How carbon pricing works

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

How it works where you live

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

If a province or territory decides not to price carbon pollution, or proposes a system that does not meet these standards, the federal system is put in place. This helps ensure consistency and fairness for all Canadians. 

The federal carbon pollution pricing system has 2 parts: a charge on fuels like gasoline and natural gas (the “fuel charge”) and a system for big industries. See how the federal system for large industries works. 

Does your region use the federal pollution pricing system on fuel?

Canada Carbon Rebate for individuals

Money is sent directly to individuals or families through a payment named Canada Carbon Rebate (formerly known as Climate Action Incentive payments).

Is the Canada Carbon Rebate available in your region? 

• The rebate is tax-free and paid four times a year in advance, before households face increased costs from carbon pricing. 
• To receive their rebate, Canadians need to file their annual tax return
• Households in rural areas and small communities receive a 20% top-up to their Canada Carbon Rebate whose primary residence is outside a Census Metropolitan Area (CMA), recognizing that they may face higher costs and have fewer short-term options to reduce their emissions.
• Who can get the Canada Carbon Rebate
• How to get your payments
• How much you can get
• When to expect your payments

Canada Carbon Rebate for Small Businesses

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

Farmers

Canada’s pollution pricing system recognizes the unique needs of farmers.

• They do not pay the fuel charge on gasoline and diesel used for trucks, tractors and other eligible farming equipment. In fact, about 97% of on-farm emissions are not priced under the federal system.
• Greenhouse operators also benefit from this system. They receive an upfront relief of 80% on the fuel charge for propane and natural gas used to heat their greenhouses or to supplement carbon dioxide for plant growth.
• Plus, farm businesses may apply to receive a refundable tax credit. This credit refunds the money they paid for eligible fuel charges back to their farming businesses.

Indigenous governments

We recognize that climate change is having an impact on Indigenous communities. That is why we are returning a portion of the money collected to Indigenous governments.

The Government of Canada is working in collaboration with First Nations, Inuit, and Métis by returning proceeds in a way that supports self-determined priorities, including climate action.

Reducing carbon pollution

Carbon pollution pricing is one part of Canada's plan to reduce emissions. From 2005 to 2022, Canada's greenhouse gas emissions decreased by 54 megatonnes.