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5 Things You Should Know About Canada's Carbon Tax

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It’s a phrase that elicits shivers and chills across Canada: winter is coming. 

Each year, with the seasonal drop in temperatures, there is a corresponding increase in heating needs, a spike in natural gas demand and subsequently higher natural gas prices. 

While a number of usual factors will continue to play a role in determining the price of natural gas throughout this winter – such as extreme winter weather events, fluctuations in the natural gas export market, and pipeline infrastructure constraints – one factor will have a very noticeable impact, all the way from St. John’s to Vancouver: Canada’s federal carbon tax. 

What does the recently implemented carbon charge actually mean for residential and business customers? Here are five things Canadian consumers should know about the federal carbon tax.  

 

1) The carbon tax aims to systematically reduce greenhouse gas emissions

 

To unpack the federal carbon tax, let’s begin with a little background about the policy’s intent.  

In 2015, Canada signed onto the historic and groundbreaking Paris climate agreement, which aims to halt the global temperature rise at two degrees Celsius above preindustrial levels. As one of the chief environmental policies of recently re-elected Prime Minister Justin Trudeau, the highly publicized carbon tax policy aims to drive up the cost of fossil fuels – including coal, gasoline and natural gas – in order to curb consumption and emissions as part of the Paris agreement. 

Under the framework, provinces were allotted the flexibility to develop and implement their own carbon tax policies, with the federal carbon tax serving as a default “backstop” policy if none was enacted. Alberta, British Columbia and Quebec had all previously put forth policy frameworks that were accepted by the federal government. However, for four provinces  that did not develop or finalize a carbon policy – Saskatchewan, Manitoba, New Brunswick and Ontario – the federal carbon tax went into effect on April 1.  A carbon price was also levied in the three northern territories beginning on July 1. 

 

2) The Carbon Tax will raise the price of natural gas 

 

Like many taxes, the federal carbon tax results in increased costs for consumers. 

Under the policy framework, there are both some hidden and not-so-hidden charges. The most transparent charge is the federal carbon tax rate, which increases every April. For example, the initial federal carbon charge rate is 3.91 cents per cubic metre (m3) of natural gas consumed. However, the same rate will increase to 5.87 cents next year and 9.79 cents by 2022. 

There is also a somewhat hidden facility carbon charge included in the delivery or transportation charge on customer bills. For example, for Ontario businesses, the charge ranges from 0.0036 cents (m3) to 0.0084 cents (m3), depending on business rate zone. 

While the carbon charge began first appearing as a line item on many customer bills in August (for those in the provinces first levied on April 1), natural gas utilities have not yet collected for the amount that accrued from April to August. It is expected that utilities will eventually receive approval to recover those additional costs from customers at a later date. 

 

3) Residential customers, small businesses and certain larger institutions may be eligible for an annual tax refund  

 

Given the significant financial impact of the carbon tax, legislation requires that 90 percent of carbon tax revenues be returned to individuals and households. To fulfill this requirement, the Canadian federal government offers a “Climate Action Incentive,” which takes the form of a rebate to eligible taxpayers who claim the benefit on their personal income taxes.  

As the actual carbon tax amount varies by province, so does the rebate payment. In New Brunswick, for instance, an average household is expected to receive a rebate of $248 while in Saskatchewan a similar household would receive $598. As of June, the federal government had issued nearly $2 billion in rebates, which were claimed by more than eight million Canadian households.   

The tax relief is somewhat different for businesses. Small and medium-sized businesses are awarded seven percent of carbon tax revenues, which comes in the form of rebates or assistance to encourage energy efficiency investments. The final three percent of revenues are dispersed to those businesses or institutions that are unable to pass on costs to customers, such as hospitals, schools and universities.  

 

4) Energy efficiency could help offset cost increases associated with the carbon tax 

 

While the carbon tax will likely increase the price of natural gas, there are a number of proactive steps that customers can take to help tamp down energy costs this winter and beyond. One such action is boosting your home or building’s energy efficiency. For homes and small businesses, there are a wide a range of actionable energy savings tips, from conducting an energy audit to considering the purchase of an alternative fuel vehicle (such as an electric vehicle).  

Energy efficiency is especially important for large commercial and industrial businesses that receive no tax relief under the federal carbon tax framework. One opportunity for some of those large businesses is the Independent Electricity System Operator (IESO)’s Energy Performance Program (EPP), which rewards building owner and/or operators for making behavioral and operational changes that result in year-over-year reductions in electricity consumption. As part of this program, incentives are provided to qualifying businesses at four cents per kWh of savings each year when compared to the building's historical baseline.

 

5) A competitive retail supplier could help your home or business manage energy costs

 

Beyond improving the efficiency of your home or business, another proactive step is to work with a competitive retail supplier that can help you take advantage of beneficial wholesale market prices, which have been generally lower than the default natural gas prices in certain provinces. 

Direct Energy Business has long been committed to serving our customers across Canada, which is in part why the Canadian government turned to Direct Energy Business to serve as the natural gas supplier for all eight provinces over the next decade. As part of the innovative agreement, we are serving a number of agencies and departments – including Correctional Services Canada, the Department of National Defense and Public Services and Procurement Canada – with a procurement strategy that includes renewable natural gas and ways to reduce the impact of energy on budgets, operations and the environment.

If your home or business is located in Canada, we stand ready to help you navigate the new energy landscape. This winter, be sure to bundle up, stay warm and, perhaps, most importantly, shop around. 

Manage your energy budget now and into the future: act today!

 

Posted: November 13, 2019

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