How carbon pricing works

Pricing carbon pollution is one of the most effective ways to reduce the greenhouse gas emissions that cause climate change. It creates a financial incentive for people and businesses to pollute less. 

Putting a price on carbon pollution

Carbon pricing is about recognizing the cost of pollution and accounting for those costs in our daily decisions by choosing less carbon-intensive options.

Two pricing systems

Fuel charge: paid by fuel distributors and other registered persons, with varying rates by type.

Output-based pricing system (OBPS): for industries, which gives a price incentive for industrial emitters to reduce their greenhouse emissions.

Systems by province and territory

Provinces and territories can choose the pricing system that fits their situation best. The system must meet certain minimum national standards, known as 'benchmark' criteria.

Federal fuel charge and federal Output-based pricing system (for industries):

• Manitoba
• Nunavut
• Prince Edward Island
• Yukon

Federal fuel charge and independent system for industries:

Independent carbon pricing system:

• British Columbia
• Northwest Territories
• Quebec

Where the money goes

The money is returned to the province or territory where it is collected. Provinces and territories with their own carbon pricing systems will use their proceeds as they see fit. The Government of Canada does not keep any direct proceeds from pollution pricing.   

Money from the federal fuel charge

All of the money (proceeds) collected through the fuel charge system is returned to Canadians.

For Yukon and Nunavut, the proceeds are returned to their governments. For all other provinces and territories, the money is returned directly to individuals, farmers, small- and medium-sized businesses and Indigenous governments. 

Canada Carbon Rebate (for individuals)

Payments are sent to individuals and families as Canada Carbon Rebate (formerly known as Climate Action Incentive payments).

• Who can get the Canada Carbon Rebate
• How to get your payments
• How much you can get
• When to expect your payments

Farmers tax credit

Recognizing that many farmers use natural gas and propane in their work, the federal government provides a tax credit. This credit refunds the money they paid for fuel charges back to their farming businesses.

Canada Carbon Rebate for Small Businesses

We are delivering on our commitment to return proceeds to small- and medium-sized businesses by introducing the Canada Carbon Rebate for Small Businesses.

“ Budget 2024 proposes to urgently return fuel charge proceeds from 2019-20 through 2023-24 to an estimated 600,000 businesses, with 499 or fewer employees through a new refundable tax credit. This would deliver over $2.5 billion directly to Canada's small- and medium-sized businesses.”

Indigenous governments

Environment and Climate Change Canada continues to consult with Indigenous governments on how best to directly return fuel charge proceeds to their communities, and will announce next steps soon.

Money from the Output-Based Pricing System

Proceeds from the Output-Based Pricing System are returned to the jurisdiction of origin to support industrial projects to cut emissions and use new cleaner technologies and processes. This is distributed through the Output-Based Pricing System Proceeds Fund.  

Reducing carbon pollution

Climate change has a cost and putting a price on carbon is one way to help reduce pollution to help our future generations.

A price on carbon pollution sends a clear signal that carbon-intensive products and activities are more costly than low-carbon ones. It works because there is a financial incentive for people and businesses to pollute less and pushes companies to offer more climate-friendly products and services for consumers.