as more information becomes available.

Transparency and Annual Reporting

As announced in October 2018, the Government of Canada will provide annual updates on the direct proceeds and disbursements realized from the federal carbon pollution pricing system in respect of each province and territory where it applies.

Any actual variance between the proceeds originating in a given jurisdiction and the amount of proceeds returned to that jurisdiction would be addressed through changes in future payment amounts to that jurisdiction. This process will ensure that direct proceeds are fully returned to the jurisdiction of origin over time.

Fuel Charge Rates for Alberta

The following table presents fuel charge rates that will apply in Alberta. The rates will become effective as of January 2020, with future increases effective as of April of the year specified in the table.

Fuel Charge Rates for Alberta
Type Unit ($ per) January 2020 ($20/tonne) April 2020 ($30/tonne) April 2021 ($40/tonne) April 2022 ($50/tonne)
Aviation gasoline litre 0.0498 0.0747 0.0995 0.1244
Aviation turbo fuel litre 0.0516 0.0775 0.1033 0.1291
Butane litre 0.0356 0.0534 0.0712 0.0890
Ethane litre 0.0204 0.0306 0.0408 0.0509
Gas liquids litre 0.0333 0.0499 0.0666 0.0832
Gasoline litre 0.0442 0.0663 0.0884 0.1105
Heavy fuel oil litre 0.0637 0.0956 0.1275 0.1593
Kerosene litre 0.0516 0.0775 0.1033 0.1291
Light fuel oil litre 0.0537 0.0805 0.1073 0.1341
Methanol litre 0.0220 0.0329 0.0439 0.0549
Naphtha litre 0.0451 0.0676 0.0902 0.1127
Petroleum coke litre 0.0767 0.1151 0.1535 0.1919
Pentanes plus litre 0.0356 0.0534 0.0712 0.0890
Propane litre 0.0310 0.0464 0.0619 0.0774
Coke oven gas cubic metre 0.0140 0.0210 0.0280 0.0350
Marketable natural gas cubic metre 0.0391 0.0587 0.0783 0.0979
Non-marketable natural gas cubic metre 0.0517 0.0776 0.1034 0.1293
Still gas cubic metre 0.0540 0.0810 0.1080 0.1350
Coke tonne 63.59 95.39 127.19 158.99
High heat value coal tonne 45.03 67.55 90.07 112.58
Low heat value coal tonne 35.45 53.17 70.90 88.62
Combustible waste tonne 39.95 59.92 79.89 99.87

[1] The support for SMEs and for municipalities, universities, schools, colleges, hospitals, non-profit organizations, and Indigenous communities in the table below ("Projected Proceeds and Returns for Alberta, 2019-20 to 2022-23") does not add up to the total of $610 million due to rounding.

[2] Individuals will indicate on their tax return whether they reside in a small community or rural area. Alberta has three CMAs: Calgary, Edmonton and Lethbridge.