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July 25, 2019 | Blog

Climate Action Plan and Incentive

From tax expert Gerry Vittoratos

In this instalment, we will see the basic mechanics of the federal Climate Action Plan, and the related Climate Action Incentive.

Pricing carbon emissions

Announced in the pan-Canadian approach to pricing carbon pollution in October 2016, all provinces in Canada had 2 years to institute their own carbon pollution pricing system that meets federal guidelines, or benchmarks. A federal program was designed for provinces that requested it, or provinces that don’t meet the federal benchmarks. This is what’s known as the federal backstop. Provinces who don’t meet the federal benchmarks will be imposed the federal backstop.
Under the Greenhouse Gas Pollution Pricing Act, adopted on June 21, 2018, the “backstop” has two parts:

  • Regulatory charge on fuel – will apply starting in April 2019 in backstop provinces
  • Regulatory system for large industry (the Output-Based Pricing System or OBPS) – will apply starting in January 2019 in backstop provinces.

Most provinces adopted a carbon pricing system that met the federal benchmarks. Four provinces, Ontario, Saskatchewan, Manitoba and New Brunswick did not. These four provinces are considered backstop provinces.

The regulatory charge on fuel is charged directly to fuel production and distribution companies. The charge is $20/ton of CO2 emissions, and will increase every year by $10/ton until 2022 ($50/ton). When broken down to the products sold by these distributors, this charge translates to 4.42 ¢/L for gasoline, 5.37 ¢/L for light-fuel oil, 3.91 ¢/m3 for natural gas, and 3.10 ¢/L for propane. This charge is embedded in the fuel prices paid by consumers.

The federal backstop includes a fuel charge proceeds scheme to compensate residents subject to the increase in fuel prices (backstop provinces). Over 90% of these charges will be returned to residents through Climate Action Incentive payments as noted (see below).

Climate Action Incentive – Residents of New Brunswick/Ontario/Manitoba/Saskatchewan

The Climate Action Incentive (CAI) is a new refundable tax credit to compensate residents from the backstop provinces for the effects of the federal climate action plan, which now sets a price on carbon emissions. The credit itself is not income-tested, which means every resident of these provinces is eligible to claim the credit regardless of income. The amount of the credit you can claim will depend on your family situation:


New Brunswick




Single w/o children





Single with child





Couple w/o children





Additional amount per child (single or couple)

Add $32/child

Add $38/child

Add $42/child

Add $76/child

An additional 10% is added to the amount you can claim above if you live outside what the CRA considers a Census Metropolitan Area (CMA). To determine this, the CRA has set up a website: canada.ca/census-metropolitan-areas. If you have a spouse, either one of you can claim the credit, but not both.

In conclusion, we now have four provinces where residents should be obtaining a refundable tax credit to offset the federal backstop measures. Overall, analysts believe that taxpayers receiving this benefit are more than compensated for any costs incurred as a result of these measures.

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