How does carbon pricing work in Canada?

Canadian carbon pricing is a federal-provincial system that puts a price on greenhouse gas emissions from fossil fuels and industrial sources. The federal Greenhouse Gas Pollution Pricing Act, in force since April 1, 2019, establishes a national minimum carbon price that provinces must either meet through their own systems or accept the federal backstop. The minimum price was $20 per tonne of CO2 in 2019, rose by $10 per year through 2022, then by $15 per year, reaching $80 per tonne in 2024 and projected to hit $170 per tonne by 2030.

The system has two parts. The federal fuel charge applies on fossil fuels at the wholesale level in provinces without an equivalent system. The Output-Based Pricing System (OBPS) applies to large industrial emitters, charging only for emissions above sector benchmarks to preserve trade competitiveness. Provinces and territories with their own systems include Quebec (cap-and-trade with California, since 2013), British Columbia (carbon tax since 2008), Nova Scotia (cap-and-trade), the Northwest Territories (carbon tax), and others.

Federal fuel-charge revenue has been returned to households through the Canada Carbon Rebate (renamed from the Climate Action Incentive Payment in 2024), paid quarterly to most households in fuel-charge provinces. Eight in ten households received more in rebates than they paid in carbon costs according to the Parliamentary Budget Officer. The federal government announced in March 2025 that it would remove the consumer fuel charge while keeping the OBPS for industrial emitters.

Carbon pricing's constitutionality was confirmed by the Supreme Court of Canada in Reference re Greenhouse Gas Pollution Pricing Act on March 25, 2021, in a 6 to 3 decision authored by Chief Justice Richard Wagner. The Court held that the federal price was a valid exercise of the federal Peace, Order, and good Government power to address matters of national concern. Carbon pricing is part of a broader federal climate framework that also includes the Clean Fuel Regulations, methane regulations, the Clean Electricity Regulations targeting net-zero electricity by 2035, and the Net-Zero Emissions Accountability Act of 2021 that commits Canada to net-zero greenhouse gas emissions by 2050.